S-205 April 16th meeting CEO tax group 12 people Rod contact person Rae Evans (page 2) April 16, 1986 Meeting S-205 CEO TAX GROUP Edward L. Hennessy, Jr. Allied-Signal Inc. P.O. Box 3000-R Morristown, New Jersey 07960 (checked) Finn M.W. Caspersen Beneficial Management Corporation Beneficial Center Peapack, New Jersey 07977 (check crossed out) Kenneth A. Macke Dayton Hudson Company 777 Nicollet Mall, 15th Floor Minneapolis, Minnesota 55402 James L. Ferguson General Foods Corporation 250 North Street White Plains, New York 10625 (checked) Irvine O. Hockaday, Jr. Hallmark Cards, Inc. Mail Drop 193, P.O. Box 580 Kansas City, Missouri 64141 William R. Howell J.C. Penney Company, Inc. 1301 Avenue of the Americas New York, New York 10019 (checked) Dr. P. Roy Vagelos Merck & Company, Inc. P.O. Box 2000 Rahway, New Jersey 07065 (checked) John G. Smale The Procter & Gamble Company P.O. Box 599 Cincinnati, Ohio 45201 (checked) John M. Stafford The Pillsbury Company Mail Station 4042 200 S. 6th Street Minneapolis, Minnesota 55402 John H. Bryan, Jr. Sara Lee Corporation 3 1st National Plaza 46th Floor Chicago, Illinois 60602-4260 William S. Woodside American Can Company American Lane, P.O. Box 3610 Greenwich, Connecticut 06836-3610 (checked) John M. Richman Dart & Kraft, Inc. 2211 Sanders Road Northbrook, Illinois 60062 (checked) Howard Goldfeder Federated Department Stores 7 W. 7th Street Cincinnati, Ohio 45202 Robert B. Smith General Motors Corporation 3044 West Grand Boulevard Detroit, Michigan 48202 (checked) Mr. John F. Akers IBM Corporation Old Orchard Road Armonk, New York 10504 Robert Haas Levi Strauss & Company 1155 Battery Street P.O. Box 7215 San Francisco, California 94120 (checked) Allen F. Jacobsen 3M Corporation 3M Center St. Paul, Minnesota 55144-1000 Donald M. Kendall Pepsico Inc. 700 Anderson Hill Road Purchase, New York 10577 Mr. J. Tylee Wilson R.J. Reynolds Industries, Inc. Winston Salem, North Carolina 27102 RAE EVANS ROD DeARMENT MARK McCONAGHY GARY PERKINSON (check) means they attended (page 3) TENTATIVE ATTENDEES COFFEE AND DANISH WITH CEO TAX GROUP FEBRUARY 19, 1986 8:00 a.m. - 8:45 a.m. - S-230 (checked) Finn M.W. Caspersen Chairman & CEO Beneficial Corporation (checked) John M. Richman Chairman of the Board Dart & Kraft Inc. (checked) Howard Goldfeder Chairman of the Board Federated Department Stores, Inc. (checked) Irvine O. Hockaday, Jr. President & CEO Hallmark Cards, Inc. (checked) John F. Akers President & Chief Executive Officer IBM Corporation (checked) Bob Gill Vice Chairman of the Board J.C. Penney Company, Inc. (checked) Dr. P. Roy Vagelos President & CEO Merck & Company, Inc. (checked) John G. Smale President and CEO Procter & Gamble Company (checked) John M. Stafford Chief Executive Officer Pillsbury Company (circled) J. Tylee Wilson Chairman & CEO R.J. Reynolds Industries., Inc. (checked) Allan Jacobson Chairman of the Board 3M Other Attendees (checked) Rae Forker Evans Hallmark Cards, Inc. (checked) Gary Perkinson Beneficial Corporation (checked) Mark McConaghy Price Waterhouse (checked) Rich Belas Office of the Majority Leader OTHER COMPANIES ASSOCIATED WITH TAX GROUP THAT WILL NOT ATTEND Allied-Signal Inc. American Can Company Dayton Hudson Corporation General Foods Corporation General Motors Corporation Levi Strauss & Company PepsiCo., Inc. Sara Lee Corporation (page 4) TENTATIVE ATTENDEES COFFEE AND DANISH WITH CEO TAX GROUP FEBRUARY 19, 1986 8:00 a.m. - 8:45 a.m. - S-230 Finn M.W. Caspersen Chairman & CEO Beneficial Corporation John M. Richman Chairman of the Board Dart & Kraft Inc. Howard Goldfeder Chairman of the Board Federated Department Stores, Inc. Irvine O. Hockaday, Jr. President & CEO Hallmark Cards, Inc. John F. Akers President & Chief Executive Officer IBM Corporation Bob Gill Vice Chairman of the Board J.C. Penney Company, Inc. Dr. P. Roy Vagelos President & CEO Merck & Company, Inc. John G. Smale President and CEO Procter & Gamble Company John M. Stafford Chief Executive Officer Pillsbury Company J. Tylee Wilson Chairman & CEO R.J. Reynolds Industries., Inc. Allan Jacobson Chairman of the Board 3M Other Attendees Rae Forker Evans Hallmark Cards, Inc. Gary Perkinson Beneficial Corporation Mark McConaghy Price Waterhouse Rich Belas Office of the Majority Leader OTHER COMPANIES ASSOCIATED WITH TAX GROUP THAT WILL NOT ATTEND Allied-Signal Inc. American Can Company Dayton Hudson Corporation General Foods Corporation General Motors Corporation Levi Strauss & Company PepsiCo., Inc. Sara Lee Corporation (page 5) (handwriting illegible) (page 6) February 19, 1986 - Dole meeting S-230 CEO TAX GROUP Edward L. Hennessy, Jr. Allied-Signal Inc. P.O. Box 3000-R Morristown, New Jersey 07960 (checked) Finn M.W. Caspersen Beneficial Management Corporation Beneficial Center Peapack, New Jersey 07977 (check crossed out) Kenneth A. Macke Dayton Hudson Company 777 Nicollet Mall, 15th Floor Minneapolis, Minnesota 55402 James L. Ferguson General Foods Corporation 250 North Street White Plains, New York 10625 (checked) Irvine O. Hockaday, Jr. Hallmark Cards, Inc. Mail Drop 193, P.O. Box 580 Kansas City, Missouri 64141 William R. Howell J.C. Penney Company, Inc. 1301 Avenue of the Americas New York, New York 10019 (checked) Dr. P. Roy Vagelos Merck & Company, Inc. P.O. Box 2000 Rahway, New Jersey 07065 (checked) John G. Smale The Procter & Gamble Company P.O. Box 599 Cincinnati, Ohio 45201 (checked) John