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Memos - 3/92 [3]
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Memos - 3/92 [3]
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Records of the White House Office of the Chief of Staff to the President (George H. W. Bush Administration)
Samuel K. Skinner Files
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Originally Processed With FOIA(s):
FOIA Number:
1999-0277-F
S
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
Library Staff.
Record Group/Collection:
George H.W. Bush Presidential Records
Collection/Office of Origin:
Chief of Staff, White House Office of
Series:
Skinner, Sam, Files
Subseries:
OA/ID Number:
40920
Folder ID Number:
40920-010
Folder Title:
Memos - 3/92 [3]
Stack:
Row:
Section:
Shelf:
Position:
G
O
0
O
O
THE WHITE HOUSE
WASHINGTON
Clayton returned file this today.
3/10/92
March 6, 1992
MEMORANDUM FOR THE SECRETARY OF THE TREASURY
FROM:
SAMUEL K. SKINNER
H
SUBJECT:
MEETING WITH THE PRESIDENT
The President wishes to discuss with you on Monday the following questions:
1. What is the current status of the intangible drilling costs issues
as it relates to AMT preferences?
2. What is the status of the AMT provision as it relates to our capital
gains proposal?
3. He wishes to discuss our provision for credit unions and thrifts and
why there is so much resistance to it.
4. The President would like to know the costs related to an extension
of the time period for our investment tax allowance.
5. What would be the costs of taking our $5,000 credit and allowing the
purchaser to take it up front?
6. What are the cost differences between our passive loss provisions
and those contained in H.R. 1414?
7. The President wishes a detailed analysis of the logic behind our
proposed tax treatment of annuities.
8. The President would also like to have a paper on the reasons for our
proposal regarding the market-to-market proposals for the securities industry.
You should be prepared to discuss these with the President on Monday. Thank
you.
PACKAGE 1
(Dollars in Billions)
A. Jobs/Investments
1992
1993
'92-'97
B. Homebuyers/Families/Savings
1992
1993
'92-'97
Cost
Cost
Cost
Cost
Cost
Cost
Capital Gains (President's Plan)
0.5
3.1
9.0
Flexible IRA - (rollover provision)
*
($4.4)
Passive Loss Rules for Active Investors
(0.2)
(0.5)
(2.8)
Penalty Free IRA for First-Time Homebuyers
(0.1)
(0.4)
Increase Depreciation Expensing by 10% for 1 year
(4.2)
(2.3)
(2.0)
$2,000 First-Time Homebuyers Credit for
Liberalize AMT Depreciation
(0.1)
(0.4)
(1.5)
purchase of a newly constructed home (1yr)
(0.3)
(0.3)
Extend R&D Tax Credit and Allocation Rules (1/2yrs)
(0.4)
(1.3)
(2.6)
Mortgage Revenue Bonds (11/2 yrs)
*
(0.3)
Low Income Housing Credit (11/2) yrs)
*
(0.2)
(1.7)
Permit losses to carry over to new basis in
Extend Targeted Jobs Tax Credit (1 1/2 yrs)
(0.1)
(0.2)
(0.5)
principal residence
*
*
Farmer Bonds (11/2 yrs)
*
*
*
Total
$0.0
($0.4)
($5.4)
Enterprise Zones (President's Plan)
(0.1)
(1.9)
Repeal Boat and Airplane Luxury Tax
*
(0.2)
Total w/o Capital Gains
($5.0)
($5.0)
($13.2)
Revenue Losers
1992
1993
'92-'97
Revenue Gainers
1992
1993
'92-'97
Cost
Cost
Cost
Gain
Gain
Gain
A. Jobs/Investments
($5.0)
($5.0)
($13.2)
Compliance Raisers:
B. Homebuyers/Families
0.0
(0.4)
(5.4)
--Withholding of 10% on taxable pension distrib.
$1.8
$1.8
$6.2
Subtotal
($5.0)
($5.4)
($18.6)
-Charities to report gifts in excess of $500
*
0.1
0.9
--45-day processing rule for all returns
*
0.1
0.7
Miscellaneous
Total Compliance Raisers
1.8
2.0
7.8
Charities (Appreciated Property- AMT)
(0.6)
Disallow Interest Deductions on Corporate
Business Energy Credit (1/2yrs)
*
(0.1)
Owned Life Insurance (COLI) Loans
0.1
0.2
2.7
Orphan Drug Credit (Permanent)
*
*
Mark to Market- Securities, 4yr phase-in
0.8
1.4
7.0
Special Needs Adoption
*
*
*
Prohibit Double Dipping by Thrifts
1.1
0.3
1.5
Tax Simplification (Revenue Neutral)
*
*
*
Treat Large Credit Unions as Thrifts for Taxes
0.1
0.2
0.8
Total
($5.0)
($5.4)
($19.3)
Tax Annuities for a term certain
*
0.1
1.9
Repeal Diesel fuel exemption for boats
*
*
0.1
Expand 3% communications tax
0.2
1.2
Subtotal
$3.9
$4.4
$23.0
Capital Gains (President's Plan)
0.5
3.1
9.0
Total
$4.4
$7.5
$32.0
Revenue Surplus/(Shortfall) wo/ cap. gains
($1.1)
($1.0)
$3.7
Revenue Surplus/(Shortfall) w/ can. gains
($06)
11
$127
PACKAGE 2
(Dollars in Billions)
A. Jobs/Investments
1992
1993
'92-'97 B. Homebuyers/Families/Savings
1992
1993
'92-'97
Cost
Cost
Cost
Cost
Cost
Cost
*
Capital Gains (President's Plan)
0.5
3.1
9.0
Flexible IRA - - (rollover provision)
($4.4)
Passive Loss Rules for Active Investors
(0.2)
(0.5)
(2.8)
Penalty Free IRA for First-Time Homebuyers
(0.1)
(0.4)
*
Increase Depreciation by 20% for 1 year
Mortgage Revenue Bonds (1/2yrs)
(0.3)
(or equivalent capital expense)
(9.4)
(4.8)
(4.1)
Permit losses to carry over to new basis in
*
*
Liberalize AMT Depreciation
(0.1)
(0.4)
(1.5)
principal residence
Extend R&D Tax Credit and Allocation Rules (1/2yrs)
(0.4)
(1.3)
(2.6)
$5,000 First -Time Homebuyers Credit for
*
Low Income Housing Credit (1/2yrs)
(0.2)
(1.7)
purchase of any first home MMM 1994 (1 year)
(0.6)
(5.3)
(5.0)
Extend Targeted Jobs Tax Credit (1 1/2 yrs)
(0.1)
(0.2)
(0.5)
Casualty Loss on Sale of Personal Residence
#
(0.4)
(1.9)
*
*
*
Permit Deduction of Student Loan Interest
(0.3)
(0.5)
(2.1)
Farmer Bonds (1 1/2 yrs)
*
Enterprise Zones (President's Plan)
(0.1)
(1.9)
Total
($0.9)
($6.3)
($14.1)
*
Repeal Boat and Airplane Luxury Tax
(0.2)
Total w/o Capital Gains
($10.2)
($7.5)
($15.3)
'92-'97
Revenue Gainers
1992
1993
'92-'97
Revenue Losers
1992
1993
Cost
Cost
Cost
Gain
Gain
Gain
A. Jobs/Investments
($10.2)
($7.5)
($15.3)
Compliance Raisers
$1.8
$2.0
$7.8
B. Homebuyers/Families
(0.9)
(6.3)
(14.1)
Mark to Market- Securities, 10yr phase-in
0.3
0.6
4.0
Subtotal
($11.1)
($13.8)
($29.4)
Disallow Interest Deductions on Corporate
Owned Life Insurance (COLI) Loans
0.1
0.2
2.7
Miscellaneous
Prohibit Double Dipping by Thrifts
1.1
0.3
1.5
Charities (Appreciated Property-AMT)
(0.6)
Treat Large Credit Unions as Thrifts for Taxes
0.1
0.2
0.8
0.1
1.9
Business Energy Credit (1/2yrs)
(0.1)
Tax Annuities for a term certain
*
*
*
*
Orphan Drug Credit (Permanent)
Repeal Diesel fuel exemption for boats
0.1
*
#
Expand 3% communications tax
0.2
1.2
Special Needs Adoption
*
Subtotal
$3.4
$3.6
$20.0
Tax Simplification (Revenue Neutral)
Total
($11.1)
($13.8)
($30.1)
Reduced Spending (Plug)
7.0
7.0
14.0
Capital Gains (President's Plan)
0.5
3.1
9.0
Total
$10.9
$13.7
$43.0
Revenue Surplus/(Shortfall) wo/ cap. gains
($0.7)
($3.2)
$3.9
Surolus/(Shortfall) w/ can gains
($02)
($0.1)
$12.9
PACKAGE 3
(Dollars in Billions)
A. Jobs/Investments
1992
1993
'92-'97 B. Homebuyers/Families/Savings
1992
1993
'92-'97
Cost
Cost
Cost
Cost
Cost
Cost
Capital Gains (President's Plan)
0.5
3.1
9.0
Flexible IRA - - (rollover provision)
*
($4.4)
Passive Loss Rules for Active Investors
(0.2)
(0.5)
(2.8)
Penalty Free IRA for First-Time Homebuyers
(0.1)
(0.4)
Increase Depreciation Expensing by 10% for 1 year
(4.2)
(2.3)
(2.0)
Mortgage Revenue Bonds (1 1/2 yrs)
*
(0.3)
Liberalize AMT Depreciation
(0.1)
(0.4)
(1.5)
Permit losses to carry over to new basis in
principal residence
*
*
Extend R&D Tax Credit and Allocation Rules (11/2 yrs)
(0.4)
(1.3)
(2.6)
*
Low Income Housing Credit (1/2yrs)
(0.2)
(1.7)
Middle Income Tax Relief ($1,200 personal
Extend Targeted Jobs Tax Credit (1 1/2 yrs)
(0.1)
(0.2)
(0.5)
exemption per child--1 yr) or
(7.5)
(3.2)
(10.7)
*
*
*
Farmer Bonds (1/2yrs)
(alternatively $1,000 exemption per
*
Enterprise Zones (President's Plan)
(0.1)
(1.9)
return 1 yr, would score similarly) (Est.)
