Imagine, if you will, that you are a tall, bald father of three living in a Northeast Philadelphia rowhouse and selling aluminum siding door-to-door for a living.
Imagine that you go to your congressman and ask him to insert a provision in the federal tax code that exempts tall, bald fathers of three living in Northeast Philadelphia and selling aluminum siding for a living from paying taxes on income from door-to-door sales.
Imagine further that your congressman cooperates, writes that exemption and inserts it into pending legislation. And that Congress then actually passes it into law.
Lots of luck.
The more than 80 million low- and middle-income individuals and families who pay federal taxes just don't get that kind of personal break. Nor for that matter do most upper-middle-class and affluent Americans.
But some people do.
Like Mrs. Joseph J. Ballard Jr., widow of a socially prominent Texas businessman. Geraldine Ballard lives in a $600,000 home in an exclusive Fort Worth enclave whose residents include Perry R. Bass, patriarch of the billionaire Bass oil and investments clan, and concert pianist Van Cliburn.
For her, tax writers have drafted the following paragraph that they intend to insert in tax legislation that Congress soon will take up:
For purposes of section 2656(b)(8) of the Internal Revenue Code of 1986, an individual who receives an interest in a charitable remainder unitrust shall be deemed to be the only noncharitable beneficiary of such trust if the interest in the trust passed to the individual under the will of a decedent who resided in Tarrant County, Texas, and died on October 28, 1983, at the age of 75, with a gross estate not exceeding $12.5 million, and the individual is the decedent's surviving spouse.
The paragraph will, if enacted into law, allow the estate of Geraldine Ballard's late husband to escape payment of an estimated $4 million in federal taxes that the Internal Revenue Service says the estate owes.
Tailored to meet the needs of a single taxpayer, the provision is just one of scores of similar special-interest deals awaiting congressional action.
Each would exempt a specific individual or corporation, or group of individuals and corporations - usually unnamed - from taxes that people and businesses in similar situations are obliged to pay.
When Geraldine Ballard was asked about the provision, she replied:
"I really just can't explain it because I don't understand it myself. . . . I have no earthly idea what they are doing. The Texas Bank of Commerce in Arlington handles it. It's a trust. I wish I could help you.
"I presume you are referring to the bill that Jim Wright was putting through?"
"Jim Wright" is the Fort Worth Democrat who is speaker of the House of Representatives.
When Congress passed the Tax Reform Act of 1986, radically overhauling the Internal Revenue Code, Rep. Dan Rostenkowski (D., Ill.), chairman of the tax- writing House Ways and Means Committee, hailed the effort as "a bill that reaches deep into our national sense of justice - and gives us back a trust in government that has slipped away in the maze of tax preferences for the rich and powerful."
In fact, Rostenkowski and other self-styled reformers created a new maze of unprecedented favoritism. Working in secret, they wove at least 650 exemptions - preferences, really, for the rich and powerful - through the legislation, most written in cryptic legal and tax jargon that conceals the identity of the beneficiaries.
When they were finished, thousands of wealthy individuals and hundreds of businesses were absolved from paying billions upon billions of dollars in federal income taxes. It was, an Inquirer investigation has established, the largest tax giveaway in the 75-year history of the federal income tax.
There were provisions that accorded special treatment not available under either old or new tax laws. There were provisions that excused taxpayers from complying with IRS or court decisions holding them liable for payment of taxes. And there were provisions that merely granted exemptions from the tax law - licenses, if you will, not to pay taxes.
The recipients were, among others, White House dinner guests, members of Forbes magazine's directory of the 400 wealthiest Americans, corporate executives, major campaign contributors, companies that have slashed the pension or health-care benefits of their retirees, foreign investors, corporate raiders, former officials of federal agencies, personal or business friends of members of Congress, and businesses and individuals who paid little or no tax in the past.
That was Round 1.
Now, Congress is preparing to do it all over again, this time adding the private tax provisions to a so-called technical-corrections bill to remedy defects in the Tax Reform Act of 1986.
The cost of the latest round of special deals - many of which are still being written - already is approaching the multibillion-dollar range.
Whatever the final figure, it will come on top of the $10.6 billion outlay for such concessions in 1986. That $10.6 billion, by the way, was Congress' official estimate; the ultimate price tag, Inquirer projections show, could run two to three times that amount.
Even the understated $10.6 billion cost was substantial. It exceeds every dollar paid in federal income tax for the next five years or more by low- and middle-income residents of Philadelphia.
