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Tax Bill's Impact to Vary Greatly Among Sectors : Heavy Manufacturing and Real Estate Seen Hard Hit; Technology, Retailing Win

August 18, 1986|BILL SING

The sweeping tax bill approved by congressional negotiators over the weekend is expected to have a dramatic impact on American industry. Heavy manufacturing and many real estate developers have railed against the loss of cherished tax incentives. But retailers and technology firms, which have long felt overtaxed, generally have cheered the move to lower overall corporate tax rates. While the enthusiasm of some early corporate tax-reform advocates has waned, some opponents have found the process less painful than anticipated.

With approval of a final bill by Congressional negotiators--and expected approval next month by the full House and Senate--American business is now bracing for this massive overhaul of the nation's tax system. Here is a look at how various industries will be affected:

Banks, S&Ls

The new tax bill is not only expected to boost taxes for banks and thrifts but also could depress demand for some of their favorite products, such as individual retirement accounts and consumer loans.

Banks are expected to pay $11 billion in additional taxes over four or five years, largely because of two proposed changes in the tax bill. The first is the elimination of the deduction for reserves for possible future bad loans. That change will apply to the 1,200 banks with assets of more than $500 million. However, certain "troubled" banks with high levels of problem loans are excluded from the change.

The second change is the elimination of deductions for interest that banks pay on money that they borrow to buy tax-free municipal bonds.

"The changes are tough against banks," said Kirk Willison, spokesman for the American Bankers Assn. "This is not a bill the banking industry is going to support when it goes to the House and Senate floor."

For savings and loan associations, however, the increases in taxes are expected to be somewhat less onerous. The industry will be paying more tax, due in part to a reduction in the amounts they may deduct for bad-debt reserves, said Mark Clark, spokesman for the U.S. League of Savings Institutions. But that will be offset in part by lower corporate tax rates, he said.

Possibly the biggest negative impact on banks and S&Ls will be on their products.

Volume in the popular individual retirement accounts may suffer because of proposed rules restricting wealthy taxpayers from taking deductions for IRA contributions. Demand for consumer loans, including credit card and auto loans, might be curtailed because interest on those loans will no longer be deductible.

And proposed tax changes that reduce tax benefits from owning real estate could make it more difficult for banks and S&Ls to sell troubled properties taken over through foreclosure. "The only way they're going to move some of these properties is by cutting price," said Kenneth Leventhal, co-managing partner of a Los Angeles-based real estate accounting firm bearing his name.

Some banking experts predict that this could result in more bank and S&L failures in Texas and other states where real estate markets are severely depressed by overbuilding and poor economic conditions.

But not all of the news is bad, some experts say. S&Ls and banks will benefit from the continuance of deductions for first and second homes, making home ownership one of the few remaining tax shelters. Any losses of auto loan business may be offset by increases in auto leasing. And institutions should benefit from lower interest rates that are expected to result from lower taxes.

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