April 28, 1977
Page 12767
Mr. McCLELLAN. Mr. President, will the Senator yield at that point?
Mr. LONG. I yield to the Senator from Arkansas.
Mr. McCLELLAN. Upon what premise does the Treasury Department object to correcting an inequity?
Mr. LONG. Basically, the Treasury simply does not like exceptions and they do not like to add one exception upon another exception.
Mr. McCLELLAN. It is the exception that has caused the trouble. If they do not like that exception we are trying to help them correct it.
Mr. LONG. Here is the Treasury comment, if the Senator wishes to read it. I am glad to read it to him.
Mr. McCLELLAN. I am glad to look at the letter. I am just asking.
Mr. LONG. Here is their statement:
Most taxpayers in the business of selling products are forced to use the accrual method of accounting and to accumulate production costs in inventory until the products are sold. However, certain farmers are permitted to use the cash method of accounting in order to minimize record keeping problems.
Access to sophisticated accounting and record keeping procedures is related primarily to the volume of business. This rationale is reflected in the current provisions exempting from the accrual accounting requirement those corporations with gross receipts of $1 million or less. This "gross receipts" exemption covers 93.6 percent of all farming corporations.
Large subchapter S and family-owned corporations cannot fairly claim that they lack the sophistication necessary to employ accrual accounting procedures. To extend exemptions to large multifamily corporations is a further, unwarranted departure from the underlying justification for the cash method privilege.
That is the Treasury position on the matter, and I admit that there is a discrimination involved here. There is merit to the amendment, and I wish to work it out in justice to all.
But at this moment, Senator, I would think that if we want to do something about it, if the Senate votes an amendment, we can go to conference and hear the Treasury objections, and perhaps work it out. I cannot guarantee it, but we might manage to work out an answer that all would be willing to support in conference.
If the Treasury has a good case, I should think the House would insist on declining to accept the amendment.
Mr. McCLELLAN. Mr. President, will the Senator yield?
Mr. KENNEDY. Mr. President, I believe I have the floor, but I am glad to yield to the Senator from Arkansas.
Mr. McCLELLAN. My interpretation of the letter makes it a rather weak case. If they are opposed to discrimination and inequities in the Tax Code it makes it a very weak case.
I have a letter I would like to insert in the RECORD from the Congressional Budget Committee. I shall read the last paragraph of it, and ask that it be printed in full in the RECORD).
The last paragraph reads:
The other amendment would postpone the effective date of Section 207(c) for only two classes of corporations with family ownership defined in the amendment. Because the number of corporations which would qualify for this treatment is unknown—
As Senator ALLEN pointed out, there are just two.
Because the number of corporations which would qualify for this treatment is unknown, no precise estimate has been made. However, it is very likely that the revenue effect of this alternative would be a small fraction of the estimate for the broader alternative discussed above.
As far as financing the Treasury is concerned, it is infinitesimal, almost, but it means a great deal to a competitor.
While I have the floor for a moment, due to the kindness of my friend from Massachusetts, let me make this further comment: I have no desire to prolong the matter, but in my State, one of those instances Senator ALLEN referred to, one of the companies affected is in competition with another one in the same city, in the same trade area. One company is about three times as large as the other one.
The smaller company, because there are two families involved in it instead of one — the larger company is owned by one family, and the smaller company by two families — while the smaller company is one-third as large as the other one, it has to compete, and it is placed in the position of being penalized here, while the other one, the exception to which the Treasury Department seems to object, is getting the benefit in advance.
As I said a while ago, these things happen in our complex tax system in this country. Inequities do develop. They occur; we cannot foresee everything in the consequences of every provision we may enact.
It is not the intention and was never the intention, I am sure, of the Finance Committee to create such an inequity. Now that it has been discovered, I think that the Finance Committee — and I appreciate very much the attitude of the chairman and the other members of the Finance Committee to whom I have talked, and their willingness to see this matter corrected — and now that it has developed and exists, I do not think the Finance Committee wants to perpetuate it; I do not think they want to impose it even for a single year, and I do not believe the Senate wants to impose it even for a single year.