M. Stafford The Pillsbury Company Mail Station 4042 200 S. 6th Street Minneapolis, Minnesota 55402 John H. Bryan, Jr. Sara Lee Corporation 3 1st National Plaza 46th Floor Chicago, Illinois 60602-4260 William S. Woodside American Can Company American Lane, P.O. Box 3610 Greenwich, Connecticut 06836-3610 (checked) John M. Richman Dart & Kraft, Inc. 2211 Sanders Road Northbrook, Illinois 60062 (checked) Howard Goldfeder Federated Department Stores 7 W. 7th Street Cincinnati, Ohio 45202 Robert B. Smith General Motors Corporation 3044 West Grand Boulevard Detroit, Michigan 48202 (checked) Mr. John F. Akers IBM Corporation Old Orchard Road Armonk, New York 10504 Robert Haas Levi Strauss & Company 1155 Battery Street P.O. Box 7215 San Francisco, California 94120 (checked) Allen F. Jacobsen 3M Corporation 3M Center St. Paul, Minnesota 55144-1000 Donald M. Kendall Pepsico Inc. 700 Anderson Hill Road Purchase, New York 10577 Mr. J. Tylee Wilson R.J. Reynolds Industries, Inc. Winston Salem, North Carolina 27102 (check) means they attended (page 7) CEOs Attending Meeting with Senator Dole (checked) Mr. Finn M.W. Caspersen Beneficial Management Corporation Beneficial Center Peapack, New Jersey 07977 (checked) Mr. Irvine O. Hockaday, Jr. Hallmark Cards, Inc. Mail Drop #193 P.O. Box 580 Kansas City Missouri 64141 (checked) Mr. Robert B. Gill J.C. Penney Company, Inc. 1301 Avenue of the Americas New York, New York 10019 Dr. P. Roy Vagelos Merck & Co., Inc. Box 2000 Rahway, New Jersey 07065 Mr. John M. Stafford The Pillsbury Company Mail Station 4042 200 S. 6th Street Minneapolis, Minnesota 55402 Mr. Howard Goldfeder Federated Department Stores 7 W. 7th Street Cincinnati, Ohio 45202 Mr. John F. Akers IBM Corporation Old Orchard Road Armonk, New York 10504 Mr. Allen F. Jacobsen 3M Corporation 3M Center St. Paul, Minnesota 55144-1000 Mr. John G. Smale The Procter & Gamble Company P.O. Box 599 Cincinnati, Ohio 45201 Mr. John H. Bryan, Jr. Sara Lee Corporation 3 1st National Plaza 46th Floor Chicago, Illinois 60602-4260 (page 8) Rae Evans 737-8440 CEO TAX GROUP (CEO'S Attending Meetings 2/18/86 & 2/19/86) (checked) John M. Richman, Chairman Dart & Kraft, Inc. Finn M. W. Casperson (handwritten) Finn (end handwritten) Beneficial Corporation Howard Goldfeder (handwritten) Howard (end handwritten) Federated Department Stores, Inc. (checked) Irvine O. Hockaday, Jr. (handwritten) Irv (end handwritten) Hallmark Cards Incorporated John F. Akers (handwritten) John (end handwritten) IBM Corporation Allen F. Jacobson (handwritten) Allen (end handwritten) 3M Dr. P. Roy Vagelos (handwritten) Roy (end handwritten) Merck & Co. John G. Smale (handwritten) John (end handwritten) The Procter & Gamble Company John M. Stafford (handwritten) John (end handwritten) The Pillsbury Company John H. Bryan, Jr. (handwritten) John (end handwritten) Sara Lee Corporation (page 9) UNITED STATES SENATE OFFICE OF THE MAJORITY LEADER WASHINGTON, D. C. February 24, 1986 BOB DOLE KANSAS Dear John: Thank you for being willing to meet so early in the day. It was a pleasure to start the day visiting with a group in favor of tax reform, considering the number of groups who have come in to criticize various proposals. In addition to the fairness issue of equalizing tax rates for different industries, your group has a number of various interesting points to get across concerning the impact of tax reform on job creation and international competitivenss. I enjoyed our discussion and hope that you will be successful in meeting with most of the members of the Finance Committee. Sincerely, (signature) BOB DOLE Majority Leader Mr. John M. Stafford The Pillsbury Company Mail Station 4042 200 S. 6th Street Minneapolis, Minnesota 55402 (page 10) UNITED STATES SENATE OFFICE OF THE MAJORITY LEADER WASHINGTON, D. C. February 24, 1986 BOB DOLE KANSAS Dear Howard: I appreciate your being able to meet with me so early in the day. As I mentioned when we met, it is going to be difficult to convince the Senate that tax reform is good for American business. Your efforts certainly will be helpful in gaining enactment of reform legislation. I was intrigued by the idea that jobs growth has been higher in high-tax sectors of the business community than in the more tax-favored sectors. It is a very good point in favor of reform. Once again, thank you for taking the time to meet with me. Sincerely, (signature) BOB DOLE Majority Leader Mr. Howard Goldfeder Chairman and CEO Federated Department Stores, Inc. 7 W. 7th Street Cincinnati, Ohio 45202 (page 11) UNITED STATES SENATE OFFICE OF THE MAJORITY LEADER WASHINGTON, D. C. February 24, 1986 BOB DOLE KANSAS Dear John: I enjoyed the opportunity to meet with you on tax reform last Wednesday. You have the right idea in getting together chief executives to present your side of the story to the members. I have to believe that it will be an effective strategy if you can keep working at it. However, those who think they have much to lose from specific changes have also been very active. I hope you will continue to work even harder in the future to provide the necessary balance of views. Sincerely, (signature) BOB DOLE Majority Leader Mr. John M. Richman Chairman and CEO Dart and Kraft, Inc. 2211 Sanders Road Northbrook, Illinois 60062 (page 12) UNITED STATES SENATE OFFICE OF THE MAJORITY LEADER WASHINGTON, D. C. February 24, 1986 BOB DOLE KANSAS Dear Irv: I enjoyed