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1
PRESIDENT CLINTON SIGNS THE MINIMUM WAGE LEGISLATION
August 20, 1996
The President today will sign legislation to increase the minimum wage to help ten
million Americans who work hard and play by the rules. The bill, formally titled H.R. 3448 -
- "Small Business Job Protection Act", also provides for pension reform, tax breaks for small
businesses, and a newly created adoption tax credit.
The President has supported increasing the minimum wage, which is now approaching
its lowest real value in 40 years, since he was Governor of Arkansas. In his remarks, the
President will highlight the importance of providing hard working Americans with a living
wage. He will also emphasize the benefits of the new pension reforms and the newly created
tax credit to make adoption easier and more affordable for working families
Participants in today's event include minimum wage workers and their families,
representatives from supportive organizations, members of congress, adoption advocates and
their families, and administration officials.
and with
The following is the program for the event:
The Vice President makes remarks
Kathy Wilkinson, lab assistant and minimum wage employee from Wheeling,
West Virginia makes remarks.
The President makes remarks.
-30-30-30-
MAKING WORK PAY BY INCREASING THE MINIMUM WAGE
In Putting People First. Bill Clinton and Al Gore promised to "increase the minimum wage to
keep pace with inflation. n February 1995 -- 18 months ago -- President Clinton
specifically proposed increasing the minimum wage from $4.25 to $5.15 over two years. For
a full- time minimum wage worker, a 90-cent increase would raise their yearly income by
$1,800 -- as much as the average family spends on groceries in over 7 months.
YOU CAN'T RAISE A FAMILY ON $4.25 AN HOUR. The minimum wage is approaching its
lowest real value in 40 years. The minimum wage has lost nearly all of its real value since its last
increase in April 1991. This minimum wage increase will help restore the real value of the
minimum wage back to its level when it was last raised.
Ensuring No Parent Has To Bring Up Their Kids In Poverty. The dramatic extension of
the Earned Income Tax Credit (EITC) helped lift hundreds of thousands of working families
out of poverty. A 90-cent minimum wage increase and the expanded EITC will ensure that no
parent who works full-time would have to bring up their children in poverty.
Helping Adult Workers Trying To Support Their Families. According to the Bureau of
Labor Statistics:
69% of those workers who would benefit from an increase are adults, age 20 or over;
Three-fifths (59%) are women, many of whom are trying to raise the family on $4.25;
Nearly two-fifths (38%) are the sole wage earner in their household; and
The average minimum wage worker brings home half of their family's earnings.
Giving A Pay Raise To 10 Million Workers At or Near The Minimum Wage. An
estimated 10 million hourly workers earn between $4.25 and $5.14 and would directly benefit
from this pay raise. An increase in the minimum wage could also have a "ripple" effect on the
over 3 million workers who earn within 60 cents of the new minimum wage.
EMPIRICAL EVIDENCE SHOWS THAT RAISING THE MINIMUM WAGE WILL NOT
COST JOBS. Nearly two dozen empirical studies have found that moderate increases in the
minimum wage do not have a significant impact on employment. These studies include state-
specific research in California, Texas, and New Jersey that shows that state minimum wage
increases did not result in any job loss.
101 Economists Including 3 Nobel Prize Winners Agree That A Minimum Wage Increase
Won't Cost Jobs. In the fall of 1995, 101 economists including 3 Nobel Prize-winners
Kenneth Arrow, Lawrence Klein, and James Tobin signed a letter supporting the President's
proposal to raise the minimum wage, affirming that it would not have a significant effect on
employment, and concluding that "overall effects [of an increase] on the labor market,
affected workers, and the economy would be positive."
THE LAST MINIMUM WAGE INCREASE - ALSO 90 CENTS -- GARNERED STRONG
BIPARTISAN SUPPORT. In 1989, the minimum wage was passed by votes of 382 to 37 (135
Republicans) in the House, and 89 to 8 in the Senate (36 Republicans) and was supported by
Senator Dole, Senator Lott, and Rep. Gingrich.
PENSION PROVISIONS IN THE MINIMUM WAGE BILL TO
EXPAND COVERAGE, INCREASE PORTABILITY, AND ENHANCE SECURITY
The minimum wage bill includes many of the President's pension proposals, contained in his
Retirement Savings and Security Act, which will empower more Americans to save for their
retirement by expanding pension coverage, portability, and protections and significantly simplifying
pension rules.
Expands Pensions to help millions of working Americans not currently covered by an employer-
provided plan save for their retirement.
Increases Portability by reducing the obstacles facing many workers when they change or lose
their job and want to keep their retirement savings and continue saving.
Enhances Protections so hard-working Americans do not have to worry whether their retirement
savings will be there when they need them.
Simplifies Pensions to encourage and make it easier for employers to offer pensions.
THE MINIMUM WAGE BILL'S PENSION PROVISIONS MEET THESE CHALLENGES:
1. NEW SMALL BUSINESS 401(k) PLAN -- To Expand Pension Coverage: While 76% of
workers in large businesses have employer-provided pensions, only 24% of workers in small
businesses do. In June 1995, the President first proposed a simple small business "401(k) plan"
to expand pension coverage to up to 10 million workers in small businesses not currently covered
by a plan. Republicans followed with their own proposal. The minimum wage bill's small
business plan, while providing a smaller share of benefits to lower and middle wage workers,
includes many elements of the President's plan and provides for:
$6,000 Tax-Free Contributions. Workers could save up to $6,000 a year tax-free through
automatic payroll deductions.
Employers Contribute 2% of Salary or Match Contributions Up To 3% of Salary.
One-Page Form. Cuts through the red tape with a simple, one-page form without
complicated employer filing, calculations, or testing.
100% Portable. All contributions would be immediately vested and fully portable.
The bill also expands coverage by:
Simplifying 401(k) plans for all businesses;
Making the 9 million employees of non-profit organizations, as well as employees of Indian
tribes, eligible for 401(k) plans;
Enabling relatives who work in a family business to earn their own retirement benefits;
Repealing unreasonable limits on benefits for certain disabled and low- and middle-income
state and local government employees; and
Enabling millions of spouses who do not work outside the home to contribute up to $2,000
to an individual retirement account.
2. INCREASES PENSION PORTABILITY: Workers who change jobs and want to take their
retirement savings with them and keep saving currently face a multi-faceted obstacle course. The
President's portability proposals in the minimum wage bill could help over 5 million workers
each year who have an employer-sponsored pension plan and who change jobs:
Takes Away 1-Year Wait To Save At a New Job: Millions of workers are forced to wait 1
year before they can enter their new employer's pension plan. The minimum wage bill changes
a law to encourage private employers to stop imposing this 1-year wait.
Guarantees Benefits for Workers on the Move: Reduces the vesting period from 10 to 5
years for multiemployer plans -- which cover union workers such as construction workers who
frequently change jobs -- to ensure they don't lose their benefits if they've worked for 5 years.
Secures Portability for Veterans: Changes tax rules to ensure that veterans who serve their
nation are not penalized and can continue their pension coverage when they return from service.
3.
ENHANCES PENSION PROTECTION AND SECURITY: The Retirement Protection Act,
enacted in 1994 at the President's request, has reduced pension underfunding for the first time in a
decade, protecting the benefits of 40 million workers and retirees in traditional pension plans. In
1995, the Labor Department launched an initiative to protect savings in 401(k) plans from misuse,
recovering to date nearly $10 million for thousands of workers. Recently the Labor Department
issued new rules to ensure that worker contributions to 401(k) plans start earning money for workers
sooner. Now the minimum wage bill:
Protects Government Employees' Savings from Orange County-Style Fiascos: Requires
state and local government retirement savings plans to be held in trust so that employees do not
lose their savings if the government declares bankruptcy, as Orange County recently did.
Increases Penalties for Self-Dealing: Penalties for self dealing pension funds (such as loans to
the company owner) are generally doubled. from 5 percent to 10 percent.
Improves Spousal Protections: Helps protect spousal benefits in the choice of an annuity and
during divorce proceedings.
4.
EASES PENSION ADMINISTRATION Many employers are discouraged from establishing or
maintaining plans because rules governing their administration are complicated and expensive. The
minimum wage bill:
Eliminates Complex Limitations: As proposed by President Clinton, the bill eliminates the
complex limitations on contributions and benefits for workers in a defined benefit and defined
contribution plan with the same employer.
Simplifies Corrective Action Rules: The bill makes it easier for employers to take corrective
action if they make excess tax-free contributions, and makes the corrective action rules fairer.
Simplifies Computations: The bill simplifies rules for computing pay for pension purposes,
allowing lower-paid workers to receive more benefits.
ADOPTION PROVISIONS IN
THE SMALL BUSINESS JOB PROTECTION ACT
August 20, 1996
The Clinton Administration is committed to breaking down barriers to adoption. The Small Business Job
Protection Act includes two adoption provisions that President Clinton has strongly supported. It provides
an adoption tax credit and prohibits adoption agencies that receive Federal funds from denying or
delaying placement of a child based on race, color or national origin. These provisions will help give
more children what every child in America deserves -- loving parents and a healthy, stable home.
America's Waiting Children. More than 450,000 children in this country live in foster care. Eight out
of ten of these children have special needs -- they are disabled, older, have siblings who also need to be
adopted, or are minorities. The average child may wait as long as two years to be placed in an adoptive
home even after they are legally free to be adopted. Minority children may wait twice as long.
Clinton Administration's Commitment to Encouraging and Easing Adoption. The President and the
First Lady have worked hard to promote adoption, especially for children with special needs. The
Administration's efforts include:
Increased by 60% the number of children with special needs who have been adopted with Federal
adoption assistance.
Strongly supported the Multi-Ethnic Placement Act that sought to end discrimination and delays in
adoption because of race or ethnicity.
Championed the Family and Medical Leave Act -- which enables parents to take time off to adopt
a child without losing their jobs or their health insurance.
Created an honor roll of private companies who have pledged to make adoption easier for workers
and their families by paying adoption benefits, offering leave time after adoption or other
programs.
Launched a public education campaign to highlight waiting children and the importance of
adoption.
Helping Families Afford Adoption. This legislation will allow families, many of whom find adoption
too expensive, to adopt children to love and nurture. It provides:
A $5,000 tax credit for costs related to adopting a child. If an employer agrees to pay for
adoption expenses, their employee can claim an income deduction of up to $5,000.
A $6,000 tax credit or income deduction for costs related to adopting a child with special needs.
The full credit and income deductions are available to adoptive parents with annual incomes of up to
$75,000 and gradually phase out as income reaches $115,000.
Breaking Down Racial Barriers to Adoption. The legislation builds on the Multi-Ethnic Placement
ct. signed by the President in 1994, by strengthening the prohibition against denying or delaying
placement on the basis of race, color or national origin. The bill also provides for stronger enforcement
against states that fail to comply within 6 months.
ADDITIONAL TAX PROVISIONS IN H.R. 3448
THAT THE ADMINISTRATION SUPPORTS
In addition to the provisions that simplify pensions and expand coverage, H.R. 3448
contains a number of tax provisions that the Administration has long supported, including:
Small-business Expensing -- The bill increases the amount of tangible depreciable
property that small businesses can expense from $17,500 to $25,000 by the year 2003. In
1993, the President pushed for such an increase to $25,000. His 1993 Economic Plan
successfully increased the limit from $10,000 to $17,500, and his FY 1997 budget
contained this proposal to increase it to $25,000, except that the tax relief would have been
phased in more quickly. The bill provides an important incentive for small businesses to
increase their capital investment, and will simplify reporting for small businesses.
Adoption Credit -- The bill provides a nonrefundable $5000 adoption credit
(increased to $6000 for domestic adoptions of children with special needs), phased out for
AGI between $75,000 and $115,000. In addition, the bill provides a maximum $5,000
exclusion for amounts paid by the employer in connection with an adoption. The
Administration believes that helping families adopt is one of the most important things we
can do to strengthen families and give children a healthy home. The Administration has
strongly supported such measures as a means to help alleviate economic barriers to
adoption and enable many middle-class families, for whom adoption might otherwise be too
expensive, to adopt children who need homes.
Temporary Extension of Employer-Provided Educational Assistance -- The
$5,250 exclusion for employer-provided educational assistance, which expired after
December 31, 1994, is reinstated retroactively and extended until May 31, 1997. It would
apply to post-graduate education, but only for courses that began before July 1, 1996. The
Administration strongly supports this incentive for employer-provided educational
assistance, which is important for U.S. competitiveness because it encourages
better-educated employees and boosts the productivity of the American workforce. The
Administration is disappointed, however, that Congress has eliminated the incentive for
post-graduate education. The Administration will continue to work to improve this
provision, as well as to provide small businesses with a ten percent tax credit for
educational assistance.
Work Opportunity Tax Credit -- The bill replaces the targeted jobs tax credit
(TJTC) with a new Work Opportunity Tax Credit. The new credit will provide incentives
to employers to hire individuals from targeted groups most in need of jobs and with the
least skills, and it will promote longer, more meaningful work experiences for individuals
hired under the credit. Targeted groups include welfare recipients, food stamp recipients,
former felons and young adults in empowerment zones and enterprise communities.
State Prepaid Tuition Plans -- The Administration worked with Congress to
develop and strongly supports these provisions, which clarify the tax treatment of
investments in State prepaid tuition plans, including a provision that investors in such
programs generally will not be taxed on the increase in value of their investment until the
time of withdrawal. These changes will help parents save for their children's education.
Temporary Extension of R&E Credit -- The credit, which expired June 30, 1995,
is reinstated prospectively only, for the period July 1, 1996, through May 31, 1997, and is
modified in certain respects. The Administration strongly supports the research tax credit
and is disappointed that the research tax credit was not fully reinstated back to July 1, 1995,
and made permanent.
Temporary Extension of "Orphan Drug" Credit -- The credit, which expired
December 31, 1994, is reinstated prospectively, for the period July 1, 1996, through May
31, 1997. The Administration strongly supports this credit, which provides an incentive
for the testing of drugs for rare diseases and conditions.
Subchapter "S" Simplification Proposals -- The Administration has supported
Subchapter S simplification, which is important to helping small businesses. The provisions
include increasing the number of eligible shareholders from 35 to 75, and allowing S
corporations to hold subsidiaries.
Reform Foreign Trust Rules -- The bill contains a series of provisions designed to
prevent sophisticated tax avoidance techniques using foreign trusts. The provision is
similar to one contained in the Administration's budget.
Contributions of Appreciated Stock to Private Foundations -- This provision,
which expired December 31, 1994, would be reinstated for the period July 1, 1996, through
May 31, 1997.
PRESIDENT CLINTON SIGNS THE-MINIMUM WAGE LEGISLATION
August 20, 1996
The President today will sign legislation to increase the minimum wage to help ten
million Americans who work hard and play by the rules. The bill, formally titled H.R. 3448 -
- "Small Business Job Protection Act", also provides for pension reform, tax breaks for small
businesses, and a newly created adoption tax credit.
The President has supported increasing the minimum wage, which is now approaching
its lowest real value in 40 years, since he was Governor of Arkansas. In his remarks, the
President will highlight the importance of providing hard working Americans with a living
wage. He will also emphasize the benefits of the new pension reforms and the newly created
tax credit to make adoption easier and more affordable for working families.
Participants in today's event include minimum wage workers and their families,
representatives from supportive organizations, members of congress, adoption advocates and
their families, and administration officials.
The following is the program for the event:
The Vice President makes remarks
Kathy Wilkinson, lab assistant and minimum wage employee from Wheeling,
West Virginia makes remarks.
The President makes remarks.
-30-30-30-
MAKING WORK PAY BY INCREASING THE MINIMUM WAGE
In Putting People First. Bill Clinton and Al Gore promised to "increase the minimum wage to
keep pace with inflation. n February 1995 - - 18 months ago - - President Clinton
specifically proposed increasing the minimum wage from $4.25 to $5.15 over two years. For
a full-time minimum wage worker. a 90-cent increase would raise their yearly income by
$1.800 - - as much as the average family spends on groceries in over 7 months.
YOU CAN'T RAISE A FAMILY ON $4.25 AN HOUR. The minimum wage is approaching its
lowest real value in 40 years. The minimum wage has lost nearly all of its real value since its last
increase in April 1991. This minimum wage increase will help restore the real value of the
minimum wage back to its level when it was last raised.
Ensuring No Parent Has To Bring Up Their Kids In Poverty. The dramatic extension of
the Earned Income Tax Credit (EITC) helped lift hundreds of thousands of working families
out of poverty. A 90-cent minimum wage increase and the expanded EITC will ensure that no
parent who works full-time would have to bring up their children in poverty.
Helping Adult Workers Trying To Support Their Families. According to the Bureau of
Labor Statistics:
69% of those workers who would benefit from an increase are adults, age 20 or over;
Three-fifths (59%) are women, many of whom are trying to raise the family on $4.25;
Nearly two-fifths (38%) are the sole wage earner in their household; and
The average minimum wage worker brings home half of their family's earnings.
Giving A Pay Raise To 10 Million Workers At or Near The Minimum Wage. An
estimated 10 million hourly workers earn between $4.25 and $5.14 and would directly benefit
from this pay raise. An increase in the minimum wage could also have a "ripple" effect on the
over 3 million workers who earn within 60 cents of the new minimum wage.
EMPIRICAL EVIDENCE SHOWS THAT RAISING THE MINIMUM WAGE WILL NOT
COST JOBS. Nearly two dozen empirical studies have found that moderate increases in the
minimum wage do not have a significant impact on employment. These studies include state-
specific research in California, Texas, and New Jersey that shows that state minimum wage
increases did not result in any job loss.
101 Economists Including 3 Nobel Prize Winners Agree That A Minimum Wage Increase
Won't Cost Jobs. In the fall of 1995, 101 economists -- including 3 Nobel Prize-winners
Kenneth Arrow, Lawrence Klein, and James Tobin -- signed a letter supporting the President's
proposal to raise the minimum wage, affirming that it would not have a significant effect on
employment, and concluding that "overall effects [of an increase] on the labor market,
affected workers, and the economy would be positive."
THE LAST MINIMUM WAGE INCREASE -- ALSO 90 CENTS -- GARNERED STRONG
BIPARTISAN SUPPORT. In 1989, the minimum wage was passed by votes of 382 to 37 (135
Republicans) in the House, and 89 to 8 in the Senate (36 Republicans) and was supported by
Senator Dole, Senator Lott, and Rep. Gingrich.
PENSION PROVISIONS IN THE MINIMUM WAGE BILL TO
EXPAND COVERAGE, INCREASE PORTABILITY, AND ENHANCE SECURITY
The minimum wage bill includes many of the President's pension proposals, contained in his
Retirement Savings and Security Act, which will empower more Americans to save for their
pension rules.
retirement by expanding pension coverage, portability, and protections and significantly simplifying
provided plan save for their retirement.
Expands Pensions to help millions of working Americans not currently covered by an employer-
Increases Portability by reducing the obstacles facing many workers when they change or lose
their job and want to keep their retirement savings and continue saving.
Enhances Protections so hard-working Americans do not have to worry whether their retirement
savings will be there when they need them.
Simplifies Pensions to encourage and make it easier for employers to offer pensions.
THE MINIMUM WAGE BILL'S PENSION PROVISIONS MEET THESE CHALLENGES:
1.
NEW SMALL BUSINESS 401(k) PLAN -- To Expand Pension Coverage: While 76% of
workers in large businesses have employer-provided pensions, only 24% of workers in small
businesses do. In June 1995, the President first proposed a simple small business "401(k) plan"
to expand pension coverage to up to 10 million workers in small businesses not currently covered
by a plan. Republicans followed with their own proposal. The minimum wage bill's small
business plan, while providing a smaller share of benefits to lower and middle wage workers,
includes many elements of the President's plan and provides for:
$6,000 Tax-Free Contributions. Workers could save up to $6.000 a year tax-free through
automatic payroll deductions.
Employers Contribute 2% of Salary or Match Contributions Up To 3% of Salary.
One-Page Form. Cuts through the red tape with a simple, one-page form without
complicated employer filing. calculations, or testing.
100% Portable. All contributions would be immediately vested and fully portable.
The bill also expands coverage by:
Simplifying 401(k) plans for all businesses:
Making the 9 million employees of non-profit organizations, as well as employees of Indian
tribes. eligible for 401(k) plans;
Enabling relatives who work in a family business to earn their own retirement benefits;
Repealing unreasonable limits on benefits for certain disabled and low- and middle-income
state and local government employees: and
Enabling millions of spouses who do not work outside the home to contribute up to $2,000
to an individual retirement account.
2.
INCREASES PENSION PORTABILITY: Workers who change jobs and want to take their
retirement savings with them and keep saving currently face a multi-faceted obstacle course. The
President's portability proposals in the minimum wage bill could help over 5 million workers
each year who have an employer-sponsored pension plan and who change jobs:
Takes Away 1-Year Wait To Save At a New Job: Millions of workers are forced to wait 1
year before they can enter their new employer's pension plan. The minimum wage bill changes
a law to encourage private employers to stop imposing this 1-year wait.
Guarantees Benefits for Workers on the Move: Reduces the vesting period from 10 to 5
years for multiemployer plans -- which cover union workers such as construction workers who
frequently change jobs -- to ensure they don't lose their benefits if they've worked for 5 years.
Secures Portability for Veterans: Changes tax rules to ensure that veterans who serve their
nation are not penalized and can continue their pension coverage when they return from service.
3.
ENHANCES PENSION PROTECTION AND SECURITY: The Retirement Protection Act.
enacted in 1994 at the President's request. has reduced pension underfunding for the first time in a
decade, protecting the benefits of 40 million workers and retirees in traditional pension plans. In
1995, the Labor Department launched an initiative to protect savings in 401(k) plans from misuse,
recovering to date nearly $10 million for thousands of workers. Recently the Labor Department
issued new rules to ensure that worker contributions to 401(k) plans start earning money for workers
sooner. Now the minimum wage bill:
Protects Government Employees' Savings from Orange County-Style Fiascos: Requires
state and local government retirement savings plans to be held in trust so that employees do not
lose their savings if the government declares bankruptcy, as Orange County recently did.
Increases Penalties for Self-Dealing: Penalties for self dealing pension funas (such as loans to
the company owner) are generally doubled. from 5 percent to 10 percent.
Improves Spousal Protections: Helps protect spousal benefits in the choice of an annuity and
during divorce proceedings.
1.
EASES PENSION ADMINISTRATION: Many employers are discouraged from establishing or
maintaining plans because rules governing their administration are complicated and expensive. The
minimum wage bill:
Eliminates Complex Limitations: As proposed by President Clinton, the bill eliminates the
complex limitations on contributions and benefits for workers in a defined benefit and defined
contribution plan with the same employer.
Simplifies Corrective Action Rules: The bill makes it easier for employers to take corrective
action if they make excess tax-free contributions, and makes the corrective action rules fairer.
Simplifies Computations: The bill simplifies rules for computing pay for pension purposes,
allowing lower-paid workers to receive more benefits.
ADOPTION PROVISIONS IN
THE SMALL BUSINESS JOB PROTECTION ACT
August 20, 1996
The Clinton Administration is committed to breaking down barriers to adoption. The Small Business Job
Protection Act includes two adoption provisions that President Clinton has strongly supported. It provides
an adoption tax credit and prohibits adoption agencies that receive Federal funds from denying or
delaying placement of a child based on race. color or national origin. These provisions will help give
more children what every child in America deserves -- loving parents and a healthy, stable home.
America's Waiting Children. More than 450,000 children in this country live in foster care. Eight out
of ten of these children have special needs -- they are disabled. older. have siblings who also need to be
adopted, or are minorities. The average child may wait as long as two years to be placed in an adoptive
home even after they are legally free to be adopted. Minority children may wait twice as long.
Clinton Administration's Commitment to Encouraging and Easing Adoption. The President and the
First Lady have worked hard to promote adoption, especially for children with special needs. The
Administration's efforts include:
Increased by 60% the number of children with special needs who have been adopted with Federal
adoption assistance.
Strongly supported the Multi-Ethnic Placement Act that sought to end discrimination and delays in
adoption because of race or ethnicity.
Championed the Family and Medical Leave Act -- which enables parents to take time off to adopt
a child without losing their jobs or their health insurance.
Created an honor roll of private companies who have pledged to make adoption easier for workers
and their families by paying adoption benefits, offering leave time after adoption or other
programs.
Launched a public education campaign to highlight waiting children and the importance of
adoption.
Helping Families Afford Adoption. This legislation will allow families, many of whom find adoption
too expensive, to adopt children to love and nurture. It provides:
A $5,000 tax credit for costs related to adopting a child. If an employer agrees to pay for
adoption expenses, their employee can claim an income deduction of up to $5.000.
A $6,000 tax credit or income deduction for costs related to adopting a child with special needs.
The full credit and income deductions are available to adoptive parents with annual incomes of up to
$75.000 and gradually phase out as income reaches $115.000.
Breaking Down Racial Barriers to Adoption. The legislation builds on the Multi-Ethnic Placement
Act. signed by the President in 1994, by strengthening the prohibition against denying or delaying
placement on the basis of race, color or national origin. The bill also provides for stronger enforcement
against states that fail to comply within 6 months.
ADDITIONAL TAX PROVISIONS IN H.R. 3448
THAT THE ADMINISTRATION SUPPORTS
In addition to the provisions that simplify pensions and expand coverage, H.R. 3448
contains a number of tax provisions that the Administration has long supported, including:
Small-business Expensing -- The bill increases the amount of tangible depreciable
property that small businesses can expense from $17,500 to $25,000 by the year 2003. In
1993, the President pushed for such an increase to $25,000. His 1993 Economic Plan
successfully increased the limit from $10,000 to $17,500, and his FY 1997 budget
contained this proposal to increase it to $25,000, except that the tax relief would have been
phased in more quickly. The bill provides an important incentive for small businesses to
increase their capital investment, and will simplify reporting for small businesses.
Adoption Credit -- The bill provides a nonrefundable $5000 adoption credit
(increased to $6000 for domestic adoptions of children with special needs), phased out for
AGI between $75,000 and $115,000. In addition, the bill provides a maximum $5,000
exclusion for amounts paid by the employer in connection with an adoption. The
Administration believes that helping families adopt is one of the most important things we
can do to strengthen families and give children a healthy home. The Administration has
strongly supported such measures as a means to help alleviate economic barriers to
adoption and enable many middle-class families, for whom adoption might otherwise be too
expensive, to adopt children who need homes.
Temporary Extension of Employer-Provided Educational Assistance -- The
$5,250 exclusion for employer-provided educational assistance, which expired after
December 31, 1994, is reinstated retroactively and extended until May 31, 1997. It would
apply to post-graduate education, but only for courses that began before July 1, 1996. The
Administration strongly supports this incentive for employer-provided educational
assistance, which is important for U.S. competitiveness because it encourages
better-educated employees and boosts the productivity of the American workforce. The
Administration is disappointed, however, that Congress has eliminated the incentive for
post-graduate education. The Administration will continue to work to improve this
provision, as well as to provide small businesses with a ten percent tax credit for
educational assistance.
Work Opportunity Tax Credit -- The bill replaces the targeted jobs tax credit
(TJTC) with a new Work Opportunity Tax Credit. The new credit will provide incentives
to employers to hire individuals from targeted groups most in need of jobs and with the
least skills, and it will promote longer, more meaningful work experiences for individuals
hired under the credit. Targeted groups include welfare recipients, food stamp recipients,
former felons and young adults in empowerment zones and enterprise communities.
State Prepaid Tuition Plans -- The Administration worked with Congress to
develop and strongly supports these provisions, which clarify the tax treatment of
investments in State prepaid tuition plans, including a provision that investors in such
programs generally will not be taxed on the increase in value of their investment until the
time of withdrawal. These changes will help parents save for their children's education.
Temporary Extension of R&E Credit -- The credit, which expired June 30, 1995,
is reinstated prospectively only, for the period July 1. 1996, through May 31, 1997, and is
modified in certain respects. The Administration strongly supports the research tax credit
and is disappointed that the research tax credit was not fully reinstated back to July 1, 1995,
and made permanent.
Temporary Extension of "Orphan Drug" Credit -- The credit, which expired
December 31, 1994, is reinstated prospectively, for the period July 1, 1996, through May
31, 1997. The Administration strongly supports this credit, which provides an incentive
for the testing of drugs for rare diseases and conditions.
Subchapter "S" Simplification Proposals -- The Administration has supported
Subchapter S simplification, which is important to helping small businesses. The provisions
include increasing the number of eligible shareholders from 35 to 75, and allowing S
corporations to hold subsidiaries.
Reform Foreign Trust Rules -- The bill contains a series of provisions designed to
prevent sophisticated tax avoidance techniques using foreign trusts. The provision is
similar to one contained in the Administration's budget.
Contributions of Appreciated Stock to Private Foundations -- This provision,
which expired December 31, 1994, would be reinstated for the period July 1, 1996, through
May 31, 1997.
08/22/96
13:14
202 456 7132
WHITE HOUSE/NEC
002
10:33 PROMOMB LA
ID:
PAGE
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
NEW
WASHINGTON, D.C. 20503
May 22, 1996
(House)
STATEMENT OF ADMINISTRATION POLICY
(THIS STATEMENT HAS BEEN COORDINATED BY OMB WITH THE CONCERNED AGENCIES.)