That is all we are seeking, to establish an equitable basis. As the Senator from Alabama points out, some 40-odd companies will benefit, while 2, including 1 little company in my State, will be penalized at the same time that its larger competitor is favored.
Correction of that matter is all that we ask. The Finance Committee will have the opportunity to weigh the matter and find every opportunity to do equity, and I have every confidence they will do so.
I ask unanimous consent to have printed in the RECORD the letter to which I have referred from the congressional Budget Committee.
There being no objection, the letter was ordered to be printed in the RECORD, as follows:
CONGRESSIONAL BUDGET OFFICE,
Washington, D.C.,
April 5, 1977.
Hon. JOHN L. McCLELLAN,
Chairman, Committee on Appropriations,
U.S. Senate,
Washington, D.C.
DEAR Mr. CHAIRMAN: Chairman Muskie has asked me to respond to your request for estimates of the budgetary impact of two possible amendments to H.R. 3477.
One of these amendments would postpone for one year the effective date of Section 207 (c) of the Tax Reform Act of 1976 with respect to required changes in the method of accounting for corporations engaged in farming. A one-year postponement of that provision would reduce revenues in fiscal years 1977 and 1978 by $8 million and $10 million, respectively.
The other amendment would postpone the effective date of Section 207(c) for only two classes of corporations with family ownership defined in the amendment. Because the number of corporations which would qualify for this treatment is unknown, no precise estimate has been made. However, it is very likely that the revenue effect of this alternative would be a small fraction of the estimate for the broader alternative discussed above.
Sincerely,
ALICE M. RIVLIN, Director.
Mr. LONG. Mr. President, to react to what the Senator from Arkansas has just said, the Senator from Louisiana was the only Senator here to vote against the amendment to move the effective date forward with regard to the retirement income credit. I might say I was even criticized by my wife for doing that; she is very much interested in these aging people. I guess once in a while we ought to learn something, even from our mistakes. It was the view of the Senate that in making the retirement income credit effective on January 1, 1976, in an act which only became law late in 1976, we had acted in some respects retroactively with respect to these elderly people.
So the Senate decided that we ought to move the date forward to January 1 of this year. So we did that, adding an amendment which moves the date forward with respect to the sick pay provisions, and another amendment which moves forward to January 1 the effective date of section 911 with regard to the taxation of U.S. citizens working overseas.
Those amendments involved a lot of money. They involve about $400 million, all things considered. All we are talking about here is something involving about $5 million, having to do with an amendment involving discrimination on the face of it. The Senator is asking us to continue the old law for one more year while we take a look at the discrimination implicit in what exists at this moment, and try to work it out in an equitable fashion.
I personally think that is a fair proposition. As far as this Senator is concerned, it is perfectly all right with me, but I am willing to abide by the judgment of the Senate. If the Senate does not want to consider it, we will not consider it; it is just that simple.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. LONG. Mr. President, I want to yield the time in opposition to someone else, because I personally am willing to accept the amendment. I ask unanimous consent that I may yield the time in opposition to the Senator from Massachusetts.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. KENNEDY. How much time remains, Mr. President?
The PRESIDING OFFICER. There is no time on this amendment.
Mr. KENNEDY. I sought recognition but I will yield to the Senator from Maine, and make my comment later.
Mr. MUSKIE. Mr. President, I appreciate the attitude of the Senator from Massachusetts, and also that of the manager of the bill.
My attention was called to this inequity, and I am convinced it is an inequity because it impacts on a company in my State. I will describe the characteristics of that company in a moment. But first I would like to comment on the attitude of the Treasury Department.
As I understand the Treasury Department's position, in the name of opposing an exception it is defending an exception.
One of the problems in this country is that bureaucrats put blinders on when they are confronted with the real, down-to-earth problems of people impacted by Government policy. I would like to hear the Treasury Department take a position on this inequity. Just stating a general policy against making exceptions makes no impression on me, and I know it does not make any impression on the distinguished Senator from Louisiana.
I would like to hear the Treasury Department come to grips with the facts of these alleged inequities. I would be happy to meet with them off the floor in my office, to make the case that what I see as an inequity is not an inequity. Unless they are willing to do that, I am not impressed by the position of the Treasury Department.
