Reagan sticks to tax reform guns

Nation's Business, Feb, 1986

President Reagan has given written assurances to House Republican leader Robert H. Michel (R-Ill.) and Rep. Jack F. Kemp (R-N.Y.), chairman of the policy-setting House Republican Conference, that he will "veto any tax bill" that does not meet certain "minimum requirements" for promoting economic growth.

The assurances were given as part of a successful last-minute White House lobbying blitz in December that gave Reagan a victory on tax legislation. The President urged GOP House members to vote for the tax bill while acknowleding that it contains provisions he opposes.

Reagan says the business provisions, in a final tax bill, must include two things: "Basic tax incentives for American industries, including those that depend upon heavy capital investment in equipment and machinery," and "a rate structur with a maximum tax no higher than in my proposal." The House bill provides for a top corporate tax rate of 36 percent, instead of the 33 percent contained in the President's plan.

In a letter to Kemp, Treasury Secretary James A. Baker says he will tell the President not to sign any tax bill whose depreciation rules raise the cost of equity-financed capital above the level of the capital cost recovery system the President proposed in May, 1985. CCRS would index the replacement cost of assets to the rate of inflation.

David Burton, A U.S. chamber of Commerce tax policy expert, says CCRS is similar to the current depreciation rules of moderate rates of inflation, but it would be less generous than those rules are when inflation is low. When inflation rates are high, CCRS would be more generous, he says.

An advantage of the current rules is the 10 percent investment tax credit for most investment in income producing assets. (Motor vehicles and some electronic equipment receive a 6 percent credit.) However, lobbyists say there is little chance that the investment tax credit will be extended.