*
*
Repeal Boat and Airplane Luxury Tax
(0.2)
Total
($7.5)
($3.3)
($15.8)
Total w/o Capital Gains
($5.0)
($5.0)
($13.2)
Revenue Losers
1992
1993
'92-'97
Revenue Gainers
1992
1993
'92-'97
Cost
Cost
Cost
Gain
Gain
Gain
A. Jobs/Investments
($5.0)
($5.0)
($13.2)
Compliance Raisers
$1.8
$2.0
$7.8
B. Homebuyers/Families
(7.5)
(3.3)
(15.8)
Mark to Market-Securities, 10yr phase-in
0.3
0.6
4.0
Subtotal
($12.5)
($8.3)
($29.0)
Disallow Interest Deductions on Corporate
Owned Life Insurance (COLI) Loans
0.1
0.2
2.7
Miscellaneous
Prohibit Double Dipping by Thrifts
1.1
0.3
1.5
Charities (Appreciated Property-AMT)
(0.6)
Treat Large Credit Unions as Thrifts for Taxes
0.1
0.2
0.8
Business Energy Credit (1/2yrs)
Tax Annuities for a term certain
*
(0.1)
0.1
1.9
*
*
*
Orphan Drug Credit (Permanent)
Repeal Diesel fuel exemption for boats
0.1
*
*
*
Special Needs Adoption
Expand 3% communications tax
0.2
1.2
*
*
Tax Simplification (Revenue Neutral)
Subtotal
$3.4
$3.6
$20.0
Total
($12.5)
($8.3)
($29.7)
Reduced Spending (Plug)
7.0
7.0
14.0
Capital Gains (President's Plan)
0.5
3.1
9.0
Total
$10.9
$13.7
$43.0
Revenue Surplus/(Shortfall) wo/ cap. gains
($2.1)
$2.3
$4.3
gains
($16)
$54
$133
PACKAGE 4
(Dollars in Billions)
A. Jobs/Investments
1992
1993
'92-'97 B. Homebuyers/Families/Savings
1992
1993
'92-'97
Cost
Cost
Cost
Cost
Cost
Cost
Capital Gains (President's Plan)
0.5
3.1
9.0
Flexible IRA - - (rollover provision)
*
*
($4.4)
Passive Loss Rules for Active Investors
(0.2)
(0.5)
(2.8)
Penalty Free IRA for First-Time Homebuyers
*
(0.1)
(0.4)
Investment Tax Credit 8% 1992 only
(13.3)
(11.2)
(27.2)
$2,000 First-Time Homebuyers Credit for
Liberalize AMT Depreciation
(0.1)
(0.4)
(1.5)
purchase of a newly constructed home (1yr)
(0.3)
(0.3)
Extend R&D Tax Credit and Allocation Rules (1 1/2 yrs)
(0.4)
(1.3)
(2.6)
Mortgage Revenue Bonds (1/2yrs)
*
(0.3)
Low Income Housing Credit (1 1/2 yrs)
*
(0.2)
(1.7)
Permit losses to carry over to new basis in
Extend Targeted Jobs Tax Credit (1 1/2 yrs)
(0.1)
(0.2)
(0.5)
principal residence
*
*
Farmer Bonds (1 1/2 yrs)
*
*
*
Middle Income Tax Relief Plus (Plug)
(17.5)
(22.5)
(43.5)
Enterprise Zones (President's Plan)
*
(0.1)
(1.9)
Total
($17.5)
($22.9)
($48.9)
Repeal Boat and Airplane Luxury Tax
*
*
(0.2)
Total w/o Capital Gains
($14.1)
($13.9)
($38.4)
Revenue Losers
1992
1993
'92-'97
Revenue Gainers
1992
1993
'92-'97
Cost
Cost
Cost
Gain
Gain
Gain
A. Jobs/Investments
($14.1)
($13.9)
($38.4)
Disallow Interest Deductions on Corporate
B. Homebuyers/Families
(17.5)
(22.9)
(48.9)
Owned Life Insurance (COLI) Loans
0.1
0.2
2.7
Subtotal
($31.6)
($36.8)
($87.3)
Prohibit Double Dipping by Thrifts
1.1
0.3
1.5
Tax Annuities for a term certain
*
0.1
1.9
Miscellaneous
Repeal Diesel fuel exemption for boats
*
*
0.1
Charities (Appreciated Property- - AMT)
*
(0.6)
Subtotal
$1.2
$0.6
$6.2
Business Energy Credit (1/2yrs)
*
(0.1)
Orphan Drug Credit (Permanent)
*
*
Reduced Spending (Plug)
7.0
7.0
14.0
Special Needs Adoption
*
*
Capital Gains (President's Plan)
0.5
3.1
9.0
Tax Simplification (Revenue Neutral)
*
*
*
Total
$8.7
$10.7
$29.2
Total
($31.6)
($36.8)
($88.0)
Revenue Surplus/(Shortfall) wo/ cap. gains
($23.4)
($29.2)
($67.8)
Question 1
What is the current status of the intangible drilling costs
issue as it relates to AMT preferences?
Answer
The Administration is clearly on record supporting changes to
the alternative minimum tax (AMT) treatment of intangible drilling
costs (IDC's) incurred by independent oil and gas producers
("independents").
>
Speech by President Bush (3/5/92) ; Letter from Secretary
Brady (3/2/92) i mark-up statement by Assistant Secretary
Goldberg (3/3/92).
We are working with industry representatives to develop a
specific proposal. Based on revenue and policy considerations, the
proposal:
>
should cover only IDC's;
>
should be limited to independents;
>
should not completely repeal AMT treatment of IDC's.
We must recognize the potential fall-out from any proposal
because other industries (e.g., airlines, paper companies, heavy
equipment manufacturers, and the automotive and steel industries)
are also seeking AMT relief.
The revenue cost of various proposals under consideration
ranges from $300 million to $1.5 billion through 1997.
Question 2
What is the status of the AMT provision as it relates to our
capital gains proposal?
Answer
The Administration's proposal would reduce the tax on long-
term capital gains to 15.4% -- its lowest rate in 50 years.
The Reagan Administration never proposed a specific capital
gains tax cut. During that Administration, the top tax rate on
capital gains went from 28% to 20%, and back up to 28%.
Under the Administration's proposal, more than 98% of all
taxpayers with capital gains would not pay any AMT.
Unlike prior law and all prior proposals, the Administration's
current proposal would expressly exclude certain gains from the
AMT.
>
Sales of personal residences, family farms, timber and
oil and gas properties, commercial real estate, and small
businesses would never be subject to the AMT.
The sales of publicly traded securities could trigger
liability for the AMT. However, as a practical matter:
>
Virtually all senior citizens and working families who
invest in the stock market would not be subject to the
AMT.
Any additional AMT carve-out would be characterized by the
Democrats as follows:
>
It would only benefit the super-rich (taxpayers with
average incomes over $300,000) i
>
It would benefit wall street traders and corporate
raiders.
The revenue cost of an additional carve-out for all gains on
assets held for more than 3 years would be $5.5 billion through
1997. The revenue cost of excluding all capital gains from the AMT
would be $6.2 billion through 1997.
Question 3
What is the basis for our proposal to tax large credit unions
and thrifts, and why is there so much resistance to it?
Answer
Our proposal would not change the tax treatment of thrifts and
savings and loan associations.
Credit unions engage in the same business activities as
thrifts and savings and loan associations.
Credit unions are tax exempt; their direct competitors
(primarily, thrifts and banks) are subject to tax.
They all do the same thing -- they should all be taxed the
same way.
The Reagan Administration first proposed taxing credit unions
like thrifts in 1985.
While credit unions can dress up their claims, they have not
challenged our proposal on economic or tax policy grounds. The
only real objection is that they like their preferential treatment
under current law.
The Administration's proposal would only tax credit unions
with more than $50 million in assets.
>
Less than 6% of all credit unions would be subject to
tax; more than 94% would still be tax exempt.
We estimate that the proposal would raise approximately $1.1
billion through 1997.
Question 4
What would be the costs related to an extension of the time
period for our investment tax allowance?
Answer
The investment tax allowance (ITA) proposal covers binding
contracts between February 1, 1992 and December 31, 1992, if the
property is placed in service by June 30, 1993. The cost of the
current proposal is $2.9 billion through 1997.
If the placed in service date were extended to December 31,
1995, the cost would increase to $3.7 billion (an increase of $800
million).
If the placed in service date were extended to December 31,
1997, the cost would increase to $4.3 billion (an increase of $1.4
billion).
Factors to keep in mind in considering these changes:
>
The ITA is intended as a short-term, temporary incentive
that will accelerate the recovery by encouraging
businesses to speed up their investments in capital
equipment.
>
Many business taxpayers place a higher priority on other
tax law changes (e.g., AMT relief for capital intensive
industries; expensing for small business).
Question 5
What would be the costs of taking our $5,000 first-time
homebuyers' credit and allowing the purchaser to take it up front?
Answer
The current proposal permits eligible taxpayers to take half
the credit on their 1992 returns, and half on their 1993 returns
(with the ability to carry forward any unused credit). An
alternative would be to permit taxpayers to claim the full credit
for 1992 (with the ability to carry forward any unused amount).
The revenue costs of these alternatives are:
Fiscal
Credit spread
Full credit
Year
over 1992/93
during 1992
1992
-0.2
-0.4
1993
-2.1
-3.8
1994
-2.7
-1.5
1995
-0.9
-0.3
1996
-0.1
-*
1997
-*
-0.1
Total
-6.0
-6.1
Background
It has been suggested that we enhance the proposal by allowing
taxpayers to receive the credit at the time they actually purchase
their homes. As a practical matter, it would be expensive and
difficult for the government to make such payments. We believe
that taxpayers can deal with the situation by adjusting their
withholding, making temporary withdrawals from savings, and short-
term loans.
Question 6
What are the cost differences between our passive loss
provisions and those contained in H.R. 1414?
