Accusing the White House of "misreading the mood of the country," the Seate Finance Committee yesterday renewed its attack on Carter administration tax policy.
Chairman Russell B. Long (D-La.) chastized the administration for supporting the principal of employe stock ownership plans but disapporving a tax break that would open them to more people.
"The adminstration has said it doesn't want to help millionaires (by reducing capital gains taxes); now it's saying it doesn't want to do anything for the working man either," Long told Assistant Treasury Donald Lubick.
The outburst came on the second of two days of hearings on proposed changes in laws governing employe stock ownerships (ESOPs). It also came after testimony by Robert S. Strauss, the President's special counselor on inflation, in which he said, "I am not an economist or a tax expert. But I've been around long enough to know that people just do better if they've got a piece of the action."
Under existing law, an employer is allowed an additional one percent investment credit (for a total of 11 rather than 10 percent) on a new machinery and equipment if he contributes this additional amount to an ESOP. The primary beneficiaries industries, in particularly utilities, oil and coal companies and paper manufacturers.
Long's bill would allow a two percent credit on employes' annual compensations as an alternative. It is designed to allow industries without much heavy equipment but with many employs to set up ESOPs too. It would also permit corporations to deduct dividends for employes, a kind of current tangible benefit aimed at increasing motivation.
It is estimated that raising the investment tax credit one percentage point would result in a $600 million loss of revenue in fiscal 1979. The one percent alternative would cost bebetween $1.3 and $3.8 billion.
Lubick said the Treasury opposed the move because it would give the employe making $100,000 a year the same tax subsidy to buystock as one making $10,000 a year. Moreover, he opposes a dollar-for-dollar tax credit on the grounds some taxpayers would be picking up the bill for others to acquire stock in their own companies.
Sen. Mike Gravel (D-Alaska) expressed the committee's opinion that Lubick's boss, Treasury Secretary W. Michael Blumenthal had endorsed ESOPs before a securities dealers meeting this year and had supported an ESOP at Bendix Corp. which he formerly headed. He accused Lubick of presenting a "bureaucratic" argument, lacking "imagination, and leadership" and filled with errors.
He challenged Lubick's statement that investments by pension and profit sharing funds have indirectly led to a wider distribution of corporate wealth. Gravel, who has introduced a bill that would allow a state government to set up a trust that would buy stock in private companies and distribute it to the people, said the top one percent of American families own 56 percent of the stock in the country.
Projected investment tax credits of $12 billion for 1979 work out to a $12,000 "gift from the government" for each of those families, Gravel added.
Strauss' remark about "a piece of the action" was echoed by Senators and business officials alike. One of the most vivid examples of the motivating effect of ESOPs was given by J.R. "Dick" Boulis, chairman of South Bend Lathe. The machine tool company was about to be sold at a loss three years ago and its 500 employes furloughed, because its owners considered it not profitable enough. A $55 million grant from the Economic Development Administration allowed the employes to buy the business.
Three years later, sales amounted to $18.5 million, a 34 percent increase. Profits came to 10 percent of sales before taxes. Earning per share increased from $20.30 to $69.48. And the average earnings of South Bend Lathe's employes increased 45 percent.