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U.S. CHAMBER URGES RESTRUCTURING OF CLINTON ECONOMIC PLAN

 WASHINGTON, May 10 /PRNewswire/ -- The U.S. Chamber of Commerce has urged that President Clinton improve his economic plan by eliminating certain onerous business tax provisions and expanding economic-growth incentives.
 "After careful evaluation, the chamber's board of directors concluded last week that President Clinton's economic program as presently constituted will not work," said Richard L. Lesher, chamber president.
 "We intend to work vigorously with the Clinton administration and Congress to craft an improved package for fostering long-term economic growth and sustained deficit reduction," he added.
 In a letter to all members of Congress today, William T. Archey, senior vice president for policy and congressional affairs, said the board called for another serious attempt to look for further spending cuts and reaffirmed its stand that all spending cuts must be in place before any tax increases are enacted.
 The chamber opposes tax proposals that would:
 -- Impose a $71.5 billion tax over six years on the heat content of fossil and nuclear fuels and hydropower. The chamber has joined other associations and coalitions to fight the proposal.
 -- Increase by nearly $1.8 billion over six years the taxes paid by U.S. companies on royalties received under licensing agreements in foreign countries.
 -- Raise the top corporate tax rate to 36 percent from 34 percent, increasing revenues by $30.6 billion over six years.
 Lesher noted that the BTU tax not only would raise costs for producers and users, but would have an inflationary impact throughout the economy.
 "The board decided a BTU tax is not the way to go," he continued.
 "To our dismay and disappointment," Lesher said, "the focus of the president's plan seems to have turned away from the overwhelming priority of our membership, which is deficit reduction."
 While opposing specific tax hikes, the chamber board voted to support these pro-growth incentives in the president's package:
 -- A small business investment tax credit of 7 percent on qualifying expent?ures between Dec. 3, 1992, and Dec. 31, 1994, that exceed investments from a base period of 1987 to 1991 or 1989 to 1991.
 -- Modification of the existing alternative minimum tax to allow corporations to use one depreciation period for each asset for both regular and AMT taxes.
 -- Allocation to U.S. source income of 100 percent of research and development expenses.
 -- Reinstatement of the following tax provisions that expired last year:
 -- Exclusion of employer-provided education assistance from
 employee taxable income.
 -- A research and experimentation tax credit of 20 percent to the
 extent that a company's qualified research for the current
 year exceeds its base amount for that year.
 -- A tax credit to encourage employers to hire workers from
 specific groups, including disadvantaged youths, Vietnam
 veterans, ex-convicts, welfare recipients and those referred by
 vocational rehabilitation agencies.
 -- Authority to issue mortgage bonds to finance the purchase or
 rehabilitation of single-family owner-occupied residences
 within the jurisdiction of the government issuing the bonds.
 -- A 25 percent deduction on health insurance costs paid by the
 self-employed.
 The text of the letter to Congress follows:
 The Board of Directors of the U.S. Chamber of Commerce has announced its strong opposition to key provisions of President Clinton's economic program, including the British Thermal Unit (BTU) tax, treatment of royalties as passive income, and increases in the corporate tax rate. We urge your opposition as well so that a package which fosters long- term economic growth and sustained deficit reduction may be assembled and enacted.
 The President's package also contains a number of provisions that we support: modification of the alternative minimum tax depreciation schedule; establishment of a small-business investment tax credit; allocation of research


