SUMMARY OF POINTS MADE BY THOMAS M. EVANS OF 1969 The following is a summary of the three points in the proposed Tax Reform Act of 1969, which are the subject of my testimony and statement. 1) Objection to the disallowance of the use of accelerated depreciation methods with respect to real property as provided in Section 521 of the proposed bill, because when considering the high cost of money, labor and construction materials, all possible means of encouragement should be given to the building business. 2) Objection to the reduced charitable contribution on donative sales as provided in Section 201(c) of the proposed bill, because the changes in the law would not increase government revenues but only decrease charitable giving. 3) Objection to the proposed legislation regarding the breeding business as provided in Section 213 of the proposed bill. Instead, any present abuses could be corrected by providing for recapture of depreciation on sales of breeding animals, in the same manner applied to the sale of machines in the manufacturing business. CONCERNING THE TAX REFORM ACT OF 1969 I am Thomas M. Evans, Chairman of Crane Co. and H. K. Porter Company, Inc., and I also operate a horse breeding farm, Buckland Farm, in Gainesville, Virginia. It seems to me there are a number of serious faults in the House approved Tax Bill, but there are three important points that I would like to discuss briefly: 1. Proposed Changes in Real Estate Money is tight now and I think we need every incentive to add new capital to the building industry because not only are we short of housing, apartments, factory buildings, etc., but also the cost of financing has gone up as well as the cost of building. Consequently, in my opinion, it would be harmful to change the depreciation regulations in such a drastic manner. 2. Proposed Changes in Donative Sales It seems to me to eliminate donative sales, i. e., selling securities at cost and donating the difference, is removing an important source of income for small colleges and other worthwhile charitable organizations. In my opinion, putting a capital gains tax on the gift would not increase the Government revenue, but instead, people just would not make the gift. 3. Proposed Changes on Limitations of Deductions Allowable To Individuals in Certain Cases The proposed legislation regarding the horse racing business is, in my opinion, completely unnecessary since the abuse is coming from the provision regarding recapture of depreciation. If the animal is depreciated 33-758 - 69 No. 13 - 10 as a business expense and later sold at a profit, the amount of depreciation taken should be recaptured at regular income tax rates, the same way that machinery sales are taxed to manufacturing business. Apparently, when the law was written regarding animals used in business, this provision was overlooked and should be put into the law which would eliminate the abuse, and would not hurt legitimate people in the breeding and horse racing business. Considering the revenue horse racing brings state governments, as well as the employment of unskilled labor that it provides, it would indeed be a mistake to pass this legislation that would practically eliminate any new people from going into the business. 4. Conclusion I appreciate the courtesy extended to me by your Committee and I ask that you consider my comments in these three areas in your deliberations in connection with the passage of the Tax Reform Act of 1969. Section 221 of H.R. 13270 would amend Section 163 of the Internal Revenue Code of 1954 (relating to the deductions for interest) by placing a limitation on the amount of "investment interest" which certain specified taxpayers could deduct. "Investment interest" is a term which is specifically defined by the new provisions. The undersigned respectfully submits that the proposed amendment to Section 163 is unsound both from a policy standpoint and in certain respects from a technical standpoint. Further, that the effect of this amendment will result in unfairly penalizing taxpayers who had made certain business decisions and closed transactions before they could have obtained any knowledge of the effect of this proposed new leglislation. A. Analysis of Statute. Section 221 would add a new subsection (d) to Section 163 of the Internal Revenue Code, which new subsection would be entitled "Limitation on Interest on Investment Indebtedness". This section would apply in the case of every taxpayer other than a corporation, (except an electing small business corporation as defined in Section 1371 (b)). Under this provision, the amount of "investment interest" which a taxpayer covered by the amendment would be entitled to deduct during a taxable year is limited to the sum of (i) Twenty-Five Thousand Dollars ($25,000.00), (ii) the amount of his "net investment income" and (iii) an amount * Submitted by Stanley R. Fimberg, Beverly Hills, California. |