Mr. LONG. Mr. President, will the Senator yield at that point?
Mr. MUSKIE. I yield.
Mr. LONG. May I say to the Senator from Maine that I think I may be as well qualified as anyone here for considering, at least, the equities involved in this amendment, because I have, among my qualifications, the distinction of once having been a chicken farmer. When I was a little boy, we used to raise chickens in our backyard, and I used to get the eggs out from under the old hens. As a result of that early experience, I have great sympathy for chicken farmers. It is not as simple an occupation as it may appear to some people. It involves hard work; and those old chickens do not smell all that good after a while, especially if you have a lot of them around.
So I find it difficult to write a law that treats one chicken farmer one way and another chicken farmer in a different way. That is the way the law is now. If we are talking about discrimination, it is in the law now.
I must say that at the time we considered this last year, no one explained to me why it would treat one chicken farmer different than another chicken farmer. It was just a 2,000-page bill in conference. We were in no position to advise the House or the Treasury how we were going to justify this discrimination between two chicken farmers.
Mr. MUSKIE. I appreciate the Senator's comment. I might say to the Senator from Louisiana I have campaigned through many chicken processing plants.
I must say in terms of the environment, it is no different from one chicken processing plant to another. In my part of the country, they all do a pretty good job in terms of sanitation, safety, and all the rest, and they produce a good product. But I have seen nothing in all of those exposures to the business which convinces me that this inequity is justified in terms of what I see as I travel around my State.
As I understand the equity in terms of my area of the country, that is, the New England marketing area, the requirement of the law imposes the accrual method on one company among the five major ones which compete in that area. The others are permitted to continue on a cash basis.
Let me tell the impact on the company in which I am interested. I am interested in it only because of the discrimination.
The effect of it is this: that company's tax liability this year is $2.5 million. The effect of the accrual requirement is to add $1.5 million to that tax liability each year for 10 years. Why? Because the accrual basis requires the company to pay a tax on its continuing inventory. Out of its sales of about 83 million birds a year, there are 10 million in the field at any one time, roughly 10 million, which carry over from one year to another.
To pay a tax on those 10 million birds, which is inventory, along with tax on its accounts receivable involves a total tax liability of about $15 million. The effect of that is to severely limit the company's potential for expansion because it has been plowing its earnings back into the business to expand.
(Mr. MELCHER assumed the Chair atthis point.)
Mr. MUSKIE. As a result of this accrual requirement which was enacted last year, the company is finding it difficult to borrow the money to expand because the potential sources of credit are disturbed that this t1.5 million additional tax liability will reduce the company's ability to repay whatever it borrows.
My State has an unemployment rate of 10 percent or more. Here is an area which needs new business; which needs the expansion of business. But here on the floor of the Senate where we are enacting tax provisions to provide incentives for business to expand we are imposing on this business, which is healthy, which has been in existence for a quarter of a century, a tax penalty of 60 percent more than its present tax liability, threatening its potential for expansion, wholly because of a tax discrimination.
As far as this company is concerned, if the accrual basis is applied across the board to its competitors, it will take that. It will take the cash basis, if it is applied across the board to its competitors. But it suffers an economic disadvantage, a competitive disadvantage, when it is picked out from the ranks of its competitors in this way.
Let me describe its characteristics in its present form. In its present form, it is 5 years old. The present principal owner created the business a quarter century ago. He sold it, went to another part of the country, retired, came back, and picked up the business again. At the present time that principal owner and his brother own 38 percent of the business. All the other stockholders own 62 percent and are employees. Two are plant managers owning 22 percent of the stock and the other 40 percent of the stock is held by other employees. It is the principal owner's intention, and he has set up an agreement, to turn total ownership of the company over to his employees. This objective I know is close to the heart of the distinguished floor manager of the bill,. to encourage employee ownership.
Because he embarked on this program of employee ownership it is no longer a one-family owned corporation which would qualify for the exemption.
