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Packwood Tax Plan
The Packwood Tax Plan was an attempt to change the tax system to remove loopholes and tax shelters, and to flatten the tax, thus providing (so it was said) more incentive to take risk. It had the support of President Ronald Reagan who was keen to find some way to honor promises to cut taxes.
It split the business coalitions, with some business sectors seeing benefits in the plan and others seeing further impositions. Those businesses depending on real estate and on extraction (such as oil) would carry a heavy burden.
A small part of the scheme involved increases in federal cigarette excises, so the Packwood plan was fiercely opposed by the tobacco industry. But they couldn't get support from some of their traditional business coalition partners and from the Republican think-tank base.
Cashflow magazine in 1986 published this article (Abstract only) on the plan for tax reform named after Senate Finance Committee chairman Bob Packwood, [R-Ore]
The tax reform bill authorized by the Senate Finance Committee, known as the Packwood plan, is evaluated for its possible effects on US businesses, most notably the real estate industry.
The Packwood plan would disallow investors' application of tax losses from passive investments (including real estate and equipment leasing limited partnership losses) against taxable income from other sources. This effective elimination of tax shelters could hurt the real estate development industry. Other side effects of the Packwood plan, such as lower interest rates and the elimination of capital gains tax rates, are also discussed.
On the whole, the Packwood plan could be the lesser of two evils, since the tax reform bill in the House would raise US corporations' tax burden to $139 billion per year, while the Packwood plan would increase corporation taxes by approximately $108 billion annually.
1986 May 8: The Heritage Foundation's Bruce Bartlet was an enthusiastic supporter of the Packwood Plan.
Packwood's Alchemy Could Make Taxes Simple and Fair
In a feat worthy of an alchemist, Senate Finance Committee chairman Robert Packwood, the Oregon Republican, has managed not only to salvage tax reform from a seemingly near certain death, but to transform it into a radical rewrite of the entire tax code. Packwood's accolades are well-deserved.
Two distinct ideas have provided pressure for tax reform: first is the traditional liberal idea that "loopholes" should be plugged to make the "rich" pay their "fair" share'; second is the more recent compelling "supply-side" idea that marginal tax rates (the tax rate on the last dollar earned) should be as low as possible to stimulate risk-taking and work effort. The overarching goal, therefore, was to limit tax deductions and use the revenue gained from that to lower the marginal tax rate in a way that maintained total tax revenues at their present level.
The Senate Committee's unanimous proposal goes a long way toward achieving this goal. Xarginal tax rates would be cut dramatically to just 27 percent, compared with the 70 percent rate when Ronald Reagan took office in 1981. Indeed, the top rate under Packwood's plan is even lower than that proposed by either Senator Bill Bradley (D-NJ) or Congressman Jack Kemp (R-NY), the two congressional leaders most closely associated with tax reform.
To obtain the revenue necessary to achieve this low rate, the plan envisions several steps to reduce the tax preferences available in the current code. Among them: by ending many incentives, taxes on corporations would rise by about $100 billion per year, a stiffer minimum tax on corporate and individual earnings would be imposed, so-called "tax shelters" would be curtailed,, Individual Retirement Account (IRA) contributions would be limited, and the maximum tax rate on capital gains would be raised from 20 percent to 27 percent.
1986 April 11: A Tobacco Institute confidential memo on "Regional Action Update on Packwood Tax Plan" says:
Wyoming counsel Bill Thomson reports that his White House sources say Reagan is getting "bad advice" on tax reform...Thomson says Reagan has been yersuaded to sign "anything" from the senate that has the tax reform label...idea is that White House can then say Reagan has made the most sweeping tax changes since JFK.