THE CLINTON ECONOMIC PLAN : Tax Targets: Unpopular Giants : Special Credits Aim to Attract Capital to Smaller U.S. Firms

President Clinton wants to take a bigger tax bite out of major oil and drug companies and collect more revenue from foreign enterprises operating in the United States, while granting tax relief to small businesses and promising larger stock profits for their investors. A populist theme runs through the proposals Clinton unveiled Wednesday night: Go after big business in general for the money and single out the segments that are frequently unpopular, such as oil and pharmaceuticals and foreign-owned firms.

For all businesses with annual taxable incomes exceeding $10 million, the corporate tax rate would climb to 36% from the 34% level now.

The program also contains some surprises that hadn’t leaked out before--notably, proposals to tighten tax credits and collect an additional $1.8 billion from a handful of large multinational oil companies. Clinton also seeks $7 billion more from pharmaceutical manufacturers and other firms operating low-cost production plants in Puerto Rico.

Fuel and power companies would also face a huge fiscal burden and a mound of bureaucratic paperwork on a proposed energy tax that would raise $71.4 billion over five years. The tax would be collected on the basis of heat content and collected at the refinery in the case of oil, and at the natural gas pipeline, the coal mine and the electrical utility plant.

The producers are expected to pass the tax through to consumers, resulting in estimated additional expenses of $105 a year for a family of four with an income of $25,000.

Reaction to Clinton’s speech from a variety of business leaders, including a representative of small business, was decidedly negative.

S. Jackson Faris, president and CEO of the National Federation of Independent Business, said the President’s package “will do more harm than good to the nation’s small businesses. It contains a number of taxes, paperwork and regulatory burdens which could serve to increase the overall budget deficit and stifle the economic revival which is now just emerging.”

Charles DiBona, president of the American Petroleum Institute, said Clinton’s energy tax would “seriously harm economic recovery and be a job killer on a mammoth scale.”

Bryan Little, of the U.S. Business and Industrial Council, echoed this view, saying the tax increases would “stifle the economy.”

Clinton’s populist theme--with its images of overpaid executives eating company-paid meals in private clubs--extends to some reforms that are unlikely to survive the onslaught of Congress and corporate lobbyists.

For example, Clinton wants to prohibit corporations from deducting the value of any executive’s salary in excess of $1 million as a regular business cost, and to bar businesses from deducting club membership dues.

The deduction for a meal at which business is discussed--now 80% of the cost--would be slashed to 50%.

This would generate $16 billion in revenue for the Treasury over five years, but might face fierce opposition from restaurant owners. And the cost of hiring lobbyists would no longer be deductible as a regular business expense.

The Treasury plans to spend $38 million to hire more IRS agents in order to double the audit rate for foreign corporations active in the United States.

This would ensure that the government collects a further $3.8 billion from them, a senior Treasury official said.

Companies operating in Puerto Rico can now claim a tax credit to offset the profits earned there.

Clinton’s proposed change would restrict the credit to 65% of the company’s wage payments on the island.

For the multinational oil companies, the Administration would collect more taxes by restricting a firm’s ability to claim credits in the United States for taxes imposed on its operations in foreign countries.

The Clinton package offers some consolation for corporations in all industries: They would get a 7% investment tax credit, but only for the value of increased equipment purchases for the next two years.

For small businesses--those with annual sales of less than $5 million--the Administration’s promises are more generous: a 7% tax credit during the next two years for every piece of equipment they buy.

After two years, the credit would drop to 5%, but it would become permanent.

The 28% maximum rate on capital gains would be unchanged, but the Administration is seeking a major new stimulus for potential investors in mid-sized firms--companies worth $25 million or less.

Someone who bought a new issue of stock, held the shares for five years and sold them at a profit would be able to exclude from taxation 50% of those gains. The Administration sees this as a tool for directing badly needed capital toward small businesses, especially those in high-risk technology fields.

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