Clinton targets business taxes, executives' pay

February 12, 1993|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- President Clinton, continuing yesterday to prepare the nation for the pain of his economic plan, delivered the prospect of a triple whammy to business: higher corporate income taxes, higher income taxes on top salary earners and a brake on gilt-edged executive pay packages.

"We have got to change," he told a group of corporate executives at the White House. "The short-term pain of making changes now is so much less than the long-term costs of continuing to do things the way we're doing them."

Mr. Clinton has hinted that he might raise corporate income taxes, but his speech yesterday marked his first public declaration that he would do so.

Mr. Clinton will outline his master plan to reduce the deficit and stimulate the economy to a joint meeting of Congress on Feb. 17, but in the meantime is laying the groundwork for shared sacrifice.

In a private meeting with Apple Computer Corp. Chairman John Sculley yesterday, he indicated that he would introduce an "energy tax in some form." The Congressional Budget Office estimates that a 5 percent value tax on energy would cost taxpayers $92.7 billion over five years.

The burden would fall particularly heavily on lower- and middle-income Americans through gasoline and utility bills. Mr. Clinton has been busy in recent days retreating steadily from his campaign promise of a middle class tax cut.

"Americans are at their best answering alarm bells in the night," he said yesterday, warning that the U.S. standard of living is "at risk."

He announced government cutbacks this week, including a 25 percent staff reduction at the White House, and told voters at a televised "town meeting" in Detroit that he could not exclude the middle class from the changes that have begun.

He also opened a series of meetings with congressional Democrats yesterday in an effort to line up their support for his speech next week.

"Most of us in the room realized that entitlements, revenue-enhancers in the form of some sort of tax, as well as program cuts are the only way we are going to do anything meaningful," said Maryland Rep. Kweisi Mfume, leader of the Congressional Black Caucus, who attended the meeting yesterday.

The news for corporations is bad, too, Mr. Clinton told 230 business leaders. "I need your support and your contribution. . . . Now I ask you to do your part," he said.

"We have to replace this social contract that somehow crept into our thinking in the 1980s, that somehow we had to have greater inequality in the country to get prosperity."

He said his plan would include:

* A higher corporate tax rate. All indications are that he wants to increase the top rate from 34 percent to 36 percent on corporations with taxable incomes of $75,000 or more.

The Congressional Budget Office says that would boost federal revenues by $29 billion over five years. Corporations would have to find the extra tax money by cutting back dividends, which would affect stockholders; lowering wages, which would hit workers; or increasing prices, which would feed inflation.

Tax reform legislation passed by Congress in 1986 cut the top corporate tax rate from 46 percent to 34 percent over a two-year period. It has remained at 34 percent since 1988.

Doug Kelly, director of tax analysis for Citizens for Tax Justice, a liberal group that lobbies for more progressive taxation, said the contribution of federal corporate taxes to the gross domestic product had dropped from 3.8 percent in 1965 to 1.7 percent in 1992, reversing an international trend toward a greater corporate contribution.

"Most countries in the world have increased their reliance on corporate taxes," said Mr. Kelly, adding that the reverse trend in the United States results from the "good job business lobbyists have done in putting business loopholes into the tax code."

* Increased taxes on the wealthy. "Our situation has worsened, and we may have to broaden the range of revenues which we seek, but we should begin by asking those who can most afford to pay to do so," Mr. Clinton said.

Mr. Clinton said throughout the campaign that he would increase the top tax bracket for those earning more than $200,000 to 36 percent from 31 percent.

The Congressional Budget Office says that would produce an additional $42.3 billion over five years. Citizens for Tax Justice has calculated that tax changes over the last 15 years have led to the richest 1 percent of the population paying $71 billion less in taxes last year than they would have had the tax system remained as it was in 1977.

Mr. Clinton said Treasury Secretary Lloyd Bentsen had persuaded him that it was "unwise, indeed impossible," to raise the individual tax rate without raising the corporate tax rate.

* An amendment to the tax code to end subsidies on excessive executive pay that is not directly related to productivity increases.

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