If that is not an arbitrary, unintended, discriminatory result I never heard of one. To have anyone urge on this floor that it is wrong somehow to take that inequity into account and to try to eliminate it I find amazing.
Mr. LONG. Will the Senator yield at that point?
Mr. MUSKIE. I yield.
Mr. LONG. We have had some people suggest that people should not hire lobbyists, that they ought to take their chances or talk to their Senator when he is visiting around the State. They would just take their chance along with everybody else and not have anybody looking after their interests down here.
What we have here is a good example of somebody who does business that way. Here is somebody sitting up in Maine running a chicken business the best he knows how, with the employees joining up and buying stock in the company, working to produce these chickens. Then
the Congress is talking about a tax reform law. Nobody has them in mind, but they are willing to take their share of the burden along with everybody else.
By the time Congress gets through, somebody has hired a lobbyist and it is worked out so that various and sundry concerns have had their problem properly considered and taken care of. Here. is some poor soul who never knew anything about it but was willing to take his chance along with everybody else. He finds a law which takes care of almost everybody, except for a few who were not represented here in Washington. The result is that they got the worst of it.
So, this fellow comes in complaining about discrimination against him. Everybody else has been taken care of except him. At that point he says, "How about me? You took care of everybody else who was not represented up there." At that point he talks to his Senator and at that point I guess he can be accused of being a special interest. He wants to know how he can possibly be a tax shelter and, for the life of me, I do not see how he is one.
I am sympathetic to the Senator's position. I can understand the need for closing tax shelters, but the kind of thing in mind here does not sound like one of them.
Mr. MUSKIE. May I say that this amendment does nothing more than to defer the impact of the provision we enacted into law last year so that the Finance Committee and the Senate can look at the inequity and judge whether or not it warrants some remedial action. As far as this Maine company is concerned, if the result is an accrual basis requirement across the board, they will take that; if it is a requirement for a cash basis across the board to similarly situated companies, they will take that. They are not trying to influence that result one way or another. They might have a preference but they are not asserting that preference. They are simply asking for equal treatment.
It seems to me they have made their case for a deferral so we can look at what we did and consider what ought to be done to remedy it.
I must say to the Senator from Louisiana, it is a delight to have him on my side because he has such an articulated and effective way to present a point. If he gets me used to this kind of treatment, may I say, I may be tempted to join the distinguished Senator from Louisiana more often. [Laughter.]
Mr. KENNEDY. Mr. President, I would like to raise some questions about the pending amendment.
A little over a year ago, at the beginning of the Senate debate on the 1976 Tax Reform Act, we identified a number of special interest provisions, affecting only one or two individuals or companies. The Finance Committee held a special set of hearings on these provisions while the bill was actually on the floor, and a number of the provisions was deleted. We ought to have the views of the Finance Committee. We ought to hear the views of the Treasury Department and the Internal Revenue Service; in the orderly process, we ought to find out who the beneficiaries are going to be, and how much benefit they are going to get from this change.
That is a procedure which I am very hopeful will be adopted and followed by the Senate so that we would not be taking these various special provisions to the floor in the first instance as amendments to the Internal Revenue Code.
The House Ways and Means Committee is already following that procedure at the present time. They will make recommendations in the next several weeks on many of these provisions. They are considering a number of different special interest provisions and questions that have been raised about inequities of the 1976 act.
Mr. LONG. Will the Senator yield at that point?
Mr. KENNEDY. Yes.
Mr. LONG. We are trying to accommodate that point of view in the committee. Is the Senator really contending that a Member of this body should not be privileged to offer an amendment out here on the floor which he thinks promotes justice and equity, even though it has not been considered or recommended by the committee prior to the time he raises it?
Mr. KENNEDY. I ask the Senator back, does the Senator not believe, given what happened here last year in terms of the embarrassment over the special interest provisions, the midnight provisions that were placed in the committee bill in the 1976 act, that it is a wiser procedure for the committee process to work its will first, in considering changes in the Internal Revenue Code that are going to benefit particular individuals or companies? I would be surprised if the members of the Committee on Finance did not believe that would be a better way of proceeding.
