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High-Tech Industry Joins Clamor to Slash Taxes

Legislation: Financially beleaguered sector has readied proposals that could cut its bills by $300 billion over 10 years. It could win.

March 16, 2001|JUBE SHIVER Jr. | TIMES STAFF WRITER

WASHINGTON — President Bush has been uncompromising in his insistence that his 10-year, $1.6-trillion tax-cut proposal not be adorned with special breaks for particular industries or groups.

But as soon as Congress completes action on Bush's bill, which would benefit mostly individuals, the high-tech industry is ready with additional measures that would slash its tax bill by $300 billion or more over 10 years.

Many experts believe the high-tech industry, which has enjoyed the strong support of both Congress and the White House over the years, is likely to win some or all of the proposed cuts.

"They've had a very good batting average," said Robert D. Atkinson, director of the Technology and New Economy Project at the Progressive Policy Institute, a Washington think tank. "If any group is going to be able to get things through, it would be the high-tech industry."

High tech owes its popularity on Capitol Hill to the perception that it has been the driving force behind 10 years of uninterrupted economic growth. But now, after boasting it was too busy inventing the future to have any time for Washington, the financially beleaguered sector has joined other industries in appealing to Congress for tax breaks, arguing that the economy depends on high tech's continued success.

The fact that it has recently boosted its campaign contributions hasn't hurt either. Computer makers, telecommunications companies and telephone utilities gave $46.7 million last year, according to the Center for Responsive Politics in Washington. That's 2 1/2 times what they gave in 1996, although it still leaves the industry trailing many other sectors.

One of the tax breaks on high tech's agenda is a 20% tax credit for cable television, local telephone companies and others that wire homes and businesses for high-speed Internet access.

That measure is sponsored by 51 senators and 128 House members and supported by groups ranging from the NAACP to the American Farm Bureau. It is estimated to cost $2.1 billion in lost tax revenue over five years.

Prudential Securities said the tax credit was likely to pass and called it "just the Rx for ailing communications semiconductor stocks." Its report predicted the legislation would spur demand for high-speed cable modems and digital subscriber line service to connect to the Internet, triggering a wave of consumer buying enthusiasm.

Lawmakers also have reintroduced a measure that would repeal the 3% federal excise tax on telephone service, enacted more than 100 years ago to pay for the Spanish-American War. Congress passed such a bill last year, but then-President Clinton vetoed it. The tax averages $1.11 a month; repeal is estimated to cost $55 billion over 10 years.

But by far the biggest piece of the high-tech package would create a category called "high-tech assets" for tax depreciation purposes. Businesses that bought such goods--not only computers and software but also industrial equipment such as chip-etching machines that quickly become obsolete--would be able to write off their entire purchase price immediately when computing their taxes. At present, the cost must be distributed over at least three years.

The measure is backed by a coalition, called the Cost Recovery Action Group, that includes Intel Corp., 3Com Corp. and other high-tech stalwarts. The group estimates that half of the $280-billion-to-$350-billion cost to the Treasury would occur in the first three years.

Ernest Christian, a Washington lawyer and former Treasury Department official who is organizing the high-tech industry's tax-cut campaign, says it would help perpetuate the "new economy." "This has very large bipartisan support," he said.

House Majority Leader Dick Armey (R-Texas) is one of many politicians who have signaled support for the high-tech tax breaks.

"This is a different time, and . . . it requires a little more aggressive economic policy than we needed a year ago," Armey said.

Taxpayers, however, may not watch approvingly as high-tech taxes are cut. A report to be released Sunday by the Pew Internet & American Life Project in Washington found that 67% of Americans who are aware of the recent decline in high-tech stock prices believe investors are to blame for taking too many risks in search of quick profits.

And some experts are skeptical the tax cuts would do much economic good.

Mike Guertin, an analyst at Denver consulting firm Telechoice, said it's not tax breaks but popular software such as Napster that drive demand for high-speed access.

Phone companies, he said, "are only going to go where they can make a lot of money very quickly."

Other experts, though they support repeal of the telephone excise tax, acknowledge that an average reduction of $1.11 a month is not going to have much effect on a $10-trillion economy.

By contrast, many economists support reform of equipment depreciation rules, saying it could provide an economic boost. But some worry that many other industries will demand accelerated depreciation rules of their own.

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