Talmadge E. Simpkins' Sept. 23 OpEd essay "Tax Change Aids U.S. Flag Shipping", which applauds the tax conferees' decision to repeal tax deferral on reinvested income of U.S.-controlled foreign shipping corporations, is wrong in many respects. The following corrections are in order, if only
because the wisdom of that decision may be considered in the next Congress:
Repeal was not estimated by anyone, other than Mr. Simpkins, to generate $2 billion in revenues over a five-year period. That sum would require the U.S.-controlled fleet, numbering about 300 ships, to amass roughly $6 billion in earnings and profits. It may be that Mr. Simpkins knows something about future shipping markets that no one else appreciates since simple arithmetic suggests that for the fleet to produce $2 billion in tax
revenues each ship would have to earn $4 million a year over the next few years. Earnings of that magnitude would be difficult to predict in the best of times.- We estimated tax revenues to be $10 million a year. The Congressional tax staffers, so we understand, estimated $22 million. Mr. Simpkins argues that a low estimate, if correct, means that repeal would have no impact on driving U.S. companies out of business. His argument overlooks two realities. First, U.S.-controlled shipping is in competition with foreign owners who will continue to be able to reinvest tax-free or untaxed earnings. Repeal will give them a 150 percent capital investment advantage which, over the long term, will tip the competitive scale in their favor in a capital intensive business. Second, U.S. companies that have weathered the shipping depression of the 1980's remain in this high risk business with the expectation of a reasonable return on investment at some future point when the supply/demand equation finally comes into balance. Repeal effectively will reduce that return by one- third, a factor substantial enough to discourage future investment and, in some cases, encourage disinvestment.
- While Mr. Simpkins views U.S.-controlled shipping as the "number one competitor" of the U.S.-flag fleet, he would be hard pressed to cite a single instance today in which U.S.-controlled vessels are in direct competition with much higher cost U.S.-flag vessels. Even assuming that such competition does exist, he should appreciate that the U.S.-controlled fleet accounts for less than 10 percent of Free World shipping.
Philip J. Loree Chairman Federation of American Controlled Shipping New York City