The Democratic Business Council, an organization of major donors to the Democratic National Committee, has sent a letter and a resolution to members of Congress endorsing provisions in the 1981 tax bill allowing corporations to buy and sell tax breaks.
In an unusual entry into the highly controversial issue currently before Congress, the council declared that the tax "leasing" provisons of the 1981 bill were "enacted for the appropriate and laudable purpose of extending the investment incentives of the tax cut to all companies, particularly those in primary industries with low profitability but high capital requirements."
The letter, signed by Charles T. Manatt, chairman of the Democratic National Committee, asks members of Congress to give "consideration to the group's thoughts with respect to this issue."
The council is comprised of corporate executives who either personally gave at least $10,000 to the DNC or whose corporate political action committees gave $15,000. It acknowledged in the letter that there have "been certain unintended results such as permitting certain highly profitable companies to entirely eliminate tax liability."
Without being specific, the council endorsed legislation to reform corporate tax leasing and called on "the Democratic leadership to propose legislation correcting the abuses associated with the safe-harbor-leasing provisions by modifying, rather than repealing, important tax legislation."
The 1981 tax bill allowed corporations to enter into paper transactions called "leases" that actually amount to the sale of tax breaks. Companies that have no federal tax liability could sell the tax breaks resulting from the purchase of new equipment to firms that have high tax liabilities and want to reduce obligations to the federal government.
In what has emerged as the most controversial use of the provision, General Electric Co. bought so many tax breaks last year that it effectively not only eliminated all 1981 tax liability, compared to a $330 million payment in 1980, but also got a $100 million refund on prior years' taxes.
The involvement of the Democratic Business Council, with the support of the DNC, is likely to irritate a number of Democrats who are both critical of the leasing provisions and have tied the tax break to the Reagan administration.
At a recent Ways and Means Committee hearing, for example, Rep. Thomas Downey (D-N.Y.) elicited testimony from corporate supporters of tax leasing in which they said the ability to sell tax credits is more more beneficial to their companies than elimination of the entire corporate income tax.
Downey asked Frank Borman, head of Eastern Airlines: "If you had the option of having the corporate income tax eliminated or safe harbor leasing and the investment tax credit removed, which would you prefer?"
Borman replied: "I would prefer retention of the safe harbor leasing, without question." Borman's position was supported by executives from the steel and automobile industries.
Downey then asked: "Is is good or bad tax policy to have in effect negative rates of taxation on certain industries?" (A "negative" tax means, in effect, that a company gets a payment from the government, directly or indirectly, instead of paying tax).
Borman replied: "I think in this case, speaking from the standpoint of the people represented on this panel, it is good tax policy, and I happen to believe it is good for the country."