meeting with you again on tax reform. I have to believe that your effort to bring so many executives to discuss the benefits of tax reform should be effective with a number of members. You have a point of view on reform that really needs to be voiced more generally if tax reform is going to be successful. The points on the job and trade impact of reform are important ones and I hope that you will be able to get them across. Once again, thanks for taking the time to visit with me. Sincerely, (signature) BOB DOLE Majority Leader Mr. Irvine O. Hockaday, Jr. President and CEO Hallmark Cards, Inc. Mail Drop #193 P.O. Box 580 Kansas City, Missouri 64141 (page 13) UNITED STATES SENATE OFFICE OF THE MAJORITY LEADER WASHINGTON, D. C. February 24, 1986 BOB DOLE KANSAS Dear Finn: Thank you for joining me so early in the day to discuss tax reform. It is going to be difficult to generate enough enthusiasm to move the bill in the Senate this spring, and your efforts certainly will be helpful. I enjoyed the opportunity to meet with some taxpayers who support reform and wish it were not so rare an experience. Good luck as you meet with other members. Sincerely, (signature) BOB DOLE Majority Leader Mr. Finn M.W. Caspersen Chairman and CEO Beneficial Management Corporation Beneficial Center Peapack, New Jersey 07977 (page 14) UNITED STATES SENATE OFFICE OF THE MAJORITY LEADER WASHINGTON, D. C. February 24, 1986 BOB DOLE KANSAS Dear John: I appreciate your willingness to meet with me so early in the morning. It was a pleasure to start the day visiting with a group favoring tax reform, considering the number of groups who have come in to criticize various provisions. Businesses who have high effective tax rates certainly have a good point in bringing to our attention how the tax code's preferences create distortion in the allocation of capital. I was also interested that you have addressed the job creation and international competitiveness issues. Much of the debate on tax reform is likely to involve around the impact of tax reform on these two items. Once again, thank you for taking the time to meet with me. Sincerely, (signature) BOB DOLE Majority Leader Mr. John H. Bryan, Jr. Sara Lee Corporation 3 1st National Plaza 46th Floor Chicago, Illinois 60602-4260 (page 15) UNITED STATES SENATE OFFICE OF THE MAJORITY LEADER WASHINGTON, D. C. February 24, 1986 BOB DOLE KANSAS Dear Allen: Thank you for coming in so early last Wednesday to meet with me on tax reform. It was enjoyable to discuss tax reform with a group who supports reform. Your group has a very good issue in equalizing tax burdens for different industries. I was interested in the point that job growth has been higher in higher tax industries than in industries that have been more tax-favored. Good luck in your continued efforts and I hope you will continue to keep me informed of your progress. Sincerely, (signature) BOB DOLE Majority Leader Mr. Allen F. Jacobson Chairman of the Board and CEO 3M 3M Center St. Paul, Minnesota 55144-1000 (page 16) UNITED STATES SENATE OFFICE OF THE MAJORITY LEADER WASHINGTON, D. C. February 24, 1986 BOB DOLE KANSAS Dear John: I appreciate your willingness to meet with me so early last Wednesday. It was enjoyable to meet with a group who support tax reform. You have some good issues to bring to the Senate and I believe your strategy of bringing in senior executives to speak directly with members should be effective. However, don't underestimate the efforts of those who feel that they will be disadvantaged by specific provisions in the tax reform legislation. Tax reform can pass the Senate and be enacted this year, but that will happen only if you can present sufficient constituent interest in favor of tax reform to counteract the views of those who oppose reform. Please keep me apprised as you continue to speak to other members. Sincerely, (signature) BOB DOLE Majority Leader Mr. John G. Smale President and Chief Executive Officer Proctor and Gamble P.O. Box 599 Cincinnati, Ohio 45201 (page 17) UNITED STATES SENATE OFFICE OF THE MAJORITY LEADER WASHINGTON, D. C. February 24, 1986 BOB DOLE KANSAS Dear John: Thank you for coming in so early on Wednesday morning to meet on tax reform. It was enjoyable to discuss tax reform with a group who support the legislation. I think you have a good strategy in trying to get senior executives to meet directly with members. At least it should give a little more emphasis to the points that you are making. Given the heavy lobbying by those who want to retain the present system, I am confident that your efforts are both necessary and useful. Sincerely, (signature) BOB DOLE Majority Leader Mr. John Akers President and CEO IBM Corporation Old Orchard Road Armonk, New York 10504 (page 18) UNITED STATES SENATE OFFICE OF THE MAJORITY LEADER WASHINGTON, D. C. February 24, 1986 BOB DOLE KANSAS Dear Roy: I appreciate your willingness to meet with me so early last Wednesday. It was enjoyable to talk about tax reform with a group that supports the concept. As I mentioned at the meeting, the schedule is tight in the Senate this year and your efforts will be crucial if tax reform is to succeed. You have some good issues from the perspective both of fairness and efficiency in allocation of investment capital. I hope you will be able to present your views to a large number of members. Obviously we in the Senate hear more from those who