Answer
Current
Fiscal
Administration
Year
Proposal
H.R. 1414
-0.1
-0.3
1992
1993
-0.4
-1.0
1994
-0.4
-1.0
1995
-0.4
-1.0
-0.5
-1.0
1996
-0.6
-1.0
1997
-2.5
-5.3
Total
There are two primary differences between the Administration's
current proposal and H.R. 1414.
>
Our proposal covers only newly constructed and
rehabilitated projects, while H.R. 1414 covers new and
existing real estate.
>
Our proposal is limited to taxpayers who are actively
engaged in the real estate development business, while
H.R. 1414 covers taxpayers involved in any aspect of the
real estate industry (most notably, independent realtors,
appraisers, accountants and lawyers).
There may be good reasons for extending our proposal to cover
existing real estate. The additional cost of that change (above
our current proposal) would be $1.7 billion through 1997.
However, there is no justification for extending the proposal
beyond those actively involved in real estate development. As a
matter of economic and tax policy, real estate developers should be
treated the same way under the passive loss rules as other
businesses.
In contrast, there is no economic or tax policy reason for
letting certain taxpayers make tax shelter investments simply
because they provide services to the real estate industry.
Question 7
annuities? What is the logic behind our proposed tax treatment of
Answer
As a preliminary matter, our proposal does not change the
long-standing tax law provisions favoring life insurance as an
incentive to protect against uncertain life expectancies.
The annuities proposal would simply limit the favorable
contingencies). treatment to true annuities (i.e., annuities with substantial life
The so-called annuities that would be affected by our proposal
have no substantial life contingency. They are virtually identical
to, and are marketed in direct competition with, other savings and
investment vehicles which do not enjoy the same favorable tax
treatment (e.g., CD's, savings accounts, money market funds).
>
Marketing materials focus primarily on tax benefits
relative to other investment vehicles. For example: the
after-tax return on so-called annuities is far greater
than the after-tax return on CD's, but only because of
their favorable tax treatment. Unlike other investments,
annuities let the holder decide when to pay taxes. These
claims have nothing to do with the traditional purpose
for purchasing true annuities.
The so-called annuities that would be affected by our proposal
are the same as after-tax IRA's under current law -- except that
they circumvent the annual contribution and withdrawal limits.
The industry has argued that annuities are savings vehicles
perspective. for middle class families. It is important to put these claims in
>
Most annuity contracts involve initial investments of
less than $30,000.
>
However, the majority of all equity interests in
annuities exceed $500,000.
>
Our proposal could be limited to annual annuity purchases
in excess of $30,000 per year/per person without a
substantial impact on the revenue estimate.
We estimate that the annuities proposal would raise
approximately $1.7 billion through 1997.
Question 8
What is the basis for our mark-to-market proposal for
securities dealers?
Answer
Under current law, securities dealers can take tax losses on
their securities that have declined in value, while not recognizing
income on their securities that have gone up in value.
For tax purposes, this gives securities dealers the "best of
both worlds" -- they deduct their inventory losses but don't pay
tax on their inventory gains.
In contrast, for financial accounting purposes, they are
required to reflect economic reality: they mark-to-market all of
their securities, thereby recognizing all gains and losses.
The Administration's mark-to-market proposal reflects economic
reality and eliminates a tax subsidy that serves no economic or tax
policy objective. It does so in a way that is administrable and
does not create artificial incentives to hold or sell assets.
We estimate that the mark-to-market proposal would raise
approximately $4.0 billion through 1997.
age 1
POSSIBLE OPTIONS
01/23/92
Fiscal years
10:31 AM
1992
1993
1994
1995
1996
1997
1992-97
($ billions)
REVENUE-RAISING PROPOSALS
A. Compliance Raisers (1)
1. Require mandatory withholding of 10% on taxable pension
1.8
1.8
0.5
0.6
0.7
0.8
6.2
distributions (effective 5/1/92)
*
*
*
*
*
*
0.1 (preliminary)
2. Require payor of mortgage interest to an individual to furnish
individual's social security number on Schedule A to Form 1040.
*
3. Require charitable institutions to report charitable gifts in
0.1
0.2
0.2
0.2
0.2
0.9 ***
excess of $500 to the IRS. (Schedule A itemization of gifts over
$500 would be required.)
*
4. Expand 45-day processing rule to all returns and refund claims.
0.1
0.1
0.1
0.2
0.2
0.7
(Currently, IRS does not pay interest on original income tax returns
showing a refund due if it processes the refund within 45 days of receiving
the return; the proposal would extend the rule to other taxes and all amended
returns and refund claims.)
B. Corporate Sector Raisers
1. Reduce deductible percentage of business meals & entertainment expenses
from 80% to:
0.6
1.1
1.2
1.3
1.6
1.9
7.7
a. 70%
1.0
1.8
1.9
2.1
2.5
2.9
12.3
b. 65%
1.5
2.6
2.7
3.0
3.5
3.9
17.2
C. 60%
2. Disallow interest deductions on corporate-owned life insurance (COLI)
0.1
0.2
0.3
0.5
0.7
0.9
2.7
loans. (Under current law, interest incurred on loans used to
purchase tax-exempt investments is not deductible. However, this rule
does not apply to life insurance. Corporations have achieved the same
result by purchasing policies covering their entire work force then
borrowing out the cash value each year. The proposal would treat such
plans as equivalent to purchase of a tax-exempt investment but would
leave the inside build-up rule for life insurance undisturbed.)
3. Conform tax accounting for marketable securities to book accounting
0.8
1.4
1.6
1.8
1.0
0.4
7.0
rule adopted in 1973 (i.e., require marketable securities to be
marked-to-market annually rather than reported on lower of cost or
market basis). The conforming would be done ratably over 4 years.
4. Prohibit double dipping by thrifts acquired in 1988 deals,
as recommended in 1991 Treasury report (effective 1/1/91)
1.1
0.3
0.1
-0.0
-0.1
0.2
1.5
a. OTA
0.5
0.3
0.2
0.1
-0.1
1.0
b. JCT
age 2
POSSIBLE OPTIONS
01/23/92
Fiscal years
10:31 AM
1992
1993
1994
1995
1996
1997
1992-97
($ billions)
5. Treat large credit unions as thrifts for tax purposes
0.2
0.3
0.3
0.3
0.3
0.3
1.6
a. Assets greater than $10 million
b. Assets greater than $100 million
0.1
0.2
0.2
0.2
0.2
0.2
0.8
C. Individual Raisers
--
--
--
--
3.3
6.2
9.5
1. Extend Pease and PEP for 1996 and 1997
2. Tax annuities for a term certain (e.g., 5 yrs. or 10 yrs. without a life
*
0.1
0.2
0.4
0.5
0.6
1.9
contingency) in the same manner as a bond issued for the same period
D. Excise Tax Raisers
1. Communications (telephone) excise tax modernization - Until recently,
it was thought that the telephone excise tax would be phased out; however,
Congress has now made the tax permanent. In light of this development,
there are gaps in the coverage of the tax that reflect the fact that
the tax has not been updated for modern technology and exemptions that have
no apparent justification now that the tax has been made permanent.
a. Extend 3% communications tax to digital transmissions, satellite dishes,
*
0.2
0.2
0.2
0.2
0.3
1.2
earth stations, CPU, and PCX combinations and repeal the exemption for
coin-operated telephones.
b. Extend 3% communications tax to cable television
0.2
0.3
0.4
0.4
0.4
0.5
2.2 (JCT)
C. Extend 3% communications tax to all spectrum (new and old) users not
0.9
1.0
1.1
1.2
1.3
1.4
6.8
already subject to tax. [Note: The spectrum auction in last year's budget
and proposed by Sen. Dole would raise $1.5 billion but would apply only
to NEW spectrum.]
*
*
*
*
*
*
0.1
2. Repeal diesel fuel exclusion for boats (offsets boat luxury
tax repeal)
*
3. Repeal exemption for gasoline used in an off-highway business
0.2
0.2
0.2
0.2
0.3
1.2
use including air transportation of persons or property for hire
but not noncommercial aviation (effective 7/1/92). [This proposal is being
refined to be a possible offset for repeal of the aircraft luxury tax.]
4. Repeal exemption for diesel fuel and special motor fuel sold for use in an
0.3
1.2
1.2
1.2
1.1
1.1
6.1
off-highway, non-farm business
E. Securities transaction excise tax (STET) - .1% rate (excludes
2.5
3.6
3.9
4.1
4.3
4.5
22.9
trading of Treasury, Federal Agency, and State and Local securities)
age 3
POSSIBLE OPTIONS
01/23/92
Fiscal years
10:31 AM
1992
1993
1994
1995
1996
1997
1992-97
($ billions)
F. Capital Gains (effective 2/1/92)
0.5
3.1
2.1
1.1
1.2
1.0
9.0
1. President's proposal (10%/20%/30%)
2. Prospective President's proposal (10%/20%/30%) with mark-to-market
0.4
1.8
-0.9
-1.2
-0.7
-0.8
-1.4
option (2/1/91 to 12/31/91)
3. Prospective President's proposal (15%/30%/45%) with mark-to-market
0.7
3.0
-1.7
-2.1
-1.4
-1.5
-2.9 ***
option (2/1/91 to 12/31/91)
4. Prospective President's proposal (15%/30%/45%), with 20% exclusion
1.0
4.3
-2.1
-2.6
-1.7
-1.6
-2.7 ***
for assets held 3+ years, which are sold or marked-to-market between
2/1/91 and 12/31/91
2.1
1.1
1.2
1.0
9.0 ***
5. President's proposal that applies only to gains reinvested in
0.5
3.1
noncollectible assets within 60 days (IRS could find proposal
very difficult to enforce)
6. Prospective President's proposal (15%/30%/45%) with
0.5
2.2
-1.6
-1.9
-1.3
-1.3
-3.4
a. 20% exclusion for timber held by individuals for at least 3 years
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.6
b. $100,000 lifetime exclusion for old assets held at least 3 years
-2.8
-18.0
-12.6
-10.5
-9.5
-8.1
-61.5
-2.4
-15.9
-14.3
-12.5
-10.9
-9.5
-65.5 ***
TOTAL EFFECT:
7. Japanese plan - Taxpayer may pay either tax based on a 35% exclusion or
-3.7
-25.7
-30.9
-36.4
-41.4
-46.2
-194.2 ***
1% of gross sales price for assets held at least 1 year
8. Modified Breaux plan - If President's capital gains cut does not produce
0.5
3.1
2.1
1.1
1.2
1.0
9.0 ***
targeted revenues in 4 years, provision automatically expires
age 4
POSSIBLE OPTIONS
01/23/92
Fiscal years
10:31 AM
1992
1993
1994
1995
1996
1997
1992-97
($ billions)
REVENUE LOSERS
A. Extender List (2)
1. Research and Development (R&D)
a. Extend R&D credit
-0.2
-0.8
-1.4
-1.6
-1.8
-2.1
-7.8
I.
