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Tax Overhaul Legislation

September 22, 1986

Sen. Carl Levin's (D-Mich.) criticism (Editorial Pages, Sept. 14) of the tax bill currently being considered was based on rationalizations and ignored a very important justification for this legislation.

Levin complained that under this new bill, a small minority (about 20%) of taxpayers would pay more in taxes, mainly because they would lose some deduction that has allowed them up until now to avoid paying part of their share of the tax burden. Why he believes it is fair that only a fifth of the country deserves these tax breaks is not explained.

Most of his arguments are based on the view of some narrow-interest group, mainly the ones that benefit from the existing code at the expense of the rest of society. And while he is certainly correct in pointing out the unfairness of the $11 billion in "transition rules," he overlooks the major benefit of this bill.

The influence of our tax code on investment decisions has contributed heavily to the erosion of our manufacturing base and to the increasingly dangerous trade deficits. Because of the loopholes that exist, businesses and investors will spend money on unproductive tax shelters, rather than modern, more efficient equipment or research and development, which may not provide as great a short-term return.

Because there are so many deductions, credits, and preferences, companies will spend $100 on lawyers, accountants, and non-productive shelters to reduce their tax bill by $110, rather than invest that $100 in a new plant that would return only $105, even though the new plant or equipment would create jobs and long-term benefits to the company and to the economy.

When we repeal the laws that distort investment decisions, people will no longer invest in projects that waste money and resources; they will invest in ventures that will be profitable, and this is the most important reason for this new tax bill.

I doubt that this tax bill will have a major effect on the tax bills of most Americans. There will be some who pay a lot more, and some who pay a lot less, but for the most part there probably won't be dramatic changes. But what is important is that corporations and other investors stop putting their money into tax-avoidance schemes, and start investing in this country again. Our government must stop providing incentives for irresponsible and negative investments. While this tax bill will still need changes in the next few years to become efficient, effective, and fair, it is a first step, and is far better than accepting our present system, which does not work.


Santa Barbara

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