H.R. 3448 . Small Business Job Protection Act
(Archer (R) Texas)
The Administration, while supporting House passage of several provisions in H.R. 3448, will
seek amendments to the bill. The Administration strongly opposes the following provisions,
which should be deleted from HR 3448:
Section 1501, which would repeal a 1993 Administration initiative that reduces tax
incentives for U.S. companies to move jobs and operations abroad. As stated in the
President's veto message on the Balanced Budget Act of 1995, which included this
provision, the provision would allow businesses to avoid U.S. income taxes by
accumulating foreign earnings without limit.
Section 1601, which would repeal the tax credit related to economic investments in
Puerto Rico. The Administration urges the House to replace this provision with its
proposal to reform the credit so that it provides benefits based on real economic activity
in these underdeveloped areas and uses the projected revenue savings for social and
employment and training program needs in Puerto Rico. It is important that legislation
concerning the credit contains effective mechanisms to promote job creation in the
islands.
The Administration will also work with Congress to adopt other amendments as described
below.
Provisions Supported by the Administration
and Additional Recommended Amendments
The Administration supports many provisions of HR 3448, which are consistent with
Administration proposals to strengthen small businesses, simplify pension laws, and improve
incentives for education and work opportunities. The Administration believes that these
provisions should be enacted on their own merits, not as part of a bill to increase the minimum
wage, and are best considered in the context of the President's balanced budget plan, which
CBO estimates will balance in the year 2002.
08/22/96
13:14
202 456 7132
WHITE HOUSE/NEC
003
PACE
2
In particular:
Small Business Expensing. The Administration strongly supports the bill's increase from
$17,500 to $25,000 in the amount of tangible personal property that small businesses
can expense. The President proposed such an increase in 1993 and in his FY 1997
Budget, although with a faster phase-in.
Employer-Provided Educational Assistance The Administration supports the bill's
temporary extension of the exclusion for employer-provided educational assistance, and
will work with Congress to provide a permanent extension of the exclusion. The
Administration, however, opposes the provision that would disallow the exclusion for
post-graduate level education. The Administration also believes there should be a 10%
tax credit for educational assistance provided under section 127 plans for small
businesses with gross receipts of $10 million or less.
Work Opportunity Tax Credit. The provision in H.R. 3448 for a new Work
Opportunity Tax Credit addresses a number of the criticisms of the prior Targeted Jobs
Tax Credit, particularly increasing the period of retention. The Administration will work
with Congress to improve the scope and effectiveness of the new credit. For example,
the Administration supports the amendment offered in committee by Representative
Rangel that would have expanded the category of high-risk youth eligible for the credit.
Pension Simplification Many provisions of H.R. 3448 were included in the President's
pension simplification proposal announced in June 1995 at the White House Conference
on Small Business. More can be done, however, to encourage retirement savings by
middle and lower.wage workers, such as providing more meaningful employer
contributions under the simplified small business plan and a more appropriate definition
of highly compensated employees. The Administration is also concerned that the three-
year waiver of the excise tax on very large retirement distributions would add
complexity and could actually encourage plan sponsors to terminate plans. The
Administration hopes to work with Congress in a bipartisan fashion to simplify the law,
expand coverage, increase security, and promote portability.
Subchapter S. The Administration supports the Subchapter S reform package in the bill,
and will work with Congress to provide further reforms and ensure that reforms are
appropriately targeted to the intended beneficiaries.
Technical Corrections. The Administration supports the long-overdue enactment of
technical corrections to recent tax legislation. However, the Administration opposes
several special-interest, late Committee additions to the consensus package of technical
corrections. The Administration also opposes the inclusion in H.R. 3448 of various
other special-interest provisions.
08/22/96
13:15
202 456 7132
WHITE HOUSE/NEC
004
3
Revenue Offsets
The Administration has concerns with certain offset provisions in H.R. 3448 (including the
repeal of tax benefits for certain employee stock ownershipplans that provide meaningful
employee ownership) and will work with Congress to develop more suitable offsets for the lost
tax revenue resulting from the new tax incentives. Two of the offsets - relating to the so-called
income-forecast accounting method and to advance refunds of the diesel fuel tax - are included
in the President's balanced budget proposal and should be reserved for deficit reduction and
meeting balanced budget goals. In working with the Congress to develop an improved bill that
is consistent with the Administration's recommended amendments, appropriate offsets will be
sought.
Administration Proposals Not Addressed in H.R. 3448
The Administration will work with Congress to provide other incentives previously proposed by
the Administration but omitted from this bill, such as the tuition and training deduction.
expanded Individual Retirement Accounts (including penalty-free withdrawals for education
expenses, purchases of first homes, major medical expenses, and unemployment), and revenue-
neutral extension of the research tax credit and other expiring provisions.
The Administration will also work with Congress to revitalize economically distressed areas
through tax incentives previously proposed by the Administration, including incentives to clean
up abandoned, contaminated properties, and to create new Empowerment Zones and Enterprise
Communities
Ideally, if not considered in H.R. 3448, all of these provisions should be considered in the
context of the President's plan to balance the budget by the year 2002.
Pay-As-You-Go Scoring
H.R. 3448 would affect receipts; therefore, it is subject to the "pay-as-you-go" requirements of
the Omnibus Budget Reconciliation Act of 1990. OMB's scoring of this legislation is under
development.
DEPARTMENTS or
DEPARTMENT OF THE TREASURY
THE subvey,
WASHINGTON. D.C. 20220
FAX TRANSMITTAL SHEET
DATE:
8/8/96
NUMBER OF SHEETS TO FOLLOW:
10
TO:
TOM KALIL
ADDRESSEE'S FAX #:
456 -2223
ADDRESSEE'S CONFIRMATION #:
FROM:
MICHAEL BARR
SENDER'S FAX #: 202-622-0073
SENDER'S CONFIRMATION #: 202-622-1700
SPECIAL INSTRUCTIONS/COMMENTS:
202 622 0073 P.01/10
EXEC. SEC. TREASURY DEPT
60:00 9661-80-906
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
June 25, 1996
CRETARY OF THE TREASURY
The Honorable Daniel Patrick Moynihan
United States Senate
Washington, D.C. 20510
Dear Pat:
I am writing in regard to two potential amendments to the Small Business Job Protection Act that
was reported by the Senate Finance Committee last week. The first amendment would extend
further (if not permanently) favorable tax treatment to employer-provided educational assistance
(including graduate-level education) and provide a small-business tax credit for education
expenses within the scope of that provision. I understand these provisions may be included in a
possible floor amendment, and your staff is working with Minority Leader Daschle on such a
small-business credit. The second provision, which might be appropriate for the managers'
amendment, would grant Foreign Sales Corporation (FSC) benefits to licenses of computer
software. This would provide the same result that you sought in a letter to then-Secretary
Bentsen in 1994, which was also signed by Senator D' Amato and Congressmen Rangel and Fish.
As you know, the Administration has been working with your staff to craft revenue-neutral
packages that would include both of these items.
I know you share my disappointment that these amendments were not included in the bill as
reported by the Committee. Let's work together to include them in the bill as ultimately passed
by the Senate.
THE SECRETARY OF THE TREASURY
the
WASHINGTON
June 21, 1996
The Honorable Dianne Feinstein
United States Senate
Washington, DC 20510
Dear Dianne:
Thank you for your letter concerning the tax treatment of computer software licenses. Your letter
addresses the Administration's position on the issue of whether the statute should be revised to
treat licenses of computer software similarly to licenses of films and records.
Treasury, along with the entire Administration, is supportive of a paid-for legislative amendment
to the FSC statute. As then-Secretary Bentsen observed in 1994, "the differences between the
license of films, tapes and records and the licences of software are not great, and as the
technology develops, the demarcation grows less distinct." We have been working with Members
of Congress and their staffs to develop appropriate legislative packages and are disappointed that
the FSC package has not yet been included in the Small Business Job Protection Act of 1996.
Treasury will continue to work with Congress to find appropriate legislative vehicles for a paid-
for FSC amendment. Thank you again for writing.
Sincerely,
B.S Rs:
Robert E. Rubin
01/20'd 0773 $22 202
EXEC. SEC. TREASURY DEPT
12:10 966I-30-9NH
UMB/LRD/ESGG
ID: 202-395-3109
JUL 09'96
8:45 No. .001 P.02
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON D.C. 20803
July 8. 1996
(SENT
(Senate)
STATEMENT OF ADMINISTRATION POLICY
(THIS STATEMENT HAS BEEN COORDINATED BY OMB WITH THE CONCERNED AGENCIES.)
HR 3448 . Small Business Job Protection Act
(Archer (R) Texas)
The Administration, while supporting Senate passage of a number of provisions of H.R. 3448 85
amended by the Finance Committee, will seek further amendments 10 the bill. And, as stated in
the President's June 28th letter to the Senate, a copy of which is attached, if H.R. 3448 is
presented to the President with the minimum wage provisions of the Republican leadership
amendment, the President will velo the bill.
The Administration strongly opposes section 1601 of the bill. which would repeal the tax credit
related to corporate investments in Puerto Rico while allowing several grandfather rules for
existing companies. The Administration urges the Senate to delete this provision and adopt
instead the proposal to reform the credit contained in the President's FY 1997 Budget. The
Administration's proposal provides tax benefits for new and expanded operations based directly
on real economic activity in these underdeveloped areas. The projected revenue savings from
the reform of this credit would be used for social and employment training programs in Puerro
Rico. Unlike section 1601. the final legislarive language concerning the credit should contain
effective mechanisms to promote job creation in the islands.
The Administration will also work with Congress to adopt other amendments as described
below.
Provisions Supported by the Administration and Additional Recommended Amendments
The Administration supports many of the revenue provisions of H.R. 3448, which are consistent
with Administration proposals to strengthen small businesses, simplify pension laws, reinstate
incentives for research and development, and improve incentives for education and work
opportunities.
In particular:
Small Business Expensing The Administration strongly supports the bill's increase from
$17,500 to $25,000 for the amount of tangible personal property that small businesses
can expense. The President supported such an increase in 1993 and in his FY 1997
Budget, although with a faster phase-in.
01/20'd 3773 $222 202
EXEC. SEC. TREASURY DEPT
12:10 9661-30-976
OMB/LRD/ESGG
ID:202-395-3109
JUL 09'96
8:45 No.001 P.03
2
Employer-Provided Educational Assistance The Administration supports the temporary
extension of the income exclusion for employer-provided educational assistance,
including the exclusion for post-graduate level education. The Administration will work
with Congress to provide 8 permanent extension of the exclusion. The Administration
also supports a 10 percent tax credit for educational assistance provided under section
127 plans for small businesses with annual gross receipts of $10 million or less.
Research Tax Credit. The Administration strongly supports full reinstatement of the
research tax credit back to its June 30, 1995. expiration date. The Administration will
work with Congress to make the credit permanent. The Administration continues to
believe that full. permanent reinstatement should take priority over modifications to the
credit such as those contained in H.R. 3448.
Orphan Drug Credit. The Administration strongly supports full reinstatement of the
orphan drug credit and will work with Congress to make the credit permanent.
Gifts of Appreciated Stock to Private Foundations. The Administration strongly
supports this provision and will work with Congress to make it permanent.
Work Opportunity Tax Ciedit The provision for 2 new Work Opportunity Tax Credit
addresses many of the criticisms of the prior Targeted Jobs Tax Credit, particularly
increasing the period of retention for eligible workers. The Administration will work
with Congress to improve the scope and effectiveness of the new credit.
Pension Simplification Many provisions of H.R. 3448 were included in the President's
pension simplification proposal announced in June 1995 at the White House Conference
on Small Business. The Administration is concerned, however, that the safe harbor
provisions applicable to both SIMPLE and 401(k) plans do not ensure that middle and
lower-wage workers will benefit from the provision of tax-advantaged retirement
savings plans. The Administration will work with Congress to modify these safe harbors
so that employers taking advantage of them are required to provide meaningful coverage
to these workers. The Administration is also concerned tha: the three-year waiver of the
excise tax on very large retirement distributions would add complexity and could
actually encourage plan sponsors to terminate plans.
Subchapter S. The Administration also strongly supports most of the reforms in the bill
relating to Subchapter $ (closely held) corporations, and will work with Congress to
provide further reforms and to ensure that reforms are appropriately targeted to the
intended beneficiaries.
Technical Corrections. The Administration supports the long-overdue enactment of
technical corrections 10 recent tax legislation and will work with Congress to achieve a
consensus package of technical corrections.
01/4/10 0773 222 202
EXEC. SEC. TREASURY DEPT
12:10 9661-30-906
OMB/LRD/ESGG.
ID:202-395-3109
JUL 09'96
8:47 No.001 P.04
3
Objessionable Provisions
Classification of Workers for Employment Tax Purposes. The Administration has
concerns about certain changes proposed to section 530 of the Revenue Act of 1978,
which provides "safe harbors" under which an employer has a reasonable basis for
treating a worker as an independent contractor rather than as an employee for
employment tax purposes. The most important concerns are with proposed changes that
would: (1) shift the burden of proof to the Internal Revenue Service with respect to the
application of section 530; and (2) replace the safe harbor for reasonable reliance on 2
long-standing practice of a significant segment of the industry with a rigid numerical
test.
Special-Interest Provisions. The Administration opposes the inclusion in H.R. 3448 of
numerous special-interest provisions.
Revenue Offsets
The Administration has serious concerns with the offset provision in H.R. 3448 that would
repeal tax benefits for certain employee stock ownership plans that provide meaningful
employee ownership Several of the offsets -- relating to interest allocations for nonfinancial
corporations, tax treatment of expatriates, basis adjustment rules under section 1033,
withholding on certain gambling winnings, and reinstatement of airport and airway trust fund
excise taxes are included in the President's balanced budget proposal. These offsers should
be reserved for deficit reduction and meeting balanced budget goals. In working with the
Congress to develop an improved bill that is consistent with the Administration's recommended
amendments, appropriate offsets will be sought.
Proposals No: Addressed in H B 3448
In the context of an overall balanced budger plan, the Administration will work with Congress
to provide other incentives previously proposed by the Administration but omitted from this bill.
Such incentives include the $10,000 deduction for postsecondary tuition and training expenses,
the $1,500 tax credit for postsecondary tuition, and incentives to revitalize economically
distressed areas by cleaning up abandoned, contaminated properties, and creating new
Empowerment Zones and Enterprise Communities.
The Administration would also support an amendment to the Foreign Sales Corporation statute
85 it applies to licenses of software, and will work with Congress to develop an acceptable
package, including appropriate revenue offsets.
Pay-As-You-Go Scoring
H.R. 3448 would affect receipts; therefore, it is subject to the "pay-as-you-go" requirements of
the Omnibus Budget Reconciliation Act of 1990. OMB's scoring of this legislation is under
development.
01/50'd 0773 222 202
EXEC. SEC. TREASURY DEPT
11:11 9661-30-908
96-5485
DEPARTMENT OF THE TREASURY
WASHINGTON.D.C.
SECRETARY OF THE TREASURY
July 11. 1996
The Honorable Dianne Feinstein
United States Senate
Washington, D.C. 20510-0504
Dear Dianne:
Thank you for your letter regarding the extension of FSC benefits to
those licenses of computer software that do not currently enjoy such
benefits.
As you know, our staffs are in extremely close contact on a regular
basis, and are working together with the tax writing committees to
achieve a favorable legislative outcome. I look forward to continuing
to work closely with you toward this end.
Sincerely,
Das
Robert E. Rubin
202 622 0073 P.06/10
EXEC. SEC. TREASURY DEPT
11:11 966I-30-9NH
DEPARTMENT
TREASUR
THE
1749
DEPARTMENT OF THE TREASURY
WASHINGTON. D.C.
SECRETARY OF THE TREASURY
July 30, 1996
The Honorable Bill Archer
Chairman
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C. 20515
Dear Mr. Chairman:
I am writing on behalf of the Administration to urge strongly
that the conferees on the Small Business Job Protection Act of
1996 adopt several amendments to the package of small-business
tax relief measures under consideration. The Administration
strongly supports a number of the tax-relief measures in the
House and Senate bills, including the increase in small-business
expensing, pension simplification, and extensions of expiring tax
provisions. We would like to work with you to improve these
provisions and to make other amendments to the package,
including:
Research tax credit. The Administration strongly supports
permanent reinstatement of the research tax credit, with no
retroactive gap. Research projects take many years to
complete, and the impact of the credit will be undermined if
firms cannot "count on it. In addition, allowing the credit
to lapse may undermine its incentive effect, as taxpayers
seek to make long-term business plans.
Treatment of computer software as export property: The
Administration strongly supports a legislative modification
to the Foreign Sales Corporation (FSC) statute to provide
the same tax benefits for licenses of computer software as
are currently available for films, records, and tapes.
We urge the conferees to include such a proposal in the
small-business package.
Employer-Provided Educational Assistance. The Administra-
tion strongly supports permanent extension of the income
exclusion for employer-provided educational assistance,
including the exclusion for post-graduate level education,
because well-educated workers are essential to an economy
experiencing technological change and facing global
competition. We also believe there should be a 10 percent
tax credit for educational assistance provided under
section 127 plans for small businesses.
01/20'd 0773 229 202
EXEC. SEC. TREASURY DEPT
11:11 966I-30-9NH
- 2 -
Repeal of section 956A. The Administration strongly opposes
and urges the conferees to reject the House provision that
would repeal a 1993 Administration initiative that reduces
tax incentives for U.S. companies to move jobs and
operations abroad. Repeal of this provision would allow
businesses to avoid taxes by accumulating foreign earnings
without limit.
Section 936 possessions tax credit. The Administration
strongly opposes provisions in the House and Senate bills
phasing out the tax credit related to corporate investments
in Puerto Rico. The Administration urges the conferees to
reject these provisions and to adopt instead the proposal to
reform the credit contained in the Administration's FY 1997
budget. The Administration's proposal provides tax benefits
for new and expanded operations based directly on real
economic activity in these underdeveloped areas. The
projected revenue savings would be used for social programs
and job creation in Puerto Rico. Although the Senate bill
is less objectionable than the House bill because of the
former's permanent credit based on a portion of existing
economic activity, it fails to provide any incentive for new
or expanded economic activity in Puerto Rico.
Classification of workers for employment tax purposes.
The Administration has concerns about certain provisions in
the Senate modifications to the safe-harbor provisions of
section 530 of the Revenue Act of 1978, which provides "safe
harbors" under which an employer has a reasonable basis for
treating a worker as an independent contractor rather than
as an employee for employment-tax purposes. The most
important concerns are with proposed changes that would:
(1) shift the burden of proof to the Internal Revenue
Service with respect to application of section 530; and
(2) replace the safe harbor for reasonable reliance on a
long-standing practice of a significant segment of the
industry with a rigid numerical test.
The Administration is eager to work with the conferees to develop
an improved bill, including appropriate revenue offsets, that is
consistent with the Administration's recommended amendments.
Sincerely,
I
Robert E. Rubin
CC: Small-Business Conferees
01/30'd 0773 222 202
EXEC. SEC. TREASURY DEPT
AUG-08-1996 17:12
TREASUNI
"
DEPARTMENT OF THE TREASURY
MAY 61994
SECRETARY OF PREASURY
MAY
51994
The Honorable Dan Rostenkowski
Chairman
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C. 20515-1305
Dear Dan:
Thank you for your letter concerning the tax treatment of
software licensing income earned by Foreign Sales Corporations
(FSCs).
As you know, a majority of the members of the Ways and Means
Committee has written to request that the Treasury revise its
1987 regulations to extend FSC benefits to the license of
software with the right of reproduction. You asked for a status
report on the Administration's review of the U.S. export program
to which Assistant Secretary Samuels alluded in testimony before
the Subcommittee on Select Revenue Measures last year. That
review has now been concluded. It made no recommendation to
extend FSC benefits to software licenses with a right of
reproduction.
You further requested our view of the possibility of Treasury
administratively extending FSC benefits by revising its 1987
temporary regulations. As you noted in your letter, there is no
evidence that the Congress intended to provide FSC benefits to
software licensed abroad. Indeed, what guidance exists in the
legislative history of the enactment of the FSC rules in 1984
suggests that the FSC rules should parallel the DISC regulations
they replaced. Accordingly, the 1987 temporary regulations with
respect to software duplicated the interpretation in the DISC
regulations.
Moreover, an administrative extension of the FSC benefits to
software licensed with a right of reproduction would seem to run
counter to the apparent purpose of the FSC rules, which limit tax
benefits to the export of products "manufactured, produced,
grown, or extracted in the United States." If FSC benefits were
so extended, then some part of the processing of software
products for sale in foreign markets that is now performed in the
United States can be expected to be performed abroad. while a
similar point might be made about licenses of films, records, and
tapes, the decision to make an exception for those licenses was 2
EXEC. SEC. TREASURY DEPT
AUG-08-1996 17:12
01/60'd 0773 229 202
TOTAL P.10
-2-
legislative one. It would seem appropriate that a decision to
expand the scope of the FSC rules to a new category as signifi-
cant as software licenses (whether or not further processing is
conducted by a related party) similarly should be a legislative
decision.
Finally, you asked for the Treasury's views on the merits and
necessity of the legislative proposal. The Treasury does not
oppose the proposal, assuming appropriate offsetting revenue
measures can be identified. The differences between the license
of films, tapes and records and the license of software are not
great, and as the technology develops, the demarcation grows
increasingly less distinct.
Thank you for your interest.
Sincerely,
(Signed)
Lloyd Bentsen
TREASURY DEPT
SEC.
EXEC.
AUG-08-1996 17:12
JUL-30-96 15:04 FROM:
ID:
PAGE 1/3
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
LEGISLATIVE AFFAIRS
PHONE: 395-4790 / FAX: 395-3729
TO: Gene / Jason / Dan
FROM:
CHUCK KIEFFER
CHUCK KONIGSBERG
LISA KOUNTOUPES
ALICE SHUFFIELD
KATE DONOVAN
NANCY BRANDEL
comments: Treasury wants to send the letter
that follows to the Hill Re: Small Business
Conference -
Comments ?
(Pauline ; John have copies) affict
FAX #: 6-2878
PAGES: 3
PHONE NUMBER:
(includes cover page)
JUL-30-96 15:04 FROM:
ID:
PAGE
2/3
JUL-30-1996 13:59
EXEC. SEC. TREASURY DEPT
202 622 0073 P.02/03
DRAFT
July 30, 1996
The Honorable name
United States Senate
Washington, D.C. 20510
Dear sal :
I am writing on behalf of the Administration to urge strongly
that the conferees on the Small Business Job Protection Act of
1996 adcpt several amendments to the package of small-business
tax relief measures under consideration. The Administration
strongly supports a number of the tax-relief measures in the
House and Senate bills, including the increase in small-business
expensing, pension simplification, and extensions of expiring tax
provisions. We would like to work with you to improve these
provisions and to make other amendments to the package,
including:
Section 936 possessions tax credit. The Administration
strongly opposes provisione in the House and Senate bills
phasing out the tax credit related to corporate investments
in Puerto Rico. The Rdministration urges the conferees to
reject these provisions and to adopt instead the proposal to
reform the credit contained in the Administration's FY 1997
budget. The Administration's proposal provides tax benefits
for new and expanded operations based directly on real
economic activity in these underdeveloped areas. The
projected revenue savings would be used for social programs
and job creation in Puerto Rico. Although the Senate bill
is less objectionable than the House bill because of the
former's permanent credit based on a portion of existing
economic activity, it fails to provide any incentive for new
or expanded economic activity in Puerto RICO.
Repeal of section 956A. The Administration strongly opposes
and urges the conferees to reject the House provision that
would repeal a 1993 Administration initiative that reduces
tax incentives for U.S. companies to move jobs and
operations abroad. Repeal OI this provision would allow
businesses to avoid taxes by accumulating foreign earnings
without limit.
Employer-Provided Educational Assistance. The
Administration strongly supports permanent extension of the
income exclusion for employer-provided educational
assistance, including the exclusion for post-graduate level
education, because well-educated workers are essential to an
economy experiencing technological change and facing global
competition. We also believe there should be a 10 percent
JUL-30-96 15:05 FROM:
ID:
PAGE
3/3
JUL-30-1996 14:00
EXEC. SEC. TREASURY DEPT
202 622 0073
P.03/03
tax credit for educational assistance provided under section
127 plans for small businesses.
Research tax credit. The Administration strongly supports
permanent reinstatement of the research tax credit, with no
retroactive gap. Research projects take many years to
complete, and the impact of the credit will be undermined if
firms cannot count on it. In addition, allowing the credit
to lapse may undermine its incentive effect, as taxpayers
seek to make long-term business plans.
Classification of workers for employment tax purposes. The
Administration has significant concerns about certain
provisions in the Senate modifications to the safe-harbor
provisions of section 530 of the Revenue Act of 1978, which
provides "safe harbors" under which an employer has 2
reasonable basis for treating a worker as an independent
contractor rather than as an employee for employment-tax
purposes. The most important concerns are with proposed
changes that would: (1) shift the burden of proof to the
Internal Revenue Service with respect to application of
section 530; and (2) replace the safe harbor for reasonable
reliance on a long-standing practice of a significant
segment of the industry with a rigid numerical test.
Treatment of computer software as export property: The
Administration strongly supports a legislative modification
to the Foreign Sales Corporation (FSC) statute to provide
the same tax benefits for licenses of computer software as
are currently available for films, records, and tapes. We
urge the conferees to include such a proposal in the small-
business package.
The Administration 13 eager to work with the conferees to develop
an improved bill, including appropriate revenue offsets, that is
consistent with the Administration's recommended amendments.
Sincerely,
Robert E. Rubin
cc: Small-Business Conferees
TOTAL P.03
EXECUTIVE OFFICE OF THE PRESIDENT
10-Jul-1996 01:12pm
TO:
(See Below)
FROM:
Ellen S. Seidman
National Economic Council
SUBJECT: Pension part of small business tax bill
Laura, I understand you're doing press on the tax bill. The pension part of the
tax bill is really worth touting as (i) movement on the President's program and
(ii) an example of how bipartisanship can really work to help America's workers,
even in this highly charged time. The points, quickly, on pensions are:
1. The President's initiatives in June 1995 - - and persistence --
this year -- were critical to ensuring that this perpetual bridesmade of an
e actually made it to the alter. (Pension simplification has been in bill
er bill that has gotten mucked up with things that ensure it doesn't pass or
gets vetoed; it looks like we've finally overcome that. Perhaps more easily
said, the issue was looked upon as dead before the President revived it in June
1995.)
2. While much of the bill (such as repeal of the family aggregation
rule, which will help small business owners set up plans, and repeal of the
average compensation limit on benefit payouts for public employee plans, which
will protect the pensions of lots of long-service moderate-wage public employees
such as school bus drivers) is the evolutionary outcome of many prior pension
simplification proposals, there are a number, particularly in the Senate
managers' amendment, that come directly from the President;
1. reducing the period for vesting in a multiemployer plan from
10 years to 5, making 1 million more workers immediately vested in their
pensions (House and Senate);
2. doubling the multiemployer guarantee, so that a 30-year
worker whose plan tanks will not be limited to a $6,000 pension (note, however,
that only 14 multiemployer plans have tanked since the program started and
moreover, the guarantee for a single-employer plan maxes out at about $30,000)
(Senate only);
3. PORTABILITY -- making it much easier for workers to start
saving from the first day on the job by changing the nondiscrimination rules so
oyers have no disincentive to allowing saving (many employers say it saves
money to start people immediately rather than having to educate them about
Ing a year later, SO the adminstrative expense argument is probably not very
valid) (Senate only);
4. civil service improvements to help spouses and divorced
spouses get their fair share of their spouse's pension benefits (Senate only);
and
5. repeal of the limit on benefits for multiemployer plan
participants, again ensuring that long-service, moderate-wage workers will get
their full pensions (Senate only).
The major part that we wanted and didn't get is a really good match, coupled
with a minimum non-matched employer contribution for all plan participants, for
both the simplified small business plan (this is the major difference left
between the SIMPLE, which they passed, and the NEST, our plan) or the 401 (k)
safe harbor. This is where the tension between pure simplification, which the
safe harbor as passed certainly is, and making certain benefits actually go to
lower-wage workers, came out wrong. I think we need to point this out in the
"we'll be working on it manner," fully aware, however, that it won't pass (not
being in either the House or Senate bills, and being strongly opposed by
business) and that we'll sign a bill even if it's not in.
Ellen
Distribution:
TO: Laura D. Tyson
TO: Dena B. Weinstein
TO: Michael Warren
TO: Thomas O'Donnell
TO: Chris Dorval
TO: Pauline M. Abernathy
TO: Gene B. Sperling
9:22 No No.001 P.01
Mark update There I to is will this an "Zapit out to you later. for
Joint Committee on Taxation
July 9, 1996
JCX-35-96
later.
ESTIMATED BUDGET EFFECTS OF REVENUE PROVISIONS IN H.R. 3448
INCLUDING THE MANAGERS' AMENDMENT
Fiscal Years 1996- 2006
(Millions of Dollars)
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
1996-00
1997-01
1996-06
JUL 10'96
1. Small Business and Other Tax Provisions
A. Small Business Provisions
1. Increase in expensing hmitation for
small businesses to $18,000 for 1997.
$18,500 for 1998, $19,000 for 1999,
$20,000 for 2000, $24,000 for 2001.
