Viacom Hurt as Senate Repeals Media Tax Break : Legislation: Law aimed at boosting minority ownership of cable and broadcast firms is rejected as boon to big companies.

The Senate voted Friday to repeal a communications tax break designed to bolster minority ownership of cable and broadcast companies. What it really bolsters, critics said, is the coffers of big companies that use the provision to defer millions in federal taxes.

The repeal, passed on a voice vote after a low-key debate, is a blow to entertainment giant Viacom Inc.

Viacom’s plan to use the 17-year-old tax break to defer nearly $500 million in federal taxes on the sale of its cable systems propelled the provision into the spotlight at the same time the Republican-controlled Congress wants to cut the deficit.

Minorities say the tax break, administered through the Federal Communications Commission’s tax certificate program, has been crucial to their owning media properties. The FCC says the program has increased minority ownership eightfold since 1978.

The repeal provision is contained in a bill providing a 30% tax deduction for health insurance purchased by those who are self-employed, including farmers, ranchers and entrepreneurs.

The bill would also:

* Prevent the wealthy from avoiding paying taxes by renouncing their citizenship. This would raise about $1.4 billion, which would be put toward deficit reduction.

* Phase out the earned income tax credit--a program for the working poor--for taxpayers with between $2,500 and $3,150 in income from dividends and interest.

Sen. Bob Packwood (R-Ore.) said while minorities historically have had a problem getting access to capital, there is no evidence that media outlet owners have refused to sell to them.

“There is no discrimination in the sale of broadcasting. If you have blue skin . . . and have the money to buy, you can,” he said, contending there is no legal justification for the FCC’s program.

If lack of capital is the major obstacle to minority ownership, as the FCC says it is, then that’s what should be addressed, Packwood said.

Sen. William S. Cohen (R-Me.) said the FCC’s program is needed. “We have not yet reached our ideal of a colorblind society,” he said.

Sensing the tax break could not be salvaged, Viacom is already considering other options to sell its cable systems.

Under the plan based on using the tax break, Viacom would sell its systems to a minority-controlled partnership for $2.3 billion.

The transaction would create the nation’s largest minority-owned cable company, headed by California businessman Frank Washington, who is black.

Washington has said he planned to put more than $2 million of his own money into the partnership. The nation’s largest cable company, Telecommunications Inc., would put up more than $500 million, Washington has said.

The House has already agreed to repeal the tax certificate program.