I do not, obviously; deny the right of anyone to offer a floor amendment on any particular measure. There may be exceptional cases where we should act without the benefit of committee views.
Mr. LONG. Let me make this point: There is nothing that would please the Senator from Louisiana more than for the Senate to give the Committee on Finance a closed rule the way they do on the House side, so we could study these things, work them out the way we think they ought to be worked out, and bring out the measure so the Senate can vote it up or down without the power to amend. In fact, this Senator is anxious to have a germaneness rule so we can limit to germane matters the amendment of bills we report out, and only amend where we think we need it.
That procedure did not appeal to the Senator from Massachusetts. He testified against even the germaneness requirement. He did not think the Senate ought to trust to our committee the power to tell Senators that they cannot have their amendments considered.
Mr. KENNEDY. Mr. President, the chairman of the Committee on Finance may differ with the position which I am suggesting, but it does seem to me, given what happened in the case of various special interest provisions last year, that a wiser way of proceeding for the Committee on Finance, with all respect, is to consider these proposals in advance. We legislate in a broad and general way; we recognize that inequities and unfairness may result, and they ought to be remedied. But we have to know what we are doing. Senators who are raising particular issues should not have to come to the floor of the U.S. Senate and plead on special, narrow interest issues, and have it appear that they are doing special interest pleading. I think that demeans the position of a U.S. Senator.
The orderly way is to follow a procedure in which the Finance Committee considers the proposal in a thoughtful way, determines who the beneficiaries are, what the injustices are, and make a recommendation as to whether the matter is justified or not justified. That is the way we operate with private bills. Why should we not operate that way with private interest tax bills?
I have made this point. I should like to get into the merits. Then I shall be glad to answer any questions.
It does seem to me that there is a better way. The reason I believe that, Mr. President, is so that, first of all, we can understand who are the beneficiaries of these amendments, what are the tax implications of a particular amendment, and whether the committee, after an adequate examination, feels it is justified. With regard to this particular amendment, I understand it is going to mean that more than $1 million will go to a family-owned corporation.
Mr. President, on the merits of this provision, let us review very briefly, how this issue was handled in the 1976 act. As we debated the 1976 act, one of the major abuses was the area of farm tax shelters. It was deemed to be the better part of wisdom to attempt to deal with that complex issue. One of the ways of dealing with it was to move from the cash system of accounting to an accrual system. Use of the cash system produces a major tax shelter for farm businesses, because it provides what is essentially an interest free loan from the Treasury. Artificial deductions are taken to reduce income. Congress went on record as saying, "We want to deal with this area of tax shelters, so we are going to require these large firms to adopt an accrual system of accounting, which properly balances income from farming and deductions used to produce that income."
Then, during the course of the debate, it was recognized that if we exact this requirement, we are affecting not only the largest farms and farm businesses, but we are also hitting the smaller farms
Mr. KENNEDY. All right.
Mr. MUSKIE. There was one family to begin with. There would be one family today, but for the fact that that one family decided to convert the corporation into an employee-owned corporation. The other two families that have been added are two of the employees, the plant managers. Those are the two families. The rest of the employees make up the other 40 percent. So 62 percent is owned by employees, two of whom are regarded as the families that the Senator counts as three.
Mr. KENNEDY. I am glad to be enlightened about that particular detail of the corporation in Maine. What we cannot get away from, Mr. President, no matter how we describe it, no matter how it is interpreted, is that in the Arkansas situation, we are not talking about a small family farm. What we are talking about is a huge chicken broiler firm that is doing $65 million of business a year in sales, processing 42 million chickens. It is the 24th largest firm in the industry. We are talking about a tax benefit which will be worth $1 million to a single company that has sales of $65 million.
Of the 36 top broiler companies in this industry, 8 were on a cash basis and are going to have to switch to accrual, as well. So, in an attempt to deal with that problem, we provided three exceptions to the accrual accounting rule.
One exception was for farms with gross receipts of $1 million a year or less, to try to exempt the small family farmer. The second exception was for so-called subchapter S corporations, which are entitled to be taxed as partnerships. Again, we were trying to target the exception for the small family farmer.