Permanent
-0.2
-0.8
-0.5
-0.1
-0.1
-*
-1.7
II.
1-1/2 years
b. Extend R&D allocation rules
-0.2
-0.5
-0.7
-0.7
-0.7
-0.8
-3.5
I. Permanent
-0.2
-0.5
-0.3
--
--
--
-0.9
II.
1-1/2 years
C. Extend R&D credit/allocation but require taxpayer to elect one
provision or the other effective 1/1/93. (Change thereafter with
consent of IRS.)
-0.3
-1.1
-1.6
-1.9
-2.2
-2.5
-9.6
I. Permanent
-0.3
-0.9
-0.6
-0.2
-0.1
-*
-2.2
II.
1-1/2 years
1
2. Extend small industrial bond exception only for new farmers, keeping
limit at $250,000 per issue (other small issues would expire).
-*
-*
-*
-*
-*
-*
-*
a. Permanent
-*
-*
-*
-*
-*
-*
-*
b. 1-1/2 years
3. Targeted Jobs Tax Credit (TJTC)
-0.1
-0.2
-0.2
-0.1
-*
-*
-0.5
a. Extend TJTC for 1-1/2 years
b. Extend TJTC for 1-1/2 years and expand eligible hires to include
-0.1
-0.3
-0.4
-0.2
-0.1
-0.1
-1.1
unemployed who have exhausted a full 26-week entitlement to
unemployment (would require rules to prevent fire and hire)
4. Appreciated property - AMT
.*
-*
-0.1
-0.1
-0.1
-0.1
-0.4
a. Expand and extend charitable contributions relief by excluding
gifts of appreciated property from AMT tax base
-*
-*
-*
-*
-*
-0.1
-0.2
b. Allow corporations to treat all charitable contributions as
domestic source deductions.
5. Mortgage revenue bonds
.*
-*
-0.1
-0.1
-0.2
-0.3
-0.7
a. Permanent
.*
-*
-0.1
-0.1
-0.1
-0.1
-0.3
b. 1-1/2 years
6. Low-income housing credit
-*
-0.2
-0.4
-0.7
-1.0
-1.4
-3.6
a. Permanent
-*
-0.2
-0.3
-0.4
-0.4
-0.4
-1.7
b. 1-1/2 years
'age 5
POSSIBLE OPTIONS
01/23/92
Fiscal years
10:31 AM
1992
1993
1994
1995
1996
1997
1992-97
($ billions)
7. Business energy credits
-*
-*
-*
-0.1
-0.1
-0.1
-0.3
a. Permanent
-*
-*
-*
-*
*
*
-0.1
b. 1-1/2 years
8. Orphan drug credit
-*
-*
.*
-*
-*
-*
-*
a. Permanent
-*
-*
-*
-*
-*
-*
-*
b. 1-1/2 years
SUBTOTAL PERMANENT EXTENSION OF CERTAIN EXPIRING PROVISIONS (ITEMS 1c, 2a,
-0.5
-1.6
-2.4
-2.9
-3.6
-4.4
-15.4
3a, 4, 5a-8a)
SUBTOTAL - 1-1/2 YEAR EXTENSION OF CERTAIN EXPIRING PROVISIONS (ITEMS 1a, 1b,
-0.6
-1.8
-1.5
-0.8
-0.7
-0.7
-6.0
2b, 3a, 4, 5b-8b)
B. Growth Options (other than capital gains)
1. Real Estate items
-*
-0.1
-0.1
-0.1
-0.1
-0.4
a. Allow penalty-free withdrawals from IRAs for first-time
-0.1
homebuyers (1992 budget proposal)
b. Allow 5%-of-purchase-price credit for purchase of a newly-constructed
principal residence between 2/1/92 and 10/31/92, limit $2,000 (similar
to section 44 of 1976 Code) - (recapture if sold within 3 years)
-0.1
-1.0
*
0.1
0.1
--
-1.0
I. Apply to any homebuyer
-*
-0.3
*
*
*
--
-0.3
II. Limited to first-time homebuyers (have not owned home
within last 3 years)
III. Limited to first-time homebuyer and applies to purchase of any
-0.2
-2.1
0.1
0.1
0.1
--
-2.0
first home
C. Allow 10%-of-purchase-price credit for purchase of a newly-constructed
principal residence between 2/1/92 and 10/31/92, limit $5,000 (similar
to section 44 of 1976 Code) - (recapture if sold within 3 years)
-0.3
-2.5
0.1
0.2
0.1
--
-2.3
I. Apply to any homebuyer
-0.7
*
*
*
-0.1
--
-0.7
II. Limited to first-time homebuyers (have not owned home
within last 3 years)
III. Limited to first-time homebuyer and applies to purchase of any
-0.6
-5.3
0.2
0.3
0.3
:
-5.0
first home
-*
d. Allow losses on sales of personal residences as casualty losses
-0.4
-0.4
-0.4
-0.4
-0.3
-1.9
(i.e., fully deductible to extent in excess of 10% of AGI)
Page 6
POSSIBLE OPTIONS
01/23/92
Fiscal years
10:31 AM
1992
1993
1994
1995
1996
1997
1992-97
($ billions)
e. Revise passive loss rules
Republican Conference proposal (netting allowed if 500 hours
-0.6
-1.4
-1.0
-1.0
-0.8
-0.8
-5.6
1.
and 50% of time spent on real estate)
II. Allow taxpayer to treat all real estate development operations
-0.2
-0.5
-0.4
-0.5
-0.6
-0.7
-2.8
in which he actively participates as a single trade or business
(i.e., allows current netting of gains and losses). However, real
estate development for this purpose would include only:
i.
Construction, renovation, and management of real property
ii. Lease-up and sale of property in which the taxpayer owns a
fee interest equal to 10% or more at all times; and
iii. Rental of real property developed by the taxpayer.
-*
-*
-*
f. Allow rollover of full tax basis on sale of home at a loss
(Current law restricts rollover to sales proceeds of home sold.)
2. Savings Incentives
.*
a. Family Savings Accounts (FSAs) (1992 budget proposal)
-0.2
-0.6
-1.1
-1.5
-2.0
-5.4
*
*
b. Plus rollover option for direct contribution IRA (i.e.,
-0.4
-0.8
-1.3
-2.0
-4.4
no rollover IRAs) -- entire rollover taxed over 4 years
*
C. FSA proposal as in 1992 budget with rollover and no income limits
0.1
-0.4
-1.0
-1.6
-2.5
-5.4
3. Investment Credits/Expensing
a. Incremental ITC -- 5% credit on new equipment (other than
buildings and their structural components) placed in service after 4/1/92
in excess of base. Base in 1991 is equal to average investment in such
property for 1989-91 (in 1991 dollars). Three-year property receives a
3-1/3% credit. Basis would be reduced by credit allowed and subject to
general business credit limitations.
-1.6
-1.5
-*
-*
*
*
-3.0
1.
1-year
-2.4
-1.8
-*
-*
*
0.1
-4.1 ***
II. 1-year, base in 1991 is not indexed to 1991 dollars
III. 1-year, base in 1991 equals 90% of 1989-91 average (in 1991 dollars)
-3.7
-3.1
-0.1
-*
0.1
0.1
-6.8
IV. 1-year. In addition, allow 10% credit for businesses (other than
-1.8
-1.7
-*
**
*
0.1
-3.5 ***
professional service businesses) with gross receipts of less than
$1 million in 1991 (i.e., 15% altogether)
NOTE: All of these proposals will require difficult-to-administer
anti-abuse rules to prevent artificial creation of new entities
to claim the credit.
age 7
POSSIBLE OPTIONS
01/23/92
Fiscal years
10:31 AM
1992
1993
1994
1995
1996
1997
1992-97
($ billions)
b. 1-year increase in expensing from current $10,000 to $100,000,
-7.0
-4.6
3.9
2.2
1.6
0.6
-3.3
with no phaseout
C. 1-year full expensing of equipment (but not land, buildings, or
-38.5
-17.8
19.7
11.5
8.3
4.8
-12.1
structural components of buildings), with carryforward, non-refundable
d. Allow additional first-year depreciation equal to 10% of purchase price
for equipment purchased between 2/1/92 and 12/31/92 (could be
described as partial expensing)
0.9
0.6
-2.0
1.
Additional depreciation applies in same year as purchase (1992)
-4.2
-2.3
1.9
1.1
II. Additional depreciation applies 1 year after purchase (1993)
1.1
-2.7
-2.5
1.0
0.8
0.5
-1.7
e. Eliminate the ACE depreciation adjustment on equipment purchased
-0.1
-0.4
-0.4
-0.3
-0.2
-0.2
-1.5
after 2/1/92 for purposes of the corporate AMT. (This eliminates one
of two depreciation adjustments in the corporate AMT and should
provide an incentive for corporations that will not benefit
from an ITC.)
f. Allow a corporation (other than an S corporation) to elect to defer for
3 years up to the lesser of 10% of federal income tax liability for 1992
or the firm's investment in equipment in 1992
Limit to corporations with less than $1 million in gross receipts
-0.4
-0.3
--
0.4
0.3
--
:
1.
in 1991
-4.1
-2.8
--
4.1
2.8
--
--
II. No gross receipts limit
4. Other
a. Repeal luxury taxes
.*
.*
-*
-*
-*
-*
-0.1
I. Boats
-*
-*
.*
-*
-*
-*
-0.1
II. Airplanes
b. Enterprise zones
-*
-0.1
-0.2
-0.3
-0.5
-0.8
-1.9
1.
