Edition: U.S. / Global

House Votes to Kill Program for Minorities

Published: February 22, 1995

In a vote that reflected the Republican majority's dislike of affirmative-action programs, the House of Representatives tonight overhwhelming approved a bill that would abolish a tax break intended to help minority businesses buy television and radio stations.

The bill, approved 381 to 44, would use the savings from ending the tax break to offset the loss of revenues from allowing self-employed people to deduct part of their health insurance costs from their taxes.

The vote tonight came after the Republicans defeated a Democratic substitute that was intended to prevent abuses of the minority tax break without abolishing it entirely.

The substitute was defeated 234 to 191, largely along party lines. For the final measure, 154 Democrats joined 226 Republicans and 1 independent in voting for passage; 2 Republicans joined 42 Democrats in voting against it.

The Republican majority leader, Richard Armey of Texas, bluntly attacked the idea of special preferences for minorities. "Minority broadcasters are driven by the same motives as other broadcasters: to make money by getting high ratings," he said. The tax policy "comes dangerously close to quotas," he added. "That policy is offensive to the principle that the tax code should be color blind."

The bill has a strong chance of passing the Senate, where a Republican majority also opposes affirmative-action programs, but Senate filibuster rules would make it easier for a small number of lawmakers to block legislation if any try to do so.

Republican lawmakers pushed the bill through the House in less than two weeks in their effort to eliminate the long-standing tax break that allows a company to avoid capital-gains taxes if it sells a television, radio or cable television system to a company controlled by members of a racial or ethnic minority.

That program has come under heavy attack in recent weeks, after reports that it would allow the media conglomerate Viacom Inc. to escape $400 million to $600 million in taxes in a proposed sale of its cable television properties for $2.3 billion.

Viacom has arranged to sell its cable systems to a black entrepreneur in Sacramento, Calif., Frank Washington. But most of Mr. Washington's money is coming from a group called Intermedia Partners, which is owned by large corporations and which will own 79 percent of the equity in the venture. Intermedia's biggest shareholder is Tele-Communications Inc., the nation's biggest cable television operator.

White House officials said today that they opposed a complete repeal of the tax program, though they did not threaten a veto by President Clinton.

"The Administration believes it should not be eliminated," said Michael D. McCurry, the White House spokesman. "Do we need to look at how it is used and under what circumstances it is used? We do believe that and we will do that."

If today's bill becomes law, it would retroactively block approval of the tax break for Viacom deal, which is contingent on the tax break. Congressional analysts estimate the bill would save the Government $1.6 billion over six years, including the Viacom deal.

During the debate, a supporter of the bill, Representative Sam Johnson, Republican of Texas, said: "This is a program that has outlived its usefulness -- an open-ended unsupervised tax giveaway."

But defenders of the program inveighed against what they described as an attack on affirmative action.

"White folks have had affirmative action all their lives," said Representative Charles B. Rangel, Democrat of Manhattan. "The only time we get affirmative action is when we get first in line for the military."

But even supporters of minority programs say the minority tax break is overdue for an overhaul. Supervised by the Federal Communications Commission, the current rules allow a minority-owned company to qualify for the program even if it supplies almost none of the capital and holds only 20 percent of the voting stock.

The current rules also allow a white-owned company to buy out the minority owner after one year. In the Viacom deal, Intermedia Partners has an option to buy out Mr. Washington's stake after three years for as little as $3 million.

"They can tighten it up," said Don Cornwell, chief executive of the Granite Broadcasting Corporation in New York, a black-controlled company that was helped by the tax break in acquiring seven television stations around the country. Mr. Cornwell criticized deals that give nonminority companies an explicit option to buy out the minority entrepreneur and said he favored stricter requirements on the proportion of capital a minority company must invest on its own.

But, he added, the tax break does promote diversity in broadcasting. "Given that a little less than 3 percent of the electronic outlets are owned by minorities, I think this program continues to have a purpose," he said.

The House bill would use the money saved by killing the minority tax program to pay for a separate provision that would allow self-employed people to deduct 25 percent of their health insurance expenses. Congressional analysts estimate that the biggest group of beneficiaries would be people with incomes between $50,000 and $75,000 a year.

Leaders in both the House and Senate want to pass such a provision to restore a similar measure that expired at the end of 1993. In particular, they want to pass the provision by mid-March, early enough for people to use before tax returns are due on April 15.

But supporters of the minority tax break, led by the National Association of Black-Owned Broadcasters and the National Association for the Advancement of Colored People, pleaded that the program should be preserved.

House Democrats were more cautious. Representative Jim McDermott of Washington offered a substitute proposal that would tighten up the program and prohibit a company from escaping taxes on more than $50 million in capital gains. That would in effect kill the Viacom deal, which would avoid taxes on more than $1.5 billion in profits, but it would allow most minority deals that would use the tax break.

"Nobody is standing up here defending the Viacom deal," Mr. McDermott said. "But do you want to destroy this program or do you want to tighten it?"