believe they will be helped by tax reform. Sincerely, (signature) BOB DOLE Majority Leader Dr. P. Roy Vagelos President and CEO Merck & Co., Inc. P. O. Box 2000 Rahway, New Jersey 07065 (page 19) February 13, 1986 TO: SENATOR DOLE FROM: RICH BELAS SUBJECT: CEO TAX GROUP MEETING The CEO Tax Group is comprised of the chief executive officers from nineteen major corporations who favor tax reform. In particular, they support corporate rate reduction to 33 percent and elimination or repeal of tax incentives to accomplish rate reduction and make allocation of capital more efficient. They also support the President's proposal to allow corporations to deduct 10 percent of dividends they pay and would like a higher percentage to be deductible. The argument in favor of the deduction is the double taxation of corporate income at the corporate shareholder level. The House phases in the 10 percent deduction over ten years. The CEO group also supports the concept that tax reform should not lose revenue over the long term. I have not discussed with any of their companies the possibility that the President's proposals, because of the indexed depreciation concept, might lose substantial revenues outside the 5-year estimating "window." Finally, they are somewhat concerned about the shift in tax liability in the magnitude of $130-140 billion away from individuals and toward corporations. A list of expected attendees is attached, along with the other corporations not represented at the meeting. (page 20) (handwriting illegible) Hallmark Cards RAE FORKER EVANS Staff Vice President NATIONAL AFFAIRS suite 210 1201 Penna Ave. N. W. 20004 HALLMARK CARDS INCORPORATED KANSAS CITY. MISSOURI 64141 February 7, 1986 Mr. Mike Pettit Chief Counsel and Staff Director Senator Robert Dole's Office 141 Senate Hart Office Building Washington, D.C. 20510 Dear Mike: Here's the list of confirmed attendees for the breakfast we've been discussing. There may be an additional one or two CEO's that we have yet to hear from, but that should be it. I've talked to Judy Hollis in Senator Danforth's office, and they are amenable to a joint Dole/Danforth event if you guys are. I think we go with just (underlined) coffee and rolls (end underline) and get down to business. Judy is checking on a room in the Russell Building, just in case there is nothing available in the Capitol. Let's talk once you can confirm this with Senator Dole. Sincerely, (signature) Rae Forker Evans RFE: kcw Enclosure (handwritten) Hewbitt Sophia Dole February 19, 1986 - 8:00 a.m - 9:00 a.m. Lt. breakfast with Danforth at 2:30 in afternoon 13 CEO Mark McConaghy Tom McLue Rae Evans (end handwritten) (page 21) -- TENTATIVE -- EXPECTED ATTENDEES Breakfast with Senators Danforth and Dole February 19, 1986 8:00 a.m. - 9:00 a.m. Company CEO Beneficial Corporation Finn M.W. Caspersen, Chairman and Chief Executive Officer Dart & Kraft, Inc. John M. Richman, Chairman of the Board Federated Department Stores, Inc. Howard Goldfeder, Chairman of the Board Hallmark Cards, Inc. Irvine 0. Hockaday, Jr., President and Chief Executive Officer IBM Corporation John F. Akers, President and Chief Executive Officer J.C. Penney Company, Inc. Bob Gill, Vice Chairman of the Board 3M Allan Jacobson, Chairman and Chief Executive Officer Merck & Company, Inc. Dr. P. Roy Vagelos, President and Chief Executive Officer Procter & Gamble Company John G. Smale, President and Chief Executive Officer Pillsbury Company John M. Stafford, President and Chief Executive Officer R.J. Reynolds Industries, Inc. J. Tylee Wilson, Chairman and Chief Executive Officer Other Attendees Rae Forker Evans, Vice President, National Affairs, Hallmark Cards, Inc. Mark McConaghy, Price Waterhouse Gary Perkinson, Washington Representative, Beneficial Corporation (crossed out)** Senators Danforth (end cross out) and Dole may have several staff people (cross out) in attendance. (end cross out) (page 22) CEO TAX GROUP The CEO Tax Group is composed of chief executive officers from the following nineteen corporations: (checked) Allied-Signal Inc.; (checked) American Can Company, Beneficial Corporation; Dart & Kraft, Inc.; (checked) Dayton Hudson Corporation; Federated Department Stores Inc.; (checked) General Foods Corporation; (checked) General Motors Corporation; Hallmark Cards, Inc.; IBM Corporation; J. C. Penney Company, Inc.; (checked) Levi Strauss, & Company; 3M; Merck and Co.; (checked) PepsiCo, Incorporated; The Pillsbury Company; The Procter and Gamble Company; R. J. Reynolds Industries, Inc.; and (checked) Sara Lee Corporation. The group is a cross-section of American businesses including manufacturing, retailing, financial institutions, and conglomerates. In the aggregate, the group had 1984 sales of $255 billion and has approximately 2.5 million employees. During 1983 and 1984, the businesses represented in the group paid 10 percent of the total U.S. corporate income taxes. The CEO Tax Group embraces the principles of fairness and economic efficiency embodied in the tax reform effort undertaken by the Reagan Administration and the House of Representatives. The group views this effort as an unprecedented opportunity to effect substantial, meaningful tax reform for individuals and business. For too long, the tax laws have prompted inefficient use of capital and other resources. It is time all taxpayers -- especially businesses -- make decisions based on sound