Down with Deductions

If John Kennedy has his way, the era of the tax-deductible yacht and the three-martini expense-account lunch will soon be at an end. Last week, in his long awaited tax message to Congress, the President demanded a crackdown on expense-account living as one step in a program designed to raise $1.7 billion in new revenue by correcting the tax structure's "defects and inequities." The additional tax income is counted on to offset a seductive new plan aimed at jogging the slow rate of business investment in new factories and equipment.

Under Kennedy's incentives proposal, corporations, partnerships and individuals could earn savings of up to 30% in their tax liability for investment in new plant and equipment located in the U.S. and having a tax-depreciation life of at least six years. Treasury officials estimate that the offer, if translated into law, would involve an annual loss of $1.7 billion in Government revenue. At the same time, the tax credit could prove to be a sharp-pointed spur to the economy: it is designed to provide a $5 billion boost in gross national product during the first year--and to create 500,000 new jobs.

To pay for the plan, Kennedy asked Congress for a host of revenue-raising footnotes to the incentive legislation, took sharpest aim on the "widespread abuses" in tax-deductible business entertainment. Treasury officials hope to raise at least $250 million by closing such barely justified loopholes as tax deductions for the maintenance of hunting lodges as business necessities, expensive business gifts, personal expenses incurred on combined business -and - pleasure trips, excessive travel expenses (possible limit: $24 a day). Kennedy's point: "The slogan 'it's deductible' should pass from our scene."

Among Kennedy's other tax-raising proposals:

P: Repeal of the individual deduction of the first $50 in dividend income, and of the 4% credit on dividend income over $50 (estimated revenue increase: $450 million).

P: A 20% withholding tax on corporate dividends and "taxable investment-type interest" ($600 million).

P: Application of straight rates rather than the lower capital gains schedule on the sale of depreciable business property ($200 million).

In his message, Kennedy promised even more far-reaching changes next year. But how much of his original request will get into law is debatable. Washington's labor lobbies, already warming up for House Ways & Means Committee hearings on the message next month, claim that the investment incentive will only encourage corporations to create greater unemployment by building automated plants. Business groups complain that some of the new taxes wipe out the very funds earmarked for plant investment. "By the time he's through," complained one industry spokesman, "he's given an incentive of $1.7 billion, and taken that and more out of the savings stream. And how that is a way to develop incentive, I don't know."

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