Magazine article Management Review

Out in the Cold

Magazine article Management Review

Out in the Cold

Article excerpt

Before Congress left for summer recess, it did the inconceivable and incorporated a major tax reform into a balanced budget. But it did so by leaving corporate America out.

When Congress packed up in August for its summer recess and rolled out of town, smug and somewhat self-satisfied thinking it had managed to cram the whole family and all its luggage into the minivan taking it to the airport, it had in fact left one of its offspring standing on the curb.

Corporate America

Having crammed the first major reform of the nation's tax system in a decade into a balanced budget, Congress, it seemed, just couldn't find any extra relief for America's corporations, especially its biggest ones.

"It's very simple; a lot of promises had been made to a lot of constituencies on the individual side," says Michael Graetz, professor of tax law at Yale Law School and former senior tax strategist during the Bush administration. "Congress was trying to stuff oversized tax relief into shrinking revenue packages. It was like trying to overinflate a balloon. There just wasn't much left over."

That's because Congress took some major items off Schedule A, the personal tax form, aiming to cut $152 billion off the nation's tax bill by 2002 and $401 billion by 2007, while adding revenue-raising provisions that will bring in an estimated $54 billion by 2002 and $109 billion by 2007.

So while middle America got education tax credits worth $39 billion and a $500 per child tax credit, worth $85 billion over five years, and investors got capital gains tax relief worth $21 billion over 10 years, there was less than $20 billion left over for corporate America.

This was partly due to the fact that, for the first time ever, the priorities of the tax writers came second to the needs of the budget-balancers - a unique concept in Washington, which from the earliest days of the Republic has lived and died by budget-busting corporate and personal giveaways.

This time, though, leaders from both sides of the aisle were very clear on the ultimate priority of their constituencies.

"This plan and a balanced budget are what the American people sent us here to do," said House Ways and Means Committee Chairman Bill Archer, the Texas Republican.

"I continue to be concerned that tax cuts might undo the astonishing progress of deficit reduction," cautioned Senate Finance Committee member Daniel Patrick Moynihan, the New York Democrat.

From the other end of Pennsylvania Avenue, President Clinton described his ultimate goal in ways remarkably similar to those of many leading congressional Republicans: "to balance the budget in a way that honors our values, invests in our people and prepares America for the 21st century."

What relief remained for American business after the cutback in personal tax levies went primarily into two key reforms: a shift in the method of calculating the depreciation allowance for those major, capital-intensive companies paying the Alternative Minimum Tax - a top priority of the National Association of Manufacturers; and estate tax relief, which was top of the list for small businesses represented by the National Federation of Independent Business (NFIB). And it was the latter constituency that turned out to be the big winner in this equation, as it has been since the Republicans took control of Congress three years ago.

"From the business side, small business beat big business in this bill," says Professor Graetz, "and that happened at the moment Archer backed away from the repeal of the Alternative Minimum Tax (AMT). NFIB made estate tax relief their top priority and mobilized forces to shift revenue loss from repeal of the AMT to estate tax relief phased in much sooner," he explains.

"Our No. 1 issue was estate tax relief for the small-business community," says John Satagaj, president of the Small Business Legislative Council, which led the intensive lobbying effort mounted by small business to make sure it got what it needed out of the tax relief "We would have liked repeal if we had our druthers. …

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