1992 budget proposal
-*
.*
-0.2
-0.4
-0.6
-0.8
-2.0
II. Rostenkowski proposal
C. Allow deduction for interest paid on student loans
-0.3
-0.5
-0.4
-0.4
-0.5
-0.5
-2.1
d. Allow exclusion of employer-provided transit passes from income
-*
.*
-*
-*
.*
.*
-0.1
I.
Increase $21-per-month limit to $65-per-month (with cliff)
.*
.*
-*
-*
-*
-*
-0.1
II. Increase $21-per-month limit to $65-per-month (eliminate cliff)
'age 8
POSSIBLE OPTIONS
01/23/92
Fiscal years
10:31 AM
1992
1993
1994
1995
1996
1997
1992-97
($ billions)
e. Allow a deduction for interest of up to $7500 per return per year,
phase-out home equity deductions over 3 years.
very
I. Unindexed
-6.8
-11.8
-12.4
-12.9
-13.5
-14.1
-71.5 preliminary
not available
II. Indexed in years after 1992
f. Allow up-to $2,000 deduction on comsumer interest (home-equity loans reduced
very
-8.6
-9
-9.4
-9.8
by consumer interest deduction dollar-for-dollar)
-4.8
-8.2
-49.8 preliminary
g. Allow up-to $2,000 deduction on auto-loan interest (home-equity loans reduced
very
by auto-loan interest deduction dollar-for-dollar)
-2.1
-3.6
-3.7
-3.9
-4.1
-4.2
-21.6 preliminary
h. Allow interest deduction for auto-loans originated after 2/1/92,
very
$1,000 limit, (home-equity loan reduced dollar-for-dollar)
-0.2
-0.6
-1.1
-1.4
-1.5
-1.6
-6.4 preliminary
i. Allow interest deduction for auto-loans originated between 2/1/92 and 12/31/92,
very
$1,000 limit (home-equity loan reduced dollar-for-dollar)
-0.2
-0.4
-0.4
-0.3
-0.1
0.0
-1.4 preliminary
j. Increase child-care credit $50 per month (from current $200) (eff. 1/1/93)
--
-0.2
-0.2
-0.2
-0.2
-0.3
-1.1
5. Middle-Class Tax Relief
a. Allow wage earners to exclude 50% of social security taxes paid
from taxable income, up to a maximum exclusion of $1000 per worker.
The exclusion is phased-out between $30,000-$40,000 (single),
$40,000-$50,000 (hh), and $50,000-$60,000 (joint).
There is no refundability feature.
-2.2
-4.5
-4.7
-4.8
-4.9
-4.9
-26.1
1. Permanent
-2.2
-2.2
--
--
:
--
-4.4
II. 1-year
-2.2
-4.5
-2.3
--
--
:
-9.0
III. 2-year
IV. Permanent, phase-out ranges are $32,260-$42,260 (single and married
-4.3
-8.8
-9.2
-9.6
-10.0
-10.4
-52.2
filing separately), $48,390-$58,390 (hh), and $64,520-$74,520 (joint)
b. Increase personal exemption by $1,200 per child and change
rounding rules to nearest $10 (Wolf)
-7.5
-3.2
--
:
:
--
-10.7
I. 1-year
-7.5
-10.9
-10.9
-10.8
-12.1
-12.2
-64.4
II. Permanent
'age 9
POSSIBLE OPTIONS
01/23/92
Fiscal years
10:31 AM
1992
1993
1994
1995
1996
1997
1992-97
($ billions)
C. Provide non-refundable tax credit of $300 per child (Bentsen)
-8.1
-3.5
:-
--
--
--
-11.6
I. 1-year
II. Permanent
-8.1
-11.9
-12.1
-12.1
-11.9
-11.9
-68.0
d. Provide refundable credit of 20% of employee-paid social
security tax up to $200 (single) or $400 (joint)
I. 2-year credit (Rostenkowski)
-12.2
-22.2
-10.0
--
--
--
-44.4
II. Permanent credit
-12.2
-22.2
-22.3
-22.5
-22.7
-22.9
-124.8
--
e. Provide one-year exemption of $1,500 per return (Dole)
-14.7
-9.8
--
--
--
-24.5
* raises less than $50 million
-* loses less than $50 million
-- negligible effect
(1) Two revenue-raising compliance proposals are not included: (a) withholding on independent contractors (Commissioner
Goldberg would include), and (b) business information reporting.
(2) On the extender list, three items were not included: (a) employer-provided educational assistance, (b) group
legal services, and (c) self-employed health insurance (to be included in health package).
PRELIMINARY DRAFT
REVENUE OPTIONS
AS SUGGESTED BY VARIOUS PARTIES
NOTE: INCLUSION OF AN OPTION
DOES NOT IMPLY SUPPORT BY ANY PARTY
REVENUE OPTIONS
Revenue estimates are preliminary and subject to change.
Interaction between proposals if combined may affect estimates.
Proposals are estimated to be effective 1/1/91
,
unless otherwise specified.
A. Revenue raising items from the Administration Budget.
NOTE: Capital gains proposals are covered in category H.
1. Airport and Airway Trust Fund.
a. Continue tax at current levels.
JCT
.9 1.6 1.7 1.8 2.0 -- 8.0
OTA
O
o
O
O
O
--
O
For baseline receipts scoring, OMB assumes that the
Airport and Airway taxes will be extended without
reduction by the trigger. CBO assumes that the
trigger will take effect for purposes of
determining its baseline. This difference accounts
for the difference in scoring.
b. Repeal trigger and increase air passenger tax to
10% (from 8%), air freight tax to 6.25% (from 5%),
the noncommercial aviation gasoline tax to
15c/gallon (from 12C), and the noncommercial jet
fuel tax to 17.5c/gallon (from 14c).
JCT
1.3 2.3 2.5 2.7 3.0 -- 11.8
OTA
.5 .8 .9 .9 1.0 -- 4.1
As in la, different baseline scoring rules account
for the difference in the estimates.
2.
a. Require property and casualty companies to utilize
estimated salvage in computing losses (Budget
proposal). Effective 1/1/90.
JCT
.5 .3 .3 .2 .1 -- 1.4
OTA
.5 .3 .3 .2 .1 -- 1.4
b. Same proposal with fresh start.
.3 .2 .2 .1 .1 --
.9
JCT
.3 .2 .2 .1 .1 --
.9
OTA
2
3. a. Allow excess pension funds to be used to pay
retiree health benefits. (Budget proposal: this
proposal is similar to the provision which passed
the House last year.)
JCT
.3 .5 .2 * * -- 1.0
OTA
.3
.6
.3
*
*
--
1.2
b. Allow transfers from overfunded pension plans for
current year retiree health expenditures (provision
passed by Senate last year)
JCT
.6 .4 .4 .3 .3 -- 2.0
OTA
.4 .2 .1 .1 * -- .8
NOTE: In addition, there will be staff work on a
possible alternative provision.
4.
Increase ad valorem fee on shippers (Harbor Maintenance
Tax).
JCT
.3 .3 .3 .4 .4 -- 1.7
OTA
.3 .3 .3 .4 .4 -- 1.7
5. Extend social security to state and local employees.
a. Budget proposal.
JCT
1.6 2.3 2.4 2.6 2.8 -- 11.7
OTA
2.2 2.4 2.5 2.7 2.9 -- 12.7
b. Budget proposal with exclusion for students.
JCT
1.3 1.9 2.1 2.2 2.4 -- 9.9
OTA
1.8 2.0 2.1 2.3 2.5 -- 10.7
Possible expenditure offsets to 5a or b:
*
Increase retirement test by $1,200
JCT
OTA
*
Other social security amendments such as those
proposed by the Ways and Means Social Security
Subcommittee not to exceed $500 million in
cost over 5 years.
3
6. Extend Medicare tax to all state and local government
employees.
JCT
1.7 1.6 1.6 1.6 1.6 -- 8.2
OTA
1.7 1.7 1.7 1.7 1.6 -- 8.4
NOTE: In addition to the foregoing, the Budget contained
the following items:
IRS management reforms
OTA
2.5 1.1 .5 * -.4 -- 3.7
Stabilize payroll tax deposit rules
OTA
.9 2.2 -3.1 * * -- *
The payroll tax proposal is important administratively
but was not considered for deficit reduction purposes.
7. a. Make telephone excise tax permanent.
JCT
1.5 2.6 2.8 2.9 3.1 -- 12.9
OTA
1.5 2.6 2.8 3.0 3.2 -- 13.1
b. Speed up collection
JCT
.1
*
*
*
*
:
.1
OTA
.1
*
*
*
*
:
.1
NOTE: The Senate and House utilize Item 7 for Child-
related legislation.
B. Compliance proposals and LUST Fund extension.
8. Impose withholding on pension payments.
JCT
2.4 1.0 1.1 1.2 1.4 -- 7.1
OTA
3.1 1.5 1.7 2.1 2.4 -- 10.8
9. Improve compliance for employers of household employees.
JCT
: * .1 * .1 * .1 * .1 -- -- * .4
OTA
4
10. Improve reporting by foreign-owned entities with U.S.
operations (H.R. 4308 and S. 2410)
à. Extend reporting rules adopted in 1989 (6038A) to
open years for corporations and extend rules to
branches.
JCT
*
*
.1
.1
.1
--
.3
OTA
*
*
.1
.1
.1
--
.3
b. Allow IRS to extend unilaterally statute of
limitations for foreign-owned entities.
*
*
*
*
--
*
JCT
:
OTA
*
*
*
*
--
*
11. Extend LUST fund tax. Effective 9/1/90.
a. Permanent extension with no ceiling.
JCT
.1 .1 .1 .1 .1 --
.5
OTA
.1 .1 .1 .1 .1 --
.5
b. 5-year extension with no ceiling.
