European Stars And Stripes (Newspaper) - May 4, 1987, Darmstadt, Hesse                                Magazine Colony Marine Salet in Michigan taut Nate thai the inn 3 yacht rates Are up 20 to 25 percent it a result of a Tew rtt Slons. \ a new tax Law Era lunch at the desk bunk on the yacht by Gary Klott new York times y acht sales Are booming in the untie slates electric Utility ales Are  Are Rushing to take out second mortgages. Construction of Tow income housing has come to a virtual halt. Thousands of businesses have Dis incorporated some executives have forsaken fancy restaurants in favor of entertaining clients in the Olios. Alter the most sweeping overhaul of the Federal income tax code in 73 years economic Lite in the United states has been changing in perceptible sometimes curious ways. At the same Lime preliminary evidence would suggest hat while Many individuals and corporations Are making adjustments the Basic fabric of american life has changed Little. Although lobbyists and some poli Tirjan predicted that severe economic dislocations would result from the curtailment of dozens of Long standing tax benefits economists have selected Lew calamities. Many provisions of the new lax Law will be phased in Over the next severe years so More substantive changes Are bound to occur. So Lar the tax changes have Hurt a few sectors such As apartment House construction but the resilience of the Economy has surprised Many economists. Defying an increase in Long term capital gains rates the Slock Market has surged to record Heights. Changes in the lax code made mergers Tore expensive but the buying and Selling of corporate is continues. Richard Hadar a Manhattan advertising exc Culive still has lunch Wilh clients twice a week or example. But now that entertainment expenses Are Only to percent Deduc Lihle he does the entertaining in his office rather than at expensive restaurants. Par of the decision was due to the new tax Law and Par of it was for efficiency reasons said Hadar who is president of american direct industries. Hadar wanted to Cut costs not Corners so he brought in a corporate entertainment consultant 1o help make the deals More lavish. Frankly we re delighted he said. We be easily saved 20 or 2s  similarly americans Are still borrowing Money but Many have changed the Way they borrow. Because the deduction for interest on credit cards and most other types of consumer debts is being phased Oul homeowners have been Rushing to sign up for second mortgages and Home equity Loans. The interest on which remains deductible up to certain limits. In new York the Home equity loan volume surged 125 percent last year. Congress had hoped thai by phasing out the deductibility of consumer interest it would discourage borrowing. So far though the evidence suggests tha1 americans Are using the second mortgage Loop Hole to evade 1he res Iri Clion. Vacation Home markets have bounced Back a bit after slumping while Congress debated curtailing the mortgage interest deduction Lor second Homes. A stroll along America s Marina docks this summer will uncover another lifestyle change in this new tax Era. Not Only will there be More boats but there will also be an on daily Largs number of yachtsmen sleeping on bord. Boats like cars sold briskly at the end of last year As americans rushed to exploit the expiring sales tax deduction. But yachts sales have continued to Boom. The reason. Sleep aboard yachts can Quality As second Homes under the new Law. Meaning the interest payments Are still deductible now Hal deductions Are harder to find yachts have become an enticing tax shelter or Well of do americans. I d say sales Are up 20 to 25 percent because of the new Taw said Peter Beauregard sr., president of Cottony Marine sales a Large boat Dealership in Algonac Mich. Beauregard who also operates a nearby Marina is gearing up for a Busy season dockside. Boal owners will need to spend at least 14 nights a year on Board to have their yachts qualify As Sec a Homes but boat dealers Are , sen. John c. Of Anforth r-mo., a member of the Senate finance commit Lee and one of the most vocal critics of the new tax Law has begun a Campaign to repeal the boat deduction. Onshore developers have dropped plans to build  housing projects because they find the lax incentives contained in the new Law insufficient to make the projects profitable. We had 1,600 units in the pipeline and those 1,600 just disappeared said Gary King dictator of strategic planning at the Connecticut housing finance authority. At a recent conference of housing administrators. King found that the Connecticut experience was similar across the country congressional lax aides Are trying to find a Way to make the Low income housing credit More attractive by the time House and Senate tax writers consider technical changes to the new tax Law later this year. The real estate world has started to adjust very quickly said Kenneth t. Tiosen director of real estate research at Salomon Brothers inc. Overall apartment building construction which is considered to be especially sensitive to tax changes has declined to about 500,000 units a year irom the 700,000-unit rate achieved before Congress started talking seriously about curtailing Many real estate tax Breaks. The shrinking level of apartment construction could eventually translate into higher rents. Construction of office buildings hotels and shopping centers has also slowed. But Rosen said Only 5 to 10 percent of the slowdown could be attributed to the lax Law change. Commercial construction had already been in a Sharp decline because of High vacancy rates and overbuilding in major cities. That overbuilding was attributed largely to the big tax Breaks real estate got in 1931. The half empty office buildings in Houston and elsewhere influenced tax writers when they decided to scale Back real estate tax benefits. Then a tax Law has already had an Impact on corporate profits because of the elimination of the investment tax credit retroactively to Jan. 1,1986. The Procter & Gamble co said ils second Quarter earnings would have risen much More than 15 percent had it not been Lor the new tax Law. Its earnings would continue to be hurl for the rest of the focal year because of the tax changes it said. Eventually however Procter & Gamble like Many other companies expects to come out ahead under the new Law. Ils fortunes will begin to improve on july 1, when the lop corporate lax rate is towered to 34 pereen.1. A to percent. Many of the favourable effects of the new tax Law in last. Are expected to emerge much later than the negative effects. This is partly the result of the Way Congress decided to phase the Law it curtailed benefits before lowering rates. But it also has to do with the Way business operates. Projects no longer deemed profitable under the new tax rules such As plans Lor an apartment building can often be scrapped at a moment s notice Utility customers Are already getting a taste of the shifting corporate lax Structure. The consolidated Edison co. Announced in Early March that it would drop Basic electricity rates by 3.1 percent Over the next three years because it expects to do Well under Ine new tax Laws Wahidi give most utilities a Windfall because of the drop in the corporate tax Rale. But for the few utilities that Are building new generating plants the loss of the old Law s investment tax incentives could More than Ollet the lax Rale reduction. The new lax Law has also brought to end to an Era the traditional lax shelter the Type of Deai of Lertg investors targe write offs has vanished from the investment landscape. The death of tax shelters is one of the reasons or the strength of he Slock Market according to some analysis who suggest that wealthy investors have found nowhere else to invest their Money. The drop in the tax rate on Short term capital gains is another reason offered for the Market s strength. Monday rvay4, 1987 the stars and stripes Page 13