Bentsen Bill Would Limit Tax Breaks After Buyouts

Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) introduced a bill Thursday to limit the tax refunds that corporations can receive from leveraged buyouts.

The bill is designed to prevent companies from receiving tax refunds when they generate large losses simply by taking on the huge debts that result from LBOs and major debt restructurings.

According to a study by Kohlberg Kravis Roberts & Co., a New York firm specializing in leveraged buyouts, 17 companies that it acquired through LBOs paid $430 million in taxes the year before the takeovers but received $130 million in tax refunds after the transactions.

“My proposal would put a stop to that,” Bentsen said. “I don’t think the federal government should write checks to corporations that replace equity with debt.”

Limit Deductibility

The Senate Finance Committee staff went to unusual lengths to explain the proposal, partly because a much more far-reaching tax proposal by House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) in 1987 aimed at leveraged buyouts has been widely blamed for contributing to the October stock market crash.

In addition, Bentsen waited until after the stock market closed Thursday to announce the bill.

“There are proposals to limit the deductibility of corporate interest that are more dramatic than mine,” he said in a statement. “I have opposed them and will continue to do so.”

The measure would raise an estimated $200 million in the next fiscal year and $1.8 billion over a five-year period.