Rep. J. J. Pickle (D-Tex.), a senior member of the House Ways and Means Committee, has introduced legislation that would severely restrict the ballooning practice of tax-incentive leasing by all levels of government, from small towns to the U.S. Navy.
The bill, which has the tacit blessings of the Ways and Means and Senate Finance committee chairmen, would "stop one of the most unusual and costly tax shelters we've seen in years," Pickle said, noting that governments are leasing everything from jails to airplanes.
In recent years, a number of governments and government agencies have taken up leasing a wide range of facilities instead of directly buying or building them. This shift has resulted from the discovery that leasing provides an indirect way for government to cash in on investment tax credits and depreciation benefits normally used by private businesses.
Under the provisions of the bill, the depreciation deductions for property used by all tax-exempt organizations, including governments, would be sharply reduced and restrictions on the use of investment tax credits would be tightened.
The restrictions on investment tax credits would also apply to foreign governments, individuals and corporations when profits from the foreign-owned property are not subject to U.S. tax. The effective date would be retroactive to May 23, the day before the bill was introduced.
Rep. Dan Rostenkowski (D-Ill.), chairman of the Ways and Means Committee, signaled support by immediately scheduling hearings for June 8. Sen. Robert Dole (R-Kan.), chairman of the Finance Committee, said he is considering introduction of similar legislation.
In a practice similar to the "safe-harbor leasing" mechanisms created by the 1981 tax bill, governments have used leases as a means of selling tax breaks to private companies and tax shelter groups.