Politicians Urging Passage of Breaks

From Washington to Sacramento to the L.A. County Hall of Administration, politicians are rushing to figure out how to get tax breaks to businesses that have been hit by the economic fallout from the Sept. 11 terrorist attacks.

Tax repeals, investment tax credits, increased tax deductions and even postponement of property tax payments are all on the table, along with an array of other measures. Some are aimed directly at the hard-hit travel and tourism industries, especially businesses at and around airports; others are more broad-based, designed to jump-start the economy as a whole.

“With the dire straits these businesses and the overall economy are in, I’d be very surprised if legislators don’t pass some of these tax breaks,” said Fred Main, senior vice president of the California Chamber of Commerce.

Last week, the Republican-controlled House of Representatives passed a $100 billion economic stimulus package that included $70 billion in tax cuts for business, much of that coming from the repeal of the alternative minimum tax. The Democrat-controlled Senate was considering a smaller package, with about $20 billion in temporary tax cuts for business.

At the other end of the spectrum, L.A. County Assessor Rick Auerbach this month implemented a rarely used tax code provision that sharply reduces property taxes for businesses that were affected by the government shutdown of Los Angeles International Airport. Auerbach said he expected this would save airport businesses cumulatively up to $500,000.

And the state Franchise Tax Board also granted tax filing extensions to individuals and small businesses directly impacted by the terrorist attacks.

Other proposals are expected to surface later this week at state and local economic summits in the L.A. area. Among the statewide measures: expanding investment tax credits and loss carry-forward provisions and suspending the jet fuel tax. On the local level, city and county officials may receive recommendations to give companies the ability to delay utility tax payments, among other things.

Too little, too late?

Even as these measures are being debated and passed, local economists expressed doubts that the measures would come in time to help the most severely impacted businesses.

“This is my biggest fear, that the tax credits may take too long to get passed and implemented,” said Esi Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. “Aid has got to get to those businesses facing a cash crunch in the next few weeks. If we wait three to six months, the economy will either bounce back on its own or all this will be viewed as too little, too late to stop the recession from snowballing.”

Officials at both the state and local levels concede that only Congress has the ability to pass tax breaks quickly enough to have this immediate impact. For starters, the state Legislature is not even in session until January, unless Gov. Gray Davis calls for a special session.

Beyond that, the federal government has more fiscal flexibility: it can run a deficit. State and local governments must balance their books, which limits their ability to forego revenues in an already slumping economy and leaves them with few palatable choices.

That’s why so much state and local attention has focused on Congress in recent weeks. Even before the Sept. 11 attacks, local officials, including L.A. Mayor James Hahn, were in Washington lobbying for funds. (Hahn was stuck in Washington on the 11th when the terrorist bombings occurred.)

After Sept. 11, officials have looked to Washington to take the lead in responding to distressed businesses.

“We are waiting to see what the feds come up with first and then we’ll look at how to supplement and strengthen it,” said one state legislative committee staffer.

But one local economist said he has some concerns about the emerging federal tax relief package.

Tom Lieser, executive director of the UCLA Anderson Forecast, said, “What we’re seeing now, especially at the federal level, is more of a Christmas-tree approach, beginning with the airlines and extending to others that are successful in arguing that they were victims of terrorism. It’s all rather arbitrary. Many of the small businesses most in need aren’t getting the aid.”

Lieser added that the process has resulted in tax breaks going to many businesses that were suffering prior to Sept. 11, including the airlines themselves.

Overall downturn a factor

That is one of the major difficulties all levels of government are facing as they put together tax relief packages: separating out the effects of the broader economic slowdown that has been going on for the past year from the direct impacts of the Sept. 11 attacks.

“The key question is where do you draw that line?” Main said. “That’s where the real debate is going to be in coming weeks and months. Should businesses not in the travel and tourism and hospitality sectors also be included in these tax relief packages?”

The chamber is now evaluating proposals for both groups of businesses. Among the measures: expanding investment tax credits for companies so that they can buy new equipment; increasing the net operating loss carry-over (to future years) from the current 65 percent to 75 percent or more; reducing or eliminating the jet fuel tax; and increasing entertainment tax deductions for businesses.

Some of these proposals may be presented this Friday at an economic summit being hosted by Gov. Gray Davis and Walt Disney Co. chief executive Michael Eisner at Disney’s studios.

Davis spokesman Steve Maviglio said the summit will provide crucial input for the governor as he considers whether to put forward his own targeted tax relief package.

Similarly, L. A. Mayor James Hahn is awaiting recommendations from a task force that he assembled to look into the economic impacts of the Sept. 11 attacks. Task force chair George Kieffer said that tax breaks were not high on the list of priorities. Rather, he said, the task force is looking at delays or reductions in lease payments for businesses on airport property and, possibly, delays in utility payments for other businesses in the travel and tourism industry.