At the Republican National Convention in Dallas last August, Sen. Robert J. Dole (R-Kan.) met with a group of independent oilmen, a powerful force in GOP politics. All were wearing "flat tax" buttons.
Dole, chairman of the Senate Finance Committee, told the group he was surprised to see such altruism. He asked if they knew that a flat tax would mean killing the oil depletion allowance, a $1.1 billion-per-year tax break, not to mention eliminating another $2.2 billion-per-year provision allowing a one-year writeoff for oil-exploration and -development costs.
By the end of the session, the flat-tax buttons had disappeared.
The ambivalence of the oilmen is an early indication of what may prove to be the most difficult issue before the 99th Congress next year -- major alteration of the federal income tax system.
The business community is deeply split on proposals for a flat tax, which would do away with most tax deductions and preferences in favor of a lower overall tax rate.
Businesses with high effective tax rates love the idea; capital-intensive businesses, such as heavy industry, with numerous preferences that result in their paying low or no taxes are gearing up for a free-for-all to protect their multibillion-dollar tax breaks.
Tax-revision organizations, such as Citizens for Tax Justice, have jumped into the fray, hoping to take advantage of the business community's division to do away with preferences.
The insurance industry was one of the first groups to begin a full-scale public relations campaign to protect key tax preferences.
The American Council of Life Insurance and the Health Insurance Association of America each have ponied up $700,000 to finance television commercials designed to boost public support for the largest tax preference, $56.3 billion for the exclusion from income tax of pension contributions, and the $20.2 billion exclusion for employer contributions to employe medical coverage.
Administration sources said top Treasury Department officials have recommended, as part of the administration's plan to revamp the tax code, the elimination of the accelerated depreciation schedule for business, the Accelerated Cost Recovery System.
Charls Walker, a lobbyist whose capital-intensive clients want to protect such big-ticket tax preferences, dismisses "pure" flat tax proposals as political dead horses. "They talk about eliminating pension exclusions, including IRAs. That's retirement. Then there's mortgage deductions. That's home. Then there's medical insurance exclusions. That's health. You add mother, and you get the damnedest backfield since the Four Horsemen of Notre Dame," he said.
But, Dirk Van Dongen, executive vice president of the National Association of Wholesaler-Distributors, said, "Our interest in major tax revision is a positive one. Our industry has an effective tax rate of 36 percent, which is one of the highest."
Van Dongen and Walker have been allies in past tax battles, but this year there is the potential for a bloodletting within the business community.
Walker and Van Dongen represent what could prove to be the fundamental split within the business community between "low tax" and "high tax" corporations, between firms that benefit from a system of numerous special preferences, and those that do not.
The growing awareness of the wide range of tax rates paid by U.S. corporations has produced a new Coalition to Reduce High Effective Tax Rates, which includes such firms as IBM, 3M, Dart and Kraft, General Foods, General Mills, the American Business Conference, the Grocery Manufacturers and the American Apparel Manufacturers.
For these companies and groups, there is a major advantage to a tax "reform" that trades cutbacks in tax preferences for an overall reduction in tax rates.
For such low- or non-tax-paying -- but profitable -- companies as General Electric, Boeing, Lockheed and General Dynamics, however, a corporate tax reduction has almost no value.
"Cutting a zero effective tax rate still gets you zero," one lobbyist said.
For business organizations representing a broad cross section of corporations, there is no clear way to resolve the conflict.
"We have not endorsed any particular proposal," said Richard Rahn, chief economist for the Chamber of Commerce. "We would have to see the whole package and the impact on capital formation."
For the moment, the business community generally has avoided public divisions on the low-tax/high-tax corporate split.
There also is a substantial public conflict over a second basic question: Should taxes be hiked to reduce the deficit?
The old guard Committee for Economic Development, an organization of 200 corporate presidents and chairmen, has called for a combination of spending cuts and tax hikes, including a tax surcharge on individuals and corporations, an excise tax on energy and a temporary cutback on tax indexing.
Lined up against any tax increase, however, is a coalition including the Chamber, the American Business Conference, the National Association of Manufacturers, the Wholesaler-Distributors, the National Federation of Independent Business and such ideological groups as the American Conservative Union, the National Conservative Political Action Committee and the Conservative Caucus.