Business Applauds Proposals : Economy: President Bush’s message contains a wide range of measures to stimulate industry and hearten the consumer.
President Bush called on Congress on Wednesday to approve a lengthy menu of tax breaks for corporations, investors and home buyers in the most drastic proposed change in the tax code since the 1986 reform act slashed rates and closed hundreds of loopholes.
The President’s 1,610-page budget is dotted with tax measures designed to stimulate business activity and hearten consumers. It also offers many businesses at least temporary relief from new regulatory oversight.
“Confidence is remarkably low,” the President admitted in his budget message, arguing that the situation demands “a strong program and prompt action to get the economy moving again.”
Business groups generally applauded the wide-ranging proposals. For instance, the Business Roundtable, an association of chief executives of leading corporations, praised the economic, tax, regulatory and budget initiatives.
“This comprehensive package contains the kind of concrete initiatives that are required for our economic recovery and long-term competitiveness,” Drew Lewis, chairman of the group, said in a letter to Bush.
The budget offers business a special incentive for buying equipment immediately, proposing an immediate deduction equal to 15% of the purchase price. The “investment tax allowance” would be an extra deduction the first year in addition to the ordinary schedule for writing off the cost of equipment.
The allowance, if approved by Congress, would be available for equipment purchased between Feb. 1 and Dec. 31, and placed into service by July 1 of next year.
A wide range of equipment would qualify for the tax break, including computers, lathes, printing presses, broadcast towers, livestock fences and wind tunnels in a research laboratory, the Treasury said. The allowance would not be available for buildings or for intangible items such as patents and computer software.
The President promised to fight hard for a capital gains tax cut, one of his cherished ideas repeatedly scorned in the past by the Democratic Congress. The cut is generally supported by business and conservative economists, who maintain that the measure would spur long-term investment in industry.
Current law provides a maximum tax rate of 28% for profits on the sale of stocks, bonds, real estate, manufacturing and farm equipment and other assets. The budget proposal would reduce the rate through a sliding scale, depending on how long an asset is held.
Hoping to revive the depressed real estate market, the budget offers tax measures to make commercial and rental properties more attractive for investors. A real estate developer with losses now from rental properties cannot use those losses to offset his profits from building a shopping center or from managing an office complex.
Under the President’s plan, taxpayers in the real estate business could treat all their activities as a single business, using rental losses to offset other income. If Congress adopted this measure, the price of commercial real estate would increase. Rental properties would suddenly have a higher market value because of the usefulness of rental losses to cut tax bills.
The budget has several provisions designed to spur sales and construction in the moribund housing industry. The residential housing market is considered a key to economic recovery. It typically leads the nation out of recession.
Bush proposes a special incentive for those who want to buy their first home. They would receive a special tax credit of 10% of the value of the home, up to a maximum of $5,000. The credit would be available for homes purchased between Feb. 1 and Jan. 1. Half the credit would be available to reduce the tax bill for 1992, the other half for 1993.
Homeowners battered by falling prices could also recoup some of their losses for the first time under the President’s proposal. The law now allows casualty losses only for damage from fire, storms or theft, in amounts above 10% of income. The President wants to add losses on a home sale to this list.
Under the proposal, a taxpayer earning $45,000 who sold her home at a loss of $15,000 could deduct anything in excess of $4,500. Thus, her deduction would be $11,500.
The budget offers businesses a sense of stability by extending popular but temporary tax breaks. It calls for 18-month extensions for the energy tax credit (10% of the price of equipment using solar or geothermal energy) and the targeted jobs credit (up to $2,400 for wages paid to poor youths or welfare recipients).
Enterprise zones, an idea popular among conservatives but never accepted by Congress, is offered again in the new budget. Tax breaks would be available for businesses operating in poor neighborhoods.
The employer would get a tax credit of up to $525 for each worker he hired in the neighborhood. Capital gains taxes on earnings from the business would be waived for two years.
INDUSTRY IMPACT President Bush’s proposed 1993 is designed to spur business growth and boost the economy out of recession. Here is a brief outline of how the proposals may affect various industries:
AGRICULTURE--Cut subsidies to farmers with incomes over $100,000. Reduce loans for rural housing and farm ownership. Spend more for food stamps, school lunches and for special nutrition program for pregnant women and young children.
DEFENSE--Cut spending $50 billion over 5 years. Limit B-2 to 20 planes. Cancel small ICBMs, advanced cruise missile, Seawolf submarine, and air defense anti-tank system.
ENERGY--Lease the Elk Hills oil reserve near Bakersfield to private bidders. Extend tax credits for solar and geothermal properties. Expanded research for new electric car batteries, and hybrid vehicles using different fuel systems. Renew efforts to pass national energy program.
FINANCE--Alleviate the credit crunch by removing certain geographic restrictions on federal thrift institutions, enhancing bank’s and thrift’s ability to raise additional capital and implementing new risk-based premiums for deposit insurance. Offer bank reform legislation, with interstate branching, limits on deposit insurance and commercial ownership of banks. Alter pension fund rules to encourage to investment in real estate. Allow flexible IRAs: deposits of up to $2,500 for most wage earners, and earnings can be withdrawn tax-free after seven years. Clarify lender liabilities’ rules under the Superfund law for environment damage done by borrowers.
MANUFACTURING--Provide an extra 15% depreciation in the first year for equipment bought between Feb. 1, 1992 and Jan. 1, 1993. Extend 20% research and experiment tax credit. Spend $1 billion for research and development of advanced manufacturing techniques.
HIGH TECHNOLOGY--Increase federal support for research and development in biotechnology, materials science and high-performance computers. Entire R&D; budget is $76.5 billion, up 3% from last year. Also, extend 20% research tax credit.
REAL ESTATE--Give first-time home buyers get a $5,000 tax-credit. Allow them to use $10,000 from an IRA ($20,000 for a couple) to buy a home. Allow deduction for losses on sale of a home, with loss permitted in amounts in excess of 10% of income. Allow professionals in the business to deduct losses from real estate against income from other sources. Encourage pension funds to invest in real estate.
SECURITIES--Cut maximum tax on investment capital gains to 15.4% from 28%, if investors hold an asset at least three years. The White House says the plan would promote long-term investment.
SMALL BUSINESS--Provide special 15%, first-year depreciation for equipment purchased between Feb. 1 and next January. Increase fees on most Small Business Administration loans to 4% from 2%. Implement a 90-day moratorium on new federal regulations that hinder economic growth. Reduce business costs by reducing procedures of the federal payroll tax system. Ease rule for small business to raise funds in the stock market.
TRANSPORTATION--Increase spending for highways and bridges $2.2 billion, creating 120,000 jobs. Increase spending to improve air traffic control systems. Repeal luxury tax on airplanes and boats purchased after Feb. 1.
Source: White House
