[Congressional Record Volume 141, Number 129 (Friday, August 4, 1995)]
[House]
[Pages H8517-H8519]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


       VIACOM REVISITED: REPEAL OF THE TAX CERTIFICATION PROGRAM

  The SPEAKER pro tempore. Under the Speaker's announced policy of May 
12, 1995, the gentleman from California [Mr. Dixon] is recognized for 
60 minutes as the designee of the minority leader.
  Mr. DIXON. Mr. Speaker, before we leave for the recess, I wanted to 
take the opportunity to revisit our actions on February 21. On that day 
the House passed H.R. 831. The legislation ended a very successful 
minority tax certificate program and scuttled Viacom Inc.'s plans to 
sell its cable systems to a minority broadcasting company.
  This was done under the guise of paying for a 25 percent health 
insurance tax deduction for the self-employed. Proponents of the move 
claimed that $1.3 billion would be saved by ending the minority tax 
certificate program.
  I strongly support legislation to ensure the deductibility of health 
insurance costs. However, I voted against H.R. 831 because the bill 
eliminated a program that provided minorities with the opportunity to 
own broadcast properties.
  As a result of the elimination of the minority tax certificate 
program, Viacom has structured a new deal. Last week it was reported 
that Viacom has moved to rid itself of its cable systems, this time 
without selling to a minority entrepreneur. And guess what? There will 
be no addition of capital gains taxes to the Treasury.
  My question is: What have we accomplished by repealing the tax 
certificate program, other than preventing a minority from owning 
Viacom's cable systems and reducing opportunities that future minority 
companies have to own broadcast properties?
  For my colleagues who do not remember, let me recap the events. In 
January Viacom announced that it would sell its cable television 
systems to a partnership that was led by an African-American 
communications entrepreneur. That deal was ended by those who opposed a 
capital gains tax benefit that Viacom would have received for selling 
to a minority.
  Representative Bunning of the Ways and Means Committee explained the 
Republican's reason for ending the tax benefit when he said ``to pay 
for the 25 percent deduction, the bill repeals section 1701 of the Tax 
Code, that allows the FCC to issue tax certificates to companies that 
sell telecommunications properties to businesses with minority 
interests.''
  The tax benefit sought by Viacom was part of the Federal 
Communication Commission's tax certificate policy program. Created in 
1943, it has been used for a variety of reasons. In 1978 the FCC began 
using the program to promote the sale of radio and television stations 
to minorities.
  This program has been successful. From 1978 to 1995, the program 
resulted in increasing minority ownership of all broadcast properties 
from only 0.5 percent to 2.9 percent.
  If the January Viacom deal had gone through, the FCC would have 
issued a tax certificate to Viacom. Viacom would have sent the tax 
certificate to the Internal Revenue Service and would have deferred 
paying capital gains taxes on the deal. The new Viacom deal will have 
essentially the same effect on the Treasury as the original deal--a 
deferral of tax revenue.
  Although Republicans wanted to use the revenue to pay for the health 
insurance deduction, all the program's repeal has done is hinder 
minority access to capital and to broadcasting.
  During debate on H.R. 831, Ways and Means Committee Chairman Bill 
Archer said that ``the cost of the deduction's permanent extension is 
fully funded by several provisions which will greatly improve our 
Nation's tax laws.'' I do not see how ending the minority tax 
certificate program improves our tax laws when doing so only serves to
 impede minority access to ownership of broadcasting operations.

  The Joint Committee on Taxation calculated that extending the 25 
percent health insurance deduction for the self-employed would cost 
$2.9 billion between 1995 and 2000. The committee also calculated the 
repeal of the minority tax certificate program at $1.3 billion over 
five years, nearly half the revenue needed for the health deduction. If 
other deals are made to avoid paying capital gains taxes, where does 
that revenue come from?
  While you may need an expert tax attorney to grasp the intricacies of 
the new Viacom deal, the results are easily explained. Viacom achieves 
its goal of paying no capital gains taxes and eliminates a large 
portion of its debt. TCI benefits by expanding its portion of the cable 
television market.
  There is no benefit to the Treasury; no payment for the self-employed 
tax deduction; and no chance to expand minority ownership in 
broadcasting.
  Let me be clear, there is nothing unusual about a company structuring 
a deal to avoid paying taxes. It happens all the time, and certainly 
proponents of ending the tax certificate program know that.
  I believe that it was disingenuous for the Republicans to use the 
repeal of the section 1071 program to ``pay'' for the
 health insurance deduction. There was no basis for acting on that 
assumption. Witnesses at hearings on the tax certificate program 
alerted them to the problems with that assumption.