and experimentation expenses to place of performance; and extension of a package of expiring tax provisions.
 As currently written, the President's package will weaken the U.S. economy, resulting in job loss. The interests of many small businesses, historically the sector of greatest job creation, will be adversely impacted. Instead of the present approach, greater emphasis must be placed on spending cuts. Moreover, these cuts must be implemented before any new or increased taxes are enacted.
 During the coming weeks the Chamber Federation, consisting of 220,000 members, will be working closely with others in the business community, as well as with Congress and the White House, to modify the President's package. Attached is a fact sheet providing further details of our concerns and comments with respect to the President's package.
 We look forward to joining you and your colleagues in crafting a package that truly makes for a healthier U.S. economy and a stronger America.
 The Administration's Economic Package:
 Views of the U.S. Chamber of Commerce
 The U.S. Chamber of Commerce believes the administration's economic package, as currently constituted, will not achieve its objectives of long-term economic growth and sustained deficit reduction. The proposed level of net tax increases is too high, and will have a detrimental effect on the U.S. economy. The Chamber believes that spending restraint, coupled with effective investment incentives, represents the most viable path to economic growth and deficit reduction. Specifically:
 The Chamber Opposes
 -- BTU tax -- would impose a substantial tax on certain fuels based on their energy content, measured in British Thermal Units (BTUs). The tax would be assessed at $0.257 per million BTUs for natural gas, coal, and electricity, and at $0.599 per million BTUs for most petroleum products. The administration proposal now embraces numerous exemptions designed to neutralize opposition to the tax, but which do not cure its underlying flaws. The tax is regressive, costing the average family several hundred dollars per year. The tax would also disproportionately impact energy-intensive industries, including manufacturing and agriculture. Because it is not rebatable for exports, the BTU tax would hurt U.S. competitiveness by increasing the cost of American products overseas.
 -- Treatment of royalty income -- for purposes of the foreign tax credit limitation, royalty income with respect to certain intangible property would generally be treated as passive income. The provision will have a significant adverse impact on American companies, reduce domestic R&D, and reduce the level of foreign earnings repatriated. Rather than promoting domestic economic growth, the passive royalty provision would impose a prohibitive tax increase on the development of U.S.-based technology and would deter capital investment in the U.S.
 -- Increase in the corporate tax rate -- The administration proposes an increase in the corporate tax rate from 34 to 36 percent. This would put pressure on already slim corporate profit margins, and disadvantage U.S. firms in the competitive global market. Corporations depend on cash flow to invest and create new jobs. Reducing corporate cash flow by nearly $31 billion in a fragile economy runs counter to the president's goal of increased investment and jobs creation.
 The Chamber Supports:
 -- Modification of AMT depreciation schedule -- Many capital- intensive businesses are subject to the alternative minimum tax (AMT) system, which has the effect of discouraging investment and replacement of productive equipment. The administration proposal would eliminate the current adjusted current earnings depreciation adjustment (ACE), a major disincentive to investment, and allow AMT taxpayers to use a more accelerated depreciation method. This proposal is a good first step toward AMT reform which should be broadened to include investments made in 1993.
 -- Small business investment tax credit (ITC) -- a permanent, non- incremental ITC would apply to firms with gross receipts of less than $5 million. The credit would encourage investment by small and medium- sized businesses in productive equipment, thereby increasing productivity and income growth. The permanence of the credit would bring predictability to this unstable area of the code, and allow firms to rationally plan investments into the long term. Because the credit is non-incremental, it would not penalize companies that have already invested heavily.
 -- Allocation of research expenses -- The Clinton package would allocate the expense of conducting research in the U.S. to domestic income; the expense of conducting research abroad would generally be apportioned on the basis of gross sales. This would greatly simplify the current rules for allocating research costs, and would encourage firms to conduct research activities in the U.S.
 -- Extension of expiring provisions -- The administration supports permanent extension of the so-called "extenders," a package of tax incentives which includes the R&D tax credit, the targeted jobs tax credit, the low-income housing tax credit, the tax credit for solar and geothermal equipment, and an exclusion for employer-provided educational assistance. Congress has extended these provisions on an annual basis in recent years. The business community needs a stable and consistent tax environment; permanent extension will provide more predictability for taxpayers who rely on these incentives in their investment planning.
 -0- 5/10/93
 /CONTACT: Thomas Love of the U.S. Chamber of Commerce, 202-463-5682/


CO: U.S. Chamber of Commerce ST: District of Columbia IN: SU: EXE

KD-MH -- DC025 -- 2509 05/10/93 13:29 EDT
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Date:May 10, 1993
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