economic principles and market forces rather than the amount by which their taxes can be reduced. The CEO Tax Group believes that the following principles are essential to any responsible tax reform effort: (page 23) - 2 - o Lower Tax Rates As stated in a letter sent by thirteen noted tax economists* to members of the Ways and Means Committee last November, "the most powerful and efficient incentives are market forces, not tax provisions. By far the most productive 'tax incentive' would be to have the lowest possible rates." All of the problems of inefficiency and inequity generally associated with an income tax are exaggerated by high tax rates. Lower tax rates would also increase the perception of fairness among individual and corporate taxpayers and encourage greater compliance. The Administration's proposal called for a 33-percent maximum corporate tax rate. Other proposals have urged a top rate of 30 percent or less. This group believes that the House bill's reduction of the maximum corporate tax rate from 46 percent to 36 percent is a move in the right direction. However, a further reduction is critical to achieve the tax reform goals of increased productivity, low cost American production, and enhanced international competitiveness. Rate reductions should take effect no later than the repeal or modification of present-law provisions. Rate reductions should not be phased-in. o Base Broadening We support the approach in the Treasury proposals and the House bill which would repeal or modify many of the existing Code preferences which encourage businesses to make decisions on the basis of tax, rather than economic, consequences. The elimination or modification of these preferences would result in a more efficient allocation of capital and the placement of all types of businesses on a more equal footing. *See attachment. (page 24) - 3 - o Dividend Deductibility The proposal to allow corporations a deduction for a portion of the dividends paid to shareholders is an essential first step in reducing the tax advantage of debt over equity in financing American corporations. Under the present system, corporations are prohibited from deducting an important cost of doing business -- the cost of equity capital. Although we strongly endorse the Treasury's November 1984 proposal allowing the deduction of half the qualifying dividends, we recognize that revenue constraints may require that dividend deductibility be limited initially to less than 50 percent and phased in over a period of time. In light of the importance of the dividend deduction in achieving fairness in the tax structure, we urge Congress to set the initial amount at a rate not less than 10 percent, which should be increased over time to eliminate the tax bias in corporate financing. o Revenue Neutrality We agree that tax reform should be accomplished in the overall context of revenue neutrality. A tax reform act should not, in the long run, result in a decrease in revenue. While both the Administration's proposal and the House bill, overall, approach revenue neutrality, staff estimates show that these proposals would shift tax liability of $130 billion and $138 billion, respectively, from individuals to corporations over the first five years. Such a dramatic shift of the tax burden should be moderated. A tax bill with the lowest possible tax rates and a broader base would ensure a fairer distribution among the various types of businesses. * * * * * (page 25) - 4 - We are aware that efforts to solve our budget deficit could lead to additional taxes in future years if the Gramm-Rudman-Hollings procedure is not successful. It is certain that the unfairness in the current tax law will only be exacerbated if meaningful tax reform is not enacted. If true income tax reform takes place this year, any future increases in income tax will be more fairly distributed among all American industries. We look forward to working with the Finance Committee and the Senate as they work to continue the movement toward tax reform. We believe that the House bill can, and should be improved, especially in the areas of employee benefits and international operations. Nonetheless, the CEO group fully supports the fundamental principles of tax reform on which the Administration's proposal and the House bill have been based. We stand ready to provide whatever assistance we can to accomplish meaningful tax reform this year. January 27, 1986 (age 26) BOB DOLE KANSAS United States Senate OFFICE OF THE MAJORITY LEADER WASHINGTON, DC 20510 February 13, 1986 TO: SENATOR DOLE FROM: RICH BELAS SUBJECT: CEO TAX GROUP MEETING The CEO Tax Group is comprised of the chief executive officers from nineteen major corporations who favor tax reform. In particular, they support corporate rate reduction to 33 percent and elimination or repeal of tax incentives to accomplish rate reduction and make allocation of capital more efficient. They also support the President's proposal to allow corporations to deduct 10 percent of dividends they pay and would like a higher percentage to be deductible. The argument in favor of the deduction is the double taxation of corporate income at the corporate shareholder level. The House phases in the 10 percent deduction over ten years. The CEO group also supports the concept that tax reform should not lose revenue over the long term. I have not discussed with any of their companies