The third exception was for corporations in which 50 percent of the stock is owned by the members of the same family — again to try to help the small family farmer.
Now we have a situation, in this amendment, that the two Senators from Arkansas and Maine are here to argue that, because of these particular exceptions, we ought to enlarge the third exception from 50 percent of the stock owned by members of one family to corporations in which 65 percent of the stock is owned by two families.
Mr. MUSKIE. Will the Senator yield?
Mr. KENNEDY. Not Just yet.
Mr. MUSKIE. That is not my position.
Mr. KENNEDY. I have not come to the Senator's part yet. I am saying what the effect of the amendment is that the Senator is cosponsoring. That happens to be the effect of it, I say.
Mr. MUSKIE. It does not.
Mr. KENNEDY. Does the Senator deny that that is included in the amendment we are considering here?
Mr. MUSKIE. The purpose of the amendment is to defer the effective date for 1 year. The amendment does not prejudge what the final policy result will be. I made very clear — I think the Senator heard me — that if the final result is accrual accounting for those in similar situations, I would accept that. If the final result is cash, I would accept that. That is a slightly different position from what the Senator has just described.
Mr. KENNEDY. It is to defer it for 1 year for one company in Maine and one company in Arkansas.
Mr. MUSKIE. For a specific reason.
Mr. KENNEDY. If the Senator will permit me to make my argument, then I shall be glad to answer questions.
The firm in Arkansas is a corporation in which approximately 65 percent of the stock is owned by two families. The exception in the 1976 act was for corporations in which 50 percent of the stock is owned by members of one family. Now, they want to broaden the exception to two families.
The second part of the amendment helps a corporation where 50 percent of the outstanding shares are owned by three families, and the remaining shares are owned by employees of the corporation. This is for Halifax Foods in Maine.
Mr. MUSKIE. Is that the Senator's understanding of that fact situation?
Mr. KENNEDY. I did yield for a brief comment.
Mr. MUSKIE. I just want to make sure that the description of the Maine corporation is accurate.
Mr. KENNEDY. All right.
Mr. MUSKIE. There was one family to begin with. There would be one family today, but for the fact that that one family decided to convert the corporation into an employee-owned corporation. The other two families that have been added are two of the employees, the plant managers. Those are the two families. The rest of the employees make up the other 40 percent. So 62 percent is owned by employees, two of whom are regarded as the families that the Senator counts as three.
Mr. KENNEDY. I am glad to be enlightened about that particular detail of the corporation in Maine. What we cannot get away from, Mr. President, no matter how we describe it, no matter how it is interpreted, is that in the Arkansas situation, we are not talking about a small family farm. What we are talking about is a huge chicken broiler firm that is doing $65 million of business a year in sales, processing 42 million chickens. It is the 24th largest firm in the industry. We are talking about a tax benefit which will be worth $1 million to a single company that has sales of $65 million.
Of the 36 top broiler companies in this industry, 8 were on a cash basis and are going to have to switch to accrual.
Of the top 36 broiler companies, 8 of these major corporations would have to shift from cash to accrual accounting. Mr. President, I ask unanimous consent that a table analyzing the top 36 broiler companies in the United States may be printed in the RECORD.
[Table omitted]
Mr. KENNEDY. Mr. President, the amendment of the Senator from Arkansas and the Senator from Maine selects two of these eight firms and says, "We'll defer this reform for you for a period of 1 year." The language of the amendment is a fingerprint, written to fit these two firms. In one firm, two families own 65 percent of the stock; the other three families own 50 percent of the stock, and the rest of the stock is owned by the employees. We are lifting out two of the eight firms and giving them a tax break for 1 year. We closed a major tax loophole for farm tax shelters last year, but we left an exception for some firms; the exception was intended to be for small firms. And now two of the largest firms in the country are coming to Congress complaining that they are too big to fit through the loophole any more. They fall outside the exception we set.
They complain that some of their competitors still fit through the loophole and can use cash accounting, because they qualify for one of the exceptions in the 1976 act. But what about the other six firms who are left behind, if we grant the loophole to these two firms; can they not complain, too?
