The repeal of the investment tax credit and various reform provisions contained in H. R. 13270 would increase the tax burden of corporations by $4.9 billion. This increased burden would affect the ability of corporations to meet their present productivity and employment levels, would lead to increased prices, and weaken the competitive position of U.S. industry in international trade. To offset the adverse effects of this increased tax burden, a compensatory corporate tax rate reduction is recommended.

2. Deferred Compensation (Section 331)

3.

The proposed new rules for taxation of deferred compensation are unnecessary and unsound and would lead to extremely difficult compliance and auditing problems. We recommend deletion of this provision as proposed by the Secretary of the Treasury.

Fifty-percent Maximum Rate on Earned Income (Section 803)

We endorse the concept of placing a maximum tax rate of 50% on earned income, and recommend that deferred compensation, bonus awards, and all payments attributed to either qualified or non-qualified employer plans which are considered as ordinary income be treated as earned income for the purposes of this section.

We recommend that the controlling date for transfers under pre-existing plans be changed from February to April 1, 1970, to give corporations more time to accommodate to this provision.

5. Total Distributions from Qualified Pension, Etc., Plans (Section 515)

6.

7.

8.

We believe the current rules provide a relatively simple and equitable basis for taxing lump sum distributions accrued to an individual over a substantial portion of his employment career and recommend against the change proposed in Section 515.

Moving Expenses (Section 231)

The $2,500 limitation on deduction of certain moving expenses is considered inadequate; the removal of this limitation is recommended.

The bill would change the distance test to qualify for a moving expense deduction from 20 to 50 miles. We recommend retention of the 20 mile test as proposed by the Administration.

Effect on Earnings and Profits (Section 452)

The amendment proposed in this section would create substantial hardships in the corporate foreign income area. We recommend that this section be modified to make clear that its provisions do not apply to the computation of earnings and profits of foreign subsidiary corporations.

Real Estate Depreciation (Section 521)

We recommend that the new, more restrictive rules on depreciation provided in this section not apply to industrial real property, but that full recapture of depreciation be provided for to the extent of gain on later sale of the property.

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10.

We recommend: (a) extension of the foreign tax credit to all situations where the U.S. imposes Federal income tax on undistributed profits of foreign corporations under Subpart F; (b) the reduction of the 50% stock ownership test in section 902 (b) to 10%; (c) the extension of the foreign tax credit to foreign corporations which are below the second tier and are connected by a 10% stock ownership.

Alternative Capital Gain Rate for Corporations (Sec. 461)

We recommend against the increase from 25% to 30% proposed in section 461 relating to the alternative capital gain rate for corporations.

11. Natural Resources (Sec. 501)

As a reduction of percentage depletion rates would undoubtedly lead to higher costs to the chemical industry for petroleum feedstocks and mineral raw materials, we recommend retention of the existing percentage depletion rates for natural resources.

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My name is George S. Dillon. I am President of Air Reduction

Company, Incorporated.

I am appearing before you today on behalf

of the Manufacturing Chemists Association, a non-profit trade association of 174 United States company members representing more than 90 percent of the production capacity of basic industrial chemicals within this country. In addition, our companies carry on extensive international operations throughout the world.

Based on a detailed analysis of the provisions of H. R. 13270, we find that many of its proposals would, if enacted, have a significant impact upon the U.S. chemical industry. We particularly appreciate, therefore, the opportunity to present to this Committee the Association's views on this comprehensive tax measure.

CORPORATE RATE REDUCTION

The recently passed House tax measure, after full implementation, provides for a net revenue loss of $2.4 billion. Although entitled "The Tax Reform Act of 1969," its major impact represents a redistribution of current tax obligations from individuals to business.