June 27, 1973
Page 21674
AMENDMENT NO. 261
Mr. BAYH. Mr. President, I call up my amendment No. 261.
The PRESIDING OFFICER. The amendment will be stated.
The assistant legislative clerk read as follows:
At the end of the bill insert the following:
SEC. . (a) Section 167(m) (1) of the Internal Revenue Code of 1954 (relating to class lives) is amended by striking out the second sentence.
(b) The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
Mr. BAYH. Mr. President, I ask unanimous consent that a staff aide, Jay Berman, have the privilege of the floor through the vote on this amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. BAYH. Mr. President, I ask for the yeas and nays on the amendment.
The yeas and nays were ordered.
Mr. JAVITS. Mr. President, will the Senator yield for a unanimous-consent request?
Mr. BAYH. I yield.
Mr. JAVITS. Mr. President, I ask unanimous consent that Eugene Mittleman have the privilege of the floor in connection with my amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. BAYH. I yield myself 5 minutes.
Mr. President, today, along with 17 other Senators, I am asking the Senate to take the first step toward meaningful tax reform in the 93d Congress – repeal of the asset depreciation range system and the strengthening of the provisions which require the payment of a minimum tax on tax preference income. At the beginning of the year we were promised the opportunity during this first session to consider broad based and meaningful tax reform legislation, which unfortunately was just defeated.
Because of the urgent need for the tax writing committees of Congress to consider trade legislation, tax reform has been put aside. Hopefully, we will be able to fully address ourselves to tax reform early in the second session. But the demand of the American people for greater equity in their tax laws is sufficiently great to require us to begin acting on tax reform legislation now.
The two proposals which we are suggesting are responsible and modest, and are clearly justified and relatively simple.
Many of the arguments made by the distinguished Senator from Massachusetts can be made to support the present amendment. As Senators will note, the amendments were submitted in tandem and consecutively numbered.
The asset depreciation range system is an accounting method which subsidizes the cost of capital by allowing a 20 percent increase in the rate of depreciation deductions over the actual useful life of the capital assets as defined by the Treasury's regulations. It is nothing more nor less than a direct subsidy payment by the Government to these corporations.
This direct subsidy payment will cost the Treasury some $1.2 billion in lost revenue in fiscal 1974 and as much as $30 billion in lost revenues by 1980.
The proponents of ADR argued when it was instituted in 1971 that it was needed because business profits were so low as to be inadequate to finance future investment. I argued at that time both in hearings at the Treasury Department and on the floor of the Senate that the relatively low profits simply reflected the recession that existed. Profits, I suggested, would recover once the Government decided to allow the economy to recover and that ADR was a most inefficient and inequitable method to attempt to stimulate investment and to stimulate the economy. This prediction has been borne out. Corporate profits before taxes in the first quarter of this year are at an all time record of $114.3 billion, a 29.6 percent increase in 1 year. And last year's profits themselves were at a previous record level.
Moreover, ADR comes on top of the investment tax credit which is also designed to stimulate investment but does so in a much more efficient way. Largely because of the investment tax credit we are now in the midst of the investment boom with capital expenditures running at a fantastic 19 percent increase over last year according to the recently published May figures. Even more troublesome is the resulting inflationary pressure in the capital goods sectors where the most recent figures show price increases now running at the disastrous rate of almost 15 percent.
Investment is therefore outrunning both personal consumption and government purchases at all levels. The result is that we are rapidly heading toward a situation of serious overcapacity, are greatly exaggerating inflationary pressures, and are seeking trouble at a later date. This surge in capital investment must be smoothed out. Many economists are now advocating that we suspend the investment tax credit. I believe that the investment tax credit is needed and desirable as an efficient method of stimulating investment. The uncertainty that would be created by turning it off and on would, in my view, create too much instability. The way to accomplish a dampening of the investment sector is to repeal ADR and to do so now.
