House poised to kill investment tax credit, spend savings on breaks for business

May 06, 1993|By Karen Hosler | Karen Hosler,Washington Bureau

WASHINGTON -- With President Clinton's proposed investment tax credit all but dead, members of the House Ways and Means Committee are happily absorbed in how to spend the $25 billion windfall on other tax breaks.

There is little or no sentiment in favor of simply saving the money for deficit reduction. Nor does the powerful committee seem likely to reduce tax increases that would affect individuals most TC directly, such as the proposed energy tax or the proposed tax increase on Social Security recipients.

Instead, most legislators on the pro-business committee seem inclined to use the money saved on the investment tax credit for other business breaks, such as reducing Mr. Clinton's proposed increase in corporate income taxes.

The lobbying pressure on committee members is so great as they begin grappling this week with the $337 billion in tax increases and spending cuts needed to achieve Mr. Clinton's five-year-deficit reduction plan that they are grateful for whatever small favors they can dispense to business supporters.

"Whatever we do will all be in the business area," predicted Rep. Benjamin L. Cardin, a Maryland Democrat who is a committee member.

Led by its chairman, Rep. Dan Rostenkowski of Illinois, the Ways and Means Committee is poised to reject Mr. Clinton's investment tax credit proposal, which was designed to encourage investment in business equipment and expansion. The House lawmakers don't believe it will achieve the desired result of creating jobs.

By killing Mr. Clinton's investment credit, the committee would shave about $29 billion from the $337 billion in tax increases and spending cuts.

Mr. Rostenkowski wants to apply $4 billion of the $29 billion to cover a shortfall in Mr. Clinton's earlier revenue estimates. The remaining $25 billion is essentially up for grabs.

A top option seems to be to take some sting out of Mr. Clinton's proposal to raise the corporate income tax rate from 34 percent to 36 percent. Some committee members, such as Rep. Michael A. Andrews, a Democrat from Texas, are urging that the corporate tax increase be eliminated entirely. But that would

cost $32 billion -- more than what is available without raising money elsewhere.

An informal coalition of large corporations, including General Motors Corp., is trying to build support on the committee for a proposal to limit the corporate tax increase to 35 percent. That proposal would cost about $16 billion.

That is likely to prove a very attractive option because it would ensure the support of the coalition for the overall tax bill, while leaving about $9 billion with which committee members could finance other pet proposals.

Among the likely candidates are:

* Eliminating a $2.8 billion Clinton proposal to change the tax laws to take a bigger bite from the royalties earned by U.S. companies from foreign sources. This move is supported by the corporate coalition.

* Defeating Mr. Clinton's proposed repeal of a law that allows international businesses to defer taxes on accumulated foreign earnings. This would cost $798 million.

* Reducing or eliminating a Clinton proposal to raise the fuel tax on barges that ply inland waterways. The tax would rise to $1.19 per gallon, from 19 cents per gallon, and eliminate most federal subsidies. The proposed $917 million tax increase is opposed by at least 88 of the 100 senators.

* Some modification of Mr. Clinton's plan to reduce the deductible portion of business meals and entertainment to 50 percent, from the current 80 percent. This lucrative $15.4 billion proposal is opposed by business and labor because of its potential negative effect on the restaurant and entertainment industry. The arts community has also complained that the proposal could reduce corporate purchases of season tickets and box seats.

At least on the House side, the final decisions are likely to be made by Democrats, who control the Ways and Means Committee by 24 to 14. The investment tax credit is also opposed by many members of the Senate, but there Republicans may have a greater say in how the spoils are allocated.

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