.1 .1 .1 .1 .1 --
.5
JCT
.1 .1 .1 .1 .1 --
.5
OTA
C. Permanent extension with $1.5 billion ceiling.
JCT
.1 .1 .1 .1 .1 --
.5
OTA
.1 .1 .1 .1 .1 -- .5
C. Rates.
12. 33% top rate: Eliminate 5% phase-out of 15% bracket and
exemptions, create third bracket of 33% at beginning
point of current phase-outs, limit capital gains rate to
28%.
JCT
4.0 7.9 9.0 10.2 11.4 -- 42.5
OTA
5.7 10.2 10.5 11.0 11.6 -- 49.0
13. 35% top rate: Eliminate 5% phase-outs, create third
bracket of 33% at beginning point of current phase-out,
create fourth bracket of 35% at end point of current
phase-out (assuming 2 exemptions for joint and head of
household returns), limit capital gains rate to 28%.
JCT
5.8 11.3 12.7 14.6 16.2 -- 60.4
OTA
8.0 14.2 14.8 15.5 16.3 -- 68.8
5
14. Repeal 5% phase-out (bubble): Eliminate 5% phase-out,
leaving a single top bracket of 28%.
JCT
-4.8 -9.1 -10.2 -11.3 -12.7 -- -48.2
OTA
-4.9 -8.6 -9.6 -10.4 -11.1 -- -44.5
15. Repeal'5% phase-out, modified: Eliminate 5% phase-out,
but deny personal and dependency exemptions to taxpayers
with AGI in excess of $113,000 (single) and $193,400
(joint). These thresholds will be indexed beginning in
1992.
JCT
-3.8 -7.5 -8.4 -9.3 -10.3 -- -39.3
OTA
-3.9 -6.9 -7.7 -8.3 -8.9 -- -35.7
16. 31% top rate: Eliminate 5% phase-out, create third
bracket of 31% at beginning point of current phase-out,
limit capital gains to 28%.
JCT
.5 1.2 1.4 1.7 2.0 -- 6.9
OTA
1.4 2.6 2.5 2.5 2.5 -- 11.5
D.
Energy and Environmental.
17. Increase motor fuel taxes by 15¢ gallon. Effective
10/1/90.
Current Tax
Proposal
Gallon of gasoline
9¢
24¢
Gallon of diesel
15c
30c
JCT
15.0 14.4 14.1 14.4 14.5 -- 72.4
OTA
14.1 14.4 14.3 14.1 14.3 -- 71.2
18. Increase motor fuels taxes by 10c gallon with one-half
dedicated to deficit reduction; one-half to trust fund.
Effective 10/1/90.
Current Tax
Proposal
Gallon of gasoline
9¢
19c
Gallon of diesel
15c
25¢
JCT
10.1 9.7 9.6 9.8 9.9 -- 49.1
OTA
9.5 9.7 9.7 9.6 9.8 -- 48.3
Net deficit reduction:
JCT
[Depends on outlays
OTA
from trust fund.]
6
19. Broad-based energy tax imposed on all fuels including
petroleum, natural gas, coal, and electricity generated
by hydro-electric and nuclear facilities. Exports of
such fuels would be exempt and imports would be taxed.
In addition, if the price of a manufactured product
reflects energy costs as a major component, consideration
will be given to providing that the tax would be
partially rebated upon export and an appropriate tax
imposed on imports of such product. Fuels used as
feedstocks would not be taxed. OTA effective date is
10/1/90; JCT effective date is 1/1/91.
a. Imposed on a 5% retail price ad valorem basis,
using retail price as a base for electricity.
JCT
9.7 14.5 15.4 16.2 17.1 -- 72.9
OTA
b. Imposed on a 5% retail price ad valorem basis,
using fuel prices to utilities as base for
electricity.
JCT
8.1 12.1 12.7 13.3 14.0 -- 60.2
OTA
10.5 11.4 11.9 12.4 12.9 -- 59.0
With anticipated price impact based on OTA
estimates:
Tax
Current
Implicit
price
Rates
Gasoline (gal.)
$ .053
$ 1.067
5%
Heating oil (gal.)
.032
.874
3.7%
Natural gas (000 cf)
.295
5.90
5%
Coal (short ton)
1.65
32.97
5%
Monthly residential
electric bill
.82
60.00
1.4%
C. Imposed on a BTU-equivalent base.
JCT
10.6 15.9 16.0 16.1 16.2 -- 74.9
OTA
10.9 11.7 11.9 12.1 12.3 -- 59.0
with anticipated price impact based on OTA
estimates:
Tax
Current price
Gasoline (gal.)
$ .025
$ 1.067
Heating oil (gal.)
.028
.874
Natural gas
.207
5.90
Coal
4.19
32.97
Monthly residential
electric bill
1.90
60.00
7
d. Imposed on a modified BTU base (reduced impact on
coal).
JCT
OTA
10.9 11.7 11.9 12.1 12.3 -- 59.0
With anticipated price impact based on OTA
estimates:
Tax
Current price
Gasoline (gal.)
$ .030
$ 1.067
Heating oil (gal.)
.033
.874
Natural gas
.243
5.90
Coal
1.81
32.97
Monthly residential
electric bill
2.23
60.00
20. Impose oil import fee of $5/barrel with exemption for
Canada capped at average imports between 1985-1988.
JCT
6.4 8.3 8.3 8.7 9.3 -- 41.0
OTA
6.9 9.0 9.3 9.6 9.8 -- 44.6
21. Impose tax on lead. Current price, approximately
$.50/pound. Effective 10/1/90.
a.
$.50 per pound.
JCT
.6 .9 .8 .7 .6 -- 3.6
OTA
.6 .8 .8 .7 .7 -- 3.6
b.
$1.00 per pound.
JCT
1.2 1.7 1.3 1.1 .8 -- 6.1
OTA
1.1 1.4 1.2 1.0 .9 -- 5.6
C.
$1.25 per pound.
JCT
1.5 2.0 1.5 1.1 .8 -- 6.9
OTA
1.3 1.7 1.4 1.2 1.0 -- 6.6
22. Impose $7 per ton tax on virgin newsprint. Effective
10/1/90.
JCT
*
*
*
*
*
--
:
OTA
*
*
*
*
--
8
NOTE: Due to baseline conventions of OMB and cBo,
reauthorization of the Superfund will not be scored as
raising revenue in the budget period.
NOTE: In addition, staff inquiries are underway to
determine whether other chemicals should be added to the
CFC excise enacted last year.
E. Other Excise Taxes.
23. Tobacco. Effective 10/1/90.
a. Double all existing tobacco taxes (e.g., cigarettes
from 16¢ to 32¢ per pack).
JCT
2.8 3.0 3.0 2.9 2.9 -- 14.6
OTA
2.6 2.8 2.7 2.7 2.7 -- 13.5
b. Double existing tax and index commencing 1992.
JCT
3.0 3.5 3.7 3.9 4.2 -- 18.3
OTA
2.7 3.0 3.3 3.6 4.2 -- 16.8
C. Index tobacco taxes from current levels commencing
1991.
JCT
.1 .2 .3 .4 .6 -- 1.6
OTA
.1 .2 .2 .2 .3 -- 1.0
24. Alcoholic Beverages. Effective 10/1/90.
a. CBO Report option: increase distilled spirits tax
from $12.50/gallon to $16/gallon (25 cents/oz.) and
impose equivalent tax by alcohol content on beer
and wine.
JCT
7.2 7.3 7.4 7.6 7.6 -- 37.1
OTA
6.4 6.8 6.9 7.0 7.0 -- 34.1
Impact on price of:
Current tax
Option
6 pack of beer
$ .16
$ .72
Bottle of table wine
$ .03
$ .90
Bottle of distilled
spirits
$2.00
$2.56
9
b. Increase $12.50/gallon rate on distilled spirits to
$15.00/gallon (increases tax as if indexed from
1985 when last increased).
JCT
.4
.5
.5
.5
.5
--
2.4
OTA
.5
.5
.5
.6
.6
--
2.7
Impact on price of:
Current tax
Option
Bottle of distilled
spirits
$2.00
$2.40
C. Double current tax on beer and wine.
JCT
1.4 1.5 1.5 1.5 1.5 -- 7.4
OTA
1.4 1.5 1.5 1.5 1.5 -- 7.4
Impact on price of:
Current tax
Option
6 pack of beer
$ .16
$ .32
Bottle of table wine
$ .03
$ .06
d. Double current tax on beer and wine and index them
until they reach level of tax on distilled spirits
imposed on an alcohol equivalent basis.
JCT
1.5 1.7 1.8 1.9 2.1 -- 9.0
OTA
1.4 1.6 1.7 1.8 1.9 -- 8.4
Impact on price of:
Current tax Option
(1991)
6 pack of beer
$ .16
$ .32
Bottle of table wine
$ .03
$ .06
25. Impose a securities transfer excise tax (STET). The base
proposal would exempt original issues of all securities
and Treasury and state and local bonds. Other exemptions
for agricultural commodities and short-term money-market
instruments are being considered. Effective 10/1/90.
a. .003 rate
JCT
4.2 6.1 6.4 6.8 7.1 -- 30.6
OTA
5.6 7.4 8.2 8.5 9.0 -- 38.7
b. .0015 rate
JCT
2.1 3.1 3.2 3.4 3.6 -- 15.4
OTA
3.5 4.9 5.4 5.6 5.9 -- 25.3
10
F. Luxury Excise Taxes. Effective 10/1/90.
26. Tax 10% of the purchase price, net of threshholds:
Automobiles - $25,000
Boats and yachts - $25,000
Furs - $500
Private aircraft - no threshhold.
JCT
.5 .6 .6 .7 .8 -- 3.2
OTA
.5 .6 .6 .7 .7 -- 3.1
27. Tax 10% of the purchase price, net of threshholds:
Automobiles - $30,000
Boats and yachts - $30,000
Electronics - $1,000
Jewelry - $1,000
Furs - $500
I
JCT
1.2 1.9 2.1 2.2 2.2 -- 9.6
OTA
1.1 1.8 1.9 2.0 2.1 -- 8.9
1x 0.9 1.5 1.7 1.5 1.9
7.8
G.
Itemized Deductions.
28. Impose a limit on the amount of deductible state and
local income taxes.
a. $15,000 limit.
