The gap between Clinton’s message and what the Democratic Congress is doing offers a hint of how hard it is to change anything in Washington. After all, congressional Democrats are only doing what many of them do best: protecting the folks who underwrite their campaigns. Consider. only a quarter of the $21.8 billion approved by the Senate Finance Committee last week will go to the cities. The rest is a grab bag of tax incentives, unrelated to urban aid.
Old-style Democrats are the biggest backers of the tax breaks. Senate Finance chairman Lloyd Bentsen has long been a human magnet for lobbyists and has pushed the full range of business add-ons. In the House, Ways and Means chairman Dan Rostenkowski, a 33-year veteran, is the godfather of a provision that would allow corporations and investment-banking firms involved in takeovers to write off “good will,” the estimated value of a company above the assets it holds. Rostenkowski tried to make the measure retroactive so deals launched in the ’80s would be rewarded. It was voted down in committee 22-11 over Rostenkowski’s strong objections.
But the fight isn’t over. The current measure–if approved by the Senate as part of the urban-aid bill–would create for the first time a direct tax subsidy for companies participating in a buyout. “It is a ripoff for investment bankers,” says GOP Rep. Jim Leach. The full Senate is expected to vote this week on the good-will provision. If it passes, government students will notice the link between yes votes and campaign contributions from the investment-banking community.
Among other special-interest goodies:
Remember the so-called passive-loss deductions? Partly to blame for the hyperactive real-estate market of the'80s, they were eliminated in the Tax Reform Act of 1986. Now they’re back to allow real-estate developers to write off losses on rental property. “This doesn’t include the dentist in New Jersey,” says a Senate staffer. In what passes for self-restraint on the Hill, real-estate dabblers don’t qualify for the deduction, at least not yet. The National Association of Realtors, the largest funder of political campaigns, gets credit for pushing this one through.
It’s hard to believe that anyone who could afford a yacht, a private airplane, a fur coat or expensive gold jewelry would be deterred by a 10 percent luxury tax. But Democrats argued it was the tax–and not the recession–that was responsible for slumping sales of these items. The tax will be repealed, thanks in large part to Majority Leader George Mitchell, whose home state of Maine is dependent on shipbuilding for jobs.
Corporations would be able to deduct the cost of advertising their sponsorship of charitable events like celebrity golf tournaments.
While such breaks are great for corporate America, taxpayers will feel the pinch. The good-will deduction raises a little money in the first three years (mainly because it settles ongoing legal disputes). But the Joint Committee on Taxation estimates it would lose $1.4 billion by the sixth year. Repeal of the luxury tax will drain the Treasury by $500 million. " It’s a Wall Street Relief Act, that’s what it is," says Leslie Nulty, an economist with the United Food and Commercial Workers International Union, whose members lost jobs in the megamergers that swept the supermarket industry. The lesson of the ’80s was that small favors to special-interest groups can have a profound impact on the economy. If certain lawmakers have their way, it could be a lesson of the ’90s as well.
