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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|VICTOR ZONANA

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: Timber, Mining

The forest-products industry will take its lumps under the tax reform bill despite the efforts of Senate Finance Committee Chairman Bob Packwood to portray the legislation as favorable to the industry, a major factor in his home state of Oregon.

"He has done a very poor job as far as we are concerned," said one industry lobbyist. "He gave away too much, too early."

Luke Popovich, a spokesman for the National Forest Products Assn. in Washington, said elimination of the capital gains tax preference for business will cost timber producers about $1 billion in extra taxes over the next five years.

Profits on timber are calculated when the trees are harvested and sold, and the lower capital gains tax was introduced in 1944 to provide an incentive for reforestation.

"Forestry takes 40 to 60 years to produce a crop," said Lester Decoster, an official with the American Tree Farm System, a growers group. The new tax bill "will have a negative impact on investments in forest land," he added.

The bill does retain some tax preferences for the industry. Growers, for example, will still be allowed to write off planting and other forest management expenses. This expensing provision represents a victory for the Senate negotiators. Under the House's bill, those expenses would have been taken only as a crop was harvested.

But the industry will also be hurt in its "downstream" operations as a result of the elimination of the investment tax credit. "Pulp and paper mills are very capital-intensive," Popovich noted. "Those machines cost millions and millions of dollars."

For the mining industry, the tax bill "is good news and bad news," said Joseph Jeffrey, vice president for taxation of the American Mining Congress, a trade association.

The bill retains the industry's treasured depletion allowances. Under the allowances, companies are allowed to deduct 5% to 22% of gross mining income, depending on the commodity.

The tax break is designed to foster investment in exploration and development as existing mines are depleted. The provision, which leaves depletion allowances essentially unchanged, is a victory for Senate negotiators; the House bill would have reduced all allowances to 5%.

Retaining the allowance was a priority for industry lobbyists. With the allowances in place, "the biggest burden on the mining industry will come from the minimum tax," Jeffrey said. He said the impact of the corporate minimum tax "will vary from company to company."

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