the possibility that the President's proposals, because of the indexed depreciation concept, might lose substantial revenues outside the 5-year estimating "window." Finally, they are somewhat concerned about the shift in tax liability in the magnitude of $130-140 billion away from individuals and toward corporations. A list of expected attendees is attached, along with the other corporations not represented at the meeting. (page 27) BOB DOLE KANSAS United States Senate OFFICE OF THE MAJORITY LEADER WASHINGTON, DC 20510 February 13, 1986 TO: SENATOR DOLE FROM: RICH BELAS SUBJECT: CEO TAX GROUP MEETING The CEO Tax Group is comprised of the chief executive officers from nineteen major corporations who favor tax reform. In particular, they support corporate rate reduction to 33 percent and elimination or repeal of tax incentives to accomplish rate reduction and make allocation of capital more efficient. They also support the President's proposal to allow corporations to deduct 10 percent of dividends they pay and would like a higher percentage to be deductible. The argument in favor of the deduction is the double taxation of corporate income at the corporate shareholder level. The House phases in the 10 percent deduction over ten years. The CEO group also supports the concept that tax reform should not lose revenue over the long term. I have not discussed with any of their companies the possibility that the President's proposals, because of the indexed depreciation concept, might lose substantial revenues outside the 5-year estimating "window." Finally, they are somewhat concerned about the shift in tax liability in the magnitude of $130-140 billion away from individuals and toward corporations. A list of expected attendees is attached, along with the other corporations not represented at the meeting. (page 28) BOB DOLE KANSAS United States Senate OFFICE OF THE MAJORITY LEADER WASHINGTON, DC 20510 February 13, 1986 TO: SENATOR DOLE FROM: RICH BELAS SUBJECT: CEO TAX GROUP MEETING The CEO Tax Group is comprised of the chief executive officers from nineteen major corporations who favor tax reform. In particular, they support corporate rate reduction to 33 percent and elimination or repeal of tax incentives to accomplish rate reduction and make allocation of capital more efficient. They also support the President's proposal to allow corporations to deduct 10 percent of dividends they pay and would like a higher percentage to be deductible. The argument in favor of the deduction is the double taxation of corporate income at the corporate shareholder level. The House phases in the 10 percent deduction over ten years. The CEO group also supports the concept that tax reform should not lose revenue over the long term. I have not discussed with any of their companies the possibility that the President's proposals, because of the indexed depreciation concept, might lose substantial revenues outside the 5-year estimating "window." Finally, they are somewhat concerned about the shift in tax liability in the magnitude of $130-140 billion away from individuals and toward corporations. A list of expected attendees is attached, along with the other corporations not represented at the meeting. (page 29) BOB DOLE KANSAS United States Senate OFFICE OF THE MAJORITY LEADER WASHINGTON, DC 20510 February 13, 1986 TO: SENATOR DOLE FROM: RICH BELAS SUBJECT: CEO TAX GROUP MEETING The CEO Tax Group is comprised of the chief executive officers from nineteen major corporations who favor tax reform. In particular, they support corporate rate reduction to 33 percent and elimination or repeal of tax incentives to accomplish rate reduction and make allocation of capital more efficient. They also support the President's proposal to allow corporations to deduct 10 percent of dividends they pay and would like a higher percentage to be deductible. The argument in favor of the deduction is the double taxation of corporate income at the corporate shareholder level. The House phases in the 10 percent deduction over ten years. The CEO group also supports the concept that tax reform should not lose revenue over the long term. I have not discussed with any of their companies the possibility that the President's proposals, because of the indexed depreciation concept, might lose substantial revenues outside the 5-year estimating "window." Finally, they are somewhat concerned about the shift in tax liability in the magnitude of $130-140 billion away from individuals and toward corporations. A list of expected attendees is attached, along with the other corporations not represented at the meeting. (page 30) February 19, 1986 MEMORANDUM TO: SENATOR DOLE FROM: MIKE PETTIT RE: CEO TAX GROUP DATE: JANUARY 31, 1986 (handwritten) Rich Big mtg. (end handwritten) Don Hall or Irv Hockaday apparently talked to you about arranging a session on the tax bill with the CEO Tax Group. Betty tentatively set something for the afternoon of February 19. At the time we were following through on this, I did not know that this group was comprised of the CEO's of some of the leading U.S. corporations. I mistakenly thought it was something you had indicated you would do only because Hall or Hockaday asked you about it at the early January fundraiser. The reason I mention that is because the Hallmark originally wanted to do a lunch or dinner. You couldn't do lunch then because of your Press Club