  Raul Alarcon, Jr., the president of the Spanish Broadcasting System 
had it right when he told the Ways and Means Committee:

       It cannot be assumed that, but for the tax certificate 
     program, each and every sale to a minority owner would have 
     generated tax revenues in the year of the sale. Many owners 
     would not sell their properties at all if they couldn't defer 
     the taxes--or they would search for other tax-favored ways to 
     sell their properties.

  Beyond paying for H.R. 831, Republicans also argued that the minority 
tax certificate program should be repealed because it is unfair. This 
is certainly not true. Mr. William Kennard, general counsel for the 
FCC, pointed out that the tax certificate program is not a quota. It is 
not even a set aside. As he said, ``It is a minimally intrusive, 
market-based incentive which has worked.'' The program has helped 
minorities overcome, in Mr. Kennard's words, the ``greatest obstacle to 
ownership--attracting the necessary capital.''
  During the February 21 debate on the measure, Chairman Archer said 
that tax benefits should not be conditioned on classifications such as 
race or
 ethnicity. ``Our tax laws should be, as I am, color blind.''

  The color blindness of the tax code is not the point. The point is 
that the tax code is used for a variety of public policy goals, such as 
savings and investment. It was good public policy to use the tax code 
to enhance minorities' access to capital and to encourage minority 
entrepreneurship.
  In response to the concerns raised about tax certificate abuse, Ways 
and Means ranking member Sam Gibbons and Representative Jim McDermott 
offered a substitute to H.R. 831 which preserved health insurance 
deductions for the self-employed and reformed the tax certificate 
program.
  The substitute would have capped the amount of capital gains taxes 
that could be deferred under the tax certificate program at $50 million 
and made significant reforms.
  The Republicans opposed this alternative. An alternative which 
address concerns about abuse of the program--without completely 
dismantling the certificate program.
  So what did the bill do? It eliminated a program which helped 
minority companies gain a foothold in broadcasting. It did not fund the 
health insurance tax deduction TCI, the Nation's largest cable systems 
operator, becomes even larger.
  With the new Viacom deal in the works, where is the Republican 
opposition to another huge deferral of capital gains taxes? Where are 
the calls for 

[[Page H 8518]]

hearings on whether Viacom has unfairly prevented the government from 
collecting tax revenue? I don't expect to hear them.
  I guess it is okay for nonminorities to avoid paying capital gains 
taxes, as long as they don't help minority entrepreneurs along the way.
   Mr. Speaker, I would be pleased to yield to the gentleman from South 
Carolina [Mr. Clyburn].