Thus the two major arguments previously made by the supporters of ADR are no longer viable. There is a need to restrain rather than expand investment demand. Corporate profits are, as I mentioned earlier, at record levels.
Finally, there has been some suggestion that ADR is needed to protect the competitive position of U.S. producers vis-a-vis their foreign rivals. Nearly all economists agree, however, that this is a spurious argument. There is no empirical evidence that those countries with the lowest taxes on capital have higher rates of economic growth. In fact, among the major industrial nations the converse appears to be true. Major improvement in the U.S. balance of payments has and will come about because of the recent devaluation of the dollar rather than any tax giveaway on business.
In short, Mr. President, ADR, which was a bad idea to begin with, has now become totally indefensible. In my view, to continue stimulating investment by a tax break in the present inflationary capital spending boom is like dropping money over the country clubs of America. We should provide the tax incentive where it really is needed.
Mr. President, I urgently suggest to Senators that the time is ripe to end ADR, and to do it now.
I might just say to the distinguished chairman of the Committee on Finance, my good friend and colleague, the Senator from Louisiana, that I appreciate the particular concern that he has about putting this measure on this particular kind of bill. He has been very frank in suggesting that while he has enthusiastically supported the proposal and did support us two times when we lost by one vote, he would be forced to oppose it now. Hope dwelleth eternally in the heart of the Senator from Indiana. I hope in the next 30 minutes the Senator from Lousiana has a message from on high causing him to change his mind. I think now is the time to do it. I think a procedural question is not nearly as significant as the importance of chilling down this inflation in the capital investment sector.
Mr. President, I yield the floor.
Mr. LONG. Mr. President, the Senate has not had a chance to act on a tax bill this year. The matter is going to be considered. The Senator's amendment is one which I supported when he offered it before. It will be considered by the House in putting together a tax reform bill. His proposal definitely will be considered in the Committee on Finance and by the Senate when the Senate takes up its tax reform bill. So this is a measure that deserves the consideration of the Senate, but it should not be on this bill.
This is a bill to permit the Government to continue to operate, to maintain its existing debt limit. There is an urgency in acting on that matter.
I say, as I said in connection with the previous amendment, that there is no way on this earth that this Senator, the Committee on Finance, or all 100 Senators can compel the House to consider this amendment. Those people have some pride. The Constitution says that they shall initiate revenue bills, and they are going to do it. To suggest otherwise is something of an affront to some very fine men in the House who have been working on this matter for some time.
Mr. President, when the time has expired I reluctantly will be compelled to move to table the amendment, because it should not be on this measure. This is not a tax bill, and strictly speaking it is not a revenue bill. This amendment should not be on this bill. Therefore, as I said, when the time expires I will move that the amendment be laid on the table.
Mr. BAYH. Mr. President, I appreciate the particular position that my friend and colleague, the Senator from Louisiana, is in relative to this particular procedural matter, inasmuch as he has lent his very valuable efforts in supporting this measure in the past.
I might emphasize a point or two that I think at least in my mind distinguishes the normal procedural reluctance to move into the tax area on a different vehicle, and suggest that this might be overcome by the following facts.
First, the measure before us is not a new measure. It has been discussed in various committees and it has been voted on twice recently. The Senator from South Carolina, who I see seated in the Chamber, was one of the major commanding generals in this effort, an effort that the Congressional Quarterly described as one of the 12 most significant efforts made in the last Congress.
As the Senator from Louisiana and I discussed it a while ago, we took this measure and we shook every bush and each time we fell one vote short. This is a matter that has been considered in the past and it is not a new matter.
Second, I do not mean to insult the prerogatives or the intelligence of our friends in the House. The fact is that both Houses have to agree, but I wonder if it would not strengthen the hand of the Senator from Louisiana if we sent the message to the House to be alerted. We would warn them on this bill and the next time they would consent. This would be plowing new ground and telling them the Senate is prepared to do something on this matter.