$24,000 for 2002, $25,000 for 2003
and thereafter
tybe 12/31/96
-
-66
-175
-256
-327
-759
-935
2. Provide 15-year depreciation for gas
-1,029
-977
-928
-882
-824
-1,583
-6,335
station/convenience stores
ppiso/a/b DOE
-7
-24
-37
-45
-50
-53
-53
-55
3. FICA tip credit:
-61
-42
-25
-163
-209
-452
a. Provided for off-premises
employees
1/1/97
---
-6
-14
-15
-16
-17
-18
b. Clarification of effective date
-18
-19
-20
-21
-51
[1]
-68
-164
4. Treatment of certain dues paid to
Megligible Revenue Effect
agricultural or horticultural
organizations
tyba 12/31/86
Negligible Revenue Effect
5. Fisherman - clarify exemption from
FICA laxes and provide that
exemption applies even il crew
member receives de minimis amounts
of cash payments
Γpa 12/31/94
(2)
6
[2]
[2]
[2]
6. Change related-party and maximum
[2]
[2]
[2]
[2]
[2]
(2)
-10
-10
-11
size requirements for first-time farmer
ID:
industrial development bonds
bia DOE
-
-1
-6
-12
-17
-21
-26
-30
7. Clarity that newspaper carriers and
-34
-37
-40
-36
-57
-224
distributors are independent
contractors
spa 12/31/95
Negligible Revenue Effect
B. Provide involuntary conversion
treatment for Presidentially declared
disaster areas
DDA 12/31/94
-6
-14
-10
-10
-10
-10
-10
-10
-10
-10
-10
9. Leasehold improvements provision
-50
-54
lida 6/12/96
-110
-12
-22
-19
-16
-13
-11
-7
&
10. 100% meals deduction for Alaska
-2
1
4
-82
-81
-101
seafood processors
tybe 12/31/96
---
-1
-2
-2
-2
-2
-2
11. Modification of excise tax on hard
-2
-2
-2
-2
-7
is
-19
RM#1618 LHOB/JCT
cider
1/1/97
-
[2]
-1
-1
-1
-1
-1
12. Clarification of Section 530 worker
-1
-1
-1
-1
-3
,
is
classification safe harbor
spa 12/31/96
-
[2]
[2]
[2]
(2)
[2]
-1
-1
13. Additional worker classification items:
-1
-1
-1
1
- 1
-6
a. Provide that if the taxpayer
reclassibles independent
contractors as employees, this change
does not after the application of
the safe harbor for prior periods
pa 12/31/96
(2)
(2)
[2]
[2]
(2)
12)
[2]
[2]
[2]
[2]
(3)
[3]
[3]
Page 2
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
1996-00
1997-01
1985-05
D. Clarify "substantially similar position*
pa 12/31/96
Negligible Revenue Effect
Subtotal of Small Business Provisions
-25
-143
-264
-357
-436
-874
-1,053
-1,150
-1,107
-1,040
-978
-1,230
-2,079
-7,436
9:22
B. Provisions Relating to S Corporations
1. Increase number of eligible
shareholders
tyba 12/31/96
-
5
-14
-16
-20
-22
-25
-28
-31
-35
-39
-55
-77
2. Permit certain trusts to hold stock in S
-235
corporations
tybe 12/31/96
-
-2
-2
-2
-2
-2
-2
-2
3
-3
-3
do
-10
-23
3. Extend holding period for certain trusts
tybe 12/31/96
-
[3]
(3)
(3)
[3]
[3]
[3]
(3)
[3]
[3]
4. Financial institutions permitted to hold
[3]
[4]
[5]
[6]
JUL 10'96
safe-harbor debt
tyba 12/31/96
...
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
(2)
5. Authority to validate certain invalid
[2]
[2]
[2]
-1
elections
tyba 12/31/82
-
[2]
[2]
[2]
[2]
[2]
[2]
[2]
(2)
[2]
[2]
6. Allow interim closing of the books
[2]
(2)
-1
tyba 12/31/96
Negligible Revenue Effect
7. Expand post-termination period and
amend subchapter S audit
procedures
tybe 12/31/96
-
[2]
[2]
[2]
[2]
(2)
[2]
[2]
[2]
[2]
8. S corporations permitted to hold S or
[2]
[2]
[2]
-1
C subsidiaries
tyba 12/31/96
--
-5
is
-11
-13
-15
-17
-20
-23
-26
-29
-38
53
-168
9. Treatment of distributions during loss
years
lyba 12/31/96
---
[2]
[2]
[2]
[2]
[2]
[2]
(2)
[2]
[2]
10. Treatment of S corporations as
[2]
[2]
(2)
-1
shareholders in C corporations
tybe 12/31/96
-
[3]
[3]
[3]
[3]
[3]
[3]
[3]
(3)
[3]
[3]
(4)
11. Elimination of certain earnings and
[5]
[6]
profits of S corporations
tybe 12/31/96
-
[3]
[3]
[3]
[3]
[3]
(3)
[3]
[3]
[3]
[3]
(4)
12. Treatment of certain losses carried
[5]
[6]
over under at-risk rules
tybe 12/31/96
-
(3)
(3)
(3)
[3]
[3]
[3]
[3]
[3]
[3]
[3]
(4)
13. Adjustments to basis of inherited S
[5]
[6]
stock
dda DOE
-
[7]
[7]
M
[7]
M
E
[7]
(7)
[7]
[7]
14. Treatment of certain real estate held
[7]
[7]
[7]
by an S corporation
ryba 12/31/96
---
-1
-1
-2
-2
-2
-2
-2
-2
-2
-2
-6
-8
-18
15. Transition rule for elections after
termination
tybe 12/31/96
-
[3]
[3]
[3]
[3]
[3]
[3]
[3]
[3]
[3]
(3)
(4)
[5]
16. Treat financial institutions that do not
[6]
ID
use the reserve method as eligible
corporations
tybe 12/31/96
-
-1
-3
-5
-6
do
-10
-12
-14
-15
-16
-15
-23
-90
17. Permit tax-exempts to be subchapter
S shareholders with UBTI inclusion
and ESOP benefit restriction
tybe 12/31/97
-
-
-3
-9
-11
-13
-15
-17
-19
-21
-23
-23
-36
-131
18. Interaction of subchapter S changes
---
-3
-28
-32
-37
-38
-39
-40
-40
-40
-40
-98
-136
-335
Subtotal of Provisions Relating to S Corporations
-
32
-73
&
-106
-115
-125
-136
-147
-157
-167
-303
-418
-1,154
II. Pension Simplification Provisions
A. Simplified Distribution Rules
1. Repeal of 5-year income averaging
RM#1618 LHOB/JCT
for lump-sum distributions
rybe 12/31/99
--
74
77
108
78
70
44
17
15
-
-
337
407
483
2. Repeal of $5,000 exclusion of
employees' death benefits
dda DOE
-
28
49
52
54
55
55
56
57
57
58
183
238
521
3. Simplified method for taxing annuity
distributions under certain employer
plans
asda 90 da DOE
-
22
28
28
29
29
29
30
30
31
31
107
136
287
4. Minimum required distributions
yba 12/31/96
-
-1
-4
-4
-4
-4
Y
-4
Y
,
-4
-13
-17
-37
Page 3
9:23 P.03
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
1996-00
1997-01
1996-06
B. Increased Access to Retirement Savings Plans
1. Establish SIMPLE pension plan as
modified, but repeal salary reduction
SEPs.
yba 12/31/96
-
-50
-76
-79
-81
-84
-87
-91
-94
-97
-101
-286
-370
-840
2. Tax-exempt organizations eligible
under section 401(k)
yba 12/31/96
-
do
-22
-24
-25
-26
-28
-29
-30
-31
-31
-79
-105
-254
3. Increase availability of spousal IRAs
yba 12/31/96
---
-57
-168
-184
-195
-206
-219
-233
-248
-264
-281
-604
-810
-2,055
C. Nondiscrimination Provisions
1. Simplified definition of highly
compensated employees [8]
ybe 12/31/96
-
[9]
[9]
Considered in Other Provisions
2. Repeal of family aggregation rules [8]
yba 12/31/96
-
[10]
[10]
Considered in Other Provisions
JUL 10'96
3. Modification of additional participation
requirements
yba 12/31/96
Negligible Revenue Effect
4. Safe-harbor nondiscrimination rules
for qualified cash or detered
arrangements and matching
contributions [11]
yba 12/31/98
-
-
-
-39
-155
-160
-164
-160
-174
-179
-184
-194
354
-1,224
5. Definition of compensation for section
415 purposes
yba 12/31/97
-
-
-1
-1
-2
-2
-2
-2
-2
-3
-3
+
-6
-18
D. Miscellaneous Provisions
1. Plans covering self-employed
individuals
ybe 12/31/96
Negligible Revenue Effect
2. Elimination of special vesting rule for
multiemployer plans
you 12/31/96
-
[2]
-1
-1
-1
-1
-1
-1
-1
-1
-1
-3
4
ib
3. Distributions under rural cooperative
plans
DOE
Negligible Revenue Effect
4. Treatment of governmental plans
under section 415
ybe 12/31/94
Negtigible Revenue Effect
5. Uniform retrement age [8]
ybs 12/31/96
---
[10]
[10]
Considered in Other Provisions
6. Contributions on behalf of disabled
employees
yba 12/31/96
Negligible Revenue Effect
7. Treatment of delerred compensation
plans of State and local governments
and tax-exempt organizations
tybe 12/31/96
---
[2]
-1
-1
-1
-2
-2
-2
-2
-2
-2
-3
-5
-15
8. Require section 457 plan assets to
ID:
be held in trust
DOE
-
-7
-21
-24
-25
-25
-26
-27
-28
-29
-30
-77
-102
-242
9. Correction of GATT interest and
mortality rate provisions in the
Retirement Protection Act
[12]
-
-4
-4
+
I
-
-
I
-
i
-
-12
-12
-12
10. Multiple salary reduction agreements
permitted under section 403(b)
tybe 12/31/95
Negligible Revenue Effect
11. Application of elective deferral limit to
section 403(b) plans
tybe 12/31/95
Negligible Revenue Effect
12. Treatment of Indian tribal
governments under section 403(b)
cpbo/a 12/31/96
Negligible Revenue Effect
RM#1618 LHOB/JCT
13. Allow waiver of 30-day waiting period
for qualified plan distributions
pyba 12/31/96
Negligible Revenue Effect
14. Repeal of combined plan limit
lyba 12/31/99
---
---
I
-
-72
-195
-201
-207
-213
-219
-226
-72
-267
-1,333
15. 3-year waiver of excess distribution
tax
1/1/97
-
42
44
47
32
!
I
1
I
I
I
165
165
165
16. increase section 4975 excise tax on
prohibited transactions from 5% to
10%
ploa DOE
I
2
4
4
4
4
4
4
4
4
4
14
18
38
17. Treatment of leased employees
yba 12/31/96
Negligible Revenue Effect
Page 4
9:23 No.001 P.04
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2608
1996-00
1997-01
1996-06
18. Uniform penalty provision 10 apply to
certain pension reporting
requirements
1/1/97
No Revenue Effect
19. Clarify that SECA does not apply to
certain parsonage allowance income
ybbo/a 12/31/94
Negligible Revenue Effect
20. Direct IRS to develop model forms for
qualified domestic relations orders
("QDRO") and spousal consent
provisions
DOE
Negligible Revenue Effect
21 Date of adoption of plan amendments
DOE
No Revenue Effect
JUL 10'96
22 Permit volunteer firefighters to make
deferrals under section 457 (limited to
$3,000 per year)
do/a 1/1/97
-
-2
-5
.7
-9
-11
-13
-16
-18
-20
-23
-23
-34
-124
23. Drop provision eliminating waiting
period after pension election
1/1/97
Negligible Revenue Effect
24. PBGC missing participant program
[13]
alri
Negligible Revenue Effect
25. Alternative nondiscrimination rules for
certain plans that provide for early
participation
1/1/99
-
--
-
-6
-17
-18
-19
-19
-20
-20
-20
-23
-41
-139
26. Allow election of 66.67% joint and
survivor annuity benefits
pama 12/31/96
Negligible Revenue Effect
27. Increase in multiemployer plan
benefits guaranteed (13)
[14]
-
-2
is
-3
-3
is
-3
is
-13
-13
-14
-11
-14
-60
28. Grant IRS the discretion 10 waive
pension liquidity shortfall excise tax
eail GATT
-
+
-3
-2
-1
[2]
(2)
[2]
[2]
[2]
[2]
-11
-11
-11
29. Clarily definition of plan assets
1/1/75
Negligible Revenue Effect
30. Church pension plan simplification:
a. Allow pension plan coverage for
self-employed clargy
yba 12/31/96
Negligible Revenue Effect
b. Allow church pension plans to
use the new definition of highly
compensated employee in the
bill Treasury eate harbor.
yba 12/31/96
Negligible Revenue Effect
ID:
C. Allow payroll deduction of pension
contributions for dergy on foreign
missions
tybe 12/31/96
Negligible Revenue Effect
Subtotal of Pension Simplification Provisions
-
28
-112
-140
-394
-579
-637
-696
-741
-790
-827
-609
-1,188
-4,879
ЛІ. Extension of Certain Expiring Provisions
1. Extend the work opportunity tax
credit, with modilications through
9/30/97 [15]
10/1/96
-
-117
-143
-83
-33
-12
-2
I
--
-
-
-376
-388
-390
2. Employer-provided educational
assistance; sunset after 12/31/97
1/1/95
-136
-1,001
-307
-
--
-
-
-
---
-
-
-1,444
-1,308
-1,444
PM#1618 LHOB/JCT
3. R&E credit, with modifications through
12/31/97
7/1/96
-
-1,279
-811
-373
-265
-159
40
-
---
I
-
-2,728
-2,887
-2,927
4. Orphan drug tax credit through
12/31/97 with section 39 benefits
7/1/96
-3
-21
-14
-2
-1
-1
-1
-1
[2]
(2)
[2]
41
-39
-44
Page 5
Provision
Effective
1996
1997
1968
1989
2000
2001
2002
2003
2004
2005
2006
1996-00
1997-01
1996-06
5. Contribution of appreciated stock to
private foundations through 12/31/97
7/1/96
-7
-134
-21
-7
-
-
-
I
-
i
-
-169
-182
-169
6. Extend section 29 binding contract
date to 6 months after date of
9:24
enactment and placed-in-service
date to 12/31/98 for biomass and coal
DOE
---
8
-27
-63
-86
-84
-77
-75
-77
-79
-81
-184
-258
-657
7. Suspend excise tax on motorboat
diesel through 12/31/97
DOE + 7 days
-4
-34
-9
-
-
-
---
;
--
--
-
-47
to
-47
8. Extend publicly-traded pertnership
grandfather through 12/31/99
tybe 12/31/97
-
-
-7
-23
-17
--
-
-
-
-
-
-47
-47
-47
JUL 10'96
Subtotal of Certain Expiring Provisions
-150
-2,594
-1,339
-551
-402
-254
-120
-76
-77
-79
-81
-5,036
-5,142
-5,725
IV. Revenue Offsets
1. Possessions tax credit: Wage credit
companies 6 years of present law,
thereafter subject to income cap and,
after 10 years, wage credit
percentage lowered to 40%: Income
companies 2 years of present law
followed by a years subject 10 income
cap; QPSII repealed later of taxable
years beginning after 12/31/95 or
earnings after 6/30/96
tybe 12/31/95
190
595
540
530
475
500
685
1,075
1,295
1,555
2,175
2,330
2,640
9,615
2. Repeal 50% interest income
exclusion for financial institution loans
to ESOPs [16]
Ima DOE
10
64
105
144
182
220
256
292
327
360
327
505
715
2,287
3. Provide that punitive damages are not
excludable from income
are 6/30/96
---
5
7
7
7
8
8
8
8
8
8
26
34
74
4. Provide for flow through treatment for
Financial Asset Securitization
Investment Trusts (FASITs)
DOE
--
85
45
7
-3
do
-13
-18
-24
-30
-37
134
126
4
5 Phase DUI and extend luxury
automobile exase tax through
12/31/02
so/a DOE + 7 days
,
-56
-105
-132
124
183
140
32
!
-
-
-173
14
182
ID:
6. Modify two county tax-exempt bond
rule for local furnishers of electricity or
gas; prohibit new local furnishers
(with current service areas
grandfathered)
DOE
-
[17]
5
1
-1
3
4
8
16
22
24
5
8
82
7. Eliminate interest allocation exception
for certain nonfinancial corporations
tyba 12/31/95
35
99
107
123
141
163
187
201
215
228
242
505
633
1,741
8. Reinstate Airport and Airway Trust
Fund excise taxes through 4/15/97,
with exemption for fixed-wing
emergency medical aircraft, and
RM#1618 LHOB/JCT
mining. oil, and gas industry
helicopters for flights not using FAA
services
tp7data DOE
28
2,871
[2]
[2]
(2)
[2]
[2]
[2]
[2]
(2)
[2]
2,899
2,871
2,899
Page 6
9:24 P.06
Provision
Effective
1996
1907
1998
1989
2000
2001
2002
2003
2004
2005
2006
1996-00
1997-01
1996-06
9. Tax-free treatment of contributions in
aid of construction for water utilities;
change depreciation for water utilities
[18]
---
-21
9
-3
11
24
35
45
55
64
73
-22
2
274
10. Revision of expatriation tax rules
add estate tax provision with no
15
37
63
97
139
181
216
247
275
298
318
351
517
1,886
treaty override
2/6/95
8
12
18
20
23
24
18
14
12
10
8
79
95
165
Subtotal of Revenue Offsets
262
3,691
774
794
1,098
1,298
1,536
1,904
2,179
2,515
3,138
6,639
7,655
19,209
V. Technical Corrections
14
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
14
E
14
JUL 10'96
SUBTOTAL OF PARTS I., M., Iff., IV., AND V.
121
950
-1,014
-345
-240
-526
-399
-154
107
449
1,085
-525
-1,172
29
VL Other Provisions
A. Miscellaneous Provisions
1. Exempt trom desel dysing
requirement any States exempt from
Clean Air Act dyeing requirement
foga DOE
-
-1
-1
1
-1
-1
-1
-1
-1
-1
-1
,
-5
-10
2. Application of common paymaster
rules to certain agency accounts at
State universities [19]
rpa 12/31/96
--
[20]
[20]
[20]
[20]
(20]
[20]
[20]
[20]
[20]
[20]
[20]
[20]
[20]
3. Exempt imported recycled halons
from ozone-depleting chemicals tax
cia 12/31/96
--
-1
-1
-1
-1
.1
-1
-1
-1
-1
-1
+
-5
-10
4. Authorize tax-exempt bonds for
purchase of Alaska Power Authority
bia DOE
-
-1
-1
-1
-1
-1
-1
-1
-1
-1
-1
-4
-5
-10
5. Allow for tax-free conversion of
common trust funds to mutual funds
ta 12/31/95
-4
-9
do
-8
de
do
-8
-9
9
9
-9
-37
-41
-89
6. Clarity that State prepaid tuition plans
are tax-exempt entities; clarify OID
rules.
lyba 12/31/95
Negligible Revenue Effect
7. Suspend excise tax on azone
depleting chemicals used in metered
dose inhalers
DOE + 7 days
-
-12
-8
-8
-2
-
-
I
-
-
i
-30
-30
-30
8. Allow certain teaching hospitals to provide
tax-free housing to medical faculty
1/1/97
ID:
Negligible Revenue Effect
Subtotal of Miscellaneous Provisions
4
-24
-19
-19
-13
-11
-11
-12
-12
-12
-12
-79
-86
-149
B. Additional Revenue Offsets
1. Modify basis adjustment rules under
section 1033
ica DOE
-
t
5
9
14
20
29
37
46
56
64
29
49
281
2. Repeal exemption for withholding on
gambling winnings from bingo and
keno where proceeds exceed $5,000
DOE + 30 days
1
12
6
6
6
7
7
7
7
8
B
31
37
75
3. Treatment of certain insurance on
retured lives
tyba 12/31/95
-
2
1
-2
5
2
[2]
10
-5
2
-3
6
8
12
RM#1618 LHOB/JCT
4. Permit scholarship funding
corporation to convert to taxable
corporation
1/1/97
-
3
6
8
10
10
9
7
6
5
4
27
37
68
Page 7
9:25 P.07
Provision
Effective
1996
1997
1998
1990
2006
2001
2002
2003
2004
2005
2006
1996-00
1997-01
1995-06
5. Personal exemption deduction and
dependent care credit disallowed
without taxpayer identification number
rd 30 de DOE
--
133
272
262
249
242
234
226
217
209
201
916
1,158
2,245
Subtotal of Additional Revenue Offsets
1
151
290
283
284
281
279
207
271
280
274
1,009
1,289
2,681
SUBTOTAL OF PART VI.
?
127
271
264
271
270
268
275
259
268
262
930
1,203
2,532
NET TOTAL OF REVENUE PROVISIONS
118
1,077
-743
a
31
-256
-131
121
366
717
1,347
405
31
2,561
JUL 10'96
Jout Committee on Taxation
NOTE: Details may not add to totals due to rounding.
Enactment date is assumed to be August 1, 1996
Legend for "Eflective" column: are - amounts received after
pama = plan amendments made after
afri - after final regulations issued
pa - periods after
asda - annuity starting date after
ppiso/a/b = property placed in service on, after, or before
bia = bonds issued after
prao/a - plans receiving assistance on or after
cia - chemicals imported after
ptoa = prohibited transactions occurring after
cpbo/a = contracts purchased before, on, or after
pybe - plan years beginning after
dda - decedents dying after
rd 30 da . returns due 30 days after
DDA - disasters declared after
rpa = remuneration paid after
do/a - deferrals on or after
so/a = sales on or aber
DOE - date of enactment
spa - services performed after
ean GATT = effective as if included in GATT
ta - transfers after
lega - first calandar quarter after
tybe - taxable years beginning after
ica DOE - involuntary conversions after date of enactment
tp7dala DOE = tickets purchased 7 days after date of enactment for travel 7 da
lida = leasehold improvements disposed of after
ybe - years beginning after
Ima - loans made after
ybbo/a - years beginning before, on, or after
tyba = limitation years beginning after
90 da DOE = 90 days after date of enactment
[1] Effective as il included in the Omnibus Reconciliation Act of 1993.
(2) Loss of less than $500,000.
[3] Loss of less than $5 million.
[4] Loss of less than $15 million.
(5) Loss of less than $20 million.
[6] Loss of less than $30 million
[7] Gain of less than $1 million.
[8] Revenue effect after 1/1/99 included in the revenue estimate for the sale harbor provision due 10 interactions between this provision and Nom II.C.4.
[9] Loss of less than $10 million.
110] Negligible revenue effect.
111} This provision considers interaction effects of SIMPLE retirement plan provisions (Items II.C.1, II.C.2, and II.D.5)
[12] Effective as if included in the General Agreement on Tariffs and Trade of 1994.
[13] Estimate provided by the Congressional Budget Office. Negative numbers indicate that Federal outlays will increase.
RM#1618 LHOB/JCT
(14) Effective for plans that did not receive assistance payments prior to the date of enactment.
[15] Credit rate at 35% on first $6,000 of income; eligible workers expanded to include wellare cash recipients, veteran loodstamp recipients, and 18 24 year olds living in a household receiving
food stamps for a period of at least 3 months on the date of thire without pre-certification; 375 hour work requirement; 21 day certification requirement.
[16] The repeal would not apply to loans made pursuant to a binding contract entered into before 6/10/96.
[17] Gain of less than $500,000.
[18] Effective for amounts received after 6/12/96 and property placed in service after 6/12/96 with the exception of certain property subject to a binding contract before 6/10/96.
[19] Estimates provided by the Congrassional Budget Office.
[20] Loss of less than $1 million.
NOTES ON "SMALL BUSINESS" TAX BILL PASSED BY SENATE 7/9/96
Increase amount of property smaller businesses are able to expense instead of capitalize and
depreciate (Section 179) from $17,500 to $25,000 (phased-in increase that reaches $25,000 in
2003). (-$2.5 billion through 2002) Administration proposed something like this in 1993 and
strongly supports this increase.
Permit convenience stores with gas stations to depreciate their property over 15 years rather than
39 years. (-$250 million through 2002) Administration opposed this as a special interest
provision; it was designed to help Southland Corporation, owners of 7-11)
Loosen constraints on S-corporations (allowing greater number of shareholders, more flexible
organization forms, etc.) (-500 million through 2002) Administration generally supported
these provisions, though had some minor qualms -- at this point the Administration
probably wants to claim credit.
Pension simplification lots of individual items ($-1.8 billion through 2002). Not as favorable to
encouraging coverage and portability as the Administration proposal (and tilted more to
business owners instead of workers), but overall not a bad attempt at simplifying some of
the most complicated provisions in the Tax Code. Administration should probably try to
claim credit for all the good outcomes and still cajole the Congress to do more for workers.
Extend Work Opportunity Tax Credit (formerly Targeted Jobs Tax Credit) through 9/30/97
(-$400 million through 2002) Some changes are included to make the credit more effective than
the TJTC. The Administration has provided lukewarm support for this provision.
Extend exclusion for employer-provided education benefits (Section 127) through 12/31/97 (-
$1.4 billion through 2002) Extends prior law; does not include the Administration's proposed
small business tax credit for employer-provided education. Administration should be pleased
with this outcome; credit covers graduate education and the extension is for a meaningful
period of time.
Extend R&E tax credit through 12/31/97 (-$2.9 billion) Extends prior law, but leaves a gap in the
coverage of the R&E credit; expenses incurred after June 30, 1995 and before July 1, 1996 do not
qualify for the credit. The Administration supports the extension of the credit; would prefer
if credit were made permanent; would prefer if the 12-month "gap period" were covered;
allowing the credit to expire for 12 months provides a bad precedent for future credit
expirations -- firms will not rely on expectation of credit being extended in making their
R&D investment decisions.
Section 936 (Possessions tax credit) (+$3.3 billion through 2002) Phases down tax credit
available to firms with operations in US possessions (primarily Puerto Rico); reduces economic
activity portion of credit by about 1/3; reduces income-based portion of credit entirely over 10
years. Not as harsh as the House-passed version of this provision, but Administration
strongly believes that phasing out the income-based portion of the credit while maintaining
the economic activity portion is a far preferable course of action. Administration budget
proposal would scale back income-based portion of the credit and would use the revenues
generated to improve job-training and investment opportunities in Puerto Rico; the
Congressional proposal does not direct increased investments to Puerto Rico to compensate
for the loss of the credit.
Repeal 50 percent interest exemption for ESOP loans (+$1 billion through 2002) Reduces the
financial benefits of establishing ESOPs by substantially scaling back tax benefits. The
Administration has expressed concerns about this provision because it believes that ESOPs
have some positive effects on worker productivity (even though the evidence is equivocal).
Reinstate Airport and Airway Trust Fund excise taxes (e.g., airline ticket tax) through 4/15/97
(+$2.9 billion through 2002) Administration supports extension of these taxes as a way to
pay for air safety; Congress should not have let these taxes expire in the first place; these
taxes will have to be revisited next year; FAA bill in Senate would establish a study of
possible user fees to replace these taxes and provide funding source for FAA and for airport
construction, rehabilitation, expansion, etc.
Revise expatriation tax rules (+$700 million through 2002) Generally consistent with
Administration proposal.
Require taxpayer IDs for personal exemptions and dependent care credit (+$1.4 billion) Probably
not a bad idea to increase compliance.
96
12:07
202 622 9260
OFC TAX POLICY
002
08/96
12:19
d
002/003
07/08/96
11:43
"EU 19.16 5 Aml
Smell Business Bill
To: Judy Schub
326-4016
Still circulating 7/8/96
FR: Kevin
July 3. 1996 (2:00 p.m.)
1
FYI
POSSIBLE MANAGER'S AMENDMENT
Small Business Provisions
1.
Agricultural dues - apply provision in the bill back to 1/1/87.
2.
Fishermen de minimis cash payments apply provision in the bill back to 1/1/84.
3.
Worker classification (additional items):
a.
Future change in status does not preclude section 530 safeharbor for
previous years.
b.
The relationship between the parties (not merely the worker's duties) must
be considered re section 530 (clarification of "substantially similar
position").
Pension Simplification Provisions
1.
Drop provision in the bill eliminating waiting period after pension election.
-
2.
Apply PBGC missing participant program to defined contribution plans on a
voluntary basis.
3.
Alternative nondiscrimination rules for early participation (effective 1/1/99).
4.
Add a new joint and survivor benefit election (prospective - add when plans are
amended in the future; no additional cost to employers).
I
5.
Inflation increase to PBGC benefit guarantee for multi-employer plans (suspend
benefit increase if surplus declines more than 50%).
6.
Federal employees: [open for response from Govt Affairs Comm.]
a.
Employee contributions to federal retirement plans may be subject to
divorce court order.
b.
Survivor protection for spouses of former federal employees.
? - 7.
Labor Committee's ERISA provision re Harris Trust decision (clarify that no relief
from criminal fraud).
8.
Church pension plan simplification:
a.
Allow combined pension plan coverage for self-employed clergy (so-
called "mobile ministers").
b.
Allow pre-ERISA pension plans to use the new definition of highly
compensated employee in the bill; authorize Treasury (but do not require)
to design a nondiscrimination safeharbor for church plans.
C.
Allow missions. payroll deduction of pension contributions for clergy on foreign
lof2
96
12:07
202 622 9260
0FC TAX POLICY
003
003/003
08/96
12:19
07/08/96
11:43
"EU 14.10 rad
Expired Provisions
1.