Why do we not simply close the loophole for all of these giant firms?
Why do not the Senator from Arkansas and the Senator from Maine say, "Well, all right, since we have some discrimination among some of these firms let us eliminate the discrimination for all and just establish a $2 million or $1 million sales limit as the exception," with the family ownership exception? I would support that approach. It would put all the big farms on accrual accounting, where they ought to be. That would meet the problems of discrimination against the Arkansas firm and the Maine firm. But they are not suggesting that. They want the loophole. They just want it opened up a little wider.
They are suggesting that two out of the eight firms should have the loophole until Congress can act again.
The other six firms, in different parts of the country, better get their Senators into action, because when they go home they are going to have to answer to those companies. They will say, "Look, fellows, you provided for the deferral for our competitors in Arkansas and Maine, but we need help, too. We are the other six. Why did you not look out for us?" Can we not have the loophole too? We, now have a two family 65 percent rule and a three family employee ownership rule. Why not a three family 75 percent rule and a four family employee ownership rule? Where will it end? We have to draw the line somewhere.
We do not know what additional kinds of discrimination this amendment will cause for other chicken broiler companies. No one talked about that.
Why are we saying 50 percent or three families? Perhaps there are four families that own 65 percent that would not be included.
Mr. President, in attempting to deal with this particular issue, there is a way to deal effectively with it in order to eliminate the discrimination against any of these various companies. What we could do is allow an exception for genuinely small firms, $1 or $2 million of sales. That will reach the smallest companies — which was really the purpose of the amendment last year. That would deal with the discrimination against the company in Arkansas and the Maine company that would treat them all across the board equally and equitably.
But the effect of what the Senator from Arkansas and the Senator from Maine are saying is, "We have a little change in the formula for you. We are going to select two firms from Arkansas and Maine and leave the others out."
Those companies may not have liked what was done in the U.S. Senate last year. But I imagine they say that that is the law. Congress drew the line, and they are prepared to comply with it in good faith.
Now, two of those companies say, "Well, we do not like the line there. We want to change it for our benefit." So we have this amendment to provide exclusions for them.
We can eliminate the concerns of those that propound this amendment by going to a gross sales limitation. That would treat all firms, including the Arkansas and the Maine firms, fairly. It would eliminate what the proponents of this amendment believe to be the imbalance in terms of competitive advantages or disadvantages that exist because of the 1976 act. That would be something which I believe should be supported and warrants our support.
But just even deferring action, which in one instance is going to mean in excess of $1 million to one large broiler firm, is unwise tax policy and unwise action by the Senate.
Mr. MUSKIE addressed the Chair.
The PRESIDING OFFICER (Mr. ZORINSKY) . The Senator from Maine.
Mr. MUSKIE. Mr. President, it suits the Senator's indignation at one and the same time, words that Senators not be forced to special pleading, and in effect, to accuse me of special pleading.
Let me make the point to the Senate, he puts himself in the position of defending a discriminatory tax advantage for one company, or two.
The Senator stands on the floor here and gives us an emotional plea about the importance of having general tax policy and avoiding exceptions. But he is defending an exception.
Somehow he finds morality in that position and immorality in mine.
We are not proposing a final tax result. I must say, I do not know all I would like to know about the circumstances or the character of the other 36 major producers in this industry. Nor do I know, and I doubt that the Senator knows, what the impact on this industry would be of a $1 or $2 million threshold across the board. I do not know.
I tried to find out, and because I do not know I have asked for the year's deferral so that we can find out. But the Senator is so certain of the rectitude of his position that he wants to write the final policy now.
One of the reasons we have this problem is that this provision came over from the House. We knocked it out in the Senate and the House forced the conferees to take it in conference. It is because nobody knew what the consequences were that we are on this floor today, and the course that is advocated by this amendment is designed to let us know.
I do not know about the eight companies that the Senator has referred to on the list. It is my impression that all, or most of them, are publicly held companies. The exception we are talking about is a family owned corporation exception and, as far as I know, the amendment of the Senator from Arkansas covers all of those.
Mr. LONG. Will the Senator yield at that point?
