The Treasury Department, prodded by complaints in the Cabinet, is considering restoring the popular Accelerated Cost Recovery System to its tax reform proposal, administration sources said yesterday.
The tax plan that Secretary Donald T. Regan unveiled several weeks ago would eliminate most business and individual tax deductions to produce lower marginal rates for both categories. Among the current provisions that would be dropped is ACRS, which allows business to write off investments rapidly.
At a meeting of the Cabinet Council on Economic Affairs Tuesday, Commerce Secretary Malcolm Baldrige and U.S. Trade Representative William E. Brock objected that elimination of ACRS would hurt U.S. business at home and abroad, the sources said.
As a result of their complaints, Regan's tax reform working group will spend the holiday season studying the possible tradeoffs between the resurrection of ACRS or other tax breaks slated for elimination, and the subsequent adjustment of the lower marginal tax rates Regan proposed.
At a breakfast meeting last week with reporters, Regan said the possibility of going back to ACRS without the investment tax credit "has been proposed to us and we are taking a look at that . . . " He said he rejected bringing back ACRS and the investment tax credit together because that would be too expensive and result in a negative tax rate for some businesses.
However, the opposition by the two cabinet-level officials to the elimination of the tax breaks, which save businesses about $50 billion a year, adds pressure to that already applied by industry lobbyists to the Treasury Department.
Regan is expected to make a decision on the ACRS issue after the first of the year.
Meanwhile, in New York yesterday, Regan attempted to calm businesses' fears that his tax plan initially would wreak havoc on the economy and prompt companies to curtail investment decisions. Some businesses, particularly those involving real estate, had said they had put off some transactions or were considering doing so until they could determine how and when the Treasury proposal or other similar flat-tax plans would affect them.
In addition, some turmoil in the stock market had been attributed to investors' uneasiness about the Treasury plan and how it might affect their investments.
Regan read the special plea to the business community from a written statement at a press conference before a speech at Fordham University.
"We have drafted extensive transition rules including effective dates which would not significantly disrupt existing investments or current decisions regarding future investments," Regan said.
"We want to ensure that transition to the modified flat tax proposal causes as little economic dislocation as possible, and we stand ready to modify any proposed effective date that is demonstrated to be unduly harsh."
Regan continued his criticism of the Federal Reserve Board, saying he hoped the Fed would "supply more money to the system" to sustain the economic expansion. Regan said the Fed may have cooled the economy a little too much and that the Fed will "even it out over the next six months."