Secret Little Deals in the New Tax ‘Reform’

By Sydney H. Schanberg

New York Newsday, June 17, 1986

The little guy — that fellow often depicted in cartoons as the hapless, beset John Q. Public — has forever dreamed of having fair taxes, taxes that fall with equal weight on all citizens regardless of race, creed, religion or magnitude of clout.

That’s the supposed idea behind the major tax revision bill now making its way through Congress. But there are nagging reminders in this legislation that the powerful are always a little more equal than the rest of us.

These reminders are known as transition rules, exceptions that apply only to a particular company, individual or project. The stated good-government purpose of transition rules, which have become an accepted part of every tax bill, is to protect projects, particularly community projects that have long been under way, from being unduly harmed by sweeping tax changes. This protection is provided by keeping in effect, for these taxpayers, the provisions of the old tax law. The argument for these special privileges is that the projects were carried forward on the anticipation of receiving the old tax benefits, such as depreciation allowances and investment tax credits. 

That’s the civics book lesson — and it does in fact apply to a good number of the projects on the special list. But too many on those list are little more than favors to bigness, to the powerful, to those who know how to get a legislator’s attention with campaign contributions, to those who have the money to hire a heavy-hitting lobbyist.

The roster of beneficiaries from New York would seem to exemplify this mix — combining a substantial share of worthy projects, such as six solid-waste disposal facilities now in the pipeline, with some questionable ones.

In the latter category is a project known as River Walk — a $500-million, 30-acre, luxury real estate development on the East River from 16th to 24th Streets that is nearing the construction stage. It is opposed by the neighboring communities as too huge and out of scale with the district around it. The transition rule for River Walk, which would preserve the current law’s depreciation benefits and investment tax credits and would thus save the private developer $45 million, was inserted in the new tax bill by Sen. Daniel Patrick Moynihan (D-N.Y.) at the request of the Koch administration.

This is a project that was the object of fierce bidding competition by many major developers, all of whom foresaw big profits because of the attractiveness of the waterfront site. River Walk is already slated to receive tens of millions of dollars in New York City property tax abatements. The question is, does it need still more incentives to come to fruition at a reasonable profit?

Also questionable is $15 million in tax relief for Merrill Lynch & Co. This transition rule would keep in force the existing investment tax credit provisions for certain equipment involved in the construction of the brokerage concern’s new two-tower headquarters in Battery Park City.

Another doubtful entry is the large project that will replace the New York Coliseum with a complex of offices, luxury condominiums and a hotel in Manhattan’s Columbus Circle. Sen. Alfonse D’Amato (R- N. Y.) has sponsored this tax gift. His staff declined to say how much the developers — a partnership of Boston Properties (headed by Mortimer Zuckerman) and Phibro-Salomon, the financial services conglomerate — would save.

D’Amato was also responsible for giving special treatment to the builders who will carry out the $2-billion Times Square Redevelopment Plan (a project that Moynihan refused to shepherd because of the present cloud of scandal that hangs over certain part of it).

This undertaking includes 4 huge office toward, a 2.4-million-square-foot merchandise mart, a 550-room hotel and much more. Again, the D’Amato staff would give no figure on the tax savings involved.

The inherent problem with these favored-status provisions in the tax bill is that they are not debated in the open and that no financial analysis is produced for the public to judge whether the need for special treatment exists.

The transition rules are instead a function of the horse-trading that goes on in the process of forging a consensus on tax bills. Each senator and representative tries to protect projects in his or her home state. The requests for protection come from varied sources — city and state governments, developers, business corporations, Washington lawyers and lobbyists.

Also, the chairmen of the finance committees use transition rules to reward legislators who have been supportive of them on the tax bill and to punish those who have not. Once the bills reach the floor of the House and Senate, transition rules are rarely challenged by the bodies as a whole.

As now drafted, the transition rules in the Senate version of the bill would cost the federal treasury over $1 billion a year and those in the House bill five times that much.

The great promise of tax reform lies in the prospect of making taxes more equitable, closing the loopholes of the powerful, giving the average taxpayer the very comfortable feeling that he is being treated as fairly, or at least almost as fairly, as the big guys.

What the transition rules do — certainly by including those that are so obviously private deals — is to create the opposite impression, the impression that, in the middle of putatively carrying out reform, the good old boys in Washington are doing business as usual.

Why is it that almost all the beneficiaries are big projects and big companies? Surely there are thousands of small companies who embarked on expansion projects in the anticipation of receiving those investment credits and depreciation benefits. But those companies can’t afford to hire lobbyists and don’t know how to get the attention of mayors, governors, representatives and senators.

D’Amato’s chief aide, Michael Kinsella, said that without the special tax treatment conferred by the transition rules, “a lot of on-going development would cease.”  He then acknowledged that the senator, not a favorite of the Senate Finance Committee chairman, Bob Packwood (R-Ore.), was unable to gain inclusion of all the transition rules he requested.

Could he provide a list of those who didn’t get in? No, was the answer. Why not? “Because,” Kinsella said, “this involves business enterprises who are [now] making other financial arrangements that are not as tax sensitive.”

Doesn’t this mean that they didn’t need the special tax relief in the first place? “Not necessarily,” said the D’Amato aide.

This corner disagrees. I think the case has not been made that all these special tax favors are needed. Let there be a public debate.

Powered by WordPress. Designed by WooThemes