Businesses Call for Tax Credit for Industry : Commerce: They say it would boost investment in equipment and research, stimulating the economy better than tax cuts or other alternatives.

Key business leaders in fields ranging from basic steel to chemicals called on Congress on Tuesday to approve an investment tax credit to stimulate the lagging economy.

Tax credits, rather than further cuts in interest rates, hold the key to business revival, the executives testified at a Senate Banking Committee hearing.

By delivering “more bank for the buck,” an investment credit will be “more powerful than any other measure in stimulating new business” spending for equipment and technology, said Dexter F. Baker, chairman of the National Assn. of Manufacturers, who accompanied President Bush on his recent trip to Japan.

Such credits--in which a company gets to reduce its federal tax bill by spending for new tools and machines--provide “permanent, long-term benefits,” while tax reductions for consumers “provide only transitory increases in demand which are soon dissipated,” said Baker, chairman and chief executive of Air Products and Chemicals Inc. in Allentown, Pa.

Charles Corry, chairman and chief executive of USX--whose units include U.S. Steel and Marathon Oil--also called for a tax credit and rules allowing faster write-offs of equipment.

The government’s main weapon in fighting the recession that began in the summer of 1990 has been monetary policy, with the Federal Reserve Board repeatedly cutting the rate it charges banks to borrow funds. The prime rate--the cost of loans for the biggest and most credit-worthy borrowers--has plunged to 6.5%, the lowest level since 1964.

But the business executives, responding to a question by Sen. Paul Sarbanes (D-Md.), said another reduction in rates would be irrelevant.

“I don’t think credit is a serious problem,” Corry said.

The banking system “is so weak that it cannot supply (enough) money” even if interest rates were lower, said Robert G. Gilbertson, chairman of the American Electronics Assn.

Except for Gilbertson, all the witnesses endorsed an investment tax credit as a measure that could stimulate business spending quickly and, in the long run, improve business efficiency and productivity.

Gilbertson’s first choice was a “targeted” cut in capital gains taxes to provide tax reductions for people who invest in new businesses.

The witnesses also appealed for government help in opening the markets of Japan to U.S.-made merchandise.

“We need a level playing field,” said Gilbertson, whose company, Shelton, Conn.-based Data Switch, makes equipment that provides high-speed connections for big computer systems. The firm sells about $30 million worth of goods outside the United States, but has been unable to crack the Japanese market.

“We sell more equipment in Israel or Sweden than we do in Japan, the world’s second-largest computer market,” Gilbertson said.

Committee Chairman Donald Riegle (D-Mich.) told Gilbertson, “You need government assisting to do the downfield blocking on unfair trade.” Riegle and other Democratic members of Congress have introduced a bill calling for a reduction of 20% a year in Japan’s $42-billion trade surplus with the United States.