US MARITIME INDUSTRY PAST THE BAND-AID STAGE

US MARITIME INDUSTRY PAST THE BAND-AID STAGE

Once again Congress is attempting to stem the hemorrhaging that continues to beset the maritime industry by applying another Band-Aid.

Rather than take a broad, comprehensive look at the myriad problems plaguing the maritime industry, Congress apparently prefers to try to solve them piecemeal.The latest bill, titled ''National Security Sealift Enhancement Act,'' was introduced by Reps. James McCrery, R-La., William Jefferson, D-La., and Sen. John Breaux, D-La.

Although their intentions merit consideration, the bill falls far short of revitalizing the American-flag merchant fleet.

The bill has five main elements, all of which require further research and study. As proposed, they all fall short of what they are intended to accomplish.

* Capital construction fund: The legislation proposes to amend the existing CCF language to permit a shipowner to deposit those duties he now pays on ship repairs made overseas into his Capital Construction Fund. (Money in the fund is not taxable; it is used to reinvest in new ships and equipment.)

Based on current experience where the vessel is required to dry-dock at five-year intervals, plus the current experience on repairs made overseas over a 20-year period, the estimated duties on foreign repairs to be deposited in a given owner's CCF are $2.8 million. Foreign-built ships cost in the vicinity of $40 million and those built in the United States cost much more.

The intent of the bill is commendable. However, the deposits are small and undoubtedly will be compromised by normal inflation.

It would be to the advantage of the owner to be relieved of paying any and all duties for dry dockings and repairs made in a foreign country. By so doing, the vessel's operating cost is reduced and it would immediately become more competitive.

* More favorable depreciation schedule: The proposal would permit the owner to fully depreciate his vessel in the year it was built.

This ability may be advantageous to an owner whose pretax earnings are substantial. Alternatively, it may be that if the owner were permitted to sell those tax credits he could not use, it would enable him to reduce his costs.

It may be better to focus on a tax-exemption schedule, thus permitting the owner to retain a greater part of his pretax income.

* Alternative minimum tax: I would recommend this proposal be deleted. In its place, Congress should provide for a tax-exemption scheme.

The tax exemption should be allowed on pretax income of 20 percent or 25 percent of the owner's gross revenue. Taxes payable on income in excess of the exemption would be taxed at the current rates.

The tax-exemption proposal would be applicable to vessels engaged in the foreign trades, intercoastal, coastwise and noncontiguous trades. This would treat all vessels equally.

* Exclusion for mariners: This proposal would bring the income earned by mariners who serve on vessels engaged in the foreign trades under Section 911, which covers foreign source income. This section is applied to Americans working outside of the United States.

The current cap on the exemption is $80,000 per year. Based on current experience with a 21-member crew, the tax exclusion is estimated to be $422,000 per year for the mariner and $452,983 per year for the shipowner.

The shipowner pays the applicable tax rate for FICA and Federal unemployment insurance. The mariner pays the federal tax on his gross income. Excluding the mariners' income up to $80,000 will not make the vessel more competitive.

To make the vessel cost-competitive, mariner's wage scales and benefits are better left to the collective-bargaining system. Bear in mind that seagoing labor in both the foreign and domestic trades, through collective bargaining, has already reduced payroll costs between 15 percent and 28 percent.

For informational purposes, there are current labor agreements extending five to eight years into the future that set wages regardless of inflation and cost of living indexes. The rate of increase is set at 2.25 percent annually.

However, if the political thrust is to provide for income-tax exclusion, then it should be applicable to mariners in the intercoastal, coastwise and noncontiguous trades as well as the foreign trades.

* Convention cruise ships: This proposal should be amended to include those cruise ships operating between domestic ports. There currently are no U.S.-flag cruise ships slated for the foreign trades, and none are on the drawing boards.

The maritime industry would be better served if Congress would take the lead in scrapping or amending, as applicable, the Merchant Marine Acts of 1916, 1920, 1928, 1933 and 1936, as well as the Ship Sales Act of 1946 and the Passenger Ship Service Act of 1886.

Further, it is time to disconnect the American-flag shipowner from the American shipyard. Each should stand on its own.

It is of interest to note that of the $28.9 billion covering commercial and government contracts awarded and under way, only $1.4 billion covers blue-water ships, a mere 4.8 percent of the total value and 2.2 percent of the number of vessels under construction.

We are beyond the Band-Aid stage. A tourniquet is needed.