Bank Lobby Awaits Round 2: Rostenkowski Loses on Reserve Deduction, but He'll Be Back

By Naylor, Bartlett | American Banker, October 17, 1985 | Go to article overview

Bank Lobby Awaits Round 2: Rostenkowski Loses on Reserve Deduction, but He'll Be Back


Naylor, Bartlett, American Banker


WASHINGTON -- Bank lobbyists here are bracing for a counterattack by Rep. Dan Rostenkowski, chairman of the powerful House Ways and Means Committee, following a committee vote Tuesday to restore a k ey deduction for the industry.

In a 23-13 vote, the tax-writing panel approved an amendment, sponsored by Rep. Ronnie Flippo, D-Ala., and co-sponsored by Rep. Bill Frenzel, R-Minn., to Mr. Rostenkowski's tax-reform plan that allows banks to write off their loan-loss reserves up to 1.5% of total loans. Accounting changes would also be instituted, requiring banks to report the same loan-loss reserves for tax purposes as in their general financial statements.

The vote replaced a proposal by Mr. Rostenkowski, an Illinois Democrat, to eliminate tax breaks for loan-loss reserves. The chairman's proposal would have meant about $8 billion in new taxes for bankers over the next five years.

"We're obviously pleased," said Charles Wheeler, an American Bankers Association tax expert.

For bankers, the loan-loss reserve deduction is considered a tool for encouraging "safety and soundness" in the banking system, according to Robert Schwartz, a lobbyist with the Independent Bankers Association of America.

In other Ways and Means Committee developments:

* Bankers suffered a defeat when the panel voted to repeal the deduction banks currently take for their interest costs to buy and hold tax-exempt bonds.

* Thrift lobbyists suffered a setback when the committee sharply limited tax deductions for savings and loans. In a voice vote, the panel reduced the tax deduction for thrifts on loan-loss reserves from 40% of income to 5% of income. The amendment was sponsored by Rep. Beryl F. Anthony Jr., D-Ark.

"It's bad news," said John Tuccillo, tax expert for the National Council of Savings Institutions. "But it's a long way to a tax bill."

Mr. Tuccillo added that ignorance may have played a hand in the Ways and Means Committee's action. The members probably did not realize that the "outcome isn't favorable" to thrifts, he said. "They probably thought they were being nice to the thrifts."

But one bank lobbyist said the blow to thrifts is not severe, since corporate tax rates are to be lowered from 46% to 35% as another part of the general tax plan and will make up the loss from the Anthony amendment.

* Rep. Byron Dorgan, D-N.D., apparently lined up the votes to retain tax-exempt status for credit unions.

Rostenkowski's Agenda

Politically, the loss of $8 billion in potential tax revenues constitutes a serious threat to Mr. …

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