Educational assistance - extend through 12/31/97 (adds 1 year).
2.
R&E credit - extend through 12/31/97 (adds 6 months).
3.
Orphan drug credit so extend through 12/31/97 (adds 6 months).
4.
Stock contributions to private foundations - extend through 12/31/97 (adds 6
months).
5.
Section 29.
a.
Extend placed in service date to 12/31/98 (adds 1 year).
b.
Suspend unrelated party rule for fuel used to generate electricity (date of
enactment through 12/31/98). [NOTE: This may be a rifleshot.]
6.
Diesel tax for motorboats - suspend thru 12/31/97 (adds 6 months).
7.
Publicly traded partnerships - extend through 12/31/99 (adds 2 years).
Other Provisions
1.
Allow certain teaching hospitals to provide tax-free academic housing to faculty
and medical and nursing students.
Revenue Offsets
1.
Repeal of 50% exclusion for interest on ESOP loans - move effective date for
binding contracts to date of enactment.
2.
Repeal of Ford Credit interest allocation rule -- delay effective date for one year.
3.
Expatriates - add estate tax change with treaty override.
4.
Airport taxes extend through ??? (adds ?? months).
5.
New item: Allow conversion of scholarship funding corporations (23) to taxable
corporations.
from
6.
New item: Apply math/clerical error procedure for filing status, dependency
Potvet
exemptions, and dependent care credit when correct taxpayer identification
numbers are not provided.
Technicals to Senate Bill
1.
Correct drafting error re sale by a tax-exempt entity of stock in a C corporation
that was formerly a S corporation.
2
Correct drafting error re new alternative R&E credit
3.
Delay effective date for two excise tax provisions in the bill (luxury tax and
motorboat diesel tax) to 7 days after date of enactment (instead of 7/1/96).
2 of 2
JUL-08-96 21:00 FROM:OMB LA
ID:
PAGE
1/3
EXECUTIVE OFFICE OF THE PRESIDENT
OF
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
July 8, 1996
(Senate)
STATEMENT OF ADMINISTRATION POLICY
(THIS STATEMENT HAS BEEN COORDINATED BY OMB WITH THE CONCERNED AGENCIES.)
H.R. 3448 - Small Business Job Protection Act
(Archer (R) Texas)
The Administration, while supporting Senate passage of a number of provisions of HR 3448 as
amended by the Finance Committee, will seek further amendments to the bill. And, as stated in
the President's June 28th letter to the Senate, a copy of which is attached, if H.R. 3448 is
presented to the President with the minimum wage provisions of the Republican leadership
amendment, the President will veto the bill.
The Administration strongly opposes section 1601 of the bill, which would repeal the tax credit
related to corporate investments in Puerto Rico while allowing several grandfather rules for
existing companies. The Administration urges the Senate to delete this provision and adopt
instead the proposal to reform the credit contained in the President's FY 1997 Budget. The
Administration's proposal provides tax benefits for new and expanded operations based directly
on real economic activity in these underdeveloped areas. The projected revenue savings from
the reform of this credit would be used for social and employment training programs in Puerto
Rico. Unlike section 1601, the final legislative language concerning the credit should contain
effective mechanisms to promote job creation in the islands.
The Administration will also work with Congress to adopt other amendments as described
below.
Provisions Supported by the Administration and Additional Recommended Amendments
The Administration supports many of the revenue provisions of H.R. 3448, which are consistent
with Administration proposals to strengthen small businesses, simplify pension laws, reinstate
incentives for research and development, and improve incentives for education and work
opportunities.
In particular:
Small Business Expensing The Administration strongly supports the bill's increase from
$17,500 to $25,000 for the amount of tangible personal property that small businesses
can expense. The President supported such an increase in 1993 and in his FY 1997
Budget, although with a faster phase-in.
JUL-08-96 21:01 FROM: OMB LA
ID:
PAGE
2/3
2
Employer-Provided Educational Assistance. The Administration supports the temporary
extension of the income exclusion for employer-provided educational assistance,
including the exclusion for post-graduate level education. The Administration will work
with Congress to provide a permanent extension of the exclusion. The Administration
also supports a 10 percent tax credit for educational assistance provided under section
127 plans for small businesses with annual gross receipts of $10 million or less.
Research Tax Credit. The Administration strongly supports full reinstatement of the
research tax credit back to its June 30, 1995, expiration date. The Administration will
work with Congress to make the credit permanent. The Administration continues to
believe that full, permanent reinstatement should take priority over modifications to the
credit such as those contained in H.R. 3448.
Orphan Drug Credit. The Administration strongly supports full reinstatement of the
orphan drug credit and will work with Congress to make the credit permanent.
Gifts of Appreciated Stock to Private Foundations. The Administration strongly
supports this provision and will work with Congress to make it permanent.
Work Opportunity Tax Credit. The provision for a new Work Opportunity Tax Credit
addresses many of the criticisms of the prior Targeted Jobs Tax Credit, particularly
increasing the period of retention for eligible workers. The Administration will work
with Congress to improve the scope and effectiveness of the new credit.
Pension Simplification Many provisions of H.R. 3448 were included in the President's
pension simplification proposal announced in June 1995 at the White House Conference
on Small Business. The Administration is concerned, however, that the safe harbor
provisions applicable to both SIMPLE and 401(k) plans do not ensure that middle and
lower-wage workers will benefit from the provision of tax-advantaged retirement
savings plans. The Administration will work with Congress to modify these safe harbors
so that employers taking advantage of them are required to provide meaningful coverage
to these workers. The Administration is also concerned that the three-year waiver of the
excise tax on very large retirement distributions would add complexity and could
actually encourage plan sponsors to terminate plans.
Subchapter S. The Administration also strongly supports most of the reforms in the bill
relating to Subchapter S (closely held) corporations, and will work with Congress to
provide further reforms and to ensure that reforms are appropriately targeted to the
intended beneficiaries.
Technical Corrections. The Administration supports the long-overdue enactment of
technical corrections to recent tax legislation and will work with Congress to achieve a
consensus package of technical corrections.
JUL-08-96 21:01 FROM:OMB LA
ID:
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3/3
3
Objectionable Provisions
Classification of Workers for Employment Tax Purposes. The Administration has
concerns about certain changes proposed to section 530 of the Revenue Act of 1978,
which provides "safe harbors" under which an employer has a reasonable basis for
treating a worker as an independent contractor rather than as an employee for
employment tax purposes. The most important concerns are with proposed changes that
would: (1) shift the burden of proof to the Internal Revenue Service with respect to the
application of section 530; and (2) replace the safe harbor for reasonable reliance on a
long-standing practice of a significant segment of the industry with a rigid numerical
test.
Special-Interest Provisions. The Administration opposes the inclusion in H.R. 3448 of
numerous special-interest provisions.
Revenue Offsets
The Administration has serious concerns with the offset provision in H.R. 3448 that would
repeal tax benefits for certain employee stock ownership plans that provide meaningful
employee ownership. Several of the offsets - relating to interest allocations for nonfinancial
corporations, tax treatment of expatriates, basis adjustment rules under section 1033,
withholding on certain gambling winnings, and reinstatement of airport and airway trust fund
excise taxes - are included in the President's balanced budget proposal. These offsets should
be reserved for deficit reduction and meeting balanced budget goals. In working with the
Congress to develop an improved bill that is consistent with the Administration's recommended
amendments, appropriate offsets will be sought.
Proposals Not Addressed in H.R. 3448
In the context of an overall balanced budget plan, the Administration will work with Congress
to provide other incentives previously proposed by the Administration but omitted from this bill.
Such incentives include the $10,000 deduction for postsecondary tuition and training expenses,
the $1,500 tax credit for postsecondary tuition, and incentives to revitalize economically
distressed areas by cleaning up abandoned, contaminated properties, and creating new
Empowerment Zones and Enterprise Communities.
The Administration would also support an amendment to the Foreign Sales Corporation statute
as it applies to licenses of software, and will work with Congress to develop an acceptable
package, including appropriate revenue offsets.
Pay-As-You-Go Scoring
H.R. 3448 would affect receipts; therefore. it is subject to the "pay-as-you-go" requirements of
the Omnibus Budget Reconciliation Act of 1990. OMB's scoring of this legislation is under
development.
7/9/91
PRESIDENT CLINTON'S RETIREMENT SAVINGS AND SECURITY ACT
Millions of Americans do not have adequate retirement savings and are worried about their retirement and
being a burden on their children. The Retirement Savings and Security Act would empower more Americans
save for their retirement by expanding pension coverage, portability, and protections.
Expands Pensions to help the 51 million working Americans -- nearly half of private-sector workers --
not currently covered by an employer-provided plan save for their retirement.
Increases Portability by removing the obstacle course facing many workers when they change or lose
their job and want to bring their retirement savings with them and keep saving.
Enhances Protections so hard-working Americans do not have to worry whether their retirement
savings will be there when they need them.
THE RETIREMENT SAVINGS AND SECURITY ACT MEETS THESE CHALLENGES
WITH A 5-PART PLAN:
1.
New Small Business 401(k) Plan -- To Expand Pension Coverage: While 76% of workers in large
House
+
businesses have employer-provided pensions, only 24% of workers in small businesses do. The
Senate
Retirement Savings and Security Act offers small businesses a simple small business "401(k) plan," called
have the the NEST, that could expand pension coverage to up to 10 million workers:
SIMPLE
$6,000
$5,000 Tax-Free Contributions. Workers could save up to $5,000 a year tax-free through automatic
payroll deductions.
Employers Contribute 3% of Salary or 1% Plus a Match of Up To 5% of Salary. -No
One-Page Form. Cuts through the red tape with a simple, one-page form without complicated employer
filing, calculations, or testing.
100% Portable. All contributions would be immediately vested and fully portable.
In
The Retirement Savings and Security Act expands coverage in many other ways as well: it simplifies
H+S
401(k) plans for all businesses as recommended by Vice President Gore's Reinventing Government
Bills
initiative, makes the 9 million employees of non-profit organizations eligible for 401(k) plans, enables
relatives who work in a family business to earn their own retirement benefits, and repeals unreasonable
limits on benefits for certain disabled and low- and middle-income union and state and local government
employees.
(section 415) Sente only
2.
Expanded IRAs -- To Increase Pension Coverage and Portability: Deductible IRAs are available only
to families who have pension coverage if household income is under $50,000, and can be withdrawn
penalty-free only after age 59½. The Retirement Savings and Security Act makes IRAs more attractive
and expands eligibility to 20 million more families:
Both H+S
spousal have
Allows Withdrawals for Education and Training, First Home Purchases, Major Medical Expenses,
and During Long-Term Unemployment: Allows penalty-free IRA withdrawals for these major life
IRAS
only
expenses to encourage more families to save.
Doubles Income Eligibility: The Act doubles the income limits from $50,000 to $100,000 for married
couples, and from $35,000 to $70,000 for single taxpayers for a deductible IRA where a family member
has pension coverage. More middle class families -- especially those with two earners would be
eligible for this expanded IRA that reduces taxes by up to $1,120 a year.
3. Increases Pension Portability: Workers who change jobs and want to take their retirement savings with them
and keep saving currently face a multi-faceted obstacle course. The President's plan could help over 5 million
workers each year who have an employer-sponsored pension plan and who change jobs:
Takes Away 1-Year Wait To Save At a New Job: Millions of workers are forced to wait 1 year before they can enter
their new employer's pension plan. The Retirement Savings and Security Act changes a law that encourages private
No
employers to impose a 1-year waiting requirement, and eliminates the waiting period for new federal employees to make
pre-tax contributions to the Thrift Savings Plan.
Green Light for Employers to Accept Rollovers: Today, 50% of workers in 401(k) plans are in plans that do not
accept rollovers from new employees. The Treasury will issue new rules to make it easier for employers to accept
rollovers into their plans.
Regulatory Change
Expanded IRAs and New Small Business 401(k) Plan Will Increase Portability: Expanded IRAs and the new small
business 401(k) plan are both fully portable.
Semate
Ensures that Workers Receive Benefits After They Change Jobs or the Employer Folds: Ensures workers get the
only
benefits they earned, even if they have long since left the job or the employer is no longer in business, by using the
PBGC as a clearinghouse for terminated plans.
H+S
Secures Portability for Veterans: Changes tax rules to ensure that veterans who serve their nation are not penalized
and can continue their pension coverage when they return from service.
Guarantees Benefits for Workers on the Move: Reduces the vesting period from 10 to 5 years for multiemployer
H+S plans which cover union workers such as construction workers who frequently change jobs to ensure they don't lose
their benefits if they've worked for 5 years.
4. Enhances Pension Protection and Security: The Retirement Protection Act, enacted in 1994 at the President's
request, has reduced pension underfunding for the first time in a decade, protecting the benefits of 40 million
rkers and retirees in traditional pension plans. In 1995, the Labor Department launched an initiative to protect
wings in (k) plans from misuse, recovering to date over $7 million for approximately 9,000 workers. The
Retirement Savings and Security Act further enhances pension security:
Neither Requires Prompt Action on Misuse of Funds: Requires plan administrators and accountants to report promptly serious
bill misuse of pension funds, with fines of up to $100,000. (Andit Bill)
Protects Government Employees' Savings from Orange County-Style Fiascos: Requires state and local government
H+S pension plans be held in trust so that employees do not lose their savings if the government declares bankruptcy, as
Orange County recently did.
Strengthens Protection of 9 Million Union Workers' Savings: Doubles the maximum level of annual benefits
guaranteed under multiemployer plans. For 30-year workers, the level would be increased from $5,850 -- the level set
only in 1980 -- to $12,870.
Enhances Pension Protection for Survivors of Civil Service and Railroad Pension Systems Participants, Primarily
Women and Children: Provides survivors of Civil Service Retirement System participants who die prior to receiving
benefits with the option to receive an annuity, ensures that court orders concerning refunds of CSRS contributions are
obeyed, and that surviving spouses and dependents of railroad workers receive benefits fully comparable to Social
Security benefits. Serabe has Cisil Service provision + saple QDROS (divorce)
5. Prevents Pension Raiding: In the 1980s, companies raided more than $20 billion from over 2,000 pension
plans covering 2.5 million workers and retirees. Legislation in 1990 curbed pension raiding by imposing a stiff
excise tax of up to 50% on these pension reversions.
Oppose Proposals that Allow Corporate Pension Raids: The Administration will continue to oppose any legislation
that encourages pension reversions, such as the one in the GOP budget.
Nuther
Report on Pension Reversions: To ensure that current rules continue to prevent the abuse common in the 1980s, the
Retirement Savings and Security Act requires the Secretary of Labor to report regularly on activity in this area.
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PRESIDENT CLINTON'S RETIREMENT SAVINGS AND SECURITY ACT
Millions of Americans do not have adequate retirement savings and are worried about their retirement and
ing a burden on their children. The Retirement Savings and Security Act would empower more
mericans to save for their retirement by expanding pension coverage, portability, and protections.
Expands Pensions to help the 51 million working Americans nearly half of private-sector workers
-- not currently covered by an employer-provided plan save for their retirement.
Increases Portability by removing the obstacle course facing many workers when they change or
lose their job and want to bring their retirement savings with them and keep saving.
Enhances Protections so hard-working Americans do not have to worry whether their retirement
savings will be there when they need them.
THE RETIREMENT SAVINGS AND SECURITY ACT MEETS THESE CHALLENGES
WITH A 5-PART PLAN: Have + Service L.TIS
No
include SIMPLE not NEST
19
contration (non-mutch)
mandatory cuployer
1.
New Small Business 401(k) Plan -- To Expand Pension Coverage: While 76% of workers in large
businesses have employer-provided pensions, only 24% of workers in small businesses do. The
Retirement Savings and Security Act offers small businesses a simple small business "401(k) plan,"
called the NEST, that could expand pension coverage to up to 10 million workers:
(6000) in SIMPLE
$5,000 Tax-Free Contributions. Workers could save up to $5,000 a year tax-free through automatic
payroll deductions.
Employers Contribute 3% of Salary or 1% Plus a Match of Up To 5% of Salary.
One-Page Form. Cuts through the red tape with a simple, one-page form without complicated
employer filing, calculations, or testing.
100% Portable. All contributions would be immediately vested and fully portable.
The Retirement Savings and Security Act expands coverage in many other ways as yes well: it simplifies
40! plans for all businesses as recommended by Vice President Gore's Reinventing Government
initiative, makes the 9 million employees of non-profit organizations eligible for 401(k) plans, enables
relatives who work in a family business to earn their own retirement benefits, and repeals unreasonable
limits on benefits for certain disabled and low- and middle-income union and state and local
government employees (Section 415 -dinl for 1mployees ablie Lutset multiemployes )
2. Expanded IRAs - To Increase Pension Coverage and Portability: Deductible IRAs are available
only to families who have pension coverage if household income is under $50,000, and can be
withdrawn penalty-free only after age 59½. The Retirement Savings and Security Act makes IRAs
more attractive and expands eligibility to 20 million more families:
Allows Withdrawals for Education and Training, First Home Purchases, Major Medical
Expenses, and During Long-Term Unemployment: Allows penalty-free IRA withdrawals for these
major life expenses to encourage more families to save.
Doubles Income Eligibility: The Act doubles the income limits from $50,000 to $100,000 for
married couples, and from $35,000 to $70,000 for single taxpayers for a deductible IRA where a
family member has pension coverage. More middle class families especially those with two earners
-- would be eligible for this expanded IRA that reduces taxes by up to $1,120 a year.
Both
Have + Senik have spousal IRAS
0241
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3. Increases Pension Portability: Workers who change jobs and want to take their retirement savings with
them and keep saving currently face a multi-faceted obstacle course. The President's plan could help over :
million workers each year who have an employer-sponsored pension plan and who change jobs:
Takes Away 1-Year Wait To Save At a New Job: Millions of workers are forced to wait ] year before they car
enter their new employer's pension plan. The Retirement Savings and Security Act changes a law that encourages
private employers to impose a 1-year waiting requirement, and eliminates the waiting period for new federal
employees to make pre-tax contributions to the Thrift Savings Plan. In rangers andt Butnot the
TSP prop
Green Light for Employers to Accept Rollovers: Today, 50% of workers in 401(k) plans are in plans that do no
accept rollovers from new employees. The Treasury will issue new rules to make it easier for employers to accept
rollovers into their plans.
Regulatory change
Expanded IRAs and New Small Business 401(k) Plan Will Increase Portability: Expanded IRAs and the new
small business 401(k) plan are both fully portable.
Ensures that Workers Receive Benefits After They Change Jobs or the Employer Folds: Ensures workers gei
the benefits they earned, even if they have long since left the job or the employer is no longer in business, by using
the PBGC as a clearinghouse for terminated plans.
Not in Hors, but in managers and
Secures Portability for Veterans: Changes tax rules to ensure that veterans who serve their nation are hot penaliz
and can continue their pension coverage when they return from service. In both Hase + Senate bills
Guarantees Benefits for Workers on the Move: Reduces the vesting period from 10 to 5 years for multiemploye
plans which cover union workers such as construction workers who frequently change jobs to ensure they don'
lose their benefits if they've worked for 5 years. In both H+S bns
4. Enhances Pension Protection and Security: The Retirement Protection Act, enacted in 1994 at the
President's request, has reduced pension underfunding for the first time in a decade, protecting the benefits o
40 million workers and retirees in traditional pension plans. In 1995, the Labor Department launched an
initiative to protect savings in plans from misuse, recovering to date over $7 million for approximately
9,000 workers. The Retirement Savings and Security Act further enhances pension security:
Requires Prompt Action on Misuse of Funds: Requires plan administrators and accountants to report promptly
serious misuse of pension funds, with fines of up to $100,000. Andit 6.11 -not anyther
Protects Government Employees' Savings from Orange County-Style Fiascos: Requires state and local
government pension plans be held in trust so that employees do not lose their savings if the government declares
bankruptcy, as Orange County recently did. In both House + Sente 6.115 (Sectro 457 in that
Strengthens Protection of 9 Million Union Workers' Savings: Doubles the maximum level of annual benefits
guaranteed under multiemployer plans. For 30-year workers, the level would be increased from $5,850 -- the level
set in 1980 -- to $12,870.
in managers andt.
Enhances Pension Protection for Survivors of Civil Service and Railroad Pension Systems Participants,
Primarily Women and Children: Provides survivors of Civil Service Retirement System participants who die pric
to recieving benefits with the option to receive an annuity, ensures that court orders concerning refunds of CSRS
contributions are obeyed, and that surviving spouses and dependents of railroad workers receive benefits fully
comparable to Social Security benefits. 1. model QDROs in Senth bill (divorce) in managers
Z+3Civil Service 1 RR in managers andts. ] andt.
5. Prevents Pension Raiding: In the 1980s, companies raided more than $20 billion from over 2,000 pensio
plans covering 2.5 million workers and retirees. Legislation in 1990 curbed pension raiding by imposing a st:
excise tax of up to 50% on these pension reversions.
Oppose Proposals that Allow Corporate Pension Raids: The Administration will continue to oppose any legislati-
that encourages pension reversions, such as the one in the GOP budget.
Report on Pension Reversions: To ensure that current rules continue to prevent the abuse common in the 1980s, t
Retirement Savings and Security Act requires the Secretary of Labor to report regularly on activity in this area.
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REFORMULATE PUERTO RICO AND POSSESSIONS
TAX CREDIT (SECTION 936)
Current Law
Domestic corporations with business operations in U.S. possessions (including, for
this purpose, Puerto Rico and the U.S. Virgin Islands) may elect under Code section 936
generally to eliminate the U.S. tax on certain income which is related to their
possession-based operations. The section 936 credit may offset the U.S. tax on the following
types of income: (1) foreign source income arising from the active conduct of a trade or
business within a U.S. possession or from the sale or exchange of substantially all of the
assets used by the taxpayer in the active conduct of such trade or business, or (2) income
from certain investments in the possessions or in certain Caribbean Basin countries
("qualified possession source investment income", or "QPSII"). The credit spares the
electing corporation U.S. tax whether or not it pays income tax to the possession.
Limitations on the active-business element of the credit were enacted in 1993.
Section 936 companies may elect either a reduced percentage of the profits-based credit as
allowed under prior law (60 percent in 1994, phasing down to 40 percent beginning in 1998),
or a limitation based on the company's economic activity in the possessions (measured by
wages and other compensation, depreciation, and certain taxes paid).
Reasons for Change
The Administration proposed to reformulate the credit in 1993 to make it a more
efficient incentive for job creation and economic activity in Puerto Rico; the amendments
enacted in 1993 moved part way toward the Administration's proposals. The Administration
continues to believe that any credit should provide an incentive for increased economic
activity in the possessions rather than merely an incentive to attribute profits there.
Proposal
To provide a more efficient tax incentive for the economic development of Puerto
Rico and other U.S. possessions, and to continue the effort toward this goal that was begun
in the 1993 Act, the proposal would modify current law to (1) phase-out the profits-based
branch of the active-business portion of the credit over five years, beginning in 1997, and (2)
allow excess amounts of economic-activity limitation to be carried forward for up to 5 years,
effective for taxable years beginning after the date of enactment. The proposal would retain
the economic-activity limitation on the active-business portion of the credit, as well as the
passive-income portion of the credit for taxes otherwise payable on QPSII, as under present
law.
-93-
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002
From Ellen Seidman
Number of private wage and salary workers earning less than
$40,000 annually and participating in a 401 (k) plan
Total
13.0M
Number who also participate in
another employer pension plan
4.1M
Number who participate only in
a 401 (k) plan
8.9M
Gere- Repeasions.
Did you spechwith
lerm Stein about the
P/O contrabition - at'a
minimum for 401(k)
plans if not for the Small
busiess plans? The issue
is stin open.
- Pauline
Source: Employee Benefits Supplement to the April 1996 Current
Population Survey.
SMALL BUSINESS BILL AND PENSIONS
July 9, 1996 7:00 pm
POTUS PROPOSALS IN HOUSE AND SENATE:
Coverage:
Small business plan, but it's the SIMPLE rather than the NEST.
Employer contributions different from NEST: not as generous match
Safeharbor provisions (i.e. requirements must meet to avoid nondiscrimination
rules) are weaker than in NEST and apply to 401(k) plans as well. There is no
mandatory 1% non-match employer contribution.
Simplifies 401(k)s
401(k)s for non-profits
Repeal limits on benefits for public employess but not multiemployer (Section 415)
(multiemployer included in manager's amendment at the last minute)
Repeals family aggregation limits
IRAs -- none of POTUS expansions; includes spousal IRAs
Portability:
Veterans technical corrections
Reduce multiemployer vesting from 10 to 5 years
Pension Security:
Puts public pensions in trust (Section 457 in trust) Orange County provision
IN HOUSE AND SENATE BUT NOT POTUS BILL:
3-year waiver of 15% tax on large (excess of $155,000) distributions (revenue raiser)
Repeal of the $5,000 death benefits exclusion. This benefit is included in many
collective bargaining agreements (Raises $293 million through 2002)
Spousal IRAs ($2,000) (Costs $1 billion through 2002 )
Repeals tax benefits for certain ESOPs (Raises $1 billion through 2002; also in vetoed
reconciliation bill)
Model QDROs for divorce in Senate bill (we had planned to do it without legislation)
New joint and survivor option in Senate bill only (Mosely-Braun)
IN MANAGERS AMENDMENT
Repeal limits on benefits for multiemployer plans, not just public employees (Sec.415)
Portability:
Elimination of 1-year wait for 401(k)s (changing effective date to 1/1/99)
PBGC missing participants clearinghouse
Increase in the multiemployer guarantee
Makes model QDROs "sample" only (Treasury supports)
Labor Committee's ERISA provision overturning Harris Trust SCOTUS decision (DOL
and employers support, AFL-CIO and AARP oppose)
Mosley-Braun civil service provisions from President's bill
POTUS PROPOSALS NOT IN HOUSE OR SENATE BILLS OR IN MANAGERS
AMDT:
Strong safeharbors from nondiscrimination rules (i.e. requirements must meet to avoid
nondiscrimination rules) They do not have a 1% mandatory non-match employer
contribution for both the small business plans and 401(k) plans.
NEST small business plan rather than the SIMPLE:
Their employer contributions less generous than NEST
Their safeharbor provisions less protective than NEST
Eliminating the 1-year wait for TSP
Our regulatory proposals to encourage acceptance of rollovers
IRA expansion
Audit bill
No reporting on reversions
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DEPARTMENT OF THE TREASURY
WASHINGTON
ASSISTANT SECRETARY
June 17, 1996
MEMORANDUM FOR SECRETARY ROBERT E. RUBIN
DEPUTY SECRETARY LARRY SUMMERS
FROM:
DONALD C. LUBICK 80cc
ACTING ASSISTANT SECRETARY (TAX POLICY)
SUBJECT:
SENATE FINANCE COMMITTEE ACTION ON
SMALL BUSINESS JOB PROTECTION ACT OF 1996
On June 12, 1996, the Senate Finance Committee agreed by unanimous voice vote to report
out an amended tax title to the minimum-wage legislation, H.R. 3448, the Small Business
Job Protection Act of 1996. It contains a gross tax cut of about $15 billion and will add
about $7.7 billion to the deficit (1996-2002) as compared to the President's budget. The
$7.7 billion dollar figure represents the excess of pay-fors also contained in our budget over
tax cuts also contained in our budget (treating Section 936 proposal as not being a pay-for in
our budget). Of course, we support many of the provisions that were not in our budget
(e.g., extension of expiring provisions, S Corporation reform, prepaid tuition clarification).
The bill includes (i) tax initiatives with the general theme of labor and small business; (ii)
expiring tax provisions; (iii) a variety of revenue offsets; (iv) a variety of special-interest
provisions and member items; and (v) technical corrections. Many of these proposals were
derived from the vetoed Balanced Budget Act (BBA). The bill was voted out on a bipartisan
basis, notwithstanding a variety of objectionable provisions. The members agreed in advance
not to offer any amendments. although amendments will probably resurface during the Senate
floor debate.
1 On June 12, 1996, the Finance Committee also ordered reported H.R. 3286, "The
Adoption Promotion and Stability Act." It provides for a $5000 adoption tax credit, similar
to the legislation that has already passed the House and which the Administration supported.
(Differences in the Finance Committee version of the adoption tax credit include increasing
the credit to $6000 for special-needs adoptions and sunsetting the credit for non-special needs
adoptions after December 31, 2000.) The two pay-fors in this legislation -- reform of the
Income-forecast method of accounting and repealing the special bad-debt deduction for
thrift institutions - are also included in the President's FY 1997 budget. Thus, this
legislation - which is on a separate track from the minimum-wage legislation - -- adds
about an additional $1.7 billion to the deficit, relative to the President's budget.
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We will be required to prepare a Statement of Administrative Policy (SAP) shortly and
should meet to discuss what our positions should be. In addition to the general budgetary
concerns and our views as to some of the specific provisions, we should discuss whether wc
should take any specific action on spousal IRAs, the expiring provisions - particularly
Section 127 educational assistance (the Labor Department would like us to do more on the
small business credit) and the R&D credit (we may have to take a position on the gap) -- and
the FSC/software issue, which has not been addressed in this bill.
Here is a listing of the provisions. The ones that merit the most discussion are highlighted.