JCT
.8 5.4 5.6 6.2 6.8 -- 24.8
OTA
1.5 5.0 4.6 5.0 5.4 -- 21.5
b. $10,000 limit.
JCT
1.0 6.6 6.8 7.5 8.3 -- 30.1
OTA
1.9 6.5 6.0 6.5 7.0 -- 27.9
C. $5,000 limit.
JCT
1.4 9.4 9.6 10.5 11.6 -- 42.5
OTA
3.0 10.1 9.4 10.3 11.3 -- 44.1
29. Impose a floor on deduction of state and local income
taxes.
a. 1% of adjusted gross income.
JCT
.6 4.1 3.3 3.5 3.8 -- 15.2
OTA
1.6 4.8 3.4 3.6 3.8 -- 17.2
11
b. 2% of adjusted gross income.
JCT
1.2 7.8 6.8 7.4 7.9 -- 31.0
OTA
3.1 9.7 7.7 8.1 8.5 -- 37.1
30. Reduce deduction for total itemized deductions by 10% of
modified adjusted gross income (AGI) in excess of
$100,00b.
JCT
1.7 11.4 11.7 12.9 14.1 -- 51.7
OTA
4.2 15.0 15.0 16.5 17.9 -- 68.8
31. Impose a limit on total itemized deductions.
a. $100,000 limit.
JCT
1.2 7.8 8.3 9.1 9.9 -- 36.3
OTA
1.9 6.8 5.7 5.6 5.6 -- 25.4
b. $75,000 limit.
JCT
1.4 9.2 9.8 10.6 11.7 -- 42.0
OTA
2.5 8.5 7.6 7.6 7.6 -- 33.8
C. $50,000 limit.
JCT
1.8 11.8 12.7 13.9 15.2 -- 55.4
OTA
3.6 12.4 11.2 11.3 11.4 -- 50.0
d. $25,000 limit.
JCT
3.0 19.9 21.1 23.0 25.0 -- 92.0
OTA
7.0 24.0 22.1 22.4 22.6 -- 98.1
32. Include employer's cost of medical insurance above
$250/$100 per month cap in income if wages exceed
$100,000.
JCT
.2 .4 .4 .5 .6 -- 2.1
OTA
.2 .4 .4 .5 .6 -- 2.1
33. Include employer's cost of group term life insurance in
income if wages exceed $100,000.
JCT
.1 .1 .1 .1 .1 --
.5
.1 .1 .1 .1 .1 --
.5
OTA
12
34. Reduce maximum loan for home equity indebtedness
deduction from $100,000 to $50,000. Effective 7/16/90.
Grandfather existing loans.
JCT
*
.1
.2
.2
.2
--
.7
OTA
*
* * .1 .1 --
.3
H. Business Deductions.
35. Reduce deduction for business meals and entertainment
from 80% to 50% of costs.
JCT
2.0 3.4 3.6 3.9 4.1 -- 17.0
OTA
2.1 3.7 3.9 4.2 4.5 -- 18.4
36. CBO Advertising option: Require amortization of 20% of
advertising costs over 4 years (remaining 80% would
continue to be currently deductible).
JCT
2.9 4.8 3.7 2.4 1.5 -- 15.3
OTA
3.6 5.1 3.5 2.1 1.2 -- 15.5
37. Require life insurance companies to amortize policy
acquisition costs over 10 years. 5-year phase-in. (This
proposal is sometimes referred to as "deferred
acquisition cost" or "DAC".)
JCT
.7 2.0 3.2 4.5 5.7 -- 16.1
OTA
.7 1.9 3.1 4.3 5.6 -- 15.6
NOTE: The staffs have been directed to make sure that
this proposal fairly taxes both segments of the life
insurance industry.
I. Capital Gains and Other Savings and Investment Proposals
(unless otherwise stated, all capital gains proposals are
estimated effective 10/1/90).
38. Budget proposal: 30% exclusion for individual assets
held 3 years, 20% exclusion for individual assets held 2
years, 10% exclusion for individual assets held 1 year,
phased in.
JCT
3.6 -4.2 -3.5 -4.3 -3.1 -- -11.5
OTA
4.9 2.8 1.2 1.7 1.4 -- 12.0
13
39. a. Allow 30% exclusion for individual capital assets
held more than 1 year or indexing for inflation
after 12/31/90.
JCT
4.1 -2.4 -3.0 -4.9 -5.5 -- -11.7
OTA
3.3 2.3 -.4 -1.9 -2.1 -- 1.2
b. Same exclusion for corporate assets.
JCT
-.9 -1.5 -1.6 -1.6 -1.7 -- -7.3
OTA
-.3 -1.0 -1.4 -1.8 -2.0 -- -6.5
40. a. Allow 30% exclusion for individual capital assets
held more than 1 year and indexing for inflation
after 12/31/90.
JCT
4.0 -3.3 -4.4 -7.0 -8.2 -- -18.9
OTA
2.2 1.2 -1.6 -5.6 -6.9 -- -10.7
b.
Same exclusion for corporate assets.
JCT
-.9 -1.8 -1.8 -1.9 -2.2 --
-8.6
OTA
-.3 -1.0 -1.9 -2.7 -3.2 --
-9.1
41.
a. Allow a 5% exclusion for each year of holding on
individually-held capital assets to maximum of 7
years (i.e., maximum exclusion, 35%) or indexing
for inflation occurring after 12/31/91 on assets
held at least 2 years.
JCT
2.3 -1.2 -1.8 -3.6 -4.4 --
-8.7
OTA
2.2 2.8 1.9 .6 -.1 --
7.4
b.
Allow a 1% rate reduction for corporate assets for
each 3 years held to a maximum of 15 years, 5%.
JCT
-.7 -.7 -.8 -.8 -.9 --
-3.9
OTA
-.2 -.3 -.4 -.5 -.5 -- -1.9
42. Allow indexing of basis for inflation occurring after
12/31/91 for individual assets held at least 1 year.
JCT
* * -.3 -1.5 -2.7 -- -4.5
OTA
.2 -.1 -1.1 -1.8 -1.9 --
-4.7
43. Allow a 15% exclusion for individual assets held at least
1 year.
JCT
1.3 -.7 -.8 -1.0 -1.2 -- -2.4
OTA
2.2 2.8 1.8 1.4 1.2 -- 9.4
14
44. Allow a 20% exclusion for individual assets held at least
2 years, phased in.
JCT
1.4 -1.0 -1.4 -1.6 -1.6 -- -4.2
OTA
2.2 1.2 1.6 1.1 .9 -- 7.0
45. Allow a 30% exclusion for individual assets held at least
3 years, phased in.
JCT
OTA
3.2 .6 -.1 1.2 .5 -- 5.4
46. Allow a 45% exclusion for individual assets held at least
1 year.
JCT
3.7 -3.2 -5.6 -8.1 -8.3 -- -21.5
OTA
3.7 2.3 -.2 -1.9 -3.1 --
.8
47. Allow a lifetime exclusion of $125,000 in capital gains
for assets held at least 3 years (would not affect
existing exclusion for residence sales by those over 55).
JCT
-7.5 -5.4 -4.1 -3.6 -3.5 -- -24.1
OTA
-4.7 -14.1 -4.9 -4.8 -4.7 -- -33.1
48. Tax capital gains of foreign shareholders in U.S.
corporations with 10% or greater interest (H.R. 4308 and
S.2410 provision).
JCT
.1
.2
.2
.2
.1 --
.8
OTA
.1
.2
.2
.2
.1 --
.8
49. Impose a 10% excise tax on gains recognized on securities
held less than 30 days, 5% excise tax on gains recognized
from securities held 30 days or more days and less than
6 months.
JCT
* .2 .5 .5 .6 -- 1.8
OTA
*
.7 1.1 1.3 1.4 -- 4.5
50. Allow IRA contributions of up to $2,000 per year for
those taxpayers currently ineligible of which one-half
would be currently deductible. Allow withdrawal without
penalty for first-time home purchase or education.
JCT
-1.2 -3.3 -3.8 -4.3 -4.9 -- -17.4
OTA
-.7 -3.4 -3.8 -4.1 -4.5 -- -16.4
15
51. Administration family savings account proposal: Allow
contributions of up to $2,500 ($5,000 family) per year
for taxpayers with AGI of less than $120,000 joint,
$100,000 head of household, $60,000 single.
Distributions would be tax-free if held in account for 7
years or more.
JCT
-.2 -.6 -1.0 -1.3 -1.8 -- -5.0
OTA
-.2 -.7 -1.0 -1.3 -1.7 -- -4.9
52. Restore pre-1986 IRAs.
JCT
-2.5 -7.1 -8.0 -9.1 -10.2 -- -36.9
OTA
-1.0 -5.0 -5.9 -6.4 -6.9 -- -25.2
53. Allow withdrawal without penalty from IRAs for first-time
home purchase or education.
JCT
OTA
-.4 -.5 -.5 -.4 -.4 -- -2.2
54. Allow up to $10,000 withdrawal without penalty from IRA
for first-time home purchase if price of home does not
exceed median price in area (Budget proposal).
JCT
-.2 -.2 -.2 -.1 -.1 -- -.9
OTA
*
-.1 -.1 -.1 -.1 -- -.4
55. IRA/FSA Combination:
a. Allow taxpayers the option of:
*
contributing up to $1,000 annually to an IRA of
which 50% would be deductible if above current IRA
limits or
*
contributing up to $1,250 ($2,500 family) to a
family savings account with the same rules as
option 55.
Both alternatives would be available only to taxpayers
with AGI of less than $100,000 joint, $80,000 head of
household, and $50,000 single.
JCT
OTA
-.5 -1.2 -1.3 -1.4 -1.6 -- -6.0
16
b. Allow taxpayers the option of:
*
contributing up to $2,000 annually to an IRA of
which 50% would be currently deductible if above
current IRA limits or
*
contributing up to $2,000 to an FSA ($4,000 family)
of which 50% of interest would be taxable on
withdrawal after 7 years.
JCT
OTA
-.5 -2.5 -2.8 -3.0 -3.3 -- -12.1
C. Allow taxpayers the option of:
*
full deduction for up to $2,000 contribution to an
IRA (i.e., restore pre-1986 law) or
*
$2,000 contribution to family savings account
($4,000 family).