The second matter I would like to call to the attention of the Senate, a matter that I think is important, is the way that we in the Senate have been bombarded for about 2 years in the area of fiscal responsibility. I am getting a little tired of this. I think it is a little unjustified. Here is an opportunity for us to make a move in this area. This measure as it stands this year would bring in an additional $1.2 billion revenue if we repealed this and did away with this bonus right now.
The Joint Economic Committee suggested it might add up to as much as $30 billion between now and 1980. Let us say to the President, "Mr. President, on this bill we have added $660 million of revenues," which I support, "and $2.9 billion in social security revenue. We are going to try to fill a part of that gap by repealing this giveaway program of over $1.2 billion now."
The third matter I want to repeat is that I do not think we should overlook the argument of the present status of the economy. Back when the ADR matter was placed on the books, we thought this was a bad way to go. The Senator from South Carolina thought we should trickle up instead of down and repeal the ADR that was never going to stimulate the economy, that would be giving back interest dividends, and when you are going to give $50 to every taxpayer and let him spend it on a new suit of clothes or whatever he wishes to spend it on, we do not need to stimulate the economy now.
Particularly in the capital investment area we have a 19-percent increase compared to the historical average of between 8 and 10 percent. We are going to be in deep trouble. The latest figures show the increase in capital expenditures has gone up twice as fast as the GNP, which is unheard of. One way to get the pressure off is the repeal of ADR and to do it now.
I appreciate the position of my friend from Louisiana. I have one last item. This will be item No. 4. I wish to reiterate what the Senator from Massachusetts said.
A lot of people are wondering if we mean business on tax reform. Here is an area that is obviously a giveaway that is not needed. Let us say to the average taxpayer that somebody is listening, that the Senate is willing to stand up and be counted, that we are going to eliminate one loophole, if you call $1.2 billion a loophole. Let us give more evidence to the taxpayer who is laboring under ever-increasing inflation.
Mr. LONG. Mr. President, it is entirely possible that the Nation may be facing an economic downturn next year, and we may need to accelerate depreciation in order to keep the economy going. There is a lot of merit to the proposal, and I may support it again when the proper time and economic circumstances come to offer it on a tax bill. We are certainly going to have an opportunity to consider a tax reform measure, after the House has passed one, at some time in the future.
On that occasion I would like the opportunity to consider supporting the Senator's amendment. I regret that under the circumstances I cannot support it, because I just do not believe it belongs on this bill. I am satisfied that even if the Senate voted it, the House would not agree. It is just one more impediment on a measure that should be voted on now. The House is anxious to go to conference on it because they realize that the time may expire and this Nation may find itself in the rather unenviable position, being the richest nation on earth, of having to declare itself bankrupt by act of Congress, which is a ridiculous thing.
Mr. MUSKIE. Mr. President, the amendment proposed by the distinguished Senator from Indiana (Mr. BAYH) which I am pleased to cosponsor, is a much needed tax reform which deserves enactment now. The amendment would repeal the provision in our tax code which allows businesses to depreciate property 20 percent faster than the industry average. It would not affect the present system of computing depreciation on the basis of average lives of depreciable property. What it does do is to put an end to the unjustified advantage allowed to businesses in computation of their taxes – an advantage which cost the Federal treasury at least $860 million in 1972, and which is projected to cut Federal tax revenues by $30 billion in 1980.
This is a tax advantage which the Congress has debated at length since it was enacted in 1971. The debate came down to a question of economic priorities: whether we wanted to stimulate our sagging economy from the top down, by giving corporations tax benefits of hundreds of millions of dollars, or whether we wanted to channel our resources directly to those who needed them the most.
Mr. President, I commend the work of Senator BAYH in bringing this amendment once again before the Senate. I recognize that many in this Chamber prefer to withhold their endorsement of individual tax reform measures until a thorough tax reform package has been presented to them by the tax-writing committees. I join them in hoping we will be able to consider comprehensive tax reform this year. But in the case of ADR, I believe that the arguments have been fully laid out in the past 2 years, and that we should be prepared to take this small step toward tax reform now.