Tax Cuts
Small-business expensing - Like the House bill, the Finance bill increases the amount
of tangible depreciable property that small businesses can expense from $17,500 to
$25,000 by the year 2003. The President's budget contains a similar proposal. except
that it would have been fully phased in by 2002.
Spousal IRAs - We prefer our IRA expansion proposal, which will be more cost-
effective and does not include spousal IRAs. The Administration has taken no
official position on this provision, though the Secretary expressed mild concern at
a 1995 hearing about the distributional impact and the revenue cost. Still, it is
hard to get in the way of this one.
Pension Simplification - The Administration supports many of the pension
simplification provisions of the bill which are the same as in the President's
proposal and similar to the House-passed bill. The Administration prefers its
pension package because it does more to encourage retirement savings by middle-
and lower-wage workers, such as providing more meaningful employer
contributions under the simplified small business plan. The bill allows owners to
benefit themselves at a lesser cost of providing benefits to the rank and file. The
Administration is also concerned about the bill's three-year waiver of the excise
tax on very large distributions.
Employment tax status of fishing crews - The Administration has not opposed this
provision, which liberalizes the current exemption for fishing crews of less than 10
members. Unlike the House bill, it does not provide specific retroactive relief, and
also does not include the House revenue offset (a new reporting requirement for cash
sales of fish in excess of $600). This provision is important to Democratic Members
of the Massachusetts delegation, including Reps. Barney Frank and Richard Neal.
Liberalize involuntary conversion rules for tax deferral through replacement of
property damaged as a result of Presidentially declared disasters - The Administration
is concerned that this provision, which allows gain to be deferred regardless of
whether there is any connection between pre-disaster activities and post-disaster
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activities, is an Inappropriate departure from long-standing tax-policy principles.
Although the provision applies to all Presidentially declared disasters after December
31, 1994 , it has been promoted as a benefit for Oklahoma City bombing victims. A
better approach would be the principal residence provision included in OBRA 93 that
simply allowed more time for the rollover.
Liberalize treatment of leasehold improvements -- The Administration does not oppose
this provision, which was included in the BBA.
Liberalize requirements for private-activity tax-exempt bonds for first-time farmers --
The Administration does not oppose these modifications, which include increasing the
maximum size limit of land eligible for the bonds and relaxing related-party rules.
Liberalize safe-harbor provisions for worker classifications as independent
contractors - We oppose most of the provisions and fear that the result may
encourage shifting of workers to independent contractor status, with adverse
effects not only on tax compliance, but availability of social protection reserved
for employees (workers' compensation, overtime, unemployment insurance, etc.).
Subchapter S simplification proposals -- The Administration has supported most of
these simplification items, which are important to small business. We oppose two late
additions to the package: one that would allow ESOPs to be S corporation
shareholders and another to allow S corporations to be banks.
State Prepaid Tuition Plans -- A provision which we support and on which we
have assisted. It would solve our prepaid tuition problems.
Extension of Expired Provisions
Targeted Jobs Tax Credit -- As in the BBA and the House bill, the credit is renamed
the Work Opportunity Tax Credit and modified, including a reduction in the credit
rate from 40 percent to 35 percent. The Administration generally has not opposed
such a provision in the BBA. Treasury staff have developed a consensus package of
recommendations for refinements to the Work Opportunity Tax Credit.
Employer-Provided Educational Assistance (Section 127) - The $5,250 exclusion
for employer-provided educational assistance, which expired after December 31,
1994, is reinstated retroactively and extended until December 31, 1996. Unlike
the House bill, the Finance bill would maintain the incentive for post-graduate
education. We strongly support permanent extension of section 127. Senator
Moynihan does too, although he seems unwilling to make a luss about it. The
Administration has also announced its support for a 10% tax credit for
educational assistance provided under section 127 plans for small businesses with
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005
4
gross receipts of $10 million or less. It has not generated much interest on the
Hill. The Labor Department thinks we should have done more.
R&E credit - The credit, which expired June 30, 1995, is reinstated
prospectively only, through June 30, 1997, and is modified in certain respects.
The Administration strongly supports the R&E credit, and would prefer a
permanent extension. The gap issue is a sensitive one.
Orphan drug credit - The credit, which expired December 31, 1994, is reinstated
prospectively only, through June 30, 1997. The Administration supports this credit.
Contributions of appreciated stock to private foundations This provision, which
expired December 31, 1994, would be reinstated, prospectively only. through June
30, 1997. The Administration supports this incentive.
Section 29 nonconventional fucls credit An additional year would be provided
during which qualifying biomass and coal facilities could be placed in service and
receive the credit. The Administration has opposed this extension as being no longer
warranted.
Revenue Offsets
Repeal of Puerto Rico and possessions tax credit (section 936) -The Finance
Committee bill makes two modifications to the House bill. First, it extends
permanently the grandfather of the economic-activity credit, although with a one-
third reduction in the wages element of the credit after the House's 10-year
grandfather period. This provides a more generous grandfather for the existing
companies that contribute toward real economic activity in Puerto Rico, but
provides no incentive for new or expanded investment in Puerto Rico after 1995.
Second, the Senate bill extends the QPSII termination date by six months, until
July 1, 1996. This addresses the retroactive taxation objection, but falls to
provide a reasonable transition period for the Puerto Rican banking system. We
cannot support this provision on account of these two defects and the lack of a
spending element.
Repeal of the 50% interest exclusion for financial institution loans to ESOPs --
The Administration has not taken an official public position on this provision,
which was included in the BBA, but is generally opposed to the repeal of this
interest exclusion, which is the only ESOP tax incentive that requires majority
ownership. The Labor Department strongly opposes the repeal.
Disallow exclusion of punitive damages received on account of personal injury or
sickness -- The Finance provision is much narrower than the House bill, which would
disallow the section 104(a)(2) exclusion for nonphysical damages, such as emotional
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distress or discrimination. The Administration has never taken an official public
position on the proposal, although we do not have a problem with it. Case law will
likely reach this result in any event.
Repeal interest allocation exception for certain nonfinancial corporations - This
proposal is also contained in the President's FY 1997 budget.
Reinstate airport and airway trust fund excise taxes through December 31, 1996 --
The Administration's FY 1997 budget proposed extending the taxes through
September 30, 2006. The Finance bill also includes new exemptions for air
ambulances and helicopters used in energy development. We oppose these new
exemptions.
Expatriation tax proposal -- The Administration supports this version.
Modify basis adjustment rules under section 1033 relating to involuntary conversions -
- The proposal was also contained in the President's FY 1997 budget.
Repeal exemption for withholding on gambling winnings from bingo and keno where
proceeds exceed $5000 -- The proposal was also contained in the President's FY 1997
budget.
Treatment of certain insurance on retired lives -- We do not oppose this provision,
which achieves greater conformity between annual statements and tax treatment of
assets held in a segregated account.
Other Special-Interest Provisions
Provide 15-year depreciation for gas station/convenience stores -- The Administration
has opposed this special-interest giveaway to retailers and food service establishments
that sell gasoline.
FICA tip credit changes -- As in the House bill, the provision would apply the
existing income-tax credit to taxes paid on tips not timely reported and extend the
credit to tips received by individuals delivering food and beverages. The
Administration has opposed these special-interest provisions that reward taxpayers
who failed to comply with the law.
Treatment of dues paid to agricultural or horticultural organizations -- As in the
House bill, the proposal would exempt from unrelated business taxable income
(UBTI) dues payments of up to $100 that an agricultural or horticultural organization
receives from its associate members. The Administration has not supported this
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special-interest provision. In addition, we have already provided some measure of
administrative relief.
Treatment of newspaper carriers and distributors as independent contractors -- In the
veto message to the BBA. this provision was identified as a special-interest provision
benefitting certain newspaper companies.
Tax relief for fishing vessels and canneries that provide meals to employees -- We do
not support this provision, which singles out one industry for special treatment.
Lower the rate of tax on certain hard ciders - The Administration testified in
opposition to this proposal last summer, on grounds that such a change should be
made only in the context of a general review of alcoholic beverage excise tax rates.
Liberalize tax treatment of certain length-of-service for volunteer public safety
workers -- In 1995, the Administration testified in opposition to this type of targeted
relief.
Suspend imposition of diesel fuel on motorboats -- The Administration opposes this
provision.
Treatment of Financial Asset Securitization Investment Trusts (FASITs) -- We have
not supported this provision, which would facilitate the securitization of debt
obligations such as credit card receivables, home equity loans and auto loans. It may
create significant revenue loss outside the budget window; in addition, there are
unresolved technical issues.
Phase out luxury tax -- The Administration opposed this provision in the BBA, and
proposed a permanent extension in its FY1997 budget.
Election to avoid tax-exempt bond penalties for local furnishers of electricity and gas
-- This special-interest provision was included in the BBA and is supported by
Chairman Roth on behalf of a Delaware-based gas utility.
Tax-free contributions in aid of construction (CIACs) -- The bill restores the pre-1986
treatment of CIACs for water utilities, paid for by stretching out the depreciation
period for these utilities. We do not oppose the provision.
Exempt Alaska from diesel-dyeing requirement while Alaska is exempt from similar
dyeing requirements under the Clean Air Act -- The Administration testified in
support of this change in 1995.
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Common paymaster provision - We do not oppose this provision, which provides
relief from FICA taxes for medical practice plans related to State university medical
schools by treating the university and the practice plan as a single employer.
Exempt imported recycled halons from the excise tax on ozone-depleting chemicals --
The Administration supports this provision with modifications.
Exempt chemicais used in metered-dose inhalers from the excise tax on ozone-
depleting chemicals - The Administration testified in opposition to this proposal last
summer, on grounds that these chemicals already enjoy a substantial advantage over
other ozone-depleting chemicals.
Authorize tax-exempt bonds for purchase of Alaska Power Authority -- The
President's budget also contains this provision.
Allow for tax-free conversion of common trust funds to mutual funds -- This
provision was included in the list of special-interest provisions in the President's veto
message of the BBA. On policy grounds. however, we do not oppose it.
Technical Corrections
Most of the technical corrections were developed on a consensus basis over the past
several years and are unobjectionable. The Finance bill keeps several new special-
interest provisions that were first introduced in Chairman Archer's mark of the House
bill, however, that were not developed on a consensus basis and that appear to benefit
special interests and are not really technical corrections (thus abusing the process
since technical corrections do not have to be paid for).
Items In House-Passed Bill but Omitted from Finance Bill
Repeal provision to tax excess passive assets for controlled foreign subsidiaries
(section 956A) -- The Administration strongly opposes the repeal of this
provision, which Treasury proposed and Congress enacted in 1993. This
opposition was mentioned in the President's veto message of the BBA.
Provide that certain charitable risk pools would qualify as charitable
organizations under section 501(c)(3)
Extension of FUTA exemption for alien agricultural workers
Small Business Bills
POTUS PROPOSALS IN HOUSE AND SENATE:
Coverage:
Small business plan, but it's the SIMPLE rather than the NEST.
Employer contributions different from NEST: not as generous match
Safeharbor provisions (i.e. requirements must meet to avoid nondiscrimination
rules) are weaker than in NEST and apply to 401(k) plans as well. There is no
mandatory 1% non-match employer contribution.
Simplifies 401(k)s
401(k)s for non-profits
Repeal limits on benefits for public employess but not multiemployer (Section 415)
Repeals family aggregation limits
IRAs -- none of POTUS expansions; includes spousal IRAs
Portability:
Veterans technical corrections
Reduce multiemployer vesting from 10 to 5 years
Pension Security:
Puts public pensions in ust (Section 457 in trust) Orange County provision
IN HOUSE AND SENATE BUT NOT POTUS BILL:
3-year waiver of 15% tax on large (excess of $155,000) distributions (revenue raiser)
Repeal of the $5,000 death benefits exclusion. This benefit is included in many
collective bargaining agreements (Raises $293 million through 2002)
Spousal IRAs ($2,000) (Costs $1 billion through 2002 )
Repeals tax benefits for certain ESOPs (Raises $1 billion through 2002; also in vetoed
reconciliation bill)
Model QDROs for divorce (we had planned to do it without legislation)
IN MANAGERS AMENDMENT (reportedly; Stein is still trying to add some items):
Portability:
Elimination of 1-year wait for 401(k)s
PBGC missing persons clearinghouse
Increase in the multiemployer guarantee
Makes model QDROs "sample" only (Treasury supports)
Mosley-Braun civil service and RR provisions
POTUS PROPOSALS NOT IN HOUSE OR SENATE BILLS OR IN MANAGERS
AMDT:
Strong safeharbors from nondiscrimination rules (i.e. requirements must meet to avoid
nondiscrimination rules) They do not have a 1% mandatory non-match employer
contribution for both the small business plans and 401(k) plans.
NEST small business plan rather than the SIMPLE:
Their employer contributions less generous than NEST
Their safeharbor provisions less protective than NEST
Repeal of limits on benefits for multiemployer plans (Section 415; they just do public
sector plans)
Eliminating the 1-year wait for TSP
Our regulatory proposals to encourage acceptance of rollovers
IRA expansion
Audit bill
No reporting on reversions
96
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a
002/003
07/08/96
11:43
-
"EU 19.16 562
Smell Business Bill
To: Judy Schub
326-4016
Still circulating 7/8/9
FR:
Kevin
July 3, 1996 (2:00 p.m.)
1
FYI
POSSIBLE MANAGER'S AMENDMENT
Small Business Provisions
1.
Agricultural dues - apply provision in the bill back to 1/1/87.
2.
Fishermen de minimis cash payments - apply provision in the bill back to 1/1/84.
3.
Worker classification (additional items):
a.
Future change in status does not preclude section 530 safeharbor for
previous years.
b.
The relationship between the parties (not merely the worker's duties) must
be considered re section 530 (clarification of "substantially similar
position").
Pension Simplification Provisions
1.
Drop provision in the bill eliminating waiting period after pension election.
I
2.
Apply PBGC missing participant program to defined contribution plans on a
voluntary basis.
3.
Alternative nondiscrimination rules for early participation (effective 1/1/99).
4.
Add a new joint and survivor benefit election (prospective - add when plans are
amended in the future; no additional cost to employers).
I
5.
Inflation increase to PBGC benefit guarantee for multi-employer plans (suspend
benefit increase if surplus declines more than 50%).
6.
Federal employees: [open for response from Govt Affairs Comm.]
a.
Employee contributions to federal retirement plans may be subject to
divorce court order.
b.
Survivor protection for spouses of former federal employees.
? - 7.
Labor Committee's ERISA provision re Harris Trust decision (clarify that no relief
from criminal fraud).
8.
Church pension plan simplification:
a.
Allow combined pension plan coverage for self-employed clergy (so-
called "mobile ministers").
b.
Allow pre-ERISA pension plans to use the new definition of highly
compensated employee in the bill; authorize Treasury (but do not require)
to design a nondiscrimination safeharbor for church plans.
C.
Allow missions. payroll deduction of pension contributions for clergy on foreign
1 of 2
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-
"EU
14.10
Expired Provisions
1.
Educational assistance - extend through 12/31/97 (adds 1 year).
2.
R&E credit - extend through 12/31/97 (adds 6 months).
3.
Orphan drug credit .. extend through 12/31/97 (adds 6 months).
4.
Stock contributions to private foundations - extend through 12/31/97 (adds 6
months).
5.
Section 29.
a.
Extend placed in service date to 12/31/98 (adds 1 year).
b.
Suspend unrelated party rule for fuel used to generate electricity (date of
enactment through 12/31/98). [NOTE: This may be a rifleshot.]
6.
Diesel tax for motorboats - suspend thru 12/31/97 (adds 6 months).
7.
Publicly traded partnerships - extend through 12/31/99 (adds 2 years).
Other Provisions
1.
Allow certain teaching hospitals to provide tax-free ecademic housing to faculty
and medical and nursing students.
Revenue Offsets
1.
Repeal of 50% exclusion for interest on ESOP loans - move effective date for
binding contracts to date of enactment.
2.
Repeal of Ford Credit interest allocation rule -- delay effective date for one year.
3.
Expatriates - add estate tax change with treaty override.
4.
Airport taxes -- extend through ??? (adds ?? months).
5.
New item: Allow conversion of scholarship funding corporations (23) to taxable
corporations.
for
6.
New item: Apply math/clerical error procedure for filing status, dependency
Potvet
exemptions, and dependent care credit when correct taxpayer identification
numbers are not provided.
Technicals to Senate Bill
1.
Correct drafting error re sale by a tax-exempt entity of stock in a C corporation
that was formerly a S corporation.
2
Correct drafting error re new alternative R&E credit.
3.
Delay effective date for two excise tax provisions in the bill (luxury tax and
motorboat diesel tax) to 7 days after date of enactment (instead of 7/1/96).
2 of 2
13:56 FROM: OMB LA
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1/8
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
LEGISLATIVE AFFAIRS
PHONE: 395-4790 / FAX: 395-3729
TO:
Gene Speeling / Jason Goldberg
FROM:
CHUCK KIEFFER
CHUCK KONIGSBERG
LISA KOUNTOUPES
ALICE SHUFFIELD
KATE DONOVAN
NANCY BRANDEL
comments: The Draft SAP on Small Business bill Follows.
The bill goes to the Serate Floor today For debate,
and tomorrow for the vote. We Plan to send the
President's 6/28 letter on minimum wage WITH the SAP.
Ellen Seidnar signed. off, but just wated to
make Sure you're aware.
flice
FAX #: 6-2878
PAGES:
PHONE NUMBER:
(includes cover page)
JUL-08-96 13:56 FROM OMB LA
ID:
PAGE
2/8
DRAFT - NOT FOR RELEASE
July 8, 1996
(Senate)
H.R. 3448 - Small Business Job Protection Act
(Archer (R) Texas)
The Administration, while supporting Senate passage of a number of provisions of H.R. 3448 as
amended by the Finance Committee, will seek further amendments to the bill. And, as stated in
the President's June 28th letter to the Senate, a copy of which is attached, if H.R. 3448 is
presented to the President with the minimum wage provisions of the Republican leadership
amendment, the President will veto the bill.
The Administration strongly opposes section 1601 of the bill, which would repeal the tax credit
related to corporate investments in Puerto Rico while allowing several grandfather rules for
existing companies. The Administration urges the Senate to delete this provision and adopt
instead the proposal to reform the credit contained in the President's FY 1997 Budget. The
Administration's proposal provides tax benefits for new and expanded operations based directly
on real economic activity in these underdeveloped areas. The projected revenue savings from
the reform of this credit would be used for social and employment training programs in Puerto
Rico. Unlike section 1601, the final legislative language concerning the credit should contain
effective mechanisms to promote job creation in the islands.
The Administration will also work with Congress to adopt other amendments as described
below.
Provisions Supported by the Administration and Additional Recommended Amendments
The Administration supports many of the revenue provisions of H.R. 3448, which are consistent
with Administration proposals to strengthen small businesses, simplify pension laws, reinstate
incentives for research and development, and improve incentives for education and work
opportunities.
In particular:
Small Business Expensing. The Administration strongly supports the bill's increase from
$17,500 to $25,000 for the amount of tangible personal property that small businesses
can expense. The President supported such an increase in 1993 and in his FY 1997
Budget, although with a faster phase-in.
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3/8
2
Employer-Provided Educational Assistance. The Administration supports the temporary
extension of the income exclusion for employer-provided educational assistance,
including the exclusion for post-graduate level education. The Administration will work
with Congress to provide a permanent extension of the exclusion. The Administration
also supports a 10 percent tax credit for educational assistance provided under section
127 plans for small businesses with annual gross receipts of $10 million or less.
Research Tax Credit The Administration strongly supports full reinstatement of the
research tax credit back to its June 30, 1995, expiration date. The Administration will
work with Congress to make the credit permanent. The Administration continues to
believe that full, permanent reinstatement should take priority over modifications to the
credit such as those contained in H.R. 3448.
Orphan Drug Credit. The Administration strongly supports full reinstatement of the
orphan drug credit and will work with Congress to make the credit permanent.
Gifts of Appreciated Stock to Private Foundations. The Administration strongly
supports this provision and will work with Congress to make it permanent.
Work Opportunity Tax Credit. The provision for a new Work Opportunity Tax Credit
addresses many of the criticisms of the prior Targeted Jobs Tax Credit, particularly
increasing the period of retention for eligible workers. The Administration will work
with Congress to improve the scope and effectiveness of the new credit.
Pension Simplification Many provisions of H.R. 3448 were included in the President's
pension simplification proposal announced in June 1995 at the White House Conference
on Small Business. The Administration is concerned, however, that the safe harbor
provisions applicable to both SIMPLE and 401(k) plans do not ensure that middle and
lower-wage workers will benefit from the provision of tax-advantaged retirement
savings plans. The Administration will work with Congress to modify these safe harbors
so that employers taking advantage of them are required to provide meaningful coverage
to these workers. The Administration is also concerned that the three-year waiver of the
excise tax on very large retirement distributions would add complexity and could
actually encourage plan sponsors to terminate plans.
Subchapter S. The Administration also strongly supports most of the reforms in the bill
relating to Subchapter S (closely held) corporations, and will work with Congress to
provide further reforms and to ensure that reforms are appropriately targeted to the
intended beneficiaries.
Technical Corrections. The Administration supports the long-overdue enactment of
technical corrections to recent tax legislation and will work with Congress to achieve 3
consensus package of technical corrections.
JUL-08-96 13:57 FROM: OMB LA
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3
Objectionable Provisions
Classification of Workers for Employment Tax Purposes. The Administration has
concerns about certain changes proposed to section 530 of the Revenue Act of 1978,
which provides "safe harbors" under which an employer has a reasonable basis for
treating a worker as an independent contractor rather than as an employee for
employment tax purposes. The most important concerns are with proposed changes that
would: (1) shift the burden of proof to the Internal Revenue Service with respect to the
application of section 530; and (2) replace the safe harbor for reasonable reliance on a
long-standing practice of a significant segment of the industry with a rigid numerical
test.
Special-Interest Provisions. The Administration opposes the inclusion in H.R. 3448 of
numerous special-interest provisions.
Revenue Offsets
The Administration has serious concerns with the offset provision in H.R. 3448 that would
repeal tax benefits for certain employee stock ownership plans that provide meaningful
employee ownership. Several of the offsets - relating to interest allocations for nonfinancial
corporations, tax treatment of expatriates, basis adjustment rules under section 1033,
withholding on certain gambling winnings, and reinstatement of airport and airway trust fund
excise taxes - are included in the President's balanced budget proposal. These offsets should
be reserved for deficit reduction and meeting balanced budget goals. In working with the
Congress to develop an improved bill that is consistent with the Administration's recommended
amendments, appropriate offsets will be sought.
Proposals Not Addressed in H.R. 3448
In the context of an overall balanced budget plan, the Administration will work with Congress
to provide other incentives previously proposed by the Administration but omitted from this bill.
Such incentives include the $10,000 deduction for postsecondary tuition and training expenses,
the $1,500 tax credit for postsecondary tuition, and incentives to revitalize economically
distressed areas by cleaning up abandoned, contaminated properties, and creating new
Empowerment Zones and Enterprise Communities.
The Administration would also support an amendment to the Foreign Sales Corporation statute
as it applies to licenses of software, and will work with Congress to develop an acceptable
package, including appropriate revenue offsets.
Pay-As-You-Go_Scoring
H.R. 3448 would affect receipts; therefore, it is subject to the "pay-as-you-go" requirements of
the Omnibus Budget Reconciliation Act of 1990. OMB's scoring of this legislation is under
development.
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4
*******
(Do Not Distribute Outside Executive Office of the President)
This Statement of Administration Policy (SAP) was developed by the Legislative Reference
Division (Jones) in consultation with the Departments of the Treasury (Thornton, Judson),
Education (Kristy), Transportation (Herlihy), the Interior (Markell), and Labor (Green), Small
Business Administration (Nixon), Social Security Administration (Camilleri), the Interagency
Working Group on Puerto Rico (Farrow), White House Counsel (Kagan), National Economic
Council (Seidman), Council of Economic Advisors (Mazur), EP (Lyon), HRD (Matlack, Kitti,
Menchik, Noe), HTFD (Rhinesmith, Meyers, Turco), NRD (Kodl), BRCD (Fairhall), and
BASD (Barth).
HUD, Pension Benefit Guaranty Corporation, SEC, WH Legislative Affairs, and OMB/GC did
not respond to our request for comments.
OMB/LA Clearance:
The House passed Title I (tax provisions) of H.R. 3448 on May 22nd by a vote of 414-10. The
House passed H.R. 1227 (minimum wage, etc.) on May 23rd by a vote of 281-44. H.R. 1227
was subsequently attached to H.R. 3448 as Title II.
The Senate Finance Committee reported H.R. 3448 on June 18, 1996 with amendments. The
most significant provisions of the reported bill are described below. Pursuant to a unanimous
consent agreement, the Senate will consider H.R. 3448 on July 8th and vote on it on July 9th.
Administration Position to Date
The Administration has taken no position the Senate version of H.R. 3448. On June 28th, the
President, in a letter to the Senate leadership (attached to this SAP) stated that he would veto
any legislation containing the Republican leadership's minimum wage amendment.
A SAP sent to the House on May 22nd "support[ed] House passage of several provisions of
H.R. 3448," indicated an intention to seek further amendments, and expressed strong
opposition to two provisions, one of which was deleted.
On March 21st, Secretary Reich wrote to the House Committee on Economic and Educational
Opportunity that the Department had "serious concerns" with H.R. 1227. The concerns related
to the provision that relieves the employer from the requirement to pay employees minimum
wage or overtime compensation for the time an employee spends commuting to and from work
in an employer's vehicle. The Secretary stated the Department had recently clarified that issue
and that the proposed legislation was unnecessary.
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5
Description of Major Provisions of H.R. 3448
Title I Small Business and Other Tax Provisions
Title I of the Senatc-reported version of H.R. 3448 is similar to the House-passed bill. The
major tax provisions of the Senate bill are described below.
--
Tax Relief Provisions Similar to the House-passed H.R. 3448
Increases from $17,500 to $25,000 the portion of the cost of tangible depreciable
property a small business can write off annually as an expense. The increase is phased in
over seven years. The increase would phase in on a different schedule than the House
bill, beginning in 1997 rather than in 1996.
Temporarily extends the exclusion from taxable income for employer-provided
educational assistance programs to taxable years beginning after December 31, 1994,
and before January 1, 1998. Like current law, but unlike the House-passed bill, this
extension would apply to graduate-level courses.
Makes numerous changes to tax law affecting pensions, including creating a new
pension plan for small businesses that has fewer requirements than existing arrangements
and allowing State and local governments and tax exempt organizations to establish
401 plans.
Replaces the Targeted Jobs Tax Credit with a new Work Opportunity Tax Credit
available to employers hiring individuals who are high-risk youth, qualified ex-felons,
summer youth employees, AFDC (or successor program) recipients, qualified veterans,
referrals from a vocational rehabilitation program, and certain qualified food stamp
recipients between the ages of 18-24. All but the last group were eligible for credit
under the House-passed bill. The Senate bill also requires a slightly shorter minimum
employment period (at least 180 days or 375 hours) than the House bill's requirement
(180 days or 500 hours).
Makes a number of changes to the tax code concerning Subchapter S (closely-held)
corporations - e.g., increasing the number of stockholders such corporations can have
and allowing Subchapter S entities to have subsidiaries.
Tax Relief Provisions Not Contained in the House Version
Several tax relief provisions that expired in 1995 are extended for varying periods of
time and, in some cases, are modified. These provisions include: the research and
experimentation (R&E) tax credit; the orphan drug credit; the favored tax treatment for
gifts of appreciated stock made to private foundations; and the non-conventional fuels
tax credit. The extension of the R&E tax credit begins on July i, 1996, and is not
retroactive to its June 30, 1995 expiration date.
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6
Provides for deductible contributions to an individual retirement account by a
non-working spouse.
Revenue Offsets Similar to House Version
Phases-out the tax credit (Sec. 936) to U.S. businesses with operations in U.S.
possessions and terminates the tax credit for investment in the possessions and in certain
Caribbean Basin countries. Differs from House-passed version in several respects;
including the rate of the phaseout and the grandfathering of firms that receive the tax
credit based on the number of jobs created.
Repeals the tax exclusion of 50 percent of the interest income received on a loan to a
qualified employee stock ownership plan to acquire the stock of the employer or for
refinancing such a loan. Similar to House version except for effective date.
Makes punitive damages received for non-physical injury or illness, such as damages
awarded for discrimination, taxable. Under current law all damages are excluded from
income. The House-passed version would also tax other non-economic damages.
Revenue Offsets Not Included in House Version
Extends the Airport and Airway Trust Fund excise taxes for the period beginning seven
days after the enactment of H.R. 3448 and ending after Dec. 31, 1996. These taxes
include taxes on: domestic passenger tickets; domestic freight waybills; international
departures; jet fuel used in non-commercial aviation; and gasoline used in
non-commercial aviation. An exemption is provided for certain emergency medical
helicopters and for fixed-wing aircraft exclusively dedicated to acute care emergency
transportation.
Revises the rules aimed at stemming tax avoidance though expatriation by treating, for
tax purposes, all assets as having been sold at the time U.S. citizenship is given up and
taxing the imputed gains on those assets.
Phases-out and extends, through Dec. 31, 2002, the current 10 percent luxury tax on
automobiles costing more than $34,000.
Allows certain people engaged in the local furnishing of electricity and gas to elect not
to be eligible for future tax-exempt financing without incurring the present-law loss of
interest deductions and loss of tax exemption.