Mr. MUSKIE. Yes.
Mr. LONG. The best I can recall the history of this matter was that the House sent us a provision in this area, and various people, including the junior Senator from Arkansas (Mr. BUMPERS), came before the committee and told us what was wrong with it, that it was discriminatory, that it was unfair. They pointed out certain things that would have to be changed about it if it were going to become law.
Well, when the committee saw that and all the complexities involved in it, we just concluded the best thing to do would be to drop the whole thing. So we struck out the provision from the House bill on the basis that it involved all kinds of complications and was discriminatory on the face of it.
Now then, when we passed our bill — and, incidentally, so far as I know nobody here complained about our just dropping out the whole thing because it looked to be unfair — we went to conference and the House insisted on what they had in their handiwork. So we brought back something of a compromise between what the House had started out with and the Senate judgment that we should not do anything.
So there is no doubt about it that those who were best represented, were those who had somebody up here to talk to people about how this thing was going, and to sit in that conference room and hear every decision and every discussion that went on, and to talk to people around the House and the Senate. Some had their problems considered, and those who did not have people here to have their problems considered now find themselves in the position of the Senator's little fellow producing those chickens up there in Maine.
Mr. CURTIS. Mr. President, will the Senator yield just briefly?
Mr. MUSKIE. Yes, I yield to the Senator from Nebraska.
UNANIMOUS CONSENT AGREEMENT ON MR. CHAFEE'S AMENDMENT
Mr. CURTIS. I have followed this matter along. I think the amendment proposed is reasonable and should be adopted. I would like to ask the Senator to yield for a unanimous consent request.
Mr. MUSKIE. I do.
Mr. CURTIS. I ask unanimous consent, notwithstanding the previous order, that following the disposition of the pending amendment that the amendment of the distinguished Senator from Rhode Island (Mr. CHAFEE) be in order; that the 1 hour limitation be reserved, and after the hour the vote occur.
The PRESIDING OFFICER. Is there objection?
Mr. LONG. And the vote scheduled to occur at 11:45 be postponed until that time.
Mr. BUMPERS. Mr. President, reserving the right to object — and I do not think I will — as I made the point earlier, I have to leave here at 12:15, and I am hoping we can get to vote in this before that time.
The PRESIDING OFFICER. The vote on the Bumpers amendment would still come at 12.
Mr. CURTIS. That would not interfere with the Senator's vote.
The PRESIDING OFFICER. Is there objection? The Chair hears none, and it is so ordered.
Mr. MUSKIE. Mr. President, I shall take just a few more minutes. May I say to my good friend from Massachusetts he and I have no quarrel about the basic intent behind the provision which is, as I understand it, a provision that would require substantial corporations engaged in agricultural related activities to use the same accounting rules as any other substantial corporation with inventory. Now, that is a general proposition with which I have no quarrel.
But the inequity of which we speak arises from several exceptions to this general principle and the Senator is against exceptions because it is the exceptions that have created the inequity. Those exceptions include family owned corporations in which one family owns at least 50 percent of the share of the corporation.
Now, in preparing this amendment we did our best to identify all of the family owned corporations or substantially those family owned corporations which would be impacted. We did not examine those corporations that would fall under the general principle. We were trying to identify the companies that fell under the exception and, as far as we know, we have covered them. We have not excluded any of them, not that we know all of the corporate arrangements or the ownership arrangements of the 36 top producers. That has been difficult to get. Some of them are publicly financed corporations.
There are small family owned corporations as to which we have no difficulty in operating in this business. But what we are talking about, and the best example of the inequity, is the biggest company in Arkansas which has the fourth biggest volume in the country. It is bigger than either of the two companies we are talking about. It does a volume of about, I think, 150 million birds a year, which is roughly twice the production of the company in Maine, and it gets the advantage of the cash accounting system.
The effect of the position of the Senator from Massachusetts is to defend that advantage for that company. I doubt very much that that is his intention, but that is the effect.
The best solution we could find, geared to the fact that we do not have all of the facts and understand all of the consequences, is the proposal of the Senator from Arkansas, and I think it is a fair proposal.