Moving through the tax code with dizzying speed, the House Ways and Means Committee yesterday approved sweeping cutbacks in business tax breaks.
Changes in investment write-offs would raise almost $160 billion in tax revenue over five years, which can be used later to offset revenue lost in reducing personal and corporate tax rates. That amount is almost as much as the panel raised during its previous six weeks of on-and-off tax-writing.
The panel's actions, all taken during a three-hour evening session, significantly enhance the prospect that the panel will be able to produce a comprehensive tax-overhaul by its self-imposed deadline of Friday.
"I think the members are starting to make the big decisions," said Ways and Means Chairman Dan Rostenkowski (D-Ill.). "What we've done . . . is probably an indication there is reform on the minds of the membership."
Scale-backs were approved in business depreciation deductions, the tax credit for research and several measures limiting real estate tax shelters.
The committee also agreed to repeal the 10 percent tax credit for investment in equipment.
The committee still faces tough decisions in such areas as taxation of employe fringe benefits, the individual and corporate minimum tax and the deductibility of state and local taxes. Said Rostenkowski: "If somebody is looking for a reason to be against the tax bill, there is every reason in the world."
A negotiated compromise on oil and gas taxation, which would have been significantly more generous to the industry than what Rostenkowski originally proposed, fell apart at the last minute.
But the fact that Ways and Means members accepted verbatim the recommendation of a six-member task force to cut so sharply the business provisions was taken as a sign members are willing to fight on the House floor.
"There is optimism that we have come as far as we have and optimism that we can get a bill out," said Rep. Richard A. Gephardt (D-Mo).
The committee's changes included a curtailment of depreciation write-offs -- yearly deductions to account for the loss in value of equipment or buildings -- and elimination of the investment tax credit, which subsidizes up to 10 percent of the cost of new equipment.
The provisions are arguably the two most important matters the committee will deal with in the business-taxation area. Many business groups raised strong objections to the depreciation scheme proposed by Rostenkowski, which is similar to what the task force recommended, and wiping out the investment tax credit.
The compromise on the tax credit for research and development would reduce the amount of the credit on increases in research spending to 20 percent from 25 percent.
E. Wayne Thevenot, president of the National Realty Committee, said the depreciation cutbacks troubled commercial real estate firms less than the proposed restrictions on use of real estate as a tax shelter, which were suggested by another task force Monday.
"All in all, we could have come out worse," he said. "We felt if we were going to give something to this effort, we could do it through depreciation."
The tax-shelter changes would restrict the interest deductions a taxpayer could take on loans other than for mortgages on the first two homes, plus $20,000, plus an amount equal to the taxpayer's investment income. A provision of the tax code that lets real estate investers deduct more in "losses" than they have invested in a project would be curtailed.
During the year-long debate over tax overhaul, depreciation has undergone numerous transmutations. Generally, the committee's proposals provide a substantial amount of "acceleration" -- taking large amounts of the deduction in earlier years -- while making the time periods permitted to fully write off an asset longer. Many kinds of buildings, for example, would have to be written off over 30 years rather than the current 19.
Rochelle Bernstein of the Chamber of Commerce said after her organization ran the depreciation proposal through its computer that it would "reduce investment levels and slow economic growth."
Lobbyists for research interests said they were pleased with the compromise achieved in their area.