                              {time}  1630

  Mr. CLYBURN. I thank the gentleman for yielding. Mr. Speaker, I rise 
to express my outrage with congressional actions which discourage 
minority ownership of telecommunications businesses, while at the same 
time letting stand tax laws which encourage ownership among white owned 
entities.
  In February, this body voted to kill a Federal program that provided 
tax breaks to companies that sell broadcast stations and cable TV 
systems to minorities. These actions were spurred by Viacom Inc.'s 
proposed $2.3 billion sale of its cable TV systems to a group led by an 
African-American entrepreneur. The Federal Communications Commission 
minority tax certificate program allowed companies that sold to 
minority buyers to defer capital gains taxes on sales of radio and TV 
stations and cable systems. The program was designed to encourage such 
sales and to broaden minority ownership in an industry that is 
overwhelmingly dominated by whites.
  The tax certificate program was established in 1978 and had been 
supported through four administrations, both Democratic and Republican. 
It was responsible for a fivefold increase in the minority ownership of 
broadcast properties. Even with that success, however, minorities 
represent only 3 percent of the industry's ownership today.
  In this deal, Viacom would have been entitled to defer paying more 
than $400 million in taxes under the program. While the program 
involved tax deferment, Viacom still would have been liable for the 
$400 million in taxes at a later date. It would have had to reduce the 
amount by which it could write off other assets in the future. The U.S. 
Treasury would have eventually received these moneys and a single 
African-American would have become a small player in the 
telecommunications arena. By repealing the minority tax certificate 
program, the Congress sent a strong message that it has no interest in 
increasing minority ownership in the cable and TV industry.
   Mr. Speaker, most interestingly, Viacom did eventually sell its 
cable division to a company known as Tele-Communications Inc. Under 
obscure tax provisions, this deal enables Viacom to avoid capital-gains 
taxes. This new deal means that Viacom will escape capital-gains taxes 
altogether. Its an even better deal than the sale to the minority 
buyer.
  The message this scenario sends to the American people is that it is 
okay for sellers such as Viacom to benefit from the Tax Code when the 
buyers are white, but not OK when the buyers are African-American or 
other minorities. True, Congress closed what has commonly been called 
the minority tax certificate ``loophole.'' However, after these latest 
transactions, neither Viacom nor Tele-Communications has suffered. In 
fact, they both have benefitted by the shrewd use of the Tax Code. 
Minorities, on the other hand, are discouraged, and to some degree even 
prohibited, from seeking ownership of telecommunications entities. 
Shame on this Congress. There is much work to do.
  Mr. DIXON. I thank the gentleman for his excellent comment on this 
issue and would yield to the gentleman from North Carolina for whatever 
time he may consume.
  Mr. WATT of North Carolina. I thank the gentleman for yielding time 
to me, and I thank him for bringing this important issue to the 
attention of the Members of this body and to the American people.
  Mr. Speaker, listen. What is that sound I hear? I think it is the 
deafening sound of silence that we always hear when we detect a double 
standard, and nobody, nobody wants to own up to it.
  There is this deafening sound of silence about this Viacom deal 
because we knew there was an opportunity, we know there was an 
opportunity, and we know that an opportunity has been missed, and we 
know that a double standard has been set, and we know there is no 
justification for it except something is going on in our country that 
says anything that has any race notion to it, any equalization, any 
preference notion to it, any opportunity to equalize the playing field 
is going to get some kind of special scrutiny.
  Well, we remember the Viacom deal last February. It was a deal that 
fell through because Republicans in this House rallied to repeal the 
minority tax certificate program.
  That program permitted owners of broadcast and cable facilities to 
avoid capital gains taxes on the sale of broadcast or cable facilities 
to minorities. Had this program not been repealed an African-American 
business person would have become a serious player in the 
telecommunications industry. The program was designed to help 
minorities get some minimal foothold in the telecommunications 
industry.
  We remember the deal, and we remember how outraged the Republicans 
were that a multimillion dollar corporation was going to get a tax 
break, a multimillion dollar majority corporation was going to get a 
tax break, they were outraged because they were going to get that tax 
break by selling a communications interest to a minority.
  We remember how Americans were whipped into a frenzy over this issue 
because they were told that a huge corporation would avoid paying taxes 
for selling its holdings just because it was selling those holdings to 
a minority member who didn't need affirmative action anyway.
  Well, if we had just done away with that program and gone on and 
forgotten about it, maybe the American people would understand and be 
satisfied, but that is not what happened. What goes around tends to 
come back around, and so it did.
  Viacom never gave up on the notion, the majority company never gave 
up on the notion of tax avoidance, and they went out and they struck 
another deal with what happened to be another majority communications 
company called TCI. That deal avoids all taxation just like the other 
deal that was so objectionable.
  And what do we hear? What have we heard from our Republican 
colleagues in this very body? Where are you? We hear the deafening 
sound of silence. Not a word.
  Well, what are we to make of this? Is this a double standard? It's OK 
to avoid taxation. Viacom can avoid taxation as long as it is selling 
its communications interests to another majority company, but it is not 
OK to avoid taxation if it is selling its interest to a minority 
communications interest.
  What's the deal? What is it that we are saying? Is it OK for TCI and 
Viacom to avoid taxation through complex business deals? Is that OK? Is 
that affirmative action of some kind for those majority companies?
  It is certainly an advantage that our Government has delivered to 
them to facilitate this deal and allow it to happen.
  It is affirmative action when we provide a special consideration to 
our veterans because they have served our country? Is that an 
acceptable affirmative action?
  Is it affirmative action when we say to major corporations that we 
will provide a tax credit for you to encourage you to do something good 
for our communities, to keep our air clean?
  Well, I am not sure I understand the distinction between those kind 
of tax credits and savings and affirmative actions that benefit the 
majority community and the affirmative actions that you say are 
unacceptable when they benefit the minority community.
  This entire Viacom episode really demonstrates once again as clearly 
as it can be demonstrated that we have gotten way out of whack when it 
comes to dealing with minority preferences and things that benefits 
minorities in this country. We cannot sit still for that to happen.
  But what happens when the same kind of scenario plays out and 
benefits those who already have advantages? I submit to you, Mr. 
Speaker, it is a double standard, and we know what happens when there 
is a double standard and there is no, no, no justification for it.

