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1984 Washington Fiscal Watch [1] (1984)

handle is hein.tera/wasfishwa0001 and id is 1 raw text is: TAX FOUNDATION, INCORPORATED ONE THOMAS CIRCLE, N.W., WASHINGTON, D.C. 20005 (202) 822-9050 WASHINGTON FISCAL WATCH Latest Intelligence on Trends for Tax Foundation Members Washington, D.C., 6 P.M., May 31, 1984 Dear Member: Once again Congress has surprised most of us with its capacity for flinching when it comes to painful decisions. Only six weeks ago the word was being passed that We will have a tax bill on the President's desk before we leave for the Easter recess. But now, as this letter is being written, the tax and spending reductions legislation of 1984 languishes in the sticky embrace of a Conference Committee--and there are some weak links in the chain stitching this thing together, in the words of one influential conferee. The prevailing guess is that the new bill could be on Reagan's desk by late June, but don't bet much on that or any other outcome. Bet even less on details of cuts in defense spending and entitlements (Washingtonese for mandated subsidies and payments) which must accompany tax increases if Reagan's Rose Garden Agreement with Republican Senators a few weeks ago stands up. The spending hold-backs are supposed to make up about two-thirds of the $140-$180 billion set aside in this legislative hybrid for deficit reduction over the fiscal 1984-87 period. The spending issues are the center of most political firefights, though there are plenty of tax tussles, too. Basically, the 1984 tax changes are another step in the continuing, messy process of taking back the reductions authorized in the Economic Recovery Tax Act of 1981 (ERTA). The first rollback came in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). The House has adopted a fairly conservative approach. The Senate went the Christmas Tree route. Important note for your personal tax planning: Both versions of the new tax rules would leave intact the individual income tax cuts pushed through by Reagan in 1981. The brave bulls in Congress charging against deficits decided to defer until 1985, after the oncoming elections, any runs at the pocketbooks of masses of individual voters. On other points of intense interest to those affected- IDBs (Industrial Development Bonds). This rapidly growing area of tax-deferred financing is going to be curbed. You can count on it. Dan Rostenkowski, House Ways & Means chairman, has dug in his heels, and the House, after some family arguments, is with him. Even the Senate's weaker version of IDB limits would put a crimp in abuses that surfaced recently. However, effective dates will be the key in some cases, so buttoning up pending deals would pay off if done in a timely way. DISCs to FSCs? The Senate voted for a change in rules governing the treatment of subsidiaries set up to push U.S. corporations' sales abroad, including a switch in the label for such operations from Domestic International Sales Corporations to Foreign Sales Corporations. The House bill is silent on this issue, involving tax incentives for U.S. exporters. At this writing, odds seem to favor a decision to let this one go over another year, pending further study. Tax-preference penalties. The 1982 law imposed a 15 percent reduction on certain corporate tax preferences such as the favorable tax treatment for real estate capital gains, percentage depletion for coal and iron ore, bad debt

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