President Reagan yesterday sent to Congress the main new domestic initiative of his administration, an urban enterprise zone proposal for attracting businesses to big-city slums by cutting their taxes and freeing them in part from government regulation.
The enterprise zones, Reagan's "free market" plan for revitalizing inner cities and increasing jobs there, would exempt participating businesses entirely from the federal capital gains tax and, through an assortment of special tax credits, free them from about 75 percent of the corporate income tax as well. There would also be tax cuts for their employes. The tax forgiveness would go to firms locating in 75 decaying, high-unemployment neighborhoods, which are still to be selected.
"Clearly decades of spending programs have done little more than subsidize the status quo and make wards of the government out of citizens who would rather have a job than a handout," Reagan said as he signed an enterprise zone message to Congress in a ceremony in the Rose Garden. "It's time for us to find out if two of the most dynamic and constructive forces known to man--free enterprise and the profit motive--can be brought to play where government bureaucracy and social programs have failed."
The White House said in a fact sheet accompanying the message that certain federal regulations--also still to be specified--would be waived or relaxed for firms moving into the zones. But it specified that these would not include civil rights laws, health and safety regulations or the minimum wage. Some proponents of the zone idea had earlier urged, among other things, that the minimum wage be waived for teen-agers employed in the zones.
The enterprise zones would involve no direct federal spending, relying entirely on tax and regulatory concessions to create what Reagan described as "a productive free market environment."
However, members of Congress invited to the White House for the ceremony indicated a feeling that some subsidies of a more conventional sort may also be necessary to make the plan work.
Rep. Jack Kemp (R-N.Y.), who along with Rep. Robert Garcia (D-N.Y.) had developed the zone idea and introduced in the House two years ago legislation closely resembling Reagan's, said, "I'm satisfied that the strategy is correct. I think we need to do more to provide seed capital for small businesses."
Said Sen. John H. Chafee (R-R.I.), "I think it's got a lot of possibilities. It's not going to be the end-all to urban problems . . . . The problem for small companies is capital, not taxes."
Reagan's proposed Enterprise Zone Act of 1982 calls for the federal housing secretary to designate up to 25 zones in each of the first three years of the program. These would be chosen in a national competition among areas nominated by state and local governments. Administration officials indicated they believed zones would be about one to two square miles in area, with high unemployment and dwindling population.
Housing and Urban Development Secretary Samuel R. Pierce said there are "hundreds, maybe--probably thousands" of areas that meet those basic criteria but those selected would be the ones in which state and local governments themselves provided tax relief, deregulation of laws such as zoning, occupational licensure and permit requirements. Local governments proposing to use federal urban revitalization funds they already receive in the new enterprise zones would give them an advantage in the competition, aides said.
Garcia, who represents the devastated South Bronx, indicated that he clearly expects it to be designated an enterprise zone. He said he thought the riot-torn Liberty City area of Miami and Watts in Los Angeles would also be good candidates. Pierce, however, declined to single out any distressed communities as possibilities, underscoring that they would be chosen on the basis of proposals that state and local communities developed.
The Treasury Department estimated that each enterprise zone would cost the federal government an averge of $12.4 million a year in lost taxes. That would amount to $310 million for 25 areas in the first year of the program.