commitment. We talked them into settling for an afternoon meeting. Now that I see that we're talking about Roger Smith and people of that type (see first paragraph of attachment), I thought I'd ask whether you want to do more than a 30 minute afternoon meeting. Keep on schedule as is (blank) Try to set up dinner (blank) Other (blank) cc: Betty (handwritten) Rae Evans Joyce, We need to set place for this over here 19 CEO 5 to 10 for sure (end handwritten) (page 31) CEO TAX GROUP The CEO Tax Group is composed of chief executive officers from the following nineteen corporations: Allied-Signal Inc.; American Can Company, Beneficial Corporation; Dart & Kraft, Inc.; Dayton Hudson Corporation; Federated Department Stores Inc.; General Foods Corporation; General Motors Corporation; Hallmark Cards, Inc.; IBM Corporation; J. C. Penney Company, Inc.; Levi Strauss, & Company; 3M; Merck and Co.; PepsiCo, Incorporated; The Pillsbury Company; The Procter and Gamble Company; R. J. Reynolds Industries, Inc.; and Sara Lee Corporation. The group is a cross-section of American businesses including manufacturing, retailing, financial institutions, and conglomerates. In the aggregate, the group had 1984 sales of $255 billion and has approximately 2.5 million employees. During 1983 and 1984, the businesses represented in the group paid 10 percent of the total U.S. corporate income taxes. The CEO Tax Group embraces the principles of fairness and economic efficiency embodied in the tax reform effort undertaken by the Reagan Administration and the House of Representatives. The group views this effort as an unprecedented opportunity to effect substantial, meaningful tax reform for individuals and business. For too long, the tax laws have prompted inefficient use of capital and other resources. It is time all taxpayers -- especially businesses -- make decisions based on sound economic principles and market forces rather than the amount by which their taxes can be reduced. The CEO Tax Group believes that the following principles are essential to any responsible tax reform effort: (page 32) - 2 - o Lower Tax Rates As stated in a letter sent by thirteen noted tax economists* to members of the Ways and Means Committee last November, "the most powerful and efficient incentives are market forces, not tax provisions. By far the most productive 'tax incentive' would be to have the lowest possible rates." All of the problems of inefficiency and inequity generally associated with an income tax are exaggerated by high tax rates. Lower tax rates would also increase the perception of fairness among individual and corporate taxpayers and encourage greater compliance. The Administration's proposal called for a 33-percent maximum corporate tax rate. Other proposals have urged a top rate of 30 percent or less. This group believes that the House bill's reduction of the maximum corporate tax rate from 46 percent to 36 percent is a move in the right direction. However, a further reduction is critical to achieve the tax reform goals of increased productivity, low cost American production, and enhanced international competitiveness. Rate reductions should take effect no later than the repeal or modification of present-law provisions. Rate reductions should not be phased-in. o Base Broadening We support the approach in the Treasury proposals and the House bill which would repeal or modify many of the existing Code preferences which encourage businesses to make decisions on the basis of tax, rather than economic, consequences. The elimination or modification of these preferences would result in a more efficient allocation of capital and the placement of all types of businesses on a more equal footing. *See attachment. (page 33) - 3 - o Dividend Deductibility The proposal to allow corporations a deduction for a portion of the dividends paid to shareholders is an essential first step in reducing the tax advantage of debt over equity in financing American corporations. Under the present system, corporations are prohibited from deducting an important cost of doing business -- the cost of equity capital. Although we strongly endorse the Treasury's November 1984 proposal allowing the deduction of half the qualifying dividends, we recognize that revenue constraints may require that dividend deductibility be limited initially to less than 50 percent and phased in over a period of time. In light of the importance of the dividend deduction in achieving fairness in the tax structure, we urge Congress to set the initial amount at a rate not less than 10 percent, which should be increased over time to eliminate the tax bias in corporate financing. o Revenue Neutrality We agree that tax reform should be accomplished in the overall context of revenue neutrality. A tax reform act should not, in the long run, result in a decrease in revenue. While both the Administration's proposal and the House bill, overall, approach revenue neutrality, staff estimates show that these proposals would shift tax liability of $130 billion and $138 billion, respectively, from individuals to corporations over the first five years. Such a dramatic shift of the tax burden should be moderated. A tax bill with the lowest possible tax rates and a broader base would ensure a fairer distribution among the various types of businesses. * * * * * (page 34) - 4 - We are aware that efforts to solve our budget deficit could