Victory for Dillon

Berlin may yet compel the President to call for higher taxes, but last week the powerful House Ways & Means Committee went along with the Administration's tax incentives to spur business expansion and modernization. The committee voted in favor of a plan to give every businessman a tax credit equal to 8% of the amount that he invests in new equipment. This was an unexpected victory for Treasury Secretary Douglas Dillon, though he actually wanted more--a credit of 15% of any amount that a businessman spends for new equipment above what he spent the year before.

The 8% credit would cost the Treasury about $1.2 billion yearly in taxes, but presumably this would all come back in the long run if the scheme successfully increases business profits and, with them, tax revenues. Furthermore, the Administration hopes to make up $900 million of the cost by plugging loopholes in the tax laws. Loophole plugging tentatively endorsed by the Ways & Means Committee last week:

P: A 16 1/2% withholding tax on dividends and interest payments, which often go unreported. Expected new revenue: $537 million.

P: Tougher restrictions on expense-account entertainment, obliging businessmen to prove that their write-offs created hard sales instead of simple good will.

P: Slightly higher taxes on dividends that corporations receive from overseas subsidiaries and investments.

P: A limit, as yet unset, on the amount that U.S. citizens who are long-term residents overseas may earn without having to pay U.S. taxes.

Ways & Means handed Dillon only one major setback. He has long argued for power to get after U.S. companies that locate subsidiaries in low-tax countries, e.g., Liechtenstein, and keep the profits abroad to avoid or delay paying U.S. taxes. But opposing businessmen argued that Dillon would jeopardize legitimate business investments abroad. Ways & Means agreed, shelved his proposal for another year.

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