Major Objectionable Provisions of House Version Not Included in Senate Bill
The Senate-reported version of H.R. 3448 does not include the repeal of the taxation of
U.S. shareholder earnings attributed to "excessive passive assets" (i.e., greater than 30
percent of all assets) held by a foreign corporation.
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7
Title II, Payment of Wages
The major provisions of Title II, which are identical in the House-passed and Senate-reported
versions of H.R. 3448:
Increase the minimum wage by $.50 an hour to $4.75 beginning on July 1, 1996, and by
an additional $.40 an hour to $5.15 beginning on July 1, 1997. In February 1995, the
President transmitted to Congress a bill that proposed to increase the minimum wage by
$.45 an hour beginning on July 4, 1995, and by an additional $.45 and hour beginning on
July 4, 1996.
Establish a permanent fixed sub-minimum wage at the flat rate of $4.25 an hour - for
youth under 20 years of age in their first 90 days of employment with any employer with
no training requirements.
Exempt from minimum wage and overtime requirements certain computer professionals
who are compensated at a rate of not less than $27.63 per hour.
Eliminate the requirement that employers of tipped employees (e.g., waiters and
waitresses) pay at least 50% of the statutory minimum wage in cash and replace it with a
provision which locks the cash wage at the current standard of $2.13 even after the
statutory minimum wage goes up. By replacing the current index formula with this fixed
rate, this amendment would deny these employees any benefit from future increases in
the minimum wage.
Clarify that employers are not required to pay employees minimum wage or overtime
compensation for the time an employee spends commuting to and from work in an
employer's vehicle if: (1) the travel is within the normal commuting area for the
employer's business; and (2) the use of the vehicle is subject of an agreement between
the employer and the employee or representative of such employee.
Pay-As-You-Go Scoring
According to BASD (Barth), H.R. 3448 would affect receipts, and, therefore, is subject to the
pay-as-you-go requirement of the Omnibus Budget Reconciliation Act of 1990. Treasury has
not yet scored the revenue provisions of the bill. The Joint Committee on Taxation scored the
Senate bill as having a net effect of increasing revenue by $47 million over FY 1996-FY 2000
and by $58 million over FY 1996-FY 2005. For the years covered by the statutory pay-as-you-
go requirements, CBO/JCT scored the bills as increasing receipts by $258 million in FY 1996,
increasing receipts by $405 million in FY 1997, and reducing receipts by $375 million in FY
1998.
LEGISLATIVE REFERENCE DIVISION
July 8, 1996 - 12:00 PM
07/03/96
15:37
202 456 7132
WHITE HOUSE/NEC
001
For Gener 7 PP
DRAFT - NOT FOR RELEASE
July 3, 1996
(Senate)
H.R. 3448 - Small Business Job Protection Act
(Archer (R) Texas)
The Administration, while supporting Senate passage of a number of provisions of H.R. 3448 as
amended by the Finance Committee, will seck further amendments to the bill. And, as stated in
the President's June 28th letter to the Senate, a copy of which is attached, if H.R. 3448 is
presented to the President with the minimum wage provisions of the Republican leadership
amendment, the President will veto the bill.
The Administration strongly opposes section 1601 of the bill, which would repeal the tax credit
related to corporate investments in Puerto Rico while allowing several grandfather rules for
existing companies. The Administration urges the Senate to delete this provision and adopt
instead the proposal to reform the credit contained in the President's FY 1997 Budget. The
Administration's proposal provides tax benefits for new and expanded operations based directly
on real economic activity in these underdeveloped areas. The projected revenue savings from
the reform of this credit would be used for social and employment training programs in Puerto
Rico. Unlike section 1601, the final legislative language concerning the credit should contain
effective mechanisms to promote job creation in the islands.
The Administration will also work with Congress to adopt other amendments as described
below.
Provisions Supported by the Administration and Additional Recommended Amendments
The Administration supports many of the revenue provisions of H.R. 3448, which are consistent
with Administration proposals to strengthen small businesses, simplify pension laws, reinstate
incentives for research and development, and improve incentives for education and work
opportunities.
In particular:
Small Business Expensing. The Administration strongly supports the bill's increase from
$17,500 to $25,000 for the amount of tangible personal property that small businesses
can expense. The President supported such an increase in 1993 and in his FY 1997
Budget, although with a faster phase-in.
07/03/96
15:38
202 456 7132
WHITE HOUSE/NEC
002
2
Employer-Provided Educational Assistance. The Administration supports the temporary
extension of the income exclusion for employer-provided educational assistance,
including the exclusion for post-graduate level education. The Administration will work
with Congress to provide a permanent extension of the exclusion. The Administration
also supports a 10 percent tax credit for educational assistance provided under section
127 plans for small businesses with annual gross receipts of $10 million or less.
Research Tax Credit. The Administration strongly supports full reinstatement of the
research tax credit back to its June 30, 1995, expiration date. The Administration will
work with Congress to make the credit permanent. The Administration continues to
believe that full, permanent reinstatement should take priority over modifications to the
credit such as those contained in H.R. 3448.
Orphan Drug Credit. The Administration strongly supports full reinstatement of the
orphan drug credit and will work with Congress to make the credit permanent.
Gifts of Appreciated Stock to Private Foundations. The Administration strongly
supports this provision and will work with Congress to make it permanent.
Work Opportunity Tax Credit. The provision for a new Work Opportunity Tax Credit
addresses many of the criticisms of the prior Targeted Jobs Tax Credit, particularly
increasing the period of retention for eligible workers. The Administration will work
with Congress to improve the scope and effectiveness of the new credit.
proposed byte Pows
Pension Simplification Many provisions of H.R. 3448 were Included in the President's
pension simplification proposal announced in June 1995 at the White House Conference
on Small Business. The Administration is concerned, however, that the safe harbor
what about
provisions applicable to both SIMPLE and 401(k) plans do not ensure that middle and
older 2050mg Admin it?
lower-wage workers will benefit from the provision of tax-advantaged retirement
savings plans. The Administration will work with Congress to modify these safe harbors
so that employers taking advantage of them are required to provide meaningful coverage
to these workers. The Administration is also concerned that the three-year waiver of the
excise tax on very large retirement distributions would add complexity and could
actually encourage plan sponsors to terminate plans.
Subchapter S. The Administration also strongly supports most of the reforms in the bill
relating to Subchapter S (closely held) corporations, and will work with Congress to
provide further reforms and to ensure that reforms are appropriately targeted to the
intended beneficiaries.
Technical Corrections. The Administration supports the long-overdue enactment of
technical corrections to recent tax legislation and will work with Congress to achieve a
consensus package of technical corrections.
07/03/96
15:38
202 456 7132
WHITE HOUSE/NEC
003
3
Other Objectionable Provisions
Classification of Workers for Employment Tax Purposes. The Administration has
concerns about certain changes proposed to section 530 of the Revenue Act of 1978,
which provides "safe harbors" under which an employer has a reasonable basis for
treating a worker as an independent contractor rather than as an employee for
employment tax purposes. The most important concerns are with proposed changes that
would: (1) shift the burden of proof to the Internal Revenue Service with respect to the
application of section 530; and (2) replace the safe harbor for reasonable reliance on a
long-standing practice of a significant segment of the industry with a rigid numerical
test.
Special-Interest Provisions. The Administration opposes the inclusion in H.R. 3448 of
numerous special-interest provisions.
Revenue Offsets
The Administration has serious concerns with the offset provision in H.R. 3448 that would
repeal tax benefits for certain employee stock ownership plans that provide meaningful
employee ownership. Several of the offsets -- relating to interest allocations for nonfinancial
corporations, tax treatment of expatriates, basis adjustment rules under section 1033,
withholding on certain gambling winnings, and reinstatement of airport and airway trust fund
excise taxes are included in the President's balanced budget proposal. These offsets should
be reserved for deficit reduction and meeting balanced budget goals. In working with the
Congress to develop an improved bill that is consistent with the Administration's recommended
amendments, appropriate offsets will be sought.
Proposals Not Addressed in H.R. 3448
The Administration will work with Congress to provide other incentives previously proposed by
the Administration but omitted from this bill, such as the $10,000 deduction for postsecondary
tuition and training expenses, the $1,500 tax credit for postsecondary tuition, and incentives to
revitalize economically distressed areas, including incentives to clean up abandoned,
contaminated properties, and to create new Empowerment Zones and Enterprise Communities.
The Administration would also support an amendment to the Foreign Sales Corporation statute
as it applies to licenses of software, and will work with Congress to develop an acceptable
package, including appropriate revenue offsets.
Pay-As-You-Go Scoring
H.R. 3448 would affect receipts; therefore, it is subject to the "pay-as-you-go" requirements of
the Omnibus Budget Reconciliation Act of 1990. OMB's scoring of this legislation is under
development.
*******
07/03/96
15:38
202 456 7132
WHITE HOUSE/NEC
004
4
(Do Not Distribute Outside Executive Office of the President)
This Statement of Administration Policy (SAP) was developed by the Legislative Reference
Division (Jones) in consultation with the Departments of the Treasury (Thornton, Judson),
Education (Kristy), Transportation (Herlihy), the Interior (Markell), and Labor (Green), Small
Business Administration (Nixon), Social Security Administration (Camilleri), the Interagency
Working Group on Puerto Rico (Farrow), White House Counsel (Kagan), National Economic
Council (Seidman), Council of Economic Advisors (Mazur), EP (Lyon), HRD (Matlack, Kitti,
Menchik, Noe), HTFD (Rhinesmith, Meyers, Turco), NRD (Kodl), BRCD (Fairhall), and
BASD (Barth).
HUD, Pension Benefit Guaranty Corporation, SEC, WH Legislative Affairs, and OMB/GC did
not respond to our request for comments.
OMB/LA Clearance:
The House passed Title I (tax provisions) of H.R. 3448 on May 22nd by a vote of 414-10. The
House passed H.R. 1227 (minimum wage, etc.) on May 23rd by a vote of 281-44. H.R. 1227
was subsequently attached to H.R. 3448 as Title II.
The Senate Finance Committee reported H.R. 3448 on June 18, 1996 with amendments. The
most significant provisions of the reported bill are described below. Pursuant to a unanimous
consent agreement, the Senate will consider H.R. 3448 on July 8th and vote on it on July 9th.
Administration Position to Date
The Administration has taken no position the Senate version of H.R. 3448. On June 28th, the
President, in a letter to the Senate leadership (attached to this SAP) stated that he would veto
any legislation containing the Republican leadership's minimum wage amendment.
A SAP sent to the House on May 22nd "support[ed] House passage of several provisions of
H.R. 3448," indicated an intention to seek further amendments, and expressed strong
opposition to two provisions, one of which was deleted.
On March 21st, Secretary Reich wrote to the House Committee on Economic and Educational
Opportunity that the Department had "serious concerns" with H.R. 1227. The concerns related
to the provision that relieves the employer from the requirement to pay employees minimum
wage or overtime compensation for the time an employee spends commuting to and from work
in an employer's vehicle. The Secretary stated the Department had recently clarified that issue
and that the proposed legislation was unnecessary.
07/03/96
15:39
202 456 7132
WHITE HOUSE/NEC
005
5
Description of Major Provisions of H.R. 3448
Title I, Small Business and Other Tax Provisions
Title I of the Senate-reported version of H.R. 3448 is similar to the House-passed bill. The
major tax provisions of the Senate bill are described below.
Tax Relief Provisions Similar to the House-passed H.R. 3448
Increases from $17,500 to $25,000 the portion of the cost of tangible depreciable
property a small business can write off annually as an expense. The increase is phased in
over seven years. The increase would phase in on a different schedule than the House
bill, beginning in 1997 rather than in 1996.
Temporarily extends the exclusion from taxable income for employer-provided
educational assistance programs to taxable years beginning after December 31, 1994,
and before January 1, 1998. Like current law, but unlike the House-passed bill, this
extension would apply to graduate-level courses.
Makes numerous changes to tax law affecting pensions, including creating a new
pension plan for small businesses that has fewer requirements than existing arrangements
and allowing State and local governments and tax exempt organizations to establish
401(k) plans.
Replaces the Targeted Jobs Tax Credit with a new Work Opportunity Tax Credit
available to employers hiring individuals who are high-risk youth, qualified ex-felons,
summer youth employees, AFDC (or successor program) recipients, qualified veterans,
referrals from a vocational rehabilitation program, and certain qualified food stamp
recipients between the ages of 18-24. All but the last group were eligible for-credit
under the House-passed bill. The Senate bill also requires a slightly shorter minimum
employment period (at least 180 days or 375 hours) than the House bill's requirement
(180 days or 500 hours).
Makes a number of changes to the tax code concerning Subchapter S (closely-held)
corporations -- e.g., increasing the number of stockholders such corporations can have
and allowing Subchapter S entities to have subsidiaries.
Tax Relief Provisions Not Contained in the House Version
Several tax relief provisions that expired in 1995 are extended for varying periods of
time and, in some cases, are modified. These provisions include: the research and
experimentation (R&E) tax credit; the orphan drug credit; the favored tax treatment for
gifts of appreciated stock made to private foundations; and the non-conventional fuels
tax credit. The extension of the R&E tax credit begins on July 1, 1996, and is not
retroactive to its June 30, 1995 expiration date.
07/03/96
15:39
202 456 7132
WHITE HOUSE/NEC
006
6
Provides for deductible contributions to an individual retirement account by a
non-working spouse.
Revenue Offsets Similar to House Version
Phases-out the tax credit (Sec. 936) to U.S. businesses with operations in U.S.
possessions and terminates the tax credit for investment in the possessions and in certain
Caribbean Basin countries. Differs from House-passed version in several respects;
including the rate of the phaseout and the grandfathering of firms that receive the tax
credit based on the number of jobs created.
Repeals the tax exclusion of 50 percent of the interest income received on a loan to a
qualified employee stock ownership plan to acquire the stock of the employer or for
refinancing such a loan. Similar to House version except for effective date.
Makes punitive damages received for non-physical injury or illness, such as damages
awarded for discrimination, taxable. Under current law all damages are excluded from
income. The House-passed version would also tax other non-economic damages.
Revenue Offsets Not Included in House Version
Extends the Airport and Airway Trust Fund excise taxes for the period beginning seven
days after the cnactment of H.R. 3448 and ending after Dec. 31, 1996. These taxes
include taxes on: domestic passenger tickets; domestic freight waybills; international
departures; jet fuel used in non-commercial aviation; and gasoline used in
non-commercial aviation. An exemption is provided for certain emergency medical
helicopters and for fixed-wing aircraft exclusively dedicated to acute care emergency
transportation.
Revises the rules aimed at stemming tax avoidance though expatriation by treating, for
tax purposes, all assets as having been sold at the time U.S. citizenship is given up and
taxing the imputed gains on those assets.
Phases-out and extends, through Dec. 31, 2002, the current 10 percent luxury tax on
automobiles costing more than $34,000.
Allows certain people engaged in the local furnishing of electricity and gas to elect not
to be eligible for future tax-exempt financing without incurring the present-law loss of
interest deductions and loss of tax exemption.
Major Objectionable Provisions of House Version Not Included in Senate Bill
The Senate-reported version of H.R. 3448 does not include the repeal of the taxation of
U.S. shareholder earnings attributed to "excessive passive assets" (i.e., greater than 30
percent of all assets) held by a foreign corporation.
07/03/96
15:39
202 456 7132
WHITE HOUSE/NEC
007
7
Title II, Payment of Wages
The major provisions of Title II, which are identical in the House-passed and Senate-reported
versions of H.R. 3448;
Increase the minimum wage by $.50 an hour to $4.75 beginning on July 1, 1996, and by
an additional $.40 an hour to $5.15 beginning on July 1, 1997. In February 1995, the
President transmitted to Congress a bill that proposed to increase the minimum wage by
$.45 an hour beginning on July 4, 1995, and by an additional $.45 and hour beginning on
July 4, 1996.
Establish a permanent fixed sub-minimum wage -- at the flat rate of $4.25 an hour -- for
youth under 20 years of age in their first 90 days of employment with any employer with
no training requirements.
Exempt from minimum wage and overtime requirements certain computer professionals
who are compensated at a rate of not less than $27.63 per hour.
Eliminate the requirement that employers of tipped employees (e.g., waiters and
waitresses) pay at least 50% of the statutory minimum wage in cash and replace il with a
provision which locks the cash wage at the current standard of $2.13 even after the
statutory minimum wage goes up. By replacing the current index formula with this fixed
rate, this amendment would deny these employees any benefit from future increases in
the minimum wage.
Clarify that employers are not required to pay employees minimum wage or overtime
compensation for the time an employee spends commuting to and from work in an
employer's vehicle if: (1) the travel is within the normal commuting area for the
employer's business; and (2) the use of the vehicle is subject of an agreement between
the employer and the employee or representative of such employee.
Pay-As-You-Go Scoring
According to BASD (Barth), H.R. 3448 would affect receipts, and, therefore, is subject to the
pay-as-you-go requirement of the Omnibus Budget Reconciliation Act of 1990. Treasury has
not yet scored the revenue provisions of the bill. The Joint Committee on Taxation scored the
Senate bill as having a net effect of increasing revenue by $47 million over FY 1996-FY 2000
and by $58 million over FY 1996-FY 2005. For the years covered by the statutory pay-as-you-
go requirements, CBO/JCT scored the bills as increasing receipts by $258 million in FY 1996,
increasing receipts by $405 million in FY 1997, and reducing receipts by $375 million in FY
1998.
LEGISLATIVE REFERENCE DIVISION
July 3, 1996 - 12:00 PM
JUL-03-96 14:39 FROM OMB LA
ID:
PAGE 1/7
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
LEGISLATIVE AFFAIRS
PHONE: 395-4790 / FAX: 395-3729
John Hilley, Martha Foley/John Angell, Laura Tyson/Gene Sperling
TO:
cc: Elisa Millsap, Dena Weinstein, Jason Goldberg
FROM:
CHUCK KIEFFER
CHUCK KONIGSBERG
LISA KOUNTOUPES
X ALICE SHUFFIELD
KATE DONOVAN
NANCY BRANDEL
comments:
The SAP for H.R. 3448, the Small Business Job Protection Act, follows. The
Senate begins consideration of the bill on Monday, July 8th. We aim to send
the SAP up tonight since many will be out on Friday. I will contact your office
around 5:00 to see if you have any comments.
THANKS!
FAX #:
PHONE NUMBER:
(includes cover page)
DRAFT -- NOT FOR RELEASE
July 3, 1996
(Senate)
H.R. 3448 - Small Business Job Protection Act
(Archer (R) Texas)
The Administration, while supporting Senate passage of a number of provisions of H.R. 3448 as
amended by the Finance Committee, will seek further amendments to the bill. And, as stated in
the President's June 28th letter to the Senate, a copy of which is attached, if H.R. 3448 is
presented to the President with the minimum wage provisions of the Republican leadership
amendment, the President will veto the bill.
The Administration strongly opposes section 1601 of the bill, which would repeal the tax credit
related to corporate investments in Puerto Rico while allowing several grandfather rules for
existing companies. The Administration urges the Senate to delete this provision and adopt
instead the proposal to reform the credit contained in the President's FY 1997 Budget. The
Administration's proposal provides tax benefits for new and expanded operations based directly
on real economic activity in these underdeveloped areas. The projected revenue savings from
the reform of this credit would be used for social and employment training programs in Puerto
Rico. Unlike section 1601, the final legislative language concerning the credit should contain
effective mechanisms to promote job creation in the islands.
The Administration will also work with Congress to adopt other amendments as described
below.
Provisions Supported by the Administration and Additional Recommended Amendments
The Administration supports many of the revenue provisions of H.R. 3448, which are consistent
with Administration proposals to strengthen small businesses, simplify pension laws, reinstate
incentives for research and development, and improve incentives for education and work
opportunities.
In particular:
Small Business Expensing The Administration strongly supports the bill's increase from
$17,500 to $25,000 for the amount of tangible personal property that small businesses
can expense. The President supported such an increase in 1993 and in his FY 1997
Budget, although with a faster phase-in.
JUL-03-96 14:39 FROM OMB LA
ID:
PAGE
2/7
2
Employer-Provided Educational Assistance The Administration supports the temporary
extension of the income exclusion for employer-provided educational assistance,
including the exclusion for post-graduate level education. The Administration will work
with Congress to provide a permanent extension of the exclusion. The Administration
also supports a 10 percent tax credit for educational assistance provided under section
127 plans for small businesses with annual gross receipts of $10 million or less.
Research Tax Credit. The Administration strongly supports full reinstatement of the
research tax credit back to its June 30, 1995, expiration date. The Administration will
work with Congress to make the credit permanent. The Administration continues to
believe that full, permanent reinstatement should take priority over modifications to the
credit such as those contained in H.R. 3448.
Orphan Drug Credit. The Administration strongly supports full reinstatement of the
orphan drug credit and will work with Congress to make the credit permanent.
Gifts of Appreciated Stock to Private Foundations. The Administration strongly
supports this provision and will work with Congress to make it permanent.
Work Opportunity Tax Credit. The provision for a new Work Opportunity Tax Credit
addresses many of the criticisms of the prior Targeted Jobs Tax Credit, particularly
increasing the period of retention for eligible workers. The Administration will work
with Congress to improve the scope and effectiveness of the new credit.
Pension Simplification Many provisions of H.R. 3448 were included in the President's
pension simplification proposal announced in June 1995 at the White House Conference
on Small Business. The Administration is concerned, however, that the safe harbor
provisions applicable to both SIMPLE and 401(k) plans do not ensure that middle and
lower-wage workers will benefit from the provision of tax-advantaged retirement
savings plans. The Administration will work with Congress to modify these safe harbors
so that employers taking advantage of them are required to provide meaningful coverage
to these workers. The Administration is also concerned that the three-year waiver of the
excise tax on very large retirement distributions would add complexity and could
actually encourage plan sponsors to terminate plans.
Subchapter S. The Administration also strongly supports most of the reforms in the bill
relating to Subchapter S (closely held) corporations, and will work with Congress to
provide further reforms and to ensure that reforms are appropriately targeted to the
intended beneficiaries.
Technical Corrections. The Administration supports the long-overdue enactment of
technical corrections to recent tax legislation and will work with Congress to achieve a
consensus package of technical corrections.
JUL-03-96 14:40 FROM OMB LA
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PAGE
3/7
3
Other Objectionable Provisions
Classification of Workers for Employment Tax Purposes. The Administration has
concerns about certain changes proposed to section 530 of the Revenue Act of 1978,
which provides "safe harbors" under which an employer has a reasonable basis for
treating a worker as an independent contractor rather than as an employee for
employment tax purposes. The most important concerns are with proposed changes that
would: (1) shift the burden of proof to the Internal Revenue Service with respect to the
application of section 530; and (2) replace the safe harbor for reasonable reliance on a
long-standing practice of a significant segment of the industry with a rigid numerical
test.
Special-Interest Provisions. The Administration opposes the inclusion in H.R. 3448 of
numerous special-interest provisions.
Revenue Offsets
The Administration has serious concerns with the offset provision in H.R. 3448 that would
repeal tax benefits for certain employee stock ownership plans that provide meaningful
employee ownership. Several of the offsets relating to interest allocations for nonfinancial
corporations, tax treatment of expatriates, basis adjustment rules under section 1033,
withholding on certain gambling winnings, and reinstatement of airport and airway trust fund
excise taxes are included in the President's balanced budget proposal. These offsets should
be reserved for deficit reduction and meeting balanced budget goals. In working with the
Congress to develop an improved bill that is consistent with the Administration's recommended
amendments, appropriate offsets will be sought.
Proposals Not Addressed in H.R. 3448
The Administration will work with Congress to provide other incentives previously proposed by
the Administration but omitted from this bill, such as the $10,000 deduction for postsecondary
tuition and training expenses, the $1,500 tax credit for postsecondary tuition, and incentives to
revitalize economically distressed areas, including incentives to clean up abandoned,
contaminated properties, and to create new Empowerment Zones and Enterprise Communities.
The Administration would also support an amendment to the Foreign Sales Corporation statute
as it applies to licenses of software, and will work with Congress to develop an acceptable
package, including appropriate revenue offsets.
Pay-As-You-Go Scoring
H.R. 3448 would affect receipts; therefore, it is subject to the "pay-as-you-go" requirements of
the Omnibus Budget Reconciliation Act of 1990. OMB's scoring of this legislation is under
development.
*******
"JUL-03-96 14:40 FROM: OMB LA
ID:
PAGE 4/7
4
(Do Not Distribute Outside Executive Office of the President)
This Statement of Administration Policy (SAP) was developed by the Legislative Reference
Division (Jones) in consultation with the Departments of the Treasury (Thornton, Judson),
Education (Kristy), Transportation (Herlihy), the Interior (Markell), and Labor (Green), Small
Business Administration (Nixon), Social Security Administration (Camilleri), the Interagency
Working Group on Puerto Rico (Farrow), White House Counsel (Kagan), National Economic
Council (Seidman), Council of Economic Advisors (Mazur), EP (Lyon), HRD (Matlack, Kitti,
Menchik, Noe), HTFD (Rhinesmith, Meyers, Turco), NRD (Kodl), BRCD (Fairhall), and
BASD (Barth).
HUD, Pension Benefit Guaranty Corporation, SEC, WH Legislative Affairs, and OMB/GC did
not respond to our request for comments.
OMB/LA Clearance:
The House passed Title I (tax provisions) of H.R. 3448 on May 22nd by a vote of 414-10. The
House passed H.R. 1227 (minimum wage, etc.) on May 23rd by a vote of 281-44. H.R. 1227
was subsequently attached to H.R. 3448 as Title II.
The Senate Finance Committee reported H.R. 3448 on June 18, 1996 with amendments. The
most significant provisions of the reported bill are described below. Pursuant to a unanimous
consent agreement, the Senate will consider H.R. 3448 on July 8th and vote on it on July 9th.
Administration Position to Date
The Administration has taken no position the Senate version of H.R. 3448. On June 28th, the
President, in a letter to the Senate leadership (attached to this SAP) stated that he would veto
any legislation containing the Republican leadership's minimum wage amendment.
A SAP sent to the House on May 22nd "support[ed] House passage of several provisions of
H.R. 3448," indicated an intention to seek further amendments, and expressed strong
opposition to two provisions, one of which was deleted.
On March 21st, Secretary Reich wrote to the House Committee on Economic and Educational
Opportunity that the Department had "serious concerns" with H.R. 1227. The concerns related
to the provision that relieves the employer from the requirement to pay employees minimum
wage or overtime compensation for the time an employee spends commuting to and from work
in an employer's vehicle. The Secretary stated the Department had recently clarified that issue
and that the proposed legislation was unnecessary.
JUL-03-96 14:40 FROM OMB LA
ID:
PAGE
5/7
5
Description of Major Provisions of H.R. 3448
Title I, Small Business and Other Tax Provisions
Title I of the Senate-reported version of H.R. 3448 is similar to the House-passed bill. The
major tax provisions of the Senate bill are described below.
--
Tax Relief Provisions Similar to the House-passed H.R. 3448
Increases from $17,500 to $25,000 the portion of the cost of tangible depreciable
property a small business can write off annually as an expense. The increase is phased in
over seven years. The increase would phase in on a different schedule than the House
bill, beginning in 1997 rather than in 1996.
Temporarily extends the exclusion from taxable income for employer-provided
educational assistance programs to taxable years beginning after December 31, 1994,
and before January 1, 1998. Like current law, but unlike the House-passed bill, this
extension would apply to graduate-level courses:
Makes numerous changes to tax law affecting pensions, including creating a new
pension plan for small businesses that has fewer requirements than existing arrangements
and allowing State and local governments and tax exempt organizations to establish
401 plans.
Replaces the Targeted Jobs Tax Credit with a new Work Opportunity Tax Credit
available to employers hiring individuals who are high-risk youth, qualified ex-felons,
summer youth employees, AFDC (or successor program) recipients, qualified veterans,
referrals from a vocational rehabilitation program, and certain qualified food stamp
recipients between the ages of 18-24. All but the last group were eligible for credit
under the House-passed bill. The Senate bill also requires a slightly shorter minimum
employment period (at least 180 days or 375 hours) than the House bill's requirement
(180 days or 500 hours).
Makes a number of changes to the tax code concerning Subchapter S (closely-held)
corporations -- e.g., increasing the number of stockholders such corporations can have
and allowing Subchapter S entities to have subsidiaries.
Tax Relief Provisions Not Contained in the House Version
Several tax relief provisions that expired in 1995 are extended for varying periods of
time and, in some cases, are modified. These provisions include: the research and
experimentation (R&E) tax credit; the orphan drug credit; the favored tax treatment for
gifts of appreciated stock made to private foundations; and the non-conventional fuels
tax credit. The extension of the R&E tax credit begins on July 1, 1996, and is not
retroactive to its June 30, 1995 expiration date.
JUL-03-96 14:41 FROM OMB LA
ID:
PAGE 6/7
6
Provides for deductible contributions to an individual retirement account by a
non-working spouse.
Revenue Offsets Similar to House Version
Phases-out the tax credit (Sec. 936) to U.S. businesses with operations in U.S.
possessions and terminates the tax credit for investment in the possessions and in certain
Caribbean Basin countries. Differs from House-passed version in several respects;
including the rate of the phaseout and the grandfathering of firms that receive the tax
credit based on the number of jobs created.
