House Panel OKs Tax Plan Including Enterprise Zones

The House Ways and Means Committee, responding to calls for urban aid in the wake of the Los Angeles riots, Wednesday approved a Democratic version of President Bush’s inner-city tax-incentive package, including a scaled-back plan for creating enterprise zones.

The voice-vote approval came after the Democrat-dominated panel defeated a GOP bid to restore a Bush proposal that would have exempted investors who put money into inner-city enterprises from taxes on profits from the sale of stocks or other assets.

The Democratic plan would allow investors to defer any tax payment as long as the profits were plowed back into the inner-city area.

The committee also voted to renew about a dozen existing tax incentives that otherwise would expire this summer, including breaks for moderate-income families buying a first home and credits for investment in low-income housing and in job creation for the poor.

The enterprise zones proposal approved by the panel essentially would authorize a series of pilot projects, calling for the Administration to designate 50 depressed areas around the country--split evenly between cities and rural areas--for creation of these zones.

The idea behind the plan--which has been advocated chiefly by Housing and Urban Development Secretary Jack Kemp--is to help lure businesses into inner-city and poor rural areas by offering companies sizable tax breaks for setting up shop in such neighborhoods.

The enterprise zone plan is the second phase of Bush’s program for helping inner-city neighborhoods. Earlier this week, the President signed into law a $1.1-billion measure to help rebuild in the wake of the Los Angeles riots. The law includes money Democrats added for summer jobs.

The committee action Wednesday was a victory for the Administration. Until this year, Democrats generally have opposed the enterprise zones idea, contending that it would only pit one city against another.

The committee also is working on extending a spate of other soon-to-expire tax provisions--including the tax credit for research and development by business and incentives for investors in low-income housing.

And it is expected to vote to repeal the 10% luxury tax that Congress enacted in 1991 on expensive boats, private airplanes, jewelry and furs. Lawmakers had intended the tax as a soak-the-rich measure, but boat makers and others complained that it hurt their business.

Most of the provisions in the $14.4-billion tax bill were revived from the omnibus tax measure that Congress enacted in March, which Bush later vetoed on grounds that it was a budget-buster.

The full House is expected to take up the new legislation sometime next week, and the Senate Finance Committee plans to begin work on its own enterprise zones plan sometime in mid-July.

To help pay for the new tax incentives, the Ways and Means Committee bill would impose a series of restrictions that would increase tax burdens on individuals and on corporations.

Included would be provisions limiting to $5,000 the amount of moving expenses that a family may deduct in connection with a job-related move, lengthening the depreciation period for real estate and limiting existing tax breaks for purchasers of failed savings and loan institutions.

Under the enterprise zones proposal, businesses that invest in designated areas could claim immediate deductions of up to $20,000 in purchases of business property each year, using tax-free bonds for financing and deducting up to $25,000 a year in stock purchases.