ILPATRICK & CODY

The Honorable Harry F. Byrd, Jr.

May 1, 1980

Page 4

years 1972

1973. The Service has recently refused to follow that decision in connection with Aaron Rents' tax returns for the subsequent tax years of 1974 1976. Rather, the Service has relied on the suspect Revenue Ruling, which was published after the Aaron Rents decision. Thus, contrary to Treasury's suggestion that the Service may cease litigating the issue, Aaron Rents has been forced to pay the disputed tax for tax years 1974 1976 and to file a civil action to obtain a refund. Clearly, then, the litigation has not ended.

In any event, we find it rather curious that while the decision in Aaron Rents, Inc. v. United States was issued in September of 1978, Mr. Halperin advises your Subcommittee that the Treasury has not yet decided whether to modify its interpretation of existing law to conform with Aaron Rents. We think the Treasury has had long enough, over 18 months, to reach a decision on this issue.

We appreciate your Subcommittee's consideration of S. 2415 at the hearing on April 25. If you or your staff have any questions regarding our written submissions, we welcome an opportunity to answer them.

As an organization representing producers of virtually every commodity grown commercially in the United States, Farm Bureau is pleased to offer its support to S. 1384. This bill, introduced by Senator Hatfield, allows a ten-percent tax credit to farmers who contribute surplus, unharvested, or damaged agricultural food commodities to qualified charitable organizations.

At the 61st annual meeting of the American Farm Bureau Federation, the voting delegates of member State Farm Bureaus adopted the following policy:

"We recommend legislation to allow farmers
an income tax credit for the donation of
agricultural products to religious or charitable
organizations responsible for delivering these
products to the world's hungry people. These
organizations should be responsible for keeping
donated agricultural products out of regular
trade channels. We feel that the proposed
income tax credit should include provision for
either carryover or carryback allowances and
should cover all agricultural products used
in international trade."

Farm Bureau policy clearly supports legislation such as S. 1384. It embodies the historical concept of "gleaning" after the harvest to feed hungry people of the world and also utilizes agricultural commodities that might otherwise be wasted.

We encourage the Subcommittee to act favorably on this bill because it represents another opportunity for the free market system to provide food assistance to the world's needy people.

Thank you for the opportunity to present our viewpoint.

Sincerely,

The R. D

Vernie R. Glasson, Director
National Affairs Division

Statement of Frank Bacon

on Behalf of

Machinery Dealers National Association

Senate Committee on Finance

Subcommittee on Taxation and Debt Management
Small Business Tax Matters

This statement is submitted by Frank Bacon, President of Frank Bacon Machinery Sales of Warren, Michigan and Vice President of the Machinery Dealers National Association (MDNA). MDNA welcomes the opportunity to once again urge an immediate reform of the Tax Code to encourage capital formation among smaller corporate taxpayers. We strongly recommend a simple change in the provision dealing with the tax credit available for used capital equipment investments. simple, this needed correction will significantly enhance the core component of inflation among smaller manufacturers. This improvement contains four ingredients we believe essential to adequately encourage capital formation: the potential to increase productivity; the potential to increase employment;

Although

the potential to increase tax revenue; and, the potential to

treat everyone equally.

Several developments have occurred since we last requested this Committee consider removing the arbitrary limitation imposed on used purchases eligible for the investment tax credit and we want to share these with you. These include a report by the Controller General entitled Investment Tax Credit:

Unresolved

Issues (CAD-78-40; May 8, 1978), Congressional committee reports and recommendations in 1978 and 1979, and statements of other business groups to various Congressional committees.

MDNA represents the metalworking industry aftermarket. Our 500 member firms probably account for most of the used machine tools sold in the United States. Because used capital equipment is generally acquired from larger manufacturers and usually resold to smaller manufacturers our members are familar with capital equipment formation activities of both large and small businesses. We compliment your decision to investigate capital formation problems of smaller businesses because although some are similar to, many are different from the problems of large businesses.

One way small companies should overcome the high cost of external financing is to generate more cash internally through a full investment tax credit.

We believe the investment tax credit program was enacted to increase investment and improve productivity, while expanding employment and increasing tax revenue.

And, we agree the credit

has advanced these goals. The credit does create additional replacement investment in newly manufactured equipment, which, in turn, generates economic growth to the extent new equipment is more productive than older equipment. However, the credit also discriminates against a significant segment of our economy: the purchasers of used capital equipment. We believe the credit can increase additional investment in used equipment that will also

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generate economic growth to the extent this replacement equipment is more productive than the older equipment. But, we further believe when the investment tax credit for used capital investments was recommended it was found unnecessary because the only basis of this consideration was the creation of newly manufactured equipment. We believe, this recommendation should be reconsidered because investment and productivity can also be increased with the acquisition of newer (used) machines. When the credit generates additional investment in newly manufactured machinery, it improves productivity at one level and also makes late model used equipment available for another level of the economy.

Of course, in 1962 Congress did recognize smaller corporate taxpayers purchases used capital equipment and did extend the credit to used products. But, a limitation on purchases eligible was arbitrarily imposed so that business would not be induced to sell used equipment to each other in order to repeat the investment credit as often as possible. We believe this notion is fuzzy. We believe it is just as unrealistic as the useful life concept of a depreciable asset. Moreover, the limitation seems to overlook the fact that all levels of economy have the potential to create new jobs, improve productivity, and increase tax revenue.