News of the Week ing and applied mechanics; and an office of interdisciplinary research. Those categories will go. The proposed organization would include three divisions devoted to "basic research in engineering/ / a division for developing a science base for fields that presently have none (such as design and aspects of computer technology), another for d e v e l o p i n g the "basic research infrastructure in emerging technologies/' and a sixth in "basic research for critical technologies." As one observer points out, "NSF is trying to be responsive to what industry is going to need in the longer run. Younger Turks in engineering and many deans know that the field now has to go beyond narrow disciplines. And Suh is responding to that." D
Treasury tax proposal for industry is complex A comprehensive plan to reform the U.S. income tax structure proposed last week by the Treasury Department has been neither heralded nor condemned by industry. Because of the complexity of the proposed changes, they will require a lot of study before their real impact on chemical companies or the entire industry can be determined.
The main business proposals involve cutting the maximum tax rate for corporations from 46% to 33% and repealing the investment tax credit and accelerated cost recovery system. The impact of these and other changes would be to lower the tax rate but keep tax revenues about the same by increasing the tax base. A number of changes would affect specific industries, as well. The petroleum industry is one of those singled out because of several provisions in the current tax code that Treasury claims have given it preference over other industries. Changes would include repealing the deductions for "intangible drilling costs" and dropping the cost depletion allowances in favor of an inflation-indexed depletion deduction. The proposal also, however, calls for accelerated repeal of the windfall profits tax. Another item of interest to the chemical industry is retention in the tax proposal of the tax credit for research and development, although in a somewhat revised form. To improve this credit's effectiveness, Treasury recommends that the scope of covered expenses be narrowed to include only those private research activities that are likely to lead to technological i n n o v a t i o n s . This might push industry away from basic research and force it to focus more on applications.
Treasury plan urges major changes in business taxation Treasury proposal
Current law
Bad-debt reserve deduction Capital gains
Yes 60% excluded
Corporate tax rate
Graduated, up to 46% Accelerated cost recovery system $100 or $200 exclusion Deducted Fully taxed Deferral
Depreciation Dividend relief Interest expense Interest income Installment sales Inventory accounting Last-in, first-out conformity required First-in, first-out Investment tax credit Rehabilitation and energy credits Uniform production cost rules Source: Department of the Treasury
8
December 3, 1984 C&EN
No Indexed, taxed as ordinary income 33% flat rate Economic depreciation, indexed Exclusion repealed; 50% dividend-paid deduction Partial exclusion Indexed No deferral if receivables pledged
Yes
No
Not indexed 6 to 10% Yes No
Indexed Repealed No Yes
As a first stab at major tax reform, the Treasury's work has not received bad reviews. But its impact is going to take a while to figure out, and other reform proposals are sure to surface, as many did in the most recent session of Congress. There is also some feeling that the whole exercise is premature when there are such large budget problems that should be dealt with first. D
Carbide closes Puerto Rican chemical plant Union Carbide plans to suspend operations temporarily at its petrochemicals complex in Ponce, P.R., at the end of January. About 750 jobs will be affected. Like others in Puerto Rico, the petrochemical facility is the victim of high petroleum prices. Alex Ragan, chairman of Union Carbide Caribe, the subsidiary that operates the plant, says that he regrets the action has to be taken. "[Although] Ponce is a state-of-the-art plant, world events have pushed relative feedstock costs there much higher than on the U.S. Gulf Coast. We've made every effort, but we cannot obtain satisfactory results given today's state of the worldwide petrochemical business/' he says. Customers who are being supplied from the Ponce plant will receive products from Carbide's Gulf Coast facilities. The major petrochemicals affected by the shutdown include ethylene (910 million lb of capacity), ethylene glycol (650 million lb), butyl alcohol (275 million lb), and glycol ethers (110 million lb). Ragan says that suspension of the Ponce facilities will have a negligible effect on Carbide's other operations in Puerto Rico. Carbide will continue to operate a film plant in Barceloneta and a graphite electrode plant in Yabucoa. Total Carbide employment after the shutdown will remain at about 795. Since the plant has been put on temporary suspension, there will be no nonrecurring effect on earnings, a spokesman says. But the shutdown of the plant, which was operating at a loss, will have a positive effect on corporate earnings in general. D
