As Congress starts the second session of the 97th Congress, opposition to the controversial corporate tax sale provisions of the 1981 Economic Recovery Tax Act--a section denounced as corporate welfare by critics--has been mounting steadily.
In the Senate, 18 sponsors and co-sponsors--including two from the Finance Committee--have introduced five separate bills repealing the section of the law allowing corporate tax sales through paper transactions called "leases."
In the House, there are eight separate bills with 37 backers. The bills all would end the transactions, which are expected to cost the Treasury at least $27 billion through 1986.
The mood of Congress was reflected earlier this week when Sen. Robert Dole (R-Kan.), chairman of the Finance Committee, told a group of lobbyists: "If any of you are going to take advantage of that corporate tax sales through leases , you better hurry."
Similarly, Sen. Bob Packwood (R-Ore.), the No. 2 Republican on the panel, told the same group: "If you see several years of corporations paying no taxes, then you'll see something bordering on revolt . . . It's imperative that everyone, including corporations, pay some taxes."
The bills that have drawn the most backing have been introduced by Sen. Claiborne Pell (D-R.I.), who has 13 cosponsors, and by Rep. Jim Leach (R-Iowa), who has 25 cosponsors.
The most recent batch of repeal bills include two introduced by Sens. David Boren (D-Okla.) and Max Baucus (D-Mont.), both members of the Finance Committee, which has jurisdiction over the legislation.
At the same time, members of Congress and their aides report that lobbyists representing key industries benefiting from the provisions have started work pressing to quiet the drive for repeal. "Let's just say 'we are active,' " said Charls E. Walker, a key lobbyist representing the airline, steel, automobile and other weak industries.
In private, a number of the lobbyists acknowledge that significant modification of the legislation is likely.
With almost no consideration by Congress, the leasing provisions were slipped into the administration's bill in early June. Since its enactment on Aug. 13, however, disclosure of a number of tax-sale deals benefitting highly profitable companies has resulted in growing opposition.
The deal that sparked the most protest was the announcement that Occidental Petroleum Corp., a firm with earnings of $710.8 million in 1980, "sold" just under $30 million in tax breaks to a New York insurance and investment company. Occidental has paid no federal income tax for the past three years because of other sections of the tax code, and consequently could not use the tax breaks itself to lower its tax liability.
When proposed, the tax sale provision was supposed to benefit beleaguered firms, such as Chrysler Corp. and International Harvester Co., along with new companies that have not started to earn profits and consequently have no taxes against which to write off investment credits and deductions.
Citing the Occidental deal, Leach declared: "The lopsided advantage given to profitable companies in the bartering of tax losses, together with the sanctioning of the sale of tax credits by profitable companies, make mincemeat of the original rationale for the leasing provisions."
While the leasing provisions--which almost everyone involved concedes are a public relations disaster--have provoked sharp attacks from both liberals and conservatives, criticism from members of the two congressional tax-writing committees, reformers and business tax experts has been far more muted.
In these quarters, the much more commonly held view is that tax sales under the leasing provisions have a certain economic logic within the context of the passage of the massive business tax cuts provided under the new depreciation schedule known as "10-5-3."
The lines of this argument are that 10-5-3 (for the shortened number of years used for depreciation schedules) provided such a major tax benefit to profitable companies --particularly capital-intensive firms--that tax "sales" are one way to spread the benefits around and prevent tax-induced distortions of the marketplace.
Under this thinking, the tax bill without "leasing" would mean that the cost of a new investment for a profitable company would effectively be far less than for a firm running in the red. This occurs because the profitable firm would be able to reduce the cost of the investment by taking depreciation and investment credits to lower tax liablity, while the broke firm owes no taxes and has no way to use depreciation and credits.
In this context, congressional aides and lobbyists are exploring a number of ways to modify the leasing provisions to end tax sales by profitable companies and to lower the expected losses to the Treasury.
Among the proposals under private examination are excluding from tax sales companies making extensive use of foreign tax credits, using the minimum corporate tax to make leasing less attractive, shortening the maximum term allowed for tax sale leases, and prohibiting companies from using leasing to lower tax liabilities to anything less than half of what they would have owed without capitalizing on a tax sale.
But most of these proposals probably would have little effect on expected revenue losses, and could distort the leasing market instead of restricting it.