Repeals the tax exclusion of 50 percent of the interest income received on a loan to a
qualified employee stock ownership plan to acquire the stock of the employer or for
refinancing such a loan. Similar to House version except for effective date.
Makes punitive damages received for non-physical injury or illness, such as damages
awarded for discrimination, taxable. Under current law all damages are excluded from
income. The House-passed version would also tax other non-economic damages.
Revenue Offsets Not Included in House Version
Extends the Airport and Airway Trust Fund excise taxes for the period beginning seven
days after the enactment of H.R. 3448 and ending after Dec. 31, 1996. These taxes
include taxes on: domestic passenger tickets; domestic freight waybills; international
departures; jet fuel used in non-commercial aviation; and gasoline used in
non-commercial aviation. An exemption is provided for certain emergency medical
helicopters and for fixed-wing aircraft exclusively dedicated to acute care emergency
transportation.
Revises the rules aimed at stemming tax avoidance though expatriation by treating, for
tax purposes, all assets as having been sold at the time U.S. citizenship is given up and
taxing the imputed gains on those assets.
Phases-out and extends, through Dec. 31, 2002, the current 10 percent luxury tax on
automobiles costing more than $34,000.
Allows certain people engaged in the local furnishing of electricity and gas to elect not
to be eligible for future tax-exempt financing without incurring the present-law loss of
interest deductions and loss of tax exemption.
Major Objectionable Provisions of House Version Not Included in Senate Bill
The Senate-reported version of H.R. 3448 does not include the repeal of the taxation of
U.S. shareholder earnings attributed to "excessive passive assets" (i.e., greater than 30
percent of all assets) held by a foreign corporation.
JUL-03-96 14:41 FROM: OMB LA
ID:
PAGE
7/7
7
Title II Payment of Wages
The major provisions of Title II, which are identical in the House-passed and Senate-reported
versions of H.R. 3448:
Increase the minimum wage by $.50 an hour to $4.75 beginning on July 1, 1996, and by
an additional $.40 an hour to $5.15 beginning on July 1, 1997. In February 1995, the
President transmitted to Congress a bill that proposed to increase the minimum wage by
$.45 an hour beginning on July 4, 1995, and by an additional $.45 and hour beginning on
July 4, 1996.
Establish a permanent fixed sub-minimum wage -- at the flat rate of $4.25 an hour -- for
youth under 20 years of age in their first 90 days of employment with any employer with
no training requirements.
Exempt from minimum wage and overtime requirements certain computer professionals
who are compensated at a rate of not less than $27.63 per hour.
Eliminate the requirement that employers of tipped employees (e.g., waiters and
waitresses) pay at least 50% of the statutory minimum wage in cash and replace it with a
provision which locks the cash wage at the current standard of $2.13 even after the
statutory minimum wage goes up. By replacing the current index formula with this fixed
rate, this amendment would deny these employees any benefit from future increases in
the minimum wage.
Clarify that employers are not required to pay employees minimum wage or overtime
compensation for the time an employee spends commuting to and from work in an
employer's vehicle if: (1) the travel is within the normal commuting area for the
employer's business; and (2) the use of the vehicle is subject of an agreement between
the employer and the employee or representative of such employee.
Pay-As-You-Go Scoring
According to BASD (Barth), H.R. 3448 would affect receipts, and, therefore, is subject to the
pay-as-you-go requirement of the Omnibus Budget Reconciliation Act of 1990. Treasury has
not yet scored the revenue provisions of the bill. The Joint Committee on Taxation scored the
Senate bill as having a net effect of increasing revenue by $47 million over FY 1996-FY 2000
and by $58 million over FY 1996-FY 2005. For the years covered by the statutory pay-as-you-
go requirements, CBO/JCT scored the bills as increasing receipts by $258 million in FY 1996,
increasing receipts by $405 million in FY 1997, and reducing receipts by $375 million in FY
1998.
LEGISLATIVE REFERENCE DIVISION
July 3, 1996 - - 12:00 PM
EXECUTIVE OFFICE OF THE PRESID
02-Jul-1996 10:21am
TO:
(See Below)
FROM:
Ronald E. Jones
Office of Mgmt and Budget, LRD
SUBJECT: LRM #:4919 TREASURY Proposed Statement of Administ
EXECUTIVE OFFICE OF THE PRESIDENT
LRM
OFFICE OF MANAGEMENT AND BUDGET
Washington, D.C. 20503
FILE
07/02/96
LEGISLATIVE REFERRAL MEMORANDUM
TO: Legislative Liaison Officer - See Distribution
FROM: James JUKES
(for)
Assistant Director for Legislative Reference
OMB CONTACT: Ronald JONES 395-3386
Legislative Assistant's line (for simple responses): 395-345
SUBJECT: TREASURY Proposed Statement of Administration
Policy RE: HR3448, Small Business Job Protection
Act
DEADLINE: 4:00PM Tuesday, July 02,1996
In accordance with OMB Circular A-19, OMB requests the views
your agency on the above subject before advising on its
relationship to the program of the President.
Please advise us if this item will affect direct spending or
receipts for purposes of the the Pay-As-You-Go provisions
of Title XIII of the Omnibus Budget Reconciliation Act of 19
COMMENTS: A hard copy of this LRM has also been sent to all
non-EOP reviewers by fax.
-AGRICULTURE Marvin Shapiro - 2027201516
25-COMMERCE - Michael A. Levitt - 2024823151
18-Council of Economic Advisers - Liaison Officer (vacant)
3955084
30-EDUCATION - Jack Kristy - 2024018313
54-HUD - Vacant - 2027081793
59-INTERIOR - Jane Lyder - 2022086706
62-LABOR - Robert A. Shapiro - 2022198201
76-National Economic Council - Sonyia Matthews - 2024562174
97-Pension Benefit Guaranty Corporation - Gail Sevin - 2023.
108-Securities and Exchange Commission - Kaye F. Williams -
2029420014
107-Small Business Administration - Mary Kristine Swedin -
2022056700
110-Social Security Administration - Judy Chesser - 2024827
117-TRANSPORTATION - Tom Herlihy - 2023664687
118-TREASURY - Richard S. Carro - 2026221146
DRAFT -- NOT FOR RELEASE
\d
(Senate)
H.R. 3448 - Small Business Job Protection Act
(Archer (R) Texas)
The Administration, while supporting Senate passage of a number
of provisions of H.R. 3448, as amended by the Finance Committee,
will seek further amendments to the bill. And, as stated in the
President's June 28th letter to the Senate, if H.R. 3448 is
presented to the President with the minimum wage provisions of
the Republican leadership amendment, the President will veto the
bill.
contar
U.S. Possessions (e.g.,
the
The Administration also strongly opposes section 1601, which
would repeal the tax credit related to economic investments in
F79-
Puerto Rico, with various grandfather rules for existing
b.dg
companies. The Administration urges the Senate to delete this
The
provision and replace it with its proposal to reform the credit
se that it provides benefits for new and expanded operations
semm
based on real economic activity in these underdeveloped areas,
and uses the projected revenue savings for social and employment
and training program needs in Puerto Rico. It is important that
legislation concerning the credit contains effective mechanisms
to promote job creation in the islands.
incorporates
The Administration will also work with Congress to adopt other
amendments as described below.
Provisions Supported by the Administration and Additional
Recommended Amendments
The Administration supports many of the revenue provisions of
H.R. 3448, which are consistent with Administration proposals to
strengthen small businesses, simplify pension laws, reinstate
incentives for research and development, and improve incentives
for education and work opportunities.
In particular:
-
Small Business Expensing. The Administration strongly
supports the bill?s increase from $17,500 to $25,000 in the
amount of tangible personal property that small businesses
can expense. The President proposed such an increase in
1993 and in his FY 1997 Budget, although with a faster
phase-in.
-
Employer-Provided Educational Assistance. The
Administration supports the temporary extension of the
exclusion for employer-provided educational assistance,
including the exclusion for post-graduate level education.
The Administration will work with Congress to provide a
permanent extension of the exclusion. The Administration
also believes there should be a 10 percent tax credit for
educational assistance provided under section 127 plans for
small businesses with gross receipts of $10 million or
less.
dn't
-
Research Tax Credit. The Administration strongly supports
she
full reinstatement of the research tax credit and will work
somin
with Congress to make the credit permanent. The
alsowppport
Administration continues to believe that full, permanent
the
reinstatement should take priority over modifications to
the credit such as those contained in H.R. 3448.
gp period -
Orphan Drug Credit. The Administration strongly supports
full reinstatement of the orphan drug credit and will work
with Congress to make the credit permanent.
-
Gifts of Appreciated Stock to Private Foundations. The
Administration strongly supports this provision and will
work with Congress to make it permanent.
for eligible worker
-
Work Opportunity Tax Credit. The provision in H.R. 3448
for a new Work Opportunity Tax Credit addresses many of the
criticisms of the $100 Targeted Jobs Tax Credit,
particularly increasing the period of retention, The
Administration will work with Congress to impróve the scope
and effectiveness of the new credit.
-
Pension Simplification. Many provisions of H.R. 3448 were
included in the President?s pension simplification proposal
announced in June 1995 at the White House Conference on
Small Business. More can be done, however, to encourage
retirement savings by middle and lower-wage workers, such
pension
as providing more meaningful employer contributions under
the simplified small business plan. The Administration
hopes to work with Congress in a bipartisan fashion to
simplify the law, expand coverage, increase security, and
promote portábility.
-
Subchapter S. The Administration also strongly supports
most of the Subchapter S reform package in the bill, and
will work with Congress to provide further reforms and to
ensure that reforms are appropriately targeted to the
intended beneficiaries.
-
Technical Corrections. The Administration supports the
long-overdue enactment of technical corrections to recent
tax legislation and would like to work with Congress to
achieve a consensus package of technical corrections.
Other Objectionable Provisions
-
Classification of Workers Under Section 530 of the Revenue
Act of 1978. The Administration has concerns about certain
of the changes proposed in H.R. 3448. The most important
concerns are with provisions that would: (1) shift the
burden of proof to the Internal Revenue Service with
respect to the application of section 530; and (2) provide
that the "significant segment" requirement is met through a
reasonable showing of the practice of more than 25 percent
of the industry. [Need more plain English here.]
-
Special-Interest Provisions. The Administration opposes
the inclusion in H.R. 3448 of numerous special-interest
provisions.
Revenue Offsets
The Administration has serious concerns with the offset
provision in H.R. 3448 that would repeal tax benefits for
certain employee stock ownership plans that provide meaningful
employee ownership. Several of the offsets -- relating to
interest allocations for nonfinancial corporations, tax
treatment of expatriates, basis adjustment rules under section
1033, withholding on certain gambling winnings, and
reinstatement of airport and airway trust fund excise taxes --
are included in the President's balanced budget proposal and
should be reserved for deficit reduction and meeting balanced
budget goals. In working with the Congress to develop an
improved bill that is consistent with the Administration?s
recommended amendments, appropriate offsets will be sought.
Administration Proposals Not Addressed in H.R. 3448
The Administration will work with Congress to provide other
incentives previously proposed by the Administration but omitted
from this bill, such as the $10,000 tuition and training
deduction, the $1,500 tuition tax credit, and incentives to
revitalize economically distressed areas, including incentives
to clean up abandoned, contaminated properties, and to create
new Empowerment Zones and Enterprise Communities.
[The Administration would also support an amendment to the
Foreign Sales Corporation statute as it applies to licenses of
software, and will work with Congress to develop an acceptable
package, including appropriate revenue offsets.]
Pay-As-You-Go Scoring
H.R. 3448 would affect receipts; therefore, it is subject to the
?pay-as-you-go? requirements of the Omnibus Budget
Reconciliation Act of 1990. OMB?s scoring of this legislation
is under development.
*******
Distribution:
TO: [email protected]@INET
TO: COMMERCE LRM@1=US@2=ATTMAIL@3=GOV+COMM.BAN@4=LEG65=OGCe
TO: Remote Addressee
TO: OGC LEGISLATION@1=US@2=ATTMAIL@3=DOEDEMRX@EOPMRX
TO: HUD-LRM@1=US@2=TELEMAIL@3=GOV+HUD@5=HQEMAIL@MRX@EOPMRX
TO: OCL@1=US@2=ATTMAIL@3=GOV+IOS@5=IOS@MRX@EOPMRX
TO: DOLSOL LLC@5=DOL@2=TELEMAIL@1=US@MRX@EOPMRX
TO: Sonyia Matthews
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TO: CLA@1=US@2=TELEMAILe3=GOV+SBA65=CLA@*ID\CLA6MRX@EOPMRX
TO: 1=US@2=ATTMAIL@3=GOV+SSA05=SSA@6=LRM@7=SSA@MRX@EOPMRX
TO: DOT LRM@1=US@2=ATTMAIL@3=GOV+DOT04=QMAIL@5=HQ@MRREEOPMR
TO: LLR TREASURY@1=US@2=TELEMAIL@3=GOV+TREAS@MRX@EOPMRX
CC: Joseph Minarik
CC: Ellen S. Seidman
CC: Rahm Emanuel
CC: Mark J. Mazur
CC: Robert G. Damus
CC: Tracey E. Thornton
CC: Alice E. Shuffield
CC: Lisa Kountoupes
CC: Charles E. Kieffer
CC: Charles S. Konigsberg
CC: Justine F. Rodriguez
CC: T J Glauthier
CC: Elena Kagan
CC: Kenneth S. Apfel
CC: Schmidt MT
CC: Paul R. Dimond
CC: Barry B. Anderson
CC: Justine F. Rodriguez
06/28/96 FRI 14:55 FAX 202 326 4016
PBGC/OED
1
002
FR: Marty Slate
Pension Raid Legislation
The House Bill would have allowed the removal of so-called "surplus"
pension assets for any reason.
-
This was projected to come to $30 billion over 5 years.
The Senate rejected pension reversion legislation.
The Conference Committee passed a bill raising the threshold for
removing money and allowing withdrawals to be used only for other
ERISA benefits.
-
The most significant such benefit was health expenses for current
employees. Other items included educational and dependent
care assistance and disability benefits.
-
Removals were projected to come to $15 to $18 billion over 5
years.
When asked whether removal for other ERISA purposes represented
good policy, we said:
"Money previously earmarked for retirement, rather than general
corporate funds, will be used to pay for other corporate obligations.
This is like robbing Peter to pay Paul. The proposal allows companies
to use pension money to free up corporate resources for any other
purpose, in effect making pensions a corporate piggy bank."
June 28, 1996
THE WHITE HOUSE
WASHINGTON
June 23, 1996
TO:
LAURA TYSON
DAN TARULLO
GENE SPERLING
FROM:
MARK MAZUR merk
SUBJECT: SENATOR DORGAN'S "RUNAWAY PLANTS" PROPOSAL
Dan Tarullo asked about Senator Dorgan's legislative proposal on "runaway plants".
This proposal would remove a tax advantage from firms that use foreign manufacturing plants
to supply goods to the U.S. market. It is based on the notion that the Tax Code should be
used actively to encourage the location of manufacturing facilities in the United States. (Since
this proposal is in the Democratic Leadership's "Families First" Agenda, it seemed appropriate
to address this memo to all of you.)
Background - Current Law. In general, under current law, income earned by foreign
subsidiaries of U.S. multinationals is not subject to tax until that income is repatriated to the
U.S. parent firm, usually in the form of dividends. The income tax liability is thus "deferred"
until the income is paid out to the United States-based parent firm. When this payment occurs,
a foreign tax credit is available, to offset the U.S. tax liability dollar-for-dollar with taxes paid
on this income by the foreign subsidiary to other jurisdictions. If the foreign subsidiary is
located in a country with higher tax rates than the United States, the foreign tax credit is often
large enough to completely offset any U.S. income tax liability owed. If the foreign
subsidiary is located in a country with lower tax rates than the U.S. (including so-called "tax
haven" countries), the foreign tax credit will not completely offset the U.S. tax liability and
some U.S. income tax will be paid on this income.
One exception to the general rule of tax deferral is "Subpart F" income attributed to
foreign subsidiaries (e.g., insurance income, income earned from complying with an
international boycott, and bribes paid by foreign subsidiaries). Subpart F income is taxed to
the parent firm as earned by the foreign subsidiary, though a foreign tax credit is allowed for
taxes paid to other jurisdictions (as for repatriated earnings).
Background -- Senator Dorgan's Proposal. Senator Dorgan proposes to create a new
category of Subpart F income, taxed in the U.S. as earned by foreign subsidiaries of U.S.-
based multinationals. This new category of income would consist of all income earned on
property (including goods, components, and intangible property) produced abroad by a foreign
subsidiary of a U.S. firm and imported into the United States. This class of income -- called
"imported property income" would include income generated by property directly imported
by the foreign subsidiary into the United States and also property sold to an unrelated party if
it was reasonable to assume that it would be ultimately imported into the U.S. The proposal
would also create a separate foreign tax credit limitation applicable only to imported property
income, so that foreign tax credits generated by other income could not be used to offset U.S.
income tax liability on this form of income.
The enforcement problems this proposal would pose if enacted are enormous. First,
the tax authority would have to distinguish between property imported to the U.S. (directly
and indirectly) that is produced by a foreign subsidiary of a U.S.-based multinational and
property that never enters the U.S. or that is produced by a foreign company having no parent-
subsidiary relationship to a U.S. firm. Second, the tax authority would have to determine the
amount of income "earned" on this imported property. Both tasks would be difficult.
Analysis. The proposal is based on the notion that U.S. jobs are best protected by imposing a
barrier to firms' efficient worldwide location of production facilities. Since location decisions
involve a host of non-tax reasons (e.g., labor costs, proximity to markets, availability of raw
materials, adequacy of infrastructure), the imposition of an added tax cost could lead to
suboptimal (in terms of production cost) location decisions. The proposal also could distort
location decisions in unintended ways. For example, the U.S.-owned foreign firm that was
taxed on its imported property income could see its market share taken by a foreign firm that
had no direct equity relationship to a U.S. firm and incurred no U.S. income tax cost. While
no detailed analysis has been done to indicate which industries wold be most affected by this
proposal, it could have disproportionate effects on high-technology industries such as
pharmaceuticals, computers, and electronic components, that have production facilities abroad
but maintain headquarters operations in the U.S.
In the iong run, proposais to discourage imports tend not to increase domestic
employment, earnings, or standards of living. To the extent that an import reduction is offset
by a decline in exports, the mix of employment may change, but not the aggregate amount.
Moreover, the aggregate level of unemployment is generally thought to reflect domestic
macroeconomic fundamentals, not the level of imports or exports. The proposal is unlikely to
affect fundamental economic variables (such as inflation and aggregate demand) and therefore
is unlikely to have a permanent effect on employment and earning levels. If the proposa! were
perceived by U.S. trading partners as protectionist, it could lead to trade repercussions that
would tend to lower domestic living standards by limiting efforts to extend free trade.
The formidable administrative problems posed by this proposal should not be taken
lightly. Treasury has been aware of proposals along these lines for a decade or so. To this
point, they have been unable to convince themselves that such proposals would be enforceable
given the current state of international commerce. Transfer pricing rules (needed to allocate
income between parent and subsidiary firms) are already among the most complex sections of
the Tax Code. The proposal would place even more pressure on these rules, leading to
increased conflict between taxpayers and the Internal Revenue Service. Such a step seems
counterproductive.
Recommendation. The Administration probably should not support tax proposals of this type.
First, in the long run, proposals of this type will have little or no positive effect on domestic
employment and earnings or living standards. Second, this proposal is almost certainly
unadministrable and would contribute to the public's concern that the Tax Code is too complex
and unworkable. Third, the proposal appears protectionist and could undermine the
Administration's support for free trade expansions. Fourth, supporting this proposal could
distract effort from the defense of Section 956A (a provision that addresses excessive
accumulation of passive assets abroad). The Administration proposed Section 956A in 1993,
and it was enacted; Congress is now proposing to repeal it. For all these reasons, any effort
expended to support Senator Dorgan's "runaway plant" proposal likely could be better spent
elsewhere.
CC: TO'D, MW
06-12-96 03:35PM FROM Intil Tax Counsel
P01
C III INTANE
THE
+
1769
DEPARTMENT OF THE TREASURY
OFFICE OF TAX LEGISLATIVE COUNSEL
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
Number of pages: 7
DATE: 6/12/96
INCLUDING COVER SHEET
TO: Mark Mazu
395-6809
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Comments/Special Instructions: As agreed to by
Senate Finance Committee today
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UNCLASSIFIED
#96-2 150
VERY PRELIMINARY
12-Jun-96
ESTIMATED BUDGET EFFECTS OF MODIFIED CHAIRMAN'S MARK OF A COMMITTEE AMENDMENT TO THE REVENUE PROVISIONS OF M.R. 3448,
THE "SMALL BUSINESS JOB PROTECTION ACT OF 1996,"
SCHEDULED FOR FINANCE COMMITTEE MARKUP ON JUNE 12, 1996
Flacal Years 1995 2005
[Millions of Dollars)
Provision
Effective
1995
1997
1998
1999
2000
2001
2002
2003
2904
2005
1996-00
2001-05
1996-05
1. Small Business and Other Tax Provisions
A Small Business Provisions
1. Increase in expensing limitation for small
businesses to $18,000 for 1997, $18,500 for
1998, $19,000 for 1999, $20,000 for 2000,
$24,000 for 2001. $24,000 for 2002,
$25,000 for 2003 and thereafter
tybe 12/31/96
--
-66
-175
256
-327
-759
-935
-1,029
-977
-928
-824
-4,628
5,453
2 Provide 15-year depreciation for gas
station/convenience slores
ppiec/a/b DOE
-7
-24
-37
-45
-50
-53
-53
-55
61
-42
-163
-264
-427
3. FICA tip credit
a Provided for off premises employees
1/1/97
---
-6
-14
-15
-16
-17
-18
-18
-19
-20
-51
-92
143
b. Clarification of effective date
[1]
Negligible Revenue Effect
4. Treatment of certain dues paid to agricultural
or horticultural organizations
tybe 12/31/94
Negligible Revenue Effect
5 Fishermen - clarify exemption from FICA
taxes and provide that exemption applies
even if crew member receives de minimis
amounts of cash payments
rpa 12/31/94
(2)
[2]
[2]
[2]
[2]
[2]
[2]
[2]
2]
[2]
-1
-1
-2
6 Change related party and maximum
size-requirements for first time farmer
industrial development bonds
bia DOE
-1
-6
06-12-96 03:35PM FROM Int'l Tax Counsel
-12
-17
-21
-26
-30
-34
-37
-35
-148
-183
7 Clarity that newspaper carriers and
distributors are independent contractors
spa 12/31/95
Negligible Revenue Effect
8 Provide involuntary conversion treatment for
Oklahoma City bembing victims
DDA 12/31/94
-6
-14
-10
-10
-10
-10
-10
-10
-10
-10
-50
-50
-100
9 Leasehold improvements provision
fide 6/12/96
-12
-22
-19
-15
-13
-11
-7
-4
-2
1
-82
-23
-105
10. 100% meals deduction for Alaska seafood
processors
tybe 12/31/96
-1
-2
-2
-2
-2
-2
-2
-2
-2
-7
-11
-18
" Modification of excise taxation on hard cider
1/1/97
-1
-1
-1
-1
-1
-1
-1
-2
-2
T
-7
12 Clarification of section 530 worker classification
-11
safe harbor
spa 12/31/96
Negligible Revenue Effect
Subtotal of Small Business Provisions
-25
-135
-264
-357
-436
-574
-1,052
-1,148
-1,107
-1,040
-1,217
-5,224
-6,442
B Provisions Relating to S Corporations
1. Increase number of eligible shareholders.
tybe 12/31/96
--
-5
-14
-16
-20
-22
-25
-28
2. Permit certain trusts to hold stock in S
-31
-35
-55
-141
-196
corporations
tybe 12/31/96
-
-2
-2
-2
-2
-2
-2
-2
-3
3 Extend holding period for certain trusts
3
do
-12
-20
lybe 12/31/96
|3|
E
[3]
4 Financial institutions permitted to hold
[3]
[3]
[3]
(3)
PI
[3]
[4]
R
[6]
sale-harbor debt
tybe 12/31/96
[2]
[2]
(2)
[2]
(2)
(2)
[2]
[2]
[2]
(2)
[2]
-1
Page 2
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1996-00
2001-05
1996-05
5 Authority to validate certain invelid elections
tybe 12/31/82
---
(2)
[2]
[2]
[2]
(2)
[2]
[2]
[2]
RI
[2]
[2]
1
6. Allow interim closing of the books
tyba 12/31/96
Negligible Revenue Effect
7 Expand post-termination period and amend
subchapter S audit procedures
tybe 12/31/96
---
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
1
8 S corporations permitted to hold S or C
subsidiaries
tybe 12/31/96
...
-5
to
-11
-13
-15
-17
-20
-23
-26
-38
-101
-139
9 Treatment of distributions during loss years
tybe 12/31/96
--
PI
|2)
[2]
[2]
[2]
[2]
RI
[2]
[2]
[2]
(2)
-1
10. Treatment of S corporations as shareholders
in C corporations
tybe 12/31/96
--
[3]
(3)
[3]
[3]
[3]
[3]
[3]
[3]
[3]
[4]
[5]
15]
11 Elimination of certain earnings and profits of
S corporations
tybe 12/31/96
---
[3]
[3]
[3]
[3]
[3]
[3]
[3]
[3]
[3]
[4]
[5]
[6]
12. Treatment of certain losses carried over
under al-risk rules
tybe 12/31/96
---
(3)
[3]
[3]
[3]
[3]
Pl
[3]
[3]
[3]
[4]
[5]
[6]
13. Adjustments to basis of inherited S stock
dda DOE
---
[7)
E
[7]
[7]
[7]
M
[7]
[7]
M
[7]
[7]
[7]
14. Treatment of certain real estate held by an S
corporation
tybe 12/31/96
--
-1
-1
-2
2
-2
-2
-2
-2
-2
-6
-10
-16
15 Transition rule for elections after termination
tybe 12/31/96
P]
[3]
[3]
[3]
13)
[3]
[3]
[3]
[3]
14]
151
[6]
16. Treat financial institutions that do not use the
reserve method as eligible corporations
tybe 12/31/96
i
-1
is
-5
-6
do
-10
-12
-14
-15
-15
-59
-74
17. Interaction of subchapter S changes
---
is
-26
-32
-37
-38
-39
-40
-40
-40
-98
-197
-295
18. Permit tax-exempts to be subchapter S
shareholders with UBTI inclusion and ESOP
benefit restriction
tybe 12/31/97
--
3
-9
-11
-13
-15
-17
-19
-21
-23
&
-108
Subtotal of Provisions Relating to S Corporations
-
-32
-73
-02
-106
-115
-125
-136
-147
-157
-303
-680
-007
II. Pension Simplification Provisions
A Simplified Distribution Rules
1 Repeal of 5 year income averaging for
lump-sum distributions
tybe 12/31/99
!
74
77
108
78
70
44
17
15
!
397
145
482
2. Repeal of $5,000 exclusion of employees'
death benefits
dde DOE
-
28
49
52
54
55
56
56
57
57
183
280
463
3 Simplified method for taxing annuity
06-12-96 03:35PM FROM Tax Counsel
distributions under certain employer plens
asda 90 da DOE
!
22
28
28
20
29
29
30
30
31
107
149
256
4. Minimum required distributions
a 12/31/96
!
-1
-4
+
+
,
,
-4
-4
-4
-13
-20
-33
8 Increased Access to Retirement Savings Plans
, Establish SIMPLE pension plan as modified, but
repeal salary reduction SEPs
ybe 12/31/96
-50
-76
-79
-81
-84
-87
-91
-94
-97
-285
-453
-735
2. Tax-exempt organizations eligible under
section 40t(k)
ybe 12/31/96
do
-22
-24
-25
-26
-20
-29
-30
-31
-79
-144
-223
3. Increase availability of spousal IRAs
a 12/31/96
!
-57
-168
-184
-195
-206
-219
-233
-248
-264
-604
-1,170
-1,774
C. Nondiscrimination Provisions
1 Simplified definition of highly compensated
employees [8]
ybe 12/31/96
i
[9]
[9]
Considered in Other Provisions
2. Repeal of family aggregation rules [8]
yba 12/31/96
[10]
[10]
Considered in Other Provisions
3 Modification of additional participation
requirements.
yba 12/31/96
Nagligible Revenue Effect
4. Sale-harbor nondiscrimination rules for qualified cash
or deferred arrangements and metching
contributions [11]
ybe 12/31/98
I
i
I
-38
-155
-160
-164
-169
-174
-179
-195
-847
-1,042
5. Definition of compensation for section 415
purposes
yba 12/31/97
!
--
-1
-1
-2
-2
-2
-2
-2
is
-4
-11
-15
Page 3
P04
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1996-00
2001-05
1996-05
D. Miscellaneous Provisions
1 Plans covering self employed individuals
ybe 12/31/96
Negligible Revenue Effect
2. Efimination of special vesting rule for
yba 12/31/96
---
[2]
-1
-1
-1
-1
-1
is
-1
-1
-3
-5
&
muttiemployer plans
3. Distributions under rural cooperative plans
DOE
Negligible Revenue Effect
4. Treatment of governmental plans under
section 415
ybs 12/31/94
Negligible Revenue Effect
5 Uniform retirement age [8]
ybs 12/31/96
--
[10]
[10]
Considered in Other Provisions
6 Contributions on behalf of disabled
employees
ybs 12/31/96
Negligible Revenue Effect
7. Treatment of deferred compensation plans of
State and local governments and tax exempt
tybe 12/31/96
--
(2)
-1
-1
-1
-2
-2
-2
-2
-2
-3
-10
-13
organizations
-77
-135
-212
8. Require section 457 plan assets to be held in trust
DOE
---
-7
-21
-24
-25
-25
-26
-27
-28
-29
9. Correction of GATT interest and mortality rate
[12]
-4
-4
,
---
---
--
---
---
-12
---
-
-12
provisions in the Retirement Protection Act
...