As might be expected, congressional tax-writing committees prefer to shroud their work in secrecy, writing the private provisions in obscure language, as in the case of Geraldine Ballard. A sampling of exemptions from the 1986 act, and the beneficiaries of those exemptions as determined in an Inquirer investigation, illustrates the practice:
Because it maintained an office in the Caribbean, Bizcap considered itself a foreign corporation for U.S. tax purposes and avoided payment of millions of dollars in income taxes on its U.S. investments. Tax authorities eventually caught on to the practice and issued a deficiency notice, claiming that Bizcap owed $5.1 million in unpaid income taxes for 1983 and 1984, and a negligence penalty of $767,554. The private tax law excused Bizcap from having to pay the taxes.
THE LAW. The amendments made by section 201 shall not apply to any property placed in service pursuant to a master plan which is clearly identifiable as of March 1, 1986, for any project described in any of the following subparagraphs . . . such project involves a port terminal and oil pipeline extending generally from the area of Los Angeles, California, to the area of Midland, Texas, and . . . before September 26, 1985, there is a binding contract for dredging and channeling with respect thereto and a management contract with a construction manager for such project.
THE BENEFICIARY. That paragraph describes a 1,032-mile, $1.7 billion pipeline that will carry Alaskan crude oil from tankers berthed in the Long Beach, Calif., harbor to Midland, Texas, where it will feed into an existing pipeline network leading to refineries along the Gulf Coast and in the Midwest. It is to be built by the Pacific & Texas Pipeline & Transportation Co. of Long Beach. The company is the creation of Cecil R. Owens, a promoter and real estate developer whose investment activities first caught the attention of the U.S. Securities and Exchange Commission in 1985.
In a lawsuit filed last September in federal court in Los Angeles, the SEC contended that Owens and his company made fraudulent claims in the sale of $2.1 million worth of unregistered Pacific & Texas stock. Investors, the SEC said, were promised a yearly return of 500 percent on their money. The SEC said the company also neglected to mention to potential investors that it had paid nearly a half-million dollars on Owens' behalf for "among other things, travel, living expenses, lobbying and entertainment, political contributions and various business expenses."
Without admitting or denying the government's allegations, Owens and his company consented to the issuance of a permanent injunction prohibiting both from engaging in unlawful securities practices.
Because of the pipeline exemption in the 1986 tax act, the company ultimately may avoid payment of about a half-billion dollars in federal income taxes. The project is to be financed in part with tax-exempt bonds and it will qualify for the investment tax credit and accelerated depreciation that have been canceled for ordinary businesses and investors.
THE LAW. The amendments made by section 201 shall not apply to any property which is part of a project . . . which is certified by the Federal Energy Regulatory Commission before March 2, 1986, as a qualifying facility for purposes of the Public Utility Regulatory Policies Act of 1978 . . .
THE BENEFICIARY. That paragraph describes hundreds of companies and individuals who are investors in alternative-energy facilities, including a cogeneration plant near Pottsville in Schuylkill County, Pa., that has just begun its test phase, producing electricity from coal refuse.
It will allow investors in the plant to avoid payment of an estimated $26 million in income taxes. The plant is a joint venture of subsidiaries, affiliates or companies that share common ownership with the Bechtel Group Inc. of San Francisco, a global construction and engineering company; Pyropower Corp. of San Diego, a designer of cogeneration equipment, and the Gilberton Coal Co. of Pottsville.
The facility, known as the John B. Rich Memorial Power Station, is named in memory of one of Northeast Pennsylvania's most powerful coal barons, whose descendants own the Gilberton Coal Co. Rich was convicted in 1965 of federal charges that he and his Gilberton Coal Co. filed false and fraudulent tax returns and evaded individual and corporate income taxes. He and the company paid back taxes, fines and costs totaling one-third of a million dollars; a prison sentence was suspended and he was placed on probation for three years.
The Bechtel Group and its owners, the Bechtel family - whose holdings have been valued at close to $1 billion - have a direct or indirect stake in tax breaks worth tens of millions of dollars in the 1986 act.
James E. Cayne and E. John Rosenwald Jr., both members of the office of the president, who each earned $3.9 million in 1986; Alvin H. Einbender, executive vice president and chief operating officer, who earned $3.7 million, and Thomas R. Anderson and Denis P. Coleman Jr., both executive vice presidents, who each earned $3.4 million.
THE LAW. The amendments made by section 201 shall not apply to two new automobile carrier vessels which will cost approximately $47 million and will be constructed by a United States-flag carrier to operate, under the United States flag and with an American crew, to transport foreign automobiles to the United States, in a case where negotiations for such transportation arrangements commenced in April 1985, formal contract bids were submitted prior to the end of 1985, and definitive transportation contracts were awarded in May 1986.