VOL. 123 | NO. 25 | Wednesday, February 6, 2008
Manufacturers Assoc. Promotes Proposal To Lower Corporate Capital Gains Tax
By BREE FOWLER | AP Business Writer
NEW YORK (AP) - As worries about a looming recession and its possible effects on U.S. manufacturers increase, industry groups are promoting a proposed cut to the corporate capital-gains tax as a way to help make U.S. companies more competitive and boost the economy overall.
But some economists say that although the cut probably would result in a short-term burst of capital gains deals that would boost tax revenue, its long-term effect on the overall economy would most likely be limited.
Under the proposal backed by the National Association of Manufacturers and other groups, the long-term corporate capital-gains tax, which has stood at 35 percent since 1986, would be lowered to 15 percent.
The manufacturers group argues that reducing the rate would get rid of a "tax wedge" that makes many business deals economically unfeasible and stops companies from investing the proceeds that they would have earned from the sales of assets back into their businesses.
"I'm a CEO and I have to make these decisions and I can't tell you how many times I've seen transactions that work on a pretax basis, but on an after-tax basis I say, 'We can't do that,'" said James S. Tisch, chief executive of Loews Corp. and a backer of the proposal.
Tisch also argued that the lower tax rate would result in more companies going forward with transactions that had previously been on the back burner, resulting in more tax revenue for governments in the end.
Ethan Harris, chief U.S. economist for Lehman Brothers, said a cut to the corporate capital-gains tax would likely result in a quick spike in tax revenue, but questioned whether it would change corporate behavior in the long term.
"I would think there would be some benefit in that respect, but I wouldn't think it would be very big," Harris said. "I wouldn't think of something like this as being at the top of my list as part of a stimulus plan."
John Engler, NAM's president and chief executive, said that with the economy being a hot topic in this year's presidential campaign, along with calls from both sides of the isle for an economic stimulus plan, the time is right for a proposal to cut the tax.
"I think that this becomes very attractive if it's being explained in the context of what it means in terms of U.S. business activity being out of sync with the global situation, the global reality," Engler said. "There's a lot coming together here. It could be the perfect situation developing."
Although their proposal didn't make it into the House version of the economic stimulus plan, the group said it expects legislation that would reduce the tax rate to be introduced next month.
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