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BUDGET FALLOUT : Business Sees Gains, Losses in Tax Plan : Economy: While many small companies look for ways to recover, home builders and yacht sellers are hopeful.

August 09, 1993|MICHAEL PARRISH | TIMES STAFF WRITER

Winning industries under President Clinton's tax plan expressed cautious optimism on Sunday that the plan would stimulate growth in their businesses. And as potential losers reconciled themselves to less profit, their accountants and lawyers began searching for ways to ease the pain.

Home builders and real estate investors--recipients of key tax breaks--expressed hope that the bill would stop the slide in real estate values and spur new construction, particularly of low-income rental units. The beleaguered airline industry said it was relieved to be spared higher fuel taxes.

Yacht sellers and high-end jewelers were inspired by the end of the 10% luxury tax and predicted a renewal of sales that have been sluggish due to the tax, recession and other woes.

"We're elated that it's finally repealed," said Gordon Barienbrock, owner of the Crow's Nest Yacht and Ship Brokerage in Newport Beach, formerly the largest dealer of expensive yachts on the West Coast.

Meanwhile, accountants and executives pored over the fine print of the Clinton budget plan during the weekend, seeking to help the potential losers--including many small businesses.

"We're still plowing through the actual statute," said Philip J. Holthouse of Holthouse Carlin & Van Trigt, a West Los Angeles accounting firm that specializes in closely held companies and real estate.

Sole proprietors--including attorneys, stockbrokers, small manufacturers and others who pay business taxes on their personal tax returns--face hikes relatively higher than big corporations making $10 million or more in annual profit.

While the big companies' rates will rise to 35% from 34%, the most profitable small companies could see a tax increase to 40% from 31% under current federal law, Holthouse estimated.

And with few effective shelters now available, Holthouse predicted that "most of these people are going to end up where they pay it and complain."

But not all small businesses will be losers. Some companies in the throes of restructuring, along with retailers and other small businesses, expressed optimism at new rules that make it more attractive to invest in new equipment. Small firms can write off in one year up to $17,500 in purchases of equipment--up from $10,000 under current law.

"Clearly this is likely to help stores in the process of renovating themselves," said retail economist Kurt Barnard, president of New York-based Barnard's Retail Consulting Group. "Today the big issue in retailing," Barnard said, "is not so much opening new stores but renovating old stores to make them better."

The Washington-based National Assn. of Home Builders, which represents companies involved in single family, multifamily and light construction, said several provisions in the plan will spur housing starts and help stem the slide in real estate values.

Extensions of the low-income housing credit and mortgage revenue bonds aimed at first-time home buyers "are responsible for roughly 100,000 housing starts a year, which translates into 175,000 jobs," said Robert Bannister, senior vice president of the trade group.

He predicted an increase in housing production for the rest of 1993, particularly in low-income rentals--for which there is a continuing market, particularly in cities.

Builders who have lately "been out of rental housing will get back in," he said. "And some that have been building single-family units will get into rental housing."

Other boons for real estate include a delay in taxes on what accountant Holthouse calls the "phantom income" that commercial tenants in financial straits theoretically get as they renegotiate their leases downward in a sunken market. Meanwhile, dealers in some luxury goods see their business eventually coming back from the dead. Under the now-repealed luxury tax, sellers of expensive yachts saw buyers disappear as manufacturers bellied up or built smaller boats.

"When you tell people they would have to spend an extra $100,000 in tax" to buy a $1-million vessel, "that stopped them from buying boats," yacht dealer Barienbrock said. "When you say it will cost them a few hundred dollars more for fuel, that doesn't affect them."

* RETIREES HIT HARD: The middle-income elderly will face tax hikes under the Clinton plan, D6.

* RELATED STORIES: A1, A19.

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