lead to additional taxes in future years if the Gramm-Rudman-Hollings procedure is not successful. It is certain that the unfairness in the current tax law will only be exacerbated if meaningful tax reform is not enacted. If true income tax reform takes place this year, any future increases in income tax will be more fairly distributed among all American industries. We look forward to working with the Finance Committee and the Senate as they work to continue the movement toward tax reform. We believe that the House bill can, and should be improved, especially in the areas of employee benefits and international operations. Nonetheless, the CEO group fully supports the fundamental principles of tax reform on which the Administration's proposal and the House bill have been based. We stand ready to provide whatever assistance we can to accomplish meaningful tax reform this year. January 27, 1986 (page 35) ATTACHMENT Henry Aaron Brooking Institution Alan J. Auerbach University of Pennsylvania George Break University of California E. Cary Brown MIT Robert Eisner Northwestern University Harvey Galper Brookings Institution Robert J. Gordon Northwestern University Arnold C. Harberger, Jr. University of Chicago Charles R. Hulten University of Maryland Robert E. Lucas University of Chicago John H. Makin American Enterprise Institute Joseph J. Minarik The Urban Institute Joseph A. Pechman Brookings Institute (page 36) November 14, 1985 The Honorable Dan Rostenkowski, Chairman; Members of the Committee on Ways and Means U.S. House of Representatives 1102 Longworth House Office Building Washington, D.C. 20515 Dear Mr. Chairman and Members of the Committee: The historic opportunity to accomplish meaningful tax reform now before Congress should not be allowed to slip away. When President Reagan and you, Mr. Chairman, committed yourselves to reform of the tax system, you did so in the name of economic efficiency and fairness, principles that we have long advocated and worked to refine. Those principles are best achieved by lowering tax rates and broadening the tax base without sacrificing revenue. These goals must be reasserted now before the tax reform process becomes just another political struggle to determine who pays and who escapes taxation. All of the distortions, inequities, ambiguities, and compliance problems associated with an income tax are exaggerated by high rates. The most important issue facing the Ways and Means Committee in the next few critical weeks is whether tax rates can be held down close to the levels proposed by the President. Although some others have argued that high rates are desirable because they make tax incentives more valuable, we believe that the most powerful and efficient incentives are market forces, not tax provisions. By far the most productive "tax incentive" would be to have the lowest possible rates. To cut rates without reducing revenue, we must substantially broaden the tax base. Our constricted tax base has caused high-productivity investments in heavily taxed activities to lose out to low-productivity investments in tax favored activities. It has also prompted many companies to reorganize and enter lines of business that they would never consider otherwise. It has diverted valuable attention and resources from innovation and careful management to tax planning. Base broadening requires the accurate measurement of income. That goal can be achieved only if Congress adopts a realistic depreciation system related to actual depreciation experience of tangible assets. The Committee should terminate the investment tax credit and other provisions that direct capital into activities that cannot survive the test of market profitability. The short-run stimulus for which these provisions were designed should now be traded for a more balanced long-run strategy for sustained economic growth based on low tax rates. (page 37) November 14, 1985 Honorable Dan Rostenkowski; Members of the Committee on Ways and Means Page 2 The process of reforming the Nation's income tax laws is at a critical stage. The line must be drawn now in favor of low rates and a broad based system. If the Ways and Means Committee cannot accomplish this in the next few weeks, it will have lost the historic opportunity that is within its grasp. Yours sincerely, (signature) Charles R. Hulten Professor and Chairman Department of Economics University of Maryland (signature) Henry Aaron (KEY) Senior Fellow Brookings Institution (signature) Joseph A. Pechman Senior Fellow Brookings Institute (signature) E. Cary Brown Professor of Economics MIT (signature) Alan J. Auerbach Professor of Economics University of Pennsylvania (signature) John H. Makin Director, Fiscal Policy Studies American Enterprise Institute (signature) Harvey Galper (KEY) Senior Fellow Brookings Institution (signature) Joseph J. Minarik Senior Research Associate The Urban Institute (signature) Robert Eisner William R. Kenan Professor of Economic Northwestern University (signature) Robert J. Gordon Professor of Economics Northwestern University (signature) Arnold C. Harberger, Jr. Professor of Economics University of Chicago (page 38) November 14, 1985 Honorable Dan Rostenkowski; Members of the Committee on Ways and Means Page 3 (signature) Robert E. Lucas Professor of Economics University of Chicago (signature) George Break Professor of Economics University of California, Berkeley