House Adopts $5-Billion Urban-Rural Aid Package

Acting with rare bipartisan accord, the House overwhelmingly approved a five-year, $5-billion aid package Thursday that would create 50 enterprise zones in inner-city and rural pockets of poverty to encourage business investment and receive extra federal funding.

Prompted by the Los Angeles riots, the package was wrapped into a major tax bill that would provide $14.5 billion in tax relief, primarily for business, and repeal the luxury tax on boats, airplanes, jewelry and furs. It also contains a “Taxpayers’ Bill of Rights” and would provide a long-sought tax break for real estate developers.

The bill, approved 356 to 55, now goes to the Senate, where its backers expect changes that could increase the amount of spending and revise some of the tax proposals. It is expected to reach the Senate floor this month.

The legislation was a compromise backed by President Bush and the House Democratic leadership that was rushed to passage on a procedure allowing only 40 minutes of debate. The bill emerged in final form only late Wednesday evening after two months of backstage negotiations. Even so, it sailed through by more than the required two-thirds majority needed under the fast-track procedure.

Bush and Republican lawmakers fought for major tax breaks for investment in enterprise zones, while Democrats pressed for increased federal support for education and job training in the targeted areas in what both sides acknowledged is an untested experiment.

“Our cities are in trouble,” said Rep. Maxine Waters (D-Los Angeles), who lives in the South-Central section of the city hardest hit by the riots that erupted in April after four police officers were acquitted of almost all charges in the Rodney G. King beating case. “We desperately need help. . . . But I believe this is a breakthrough.”

While a few opponents complained that the legislation too heavily favors corporations and provides too little for cities, supporters said it was the best they could do after extended talks with the White House and House Republicans.

“This is an American experiment,” said Rep. Charles B. Rangel (D-N.Y.), while Rep. Fred Grandy (R-Iowa), speaking for rural lawmakers, said: “It’s a better deal than we could have expected.”

The bill was belittled by Boston Mayor Raymond L. Flynn of the U.S. Conference of Mayors, who said that it is “at best a very small installment on a massive national need and at worst a denial of responsibility for what most Americans recognize as an immediate national problem.”

Flynn said in a letter to House Speaker Thomas S. Foley (D-Wash.) that the legislation would set up enterprise zones in only eight inner-city neighborhoods next year.

“Urban aid is a misnomer if it is the label applied to the tax bill,” Flynn added.

Under the bill, 25 enterprise zones would be designated in cities and 25 would be established in rural areas over the next three years. Businesses in the zones would be eligible for tax breaks that would reduce Treasury revenues by an estimated $2.5 billion over the next six years.

One provision, for example, would exempt from capital gains taxes 50% of the profit derived from the sale of a zone business--if the business had been held for at least five years.

Other provisions would give zone employers a 15% tax credit on wages paid to employees who live in the zone, provide a $20,000 deduction for new equipment for zone businesses and allow a deduction of up to $25,000 a year for the purchases of stock in zone firms.

The tax provisions would be available for about 15 years after the zone is designated by the Department of Housing and Urban Development. In addition, another $2.5 billion in zone benefits would be earmarked for job training, education, health and nutrition programs, community development and crime prevention. Federal grants would have to be split equally among the five categories. About 80% of the funds would go to urban zones and 20% to rural areas.

To be eligible for zone status, an area would have to have jobless rates 1.5 times the national average; at least 20% of residents in 90% of the zone would have to have incomes below the poverty level. Rural areas would have to show a decline in jobs of more than 5% in the five years before the zone’s designation or a 10% population drop from 1980 to 1990.

In a related provision, the bill would increase federal outlays for job training and education for welfare recipients in hopes that they could find work and be removed from the public assistance roles.

Another provision would encourage job-holding by welfare recipients by allowing states to increase the amount of financial assets that they can have and still qualify for assistance from $1,000 to $10,000. The states must now deny welfare benefits to anyone with $1,000 in financial assets, excluding the value of a home or car.

The aid package was attached to a midsummer “Christmas tree” tax bill with multibillion-dollar tax breaks for many business firms and offsetting tax increases for others.

Individuals would be limited to a $5,000 deduction for business-related moving expenses, for example, while tax deductions for memberships in business, athletic, luncheon or social clubs would be eliminated.

Other provisions of the bill would make permanent several popular tax provisions that have been extended periodically in the past, including low-income housing tax credits, targeted jobs tax credits, tax exemptions for mortgage revenue bonds and state and local industrial development bonds for small manufacturing facilities.

The legislation would also extend for 18 months a 20% tax credit for business spending on research, continue a deduction of as much as $5,250 a year for employer-paid education expenses and company-paid legal services. Self-employed people would be eligible to deduct 25% of health insurance expenses for the rest of 1992.

Real estate developers would be allowed to use losses from rental real estate to offset other income, in a reversal of current law on such “passive losses.” But the developers would have to be involved in real estate for more than half of their time on a regular and sustained basis.

The measure would repeal the 10% luxury tax on the price of boats above $100,000, airplanes over $250,000 and jewelry and furs over $10,000, retroactive to last Jan. 1. The luxury tax on expensive cars would remain, but the $30,000 threshold at which the tax begins would rise with the rate of inflation.

The present 20.1-cent-a-gallon tax on diesel fuel would be expanded to include fuel for pleasure boats for the next five years.