[[Page H 8519]]

  We know what happens in this body, and we see it time after time 
after time after time. We hear it time after time after time. We hear 
that deafening sound of silence from our colleagues.
  We have got to stand up and expose these things when they are 
inequities, and I commend my colleague from California for bringing 
this opportunity for us to make the statement in the interest of 
fairness because we will come back here after the break in this body, 
and I am sure we will not hear that deafening sound of silence from our 
colleagues come time to talk about affirmative action and things that 
may have some benefit to the minority community, but we certainly hear 
that deafening sound today.
  I yield back to the gentleman from California and thank him again for 
sponsoring this special order today.

                              {time}  1645

  Mr. DIXON. I thank the gentleman from North Carolina for his 
contribution.
  Mr. Speaker, just let me summarize what has occurred here over the 
past few months. I have served in this House for 18 years. I have not 
served on the Committee on Ways and Means, but I have served on the 
Committee on Appropriations. I have an idea of the conversations that 
went on.
  This House wanted to participate in a program to allow people who 
were self-employed to deduct up to 25 percent of their medical 
insurance. We also at the same time had to find offsets for that money. 
It was going to cost $2.3 billion. Somebody ran in the room with an 
article from a newspaper and said, ``Did you know that an African-
American is going to participate in a deal, and the taxes on that deal 
to Viacom, the selling company, are going to be deferred?''
  Someone else said, ``What is wrong with that?''
  ``Well, there are abuses in the program.''
  ``Well, let's address the abuses.''
  The gentleman from Washington [Mr. McDermott] and the gentleman from 
Florida [Mr. Gibbons] presented an amendment on this floor to address 
those abuses. But there were other voices in the room that said, ``But 
we need the money to offset the loss of revenue to the Treasury for the 
$2.3 billion.'' So we called in witnesses. Mr. Kinard from the FCC 
said, ``This is not a set-aside. It is not a quota. It is something 
that we have done because of good public policy, and we have been using 
this certificate for other things since about 1948.''
  ``But we need to offset. We need to find the money.''
  Someone else came forward and said, ``do not anticipate this kind of 
revenue, because, yes, the tax certificate is used, but people will 
either not sell or find some other tax structure to avoid it.''
  ``But we need the revenue.''
  This bill comes to this floor, and the representation is made that we 
have got to kill this Viacom deal. The policy is wrong, it is abused, 
let us correct it.
  No.
  Well, then, let us move forward, because when we kill this program, 
you see, it is going to produce $1.3 billion.
  Wrong again. Mr. Speaker, 831 did three things: It eliminated what I 
believe in my heart was a good program, that encouraged 
entrepreneurship in broadcast industries; it provided no tax revenue to 
the Treasury; and TCI, the largest cable company in the country, just 
got a little bit bigger.
  So there is no doubt, Mr. Speaker, that this is not a colorblind 
society. There is no doubt in my mind that it is not a colorblind 
society. But when you look at the totality, you cannot expect 
minorities and women to understand why it is good for the majority in 
this country to take advantage of a tax deferral, but not good for a 
minority.


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