10. Multiple safary reduction agreements
permitted under section 403(b)
tybe 12/31/95
Negligible Revenue Effect
11. Application of elective deferral limit to section
403(b) plans
tybe 12/31/95
Negligible Revenue Effect
12 Treatment of Indian tribal governments under
section 403(b)
cpbo/a 12/31/96
Negligible Revenue Effect
13. Repeal of combined plan limit
lybe 12/31/99
--
-72
-195
-201
-207
-213
-219
-72
-1,035
-1,107
14 3-year waiver of excess distribution tax
1/1/97
42
44
47
32
---
---
-
---
-
165
---
165
---
15. Increase section 4975 excise tax on
prohibited transactions from 5% to 10%
ploa DOE
-
2
4
4
4
4
4
4
4
4
14
20
34
16. Modify notice required of right to qualified
joint and survivor annuity
pybe 12/31/96
Negligible Revenue Effect
17. Treatment of leased employees
a 12/31/96
Negligible Revenue Effect
18. Uniform penalty provision to apply to certain
pension reporting requirements.
1/1/97
No Revenue Effect
19. Clarify that SECA does not apply to certain
parsonage allowance income
a 12/31/94
Negligible Revenue Effect
20. Direct IRS to develop model forms for
qualified domestic relations orders ("QDRO")
and spousel consent provisions
DOE
Negligible Revenue Effect
21. Date of adoption of plan amendments
DOE
No Revenue Effect
22. Exempt volunteer firefighters from section 457 rule
(benefits limited to $3,000 per year)
bro/a 1/1/97
-
-2
-5
-7
b
-11
-13
-16
-18
-20
-23
-78
-101
Subtotal of Pension Simplification Provisions
-
34
-106
-120
-373
-558
-$15
-574
-700
-757
-564
-3,314
-3,875
III. Extension of Certain Expiring Provisions
1 Extend the work opportunity tax credit. with
modifications through 9/30/97 [13]
10/1/96
--
-113
-138
-80
-32
-12
-2
-
-
---
-363
-14
-377
2. Employer-provided educational assistance;
---
-
-
-
---
-
I
I
--
sunset after 12/31/96
1/1/95
-136
-740
-$76
-876
3. R&E credit, with modifications through
06-12-96
6/30/97
7/1/96
-202
-745
-468
-232
-165
-89
-20
-
--
!
-1,813
-109
-1,922
4 Orphan drug tax credit through 6/30/97
with section 39 benefits
7/1/96
-6
-18
-1
-1
is
-1
[2]
[2]
[2]
[2]
-26
-2
-28
5 Contribution of appreciated stock to private
foundations through 6/30/97
7/1/96
-14
-86
-11
-4
!
...
!
!
---
--
-115
!
-115
Page 4
P05
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1995-00
2001-05
1996-05
6 Extend section 29 binding contract date to 6
months after date of enactment and
placed-in service date to 1/1/98 for biomass
DOE
...
-8
-32
-51
-51
-40
-35
-36
-37
-38
-142
-187
-329
and coal.
7 Suspend excise tax on motorboat diesel
7/1/96
8
-26
-34
-34
...
--
-
---
--
---
-
--
--
through 6/30/97
Subtotal of Certain Expiring Provisions
-366
-1,736
-651
-388
-249
-142
-57
-38
-37
-38
-3,369
-312
-3,581
IV. Revenue Offsets
1 Possessions tax credit: Wage credit companies 6
years of present law, thereafter subject to income
cap and. after 10 years, wage credit percentage
lowered to 40%: Income companies- 2 years of
present law followed by 8 years subject to Income
cap, QPSII- repealed later of taxable years
beginning after 12/31/95 or earnings after 6/30/96
tybe 12/31/95
190
595
540
530
475
500
685
1,075
1,295
1,565
2,330
5,110
7,440
2. Repeal 50% interest income exclusion for financial
institution loans to ESOPs [14]
Ima DOE
10
64
105
144
182
220
256
292
327
360
505
1,455
1,960
3. Provide that punitive damages are not
excludable from income
are 6/30/96
---
5
7
7
7
8
e
8
8
s
26
40
66
/
4. Provide for flow through treatment for
Financial Asset Securitization Investment
Trusts (FASITs)
DOE
-
36
18
9
3
-2
.7
-12
-17
-22
66
-60
6
5. Phase out and extend hocury automobile
sme 6/30/96
-10
-58
-105
-132
124
183
140
32
-
---
-180
355
175
excise tax through 12/31/02
6. Modify two county tax-exempt bond rule for
local furnishers of electricity or gas; prohibit
new local furnishers (with current service areas
grandfathered)
DOE
---
1:51
5
1
-1
3
4
8
16
22
5
53
58
7. Eliminate interest allocation exception for
certain nonfinancial cerporations
tybe 12/31/95
35
99
107
123
141
163
187
201
215
228
505
994
1,499
06-12-96 Tax Counsel
8. Reinstate Airport and Airway Trust Fund
excise taxes through 12/31/96. with
exemption for fixed-wing emergency medical
aircreft
tp7date DOE
393
1,530
-
!
i
I
-
-
---
--
1,923
--
1,923
9 Tax free treatment of contributions in aid of
construction for water utilities; change
depreciation for water utilities
[16]
i
-21
is
-3
11
24
35
45
65
64
-22
223
201
10 Revision of expetriation tax rules
2/6/95
15
37
63
97
139
181
216
247
275
298
351
1,217
1,568
Subtotal of Revenue Offsets
633
2,287
731
776
1,081
1,280
1,524
1,695
2,174
2,513
5,509
9,387
14,896
V. Technical Corrections
14
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
14
(3]
14
SUBTOTAL OF SECTIONS I, II., III., IV., AND V.
256
418
-363
-170
to
-409
-325
$
175
521
70
-143
-75
VL Other Provisions
A. Miscollaneous Provisions
I Exempt from diesel dyeing requirement any
States exempt from Clean Air Act dysing
requirement.
feqa DOE
[2]
-1
-1
-1
-
-1
1
1
-1
-1
&
3
-6
Page 5
P06
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1995-00
2001-05
1996-05
2 Application of common paymaster rules to
certain agency accounts at State
universities [17]
rpa 12/31/96
--
-1
-2
-2
-2
-2
-2
-2
-2
-2
-7
-10
-17
3. Exempt imported recycled halons hom
ozone-depleting chemicals tax
cia 12/31/96
---
-1
-1
-1
-1
-1
-1
-1
-1
-1
-4
-5
o
4. Authorize tax-exempt bonds for purchase of
Alastua Power Authority
bia DOE
--
-1
-1
-1
-1
-1
-1
-1
-1
-1
-4
-5
is
5. Allow for tax-free conversion of common trust funds
to mutual funds
to 12/31/95
-4
-9
e
ep
-0
-8
-8
9
-9
-9
-37
-43
-80
6. Clarify that State prepaid tuition plans are
tax-exempt entities; clarily OID rules
tybe 12/31/95
Negligible Revenue Effect
7. Suspend excise tax on ozone depleting
chemicals used in metered dose inhalers
DOE + 7 days
-
-12
-8
-8
-2
-
-
--
--
--
-30
-
-30
Subtotal of Miscollansous Provisions
[2]
-25
-21
-21
-15
-13
-13
-14
-14
-14
-85
-68
-151
B. Revenue Offsets
1. Modify basis adjustment rules under section 1033
DOE
---
1
5
9
14
20
29
37
46
56
29
188
217
2. Repeal exemption for withholding on gembling
winnings from bingo and keno where proceeds
exceed $5,000
DOE
3
12
6
6
6
7
7
7
7
B
33
36
60
3. Treatment of certain insurance on retired fives
tybe 12/31/05
-
2
1
-2
5
2
[2]
10
-5
2
6
9
14
Subtotal of Revenue Offsets
3
15
12
13
28
29
36
54
48
66
60
232
300
SUBTOTAL OF SECTION VI.
3
-10
9
+
10
16
23
40
34
52
-17
166
149
NET TOTAL
259
400
-372
-178
-73
-383
-302
-50
200
573
B
23
74
Joint Committee on Taxation
NOTE Details may not add to totals due to rounding.
06-12-96 03:35PM FROM Int I Tax Counsel
Legend for "Effective" column: are - amounts received after
plea- prohibited transactions occurring after
asda - annuity starting date after
ptop - prohibited transactions occurring after
bie - bonds issued after
pybe - plan years beginning after
bro/a - benefits received on or after
rpa= remuneration paid after
cia - chemicals imported after
ama - safes made after
cpbo/a - contracts purchased before, on, or after
spa - services performed after
dda- decedents dying after
to - to transfers after
DDA- disasters declared after
tybe - taxable years beginning after
DOE- date of enactment
tyes - taxable years ending after
Icqa - first calender quarter after
tp7data DOE tickets purchased 7 days after date of enactment for travel 7 days after date of enactment
lida - leasehold improvements disposed of after
ybe years beginning after
Ima - loans made after
ybbo/a- years beginning before, on, or after
lybe - limitation years beginning after
90 de DOE- 90 days after date of enactment
ppise/a/b - property placed in service on, after, or before
IF notnotes for Table #96 2 150 appear on the following page)
Page 6
Footnotes for Table #96-2 150:
(1) Effective as if included in the Omnibus Reconciliation Act of 1993.
[2] Loss of less than $500,000
[3] Loss of less than $5 million
[4] Loss of less than $15 milkon
[5] Loss of less than $20 million.
|6| Loas of less than $30 million.
(7) Gain of less than $1 million.
181 Revenue effect after 1/1/99 included in the revenue estimate for the safe herbor provision due to Interactions between this provision and Item III.C.4.
[9] Loss of less than $10 million.
[10] Negligible revenue effect
[11] This provision considers interaction effects of SIMPLE retirement plan provisions (Items ILC.1, III.C.2, and 111.0.5)
(12] Effective as if included in the General Agreement on Tariffs and Trade of 1904.
[13] Credit rate at 35% on first $6,000 of income: eligible workers expanded to include welfare cash recipients, veteran foodstamp recipients, and 18 24 year olds living in a household receiving
food stamps for a period of at least 3 months on the date of hire: 375 how work requirement
|14) The repeal would not apply to loans made pursuant to a binding contract entered into before 6/10/96
[15] Gain of less than $500,000.
[16] Effective for amounts received after 6/12/96 and property placed in service after 6/12/96 with the exception of certain property subject to a binding contract before 6/10/96.
[17] Estimates provided by the Congressional Budget Office.
06-12-96 03:35PM FROM Int Counsel
THE WHITE HOUSE
WASHINGTON
May 13, 1996
TO:
LAURA TYSON
FROM:
MARK MAZUR mark
SUBJECT: TAX BILL IN WAYS AND MEANS COMMITTEE
On Tuesday, May 14, the House Ways and Means Committee is scheduled to "mark
up" (consider for Committee passage) a tax bill focusing on provisions that would benefit
"small business". I believe that all of these provisions were included in the Balanced Budget
Act that was vetoed last year (though some may have different effective dates or phase-in
schedules). Attached is a preliminary revenue table that is should provide the starting point for
the Committee's deliberations (though the Committee Chairman could change the provisions
before they begin) .
Treasury met with Leon Panetta earlier today (Monday) to discuss a strategy (I didn't
get invited, and I'm not sure if anyone from NEC attended). The basic plan is to state that
these tax items should not be attached to legislation that would raise the minimum wage. In
addition, Treasury has been working with some Democrat Members to ensure that a number of
politically popular amendments are brought up (e.g., extend the R&E tax credit, extend
foreign sales corporation treatment to software companies, loosen constraints on the home
office deduction). The idea is to have the Republican Members either vote down these popular
items or to load up the bill so much that it turns into a big tax bill and collapses.
"
Background: The revenue-losing provisions include the following:
(1) Increased expensing of equipment for smaller businesses (gradually increasing from the
current $17,500 that can be expensed each year to $25,000 in 2003 and later years); the
Administration proposed an increase to $25,000 in 1993, but the amount was reduced due to
revenue concerns.
(2) Pension simplification provisions (similar to, but less desirable on policy grounds than, the
Administration's pension simplification proposals).
(3) Extend the Section 127 exclusion for employer-provided education benefits through
December 31, 1996, but do not allow the exclusion for post-graduate classes.
(4) Loosen rules on the use of Subchapter S Corporations (these are limited-liability entities
taxed like partnerships where losses flow through to owners and there is no separate corporate-
level tax).
(5) Rename the targeted jobs tax credit (TJTC) the "work opportunity tax credit", make
modifications to reduce its generosity and increase its effectiveness, and extend it through June
30, 1997.
In general, the Administration is unlikely to quarrel too much with these provisions.
Some of these items are in the Administration's budget and others are similar to proposals the
Administration has supported in the past. The pension simplification provisions are more
generous to owners and higher-income workers than the Administration's proposals. The
Section 127 proposal's restriction to undergraduate coursework is probably undesirable.
Extending the TJTC under a new name is probably unwise policy (since there is little evidence
the TJTC could ever pass a cost/benefit test), but the Administration is unlikely to oppose
Bod
something that is intended to promote the hiring of low-skilled workers.
July
The revenue-raising provisions are likely to be more controversial. They include:
(1) Phased-out repeal of Section 936 credit for businesses operating in U.S. possessions (e.g.,
Puerto Rico). ($3.8 billion over 7 years) The Administration proposed a reformulation of this
overhels
tax credit in the FY 1997 Budget that retains a tax incentive for increased economic activity
(e.g., hire workers, build plants, purchase equipment) but that substantially reduces the
incentive to simply allocate income to Puerto Rico. Recent regulations issued by Treasury
should help lessen the abuse potential for the existing creditand complete repeal is almost
certainly overkill (especially since the Congress does not put any other economic development
incentive in its place). Treasury will strongly oppose this provision.
(2) Repeal a 50 percent interest exclusion for loans made by financial institutions to employee
stock ownership plans (ESOPS) ($1 billion over 7 years). Repeal is probably acceptable
TESOP
policy, though the Administration tends to favor tax provisions for ESOPS (on the grounds
that they promote employee participation in firms and, hence, help increase productivity).
(3) Reduce income exclusion for damages paid on account of sickness or injury by including in
income payments for punitive and non-physical damages. Inclusión of punitive damages is
probably good tax policy since these payments are a form of income. Inclusion of non-
physical damages is probably too blunt a provision, since payments that compensate a person
7
for actual harm are not income and should not be subject to an income tax.
(4) Reform the income forecast method that applies mostly to movies and recordings. The
provision would speed up tax payments from this income (by requiring faster recognition of
income earned).
The Administration stated its positions on many of these provisions last year in the
context of the Balanced Budget Act. Treasury intends to stay with the same positions.
Moreover, if the Democrat Members are successful in their amendment strategy, the bill
should cause the Republicans some problems at markup. The Administration's problems may
arise if the President is presented with this bill as part of a package that includes an increase in
the minimum wage. At that point, we will have to do some serious thinking about the costs
and benefits of the overall bill. However, it is premature to get into that at this time.
cc: TO'D
002
10-May-96 5:02pm
#96-1 120
VERY PRELIMINARY
10-May-96
ESTIMATED REVENUE EFFECTS OF A TAX PACKAGE SCHEDULED FOR MARKUP BY
THE COMMITTEE ON WAYS AND MEANS ON TUESDAY, MAY 14, 1996
Fiscal Years 1996-2002
[Millions of Dollars]
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
1996-00
1996-02
1. Small business incentives - increase in
expensing limitation for small businesses to
$19,000 for 1996, $19,000 for 1997,
OFC TAX POLICY
$20,000 for 1998, $21,000 for 1999,
$22,000 for 2000, $23,000 for 2001,
$24,000 for 2002, and $25,000 for 2003 and
thereafter
lyba 12/31/95
-193
-313
-304
-459
-566
-579
-591
-1,836
-3,006
2. Pension simplification provisions
various
---
157
47
-59
-329
-382
-423
-175
-989
3. Employer-provided educational assistance;
applies to undergraduale education only
after 1995; sunset after 12/31/96
1/1/95
-136
-808
...
...
---
...
---
-744
-744
4. Subchapler S corporations reform package
various
-3
-31
-67
-78
-89
-94
-100
-250
-462
5. Extend the work opportunity lax credit, with
T202 6221772
modifications through 6/30/97 [1]
7/1/96
-33
-90
-91
-48
-19
-6
-1
-281
-288
6. Provide FICA tip credit for off-premises
employees
1/1/97
---
-6
-14
-15
-16
-17
-18
-51
-85
7. Permanent extension of FUTA exemption for
alien agricultural workers (2)
1/1/95
-5
-3
is
-3
-3
is
-3
-17
-23
-
07:59
8. Phased-In repeal of section 936: Wage
credit companies - 6 years of present law,
followed by 4-year phaseout with modified base
period; Income companies - 2 years of
present law followed by 8-year phaseout with modified
05/13/96
base period; QPSII - repeated 1/1/96
tyba 12/31/95
255
605
552
596
498
516
746
2,506
3,766
Page 2
003
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
1996-00
1996-02
9. Repeal 50% interest income exclusion for
financial institution loans to ESOPs
Ima 10/13/95
27
69
109
149
187
224
261
541
1,026
10. Modify exclusion of damages received on
account of personal injury or sickness
ama 12/31/95
34
51
55
59
61
64
68
260
392
11. Corporate accounting - reform of Income
forecast method
ppisa 9/13/95
32
69
29
13
14
16
19
157
192
12. Apply look-through rule for purposes of
characterizing certain subpart F Insurance
Income as UBIT
gira 12/31/95
7
23
24
27
30
32
34
111
177
13. Repeal advance refunds of diesel fuel fax for
OFC TAX POLICY
diesel cars and light trucks
vpoa DOE
3
17
19
19
19
19
19
76
114
14. FICA tip credit Technical clarification
---
---
15. Luxury excise tax and other technical
corrections
14
...
---
---
14
14
NET TOTAL
2
-60
356
201
-213
-210
11
311
84
Joint Committee on Taxation
NOTE: Details may not add to lotals due to rounding.
Legend for "Effective" column: ama = awards made after
T202 6221772
da = distributions after
gira = gross Income received after
Ima = loans made after
ppisa = property placed In service after
tyba = taxable years beginning after
vpoa DOE = vehicles purchased on or after date of enactment
[1] Credit rate at 35% on first $6,000 of Income; eligible workers expanded to include welfare cash recipients and veteran foodslamp recipients; 500 hour work
07:59
requirement: can not claim credit until 1997.
[2] Estimates provided by the Congressional Budget Office (CBO).
[3] Loss of less than $500,000.
05/13/96
002
10-May-96 5:02pm
#96-1 120
VERY PRELIMINARY
10-May-96
ESTIMATED REVENUE EFFECTS OF A TAX PACKAGE SCHEDULED FOR MARKUP BY
THE COMMITTEE ON WAYS AND MEANS ON TUESDAY, MAY 14, 1996
Fiscal Years 1996-2002
[Millions of Dollars]
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
1996-00
1996-02
1. Small business incentives - increase in
expensing limitation for small businesses to
$19,000 for 1996, $19,000 for 1997,
$20,000 for 1998, $21,000 for 1999,
OFC TAX POLICY
$22,000 for 2000, $23,000 for 2001,
$24,000 for 2002, and $25,000 for 2003 and
thereafter
lyba 12/31/95
-193
-313
-304
-459
-566
-579
-591
-1,836
-3,006
2. Pension simplification provisions
various
---
157
47
-59
-329
-382
-423
-175
-969
3. Employer-provided educational assistance;
applies to undergraduale education only
after 1995; sunset after 12/31/96
1/1/95
-136
-608
---
---
---
-
---
-744
-744
4. Subchapler S corporations reform package
various
-3
-31
-67
-78
-89
-94
-100
-250
-462
5. Extend the work opportunity lax credit, with
5202 6221772
modifications through 6/30/97 [1]
7/1/96
-33
-90
-91
-48
-19
-6
-1
-2B1
-288
6. Provide FICA tip credit for off-premises
employees
1/1/97
---
-6
-14
-15
-16
-17
-18
-51
-85
7. Permanent extension of FUTA exemption for
alien agricultural workers (2)
1/1/95
-5
-3
is
-3
-3
is
-3
-17
-23
1
07:59
8. Phased-In repeal of section 936: Wage
credit companies - 6 years of present law,
followed by 4-year phaseout with modified base
period; income companies- 2 years of
present law followed by B-year phaseout with modified
05/13/96
base period; QPSII- repealed 1/1/96
tyba 12/31/95
255
605
552
596
498
516
746
2,506
3,766
Page 2
003
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
1996-00
1996-02
9. Repeal 50% interest Income exclusion for
financial institution loans to ESOPs
Ima 10/13/95
27
69
109
149
187
224
261
541
1,026
10. Modify exclusion of damages received on
account of personal injury or sickness
ama 12/31/95
34
51
55
59
61
64
68
260
392
11. Corporate accounting - reform of Income
forecast method
ppisa 9/13/95
32
69
29
13
14
16
19
157
192
12. Apply look-through rule for purposes of
characterizing certain subpart F insurance
income as UBIT
gira 12/31/95
7
23
24
27
30
32
34
111
177
13. Repeal advance refunds of diesel fuel fax for
OFC TAX POLICY
diesel cars and light trucks
vpoa DOE
3
17
19
19
19
19
19
76
114
14. FICA tip credit Technical clarification
...
...
---
---
15. Luxury excise tax and other technical
corrections
14
---
---
...
---
---
14
14
NET TOTAL
2
-60
356
201
-213
-210
11
311
84
Joint Committee on Taxation
NOTE: Details may not add to totals due to rounding.
Legend for "Effective" column: ama = awards made after
6202 6221772
da = distributions after
gira = gross income received after
Ima = loans made after
ppisa = property placed In service after
tyba = taxable years beginning after
vpoa DOE = vehicles purchased on or after date of enactment
[1] Credit rate at 35% on first $6,000 of income; eligible workers expanded to include welfare cash recipients and veteran foodslamp recipients; 500 hour work
07:59
requirement; can not claim credit until 1997.
[2] Estimates provided by the Congressional Budget Office (CBO).
[3] Loss of less than $500,000.
05/13/96
NEWS
FROM THE COMMITTEE ON WAYS AND MEANS
FOR IMMEDIATE RELEASE
CONTACT: Ari Fleischer or Scott Brenner
May 10, 1996
(202) 225-8933
News Advisory
Archer Announces Mark-up for Tuesday, May 14
Small Business Joh Protection Act of 1996 to be Considered
Washington - Congressman Bill Archer, Chairman of the House Committee on Ways and
Means, announced today that the Committee will mark-up the Job Protection Act of 1996 on
Tuesday, May 14th at 1:00pm in Room 1100 of the Longworth House Office Building.
"As Congress considers minimum wage legislation that will lead directly to the loss of entry
level, low-wage jobs," Archer said, "it's vital we take action to minimize those job losses.
The Small Business Job Protection Act will help low wage workers by providing them and
their companics with incentives to increase productivity, opportunity, and growth. The Small
Business Job Protection Act will help small businesses resist the inevitable job losses that will
occur if the minimum wage is increased."
-30-
10-May-96 5:02pm
#96-1 120
VERY PRELIMINARY
10-May-96
ESTIMATED REVENUE EFFECTS OF A TAX PACKAGE SCHEDULED FOR MARKUP BY
THE COMMITTEE ON WAYS AND MEANS ON TUESDAY, MAY 14, 1996
Fiscal Years 1996-2002
[Millions of Dollars]
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
1996-00
1996-02
1. Small business incentives - increase in
expensing limitation for small businesses to
$19,000 for 1996, $19,000 for 1997,
$20,000 for 1998, $21,000 for 1999,
$22,000 for 2000, $23,000 for 2001,
$24,000 for 2002, and $25,000 for 2003 and
thereafter
tyba 12/31/95
-193
-313
-304
-459
-566
-579
-591
-1,836
-3,006
2. Pension simplification provisions
various
---
157
47
-59
-329
-382
-423
-175
-989
3. Employer-provided educational assistance;
applies to undergraduate education only
after 1995; sunset after 12/31/96
1/1/95
-136
-608
---
---
...
---
...
-744
-744
4. Subchapter S corporations reform package
various
-3
-31
-67
-78
-89
-94
-100
-250
-462
5. Extend the work opportunity tax credit, with
modifications through 6/30/97 [1]
7/1/96
-33
-90
-91
-48
-19
-6
-1
-281
-288
6. Provide FICA tip credit for off-premises
employees
1/1/97
---
-6
-14
-15
-16
-17
-18
-51
-85
7. Permanent extension of FUTA exemption for
alien agricultural workers [2]
1/1/95
-5
-3
-3
-3
-3
-3
-3
-17
-23
1
8. Phased-In repeal of section 936: Wage
credit companies - 6 years of present law,
followed by 4-year phaseout with modified base
period; Income companies - 2 years of
present law followed by 8-year phaseout with modified
base period; QPSII - repealed 1/1/96
tyba 12/31/95
255
605
552
596
498
516
746
2,506
3,766
P
Provision
Effective
1996
1997
1998
1999
2000
2001
2002
1996-00
1996-02
9. Repeal 50% interest income exclusion for
financial institution loans to ESOPs
Ima 10/13/95
27
69
109
149
187
224
261
541
1,026
10. Modify exclusion of damages received on
account of personal injury or sickness
ama 12/31/95
34
51
55
59
61
64
68
260
392
11. Corporate accounting - reform of income
forecast method
ppisa 9/13/95
32
69
29
13
14
16
19
157
192
12. Apply look-through rule for purposes of
characterizing certain subpart F insurance
income as UBIT
gira 12/31/95
7
23
24
27
30
32
34
111
177
13. Repeal advance refunds of diesel fuel tax for
diesel cars and light trucks
vpoa DOE
3
17
19
19
19
19
19
76
114
14. FICA tip credit technical clarification
---
...
---
---
---
---
---
---
---
---
15. Luxury excise tax and other technical
corrections
...
14
---
---
---
...
---
14
14
NET TOTAL
2
-60
356
201
-213
-210
11
311
84
Joint Committee on Taxation
NOTE: Details may not add to totals due to rounding.
Legend for "Effective" column: ama = awards made after
da = distributions after
gira = gross income received after
Ima = loans made after
ppisa = property placed in service after
tyba = taxable years beginning after
vpoa DOE = vehicles purchased on or after date of enactment
[1] Credit rate at 35% on first $6,000 of income; eligible workers expanded to include welfare cash recipients and veteran foodstamp recipients; 500 hour work
requirement; can not claim credit until 1997.
[2] Estimates provided by the Congressional Budget Office (CBO).
[3] Loss of less than $500,000.
THE WHITE HOUSE
WASHINGTON
May 9, 1996
TO:
LAURA TYSON
FROM:
MARK MAZUR week
SUBJECT: SECTION 936 REGULATIONS ISSUED BY TREASURY
On Thursday, May 9, the Federal Register contained a set of regulations on Section 936
(the Possessions Tax Credit that primarily affects U.S. businesses with operations in Puerto Rico).
These regulations replaced a set issued in the early 1980's. While providing necessary clarification
for affected taxpayers, the regulations may nonetheless be viewed as controversial by those
taxpayers whose claims for tax benefits are limited by their application. Here are some notes on
these regulations that may be helpful.
The new regulations update the rules under which Section 936 tax benefits are claimed. In
part, these regulations recognize changes in business practices that have occurred since the
previous regulations were released over a decade ago.
Two items in the regulations are intended to address potential abuses and merit special
attention:
The first is a provision that prevents firms from sourcing more than 100 percent of
the profits from a particular product to the possession (e.g., Puerto Rico), thereby
creating a tax loss for the U.S. affiliate.
The second is a provision limiting the choices Section 936 taxpayers have
regarding transfer prices. This constraint states that taxpayers may use "arm's
length" prices only for "exactly comparable" products. In other transfer pricing
areas, taxpayers are given more latitude in using "arm's length" prices and need
only meet a standard of "similar" products.
The new regulations were proposed in 1994. At this time, taxpayers had the opportunity
to comment on the regulations, and many did. Since 1994, Treasury and the IRS have
evaluated the comments and determined how to proceed. In particular (and importantly)
the IRS replaced a complete ban on "arm's length" pricing contained in the temporary
regulations with the more limited constraint described above.
Treasury has undertaken outreach efforts to alert interested parties about these regulations
(the Governor of Puerto Rico, three representatives in Congress who have a long-standing
interest in Section 936 matters, the mayor of San Juan, etc.). This is an unusual step, but
Treasury believes the heightened concern over Section 936 issues warrants this action.
Inside the White House, Harold Ickes and Marcia Hale have been informed about these
regulations. My understanding is that Harold Ickes was not very happy about the lack of advance
notice regarding the release of the regulations.
Please let me know if you wish to discuss this further.
cc: TO'D