A Quiet Struggle On Taxes

April 30, 1995|By PETER H. STONE

Call it a hidden facet of the tax cut bill that House Speaker Newt Gingrich, Republican of Georgia, has labeled the "crown jewel" in the GOP's "Contract with America."

At hearings before the House Ways and Means Committee in late January, a parade of top executives from oil, paper, chemical and steel companies testified that tax relief proposed in the contract didn't go far enough. What would really help their industries, they said, was a rollback of the corporate alternative minimum tax (AMT).

And in the last-minute maneuvering before the committee voted on a tax bill, the industry leaders got their wish. A provision was added that would phase out the AMT over five years, at a cost to the Treasury of nearly $17 billion during the period.

For nearly a decade, manufacturing and energy companies hard-hit by the AMT have been stymied in their efforts to repeal it. Their luck changed this year, when Bill Archer, Republican of Texas -- a longtime foe of the tax who has close ties to the oil industry -- became the Ways and Means chairman.

But the AMT opponents left nothing to chance. A coalition organized by the National Association of Manufacturers (NAM) joined other business groups, accounting firms and sympathetic advocacy groups in a lobbying blitz to repeal a measure that was, in many respects, the driving force behind the 1986 Tax Reform Act.

Nine years ago, support for overhauling the tax code galvanized after Citizens for Tax Justice, a labor-backed group, released a study showing that from 1981 to 1985, 130 of 250 large and profitable companies paid no federal income taxes in at least one tax year, and that several paid no taxes for three years or more.

The AMT was designed to ensure that companies would pay a minimum tax. Companies complain that it creates an accounting nightmare because they must calculate their taxes under regular tax rules and AMT rules -- which allow fewer deductions but a lower tax rate -- and then pay the higher of the two.

Critics also point out that the AMT is especially painful for businesses that are cyclical, pinching them during recessions because they must pay a minimum amount even when their profits are low. And, the critics say, the tax discourages companies from investing in new plants and equipment and places them at a disadvantage with foreign competitors.

In 1993, the Clinton administration backed a modest reform of the AMT -- later scaled back by Congress -- that was estimated to save businesses about $4.3 billion over five years.

This year some Democrats, such as Maryland's Rep. Benjamin L. Cardin, co-sponsored a bill to curtail the tax but stopped short of repeal. "I think a repeal is not warranted," said Mr. Cardin. "I think the structure is important to keep in place."

Some economists also have voiced concerns that repealing the AMT would cause tax shelter schemes to mushroom. "We'll see a lot more use of tax avoidance mechanisms, the profitability of which was curbed by AMT," said Henry J. Aaron, the director of economic studies at the Brookings Institution.

But now, with Republicans in the driver's seat on Capitol Hill, opponents of the tax mounted an all-out campaign to do away with it.

Industry lobbyists faced a tricky situation, though. The "Contract with America" included a "neutral cost recovery" provision that was supposed to give tax relief to capital intensive industries. But many companies had concluded that the provision -- which would allow them to take accelerated tax write-offs for equipment -- wouldn't be much help.

And although Mr. Archer was on record as opposing the AMT, he hadn't said whether he would incorporate a repeal measure in the tax bill that he planned to move early this year.

Mr. Archer "never tipped his hand in advance," said Donna A. Harman, the Washington lobbyist for the paper and wood products manufacturer Champion International Corp. that has spearheaded the NAM coalition. The NAM coalition, organized in the late 1980s, boasts about 80 members, including Fortune 500 companies and trade groups such as the American Iron and Steel Institute, the American Petroleum Institute and the Chemical Manufacturers Association. Many chief executives of companies that belong to the coalition, such as Charles A. Corry of USX Corp., also belong to the Business Roundtable, which has supplemented the NAM drive.

At the Ways and Means hearings in January, executives from such major companies as Air Products and Chemicals Inc. and Marathon Oil, a subsidiary of USX, offered faint praise for the neutral cost recovery scheme but said that revamping the AMT would be a godsend.

Privately, corporate CEOs began meeting with Mr. Archer and his staff to press for fast action. Mr. Corry and Lucio A. Noto, the chief executive of Mobil Oil Corp., paid visits to Mr. Archer in Washington early in the year.

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