JCT
OTA
-.9 -4.9 -5.4 -5.9 -6.2 -- -23.3
56. Increase current law IRA phase-outs.
a. $10,000 increase.
JCT
-.3 -.7 -.8 -.8 -.8 --
-3.4
OTA
-.2 -.8 -1.0 -1.0 -1.2 --
-4.2
b. $25,000 increase.
JCT
OTA
-.4 -1.9 -2.1 -2.3 -2.3 -- -9.0
57. Enterprise zones: Administration budget proposal.
JCT analysis concluded that the Administration
proposal was too unspecified to estimate with
confidence.
OTA
-.1 -.2 -.3 -.5 -.8 -- -1.9
17
58. Enterprise zones: H.R. 5190.
JCT
*
-.2 -.4 -.6 -.8 -- -2.0
OTA
*
-.2 -.4 -.6 -.8 -- -2.0
NOTE: In addition to the foregoing, small business
investment incentives (including estate freezes), energy
tax incentives, disability provisions, and similar
proposals may be considered in the course of the
legislative process.
J. Low income relief provisions: To address progressivity
concerns, various low-income relief provisions may need to be
considered. Since these will have to be tailored to meet an
emerging package, specific proposals are not described here
but could be expected to include expansions of the earned
income tax credit, direct rebates, standard deduction
increases, or reductions in low-end thresholds or rates. For
illustrative purposes, the EITC provisions of the House and
Senate child care bills are included here:
59. House: Under the House proposal, the earned income tax
credit (EITC) would be expanded to include adjustments
for family size and the presence of young children.
Using the present law income breakpoints, the credit rate
would be increased according to the number of eligible
children in the family as follows:
Number of
Credit
Phaseout
Projected
Children
Percentage
Percentage
Maximum Amount
1
17%
12%
$1,211
2
21%
15%
$1,496
3
25%
18%
$1,780
Families would also be entitled to a supplemental credit
equal to six percent of earned income (maximum credit:
$427) if they have children under the age of six. The
House bill would also phase-out the child and dependent
care credit for families with incomes above $70,000.
a. EITC Family Size Adjustment.
JCT
-.3 -2.9 -3.1 -3.4 -3.6 -- -13.3
OTA
-.3 -3.1 -3.3 -3.5 -3.7 -- -14.1
b. EITC Young Child Supplement.
JCT
-.1 -1.1 -1.2 -1.3 -1.4 -- -5.2
OTA
-.1 -1.3 -1.4 -1.5 -1.6 -- -6.0
18
C. Phase-out Child and Dependent Care.
JCT
.1 .3 .3 .4 .5 -- 1.5
OTA
.1 .3 .4 .4 .4 -- 1.6
60. Senate: First, a young child supplement would be added
to the EITC for families with children under the age of
4 and incomes less than $15,000 (maximum credit of $750
if 2 or more children under age 4; $500 if one child).
Second, the child and dependent care credit would be made
90% refundable. Third, families with income less than
$18,000 could be entitled to a 50% credit for health
insurance expenditures, up to a maximum credit of $500.
a. EITC.
JCT
-.1 -.6 -.7 -.7 -.8 -- -2.8
OTA
-.1 -.8 -.9 -.9 -1.0 -- -3.6
b. Child and dependent care tax credit.
JCT
-.1 -1.1 -1.1 -1.2 -1.3 -- -4.9
OTA
* -.9 -1.0 -1.0 -1.0 -- -4.0
C. Medical insurance credit.
JCT
* -.6 -.6 -.7 -.8 -- -2.9
OTA
* -.4 -.5 -.6 -.6 -- -2.2
K. Expiring provisions. Except for item 65, all restore last
year's sequester. Except for the R&E allocation rules, all
are effective commencing 1/1/91. The R&E allocation rules are
effective for tax years beginning after 8/1/90.
61. Permanent extension.
a. Employer-provided educational assistance.
JCT
-.3 -.3 -.3 -.4 -.4 -- -1.7
OTA
-.3 -.3 -.4 -.4 -.4 -- -1.8
b. Group legal services.
JCT
-.1 -.1 -.1 -.1 -.1 --
-.5
OTA
-.1 -.1 -.1 -.1 -.1 --
-.5
C. Health insurance for self-employed.
JCT
-.3 -.3 -.4 -.4 -.5 -- -1.8
OTA
-.2 -.4 -.5 -.5 -.6 -- -2.2
19
d. Mortgage revenue bonds.
JCT
*
-.1 -.1 -.2 -.3 --
-.8
OTA
*
-.1 -.1 -.2 -.3 --
-.7
e. Small-issue manufacturing bonds.
JCT
*
-.1 -.1 -.2 -.3 --
-.6
OTA
*
-.1 -.1 -.2 -.2 --
-.6
f. R&E allocation rules.
JCT
-.5 -.7 -.8 -.8 -.9 --
3.7
OTA
-.4 -.7 -.8 -.8 -.9 -- -3.6
g. R&E tax credit.
JCT
-.9 -1.2 -1.3 -1.4 -1.6 -- -6.4
OTA
-.5 -1.0 -1.1 -1.3 -1.6 -- -5.5
h. Low-income housing credit.
JCT
-.2 -.4 -.7 -1.1 -1.4 -- -3.7
OTA
-.1 -.4 -.7 -1.0 -1.4 -- -3.6
i. Targeted jobs tax credit.
JCT
-.1 -.2 -.3 -.4 -.4 -- -1.4
OTA
-.1 -.2 -.3 -.3 -.4 -- -1.3
j. Business energy credits.
JCT
-.1 -.1 * * * -- -.2
OTA
-.1 -.1 *
*
*
--
-.2
k. Placed-in-service date for nonconventional fuels
(section 29).
JCT
--
*
:
:
:
:
:
OTA
*
*
--
-.1
1. Orphan drug testing credit.
JCT
*
*
--
*
*
:
OTA
*
:
*
*
--
*
TOTALS: JCT
-2.2 -3.2 -4.1 -4.9 -5.7 -- -20.3
OTA
-1.8 -3.4 -4.1 -4.8 -5.9 -- -19.9
20
62. Permanent, no restoration of last year's sequester.
a. Employer-provided educational assistance.
JCT
-.2 -.3 -.3 -.4 -.4 -- -1.6
OTA
-.2 -.3 -.3 -.4 -.4 -- -1.6
b. Group legal services.
JCT
-.1 -.1 -.1 -.1 -.1 --
-.5
OTA
-.1 -.1 -.1 -.1 -.1 --
-.5
C. Health insurance for self-employed.
JCT
-.2 -.3 -.4 -.4 -.5 -- -1.7
OTA
-.1 -.4 -.5 -.5 -.6 -- -2.1
d. Mortgage revenue bonds.
JCT
* * -.1 -.2 -.3 -- -.6
OTA
*
-.1 -.1 -.2 -.3 -- -.7
e. Small-issue manufacturing bonds.
JCT
* * -.1 -.2 -.3 -- -.6
OTA
*
-.1 -.1 -.2 -.2 -- -.6
f. R&E allocation rules.
JCT
-.5 -.7 -.8 -.8 -.9 -- -3.6
OTA
-.4 -.7 -.8 -.8 -.9 -- -3.6
g. R&E tax credit.
-.5 -1.0 -1.2 -1.3 -1.6 --
-5.6
JCT
OTA
-.5 -.8 -1.0 -1.3 -1.7 -- -5.3
h. Low-income housing credit.
JCT
-.1 -.3 -.6 -1.0 -1.3 -- -3.4
OTA
-.1 -.3 -.6 -.9 -1.3 -- -3.2
i. Targeted jobs tax credit.
JCT
-.1 -.2 -.3 -.4 -.4 -- -1.3
OTA
-.1 -.2 -.3 -.3 -.4 -- -1.3
j. Business energy credits.
--
JCT
:
-.1 :
:
*
-.2
OTA
-.1
*
--
-.2
21
k. Placed-in-service date for nonconventional fuels
(section 29).
JCT
*
* *
*
*
*
--
-.1
OTA
*
*
*
*
--
-.1
1. Orphan drug testing credit.
JCT
*
*
*
*
*
--
*
OTA
*
*
*
*
*
*
--
TOTALS: JCT
-1.4 -2.8 -3.8 -4.7 -5.7 --
-18.6
OTA
-1.5 -3.1 -3.8 -4.7 -5.9 --
-19.0
63. 3-year extension.
a. Employer-provided educational assistance.
JCT
-3. -.3 -.3 -.1 * -- -1.0
OTA
-.3 -.3 -.3 -.1 * -- -1.0
b. Group legal services.
-.3
JCT
-.1 -.1 -.1 *
*
--
OTA
-.1 -.1 -.1 *
*
--
-.3
C. Health insurance for self-employed.
JCT
-.3 -.3 -.4 -.1 *
:
-1.1
OTA
-.2 -.4 -.5 -.3 * -- -1.4
d. Mortgage revenue bonds.
JCT
*
*
-.1 -.2 -.1 --
-.4
* -.1 -.2 -.1 -.1 --
-.5
OTA
e. Small-issue manufacturing bonds.
JCT
*
*
-.1 -.2 -.2 --
-.5
OTA
*
-.1 -.1 -.1 -.1 --
-.4
f. R&E allocation rules.
JCT
-.5 -.7 -.8 -.3 * --
-2.3
OTA
-.5 -.7 -.8 -.3 * --
-2.3
g. R&E tax credit
JCT
-.9 -1.2 -1.3 -.7 -.3 -- -4.4
-.6 -.8 -1.1 -.7 -.3 --
-3.5
OTA
22
h. Low-income housing credit.
JCT
-.2 -.4 -.7 -1.0 -1.1 -- -3.3
OTA
-.1 -.4 -.7 -1.0 -1.1 -- -3.3
i. Targeted jobs tax credit.
JCT
-.1 -.2 -.3 -.3 -.2 --
-1.1
OTA
-.1 -.2 -.3 -.2 -.1 --
-.9
j. Business energy credits.
JCT
-.1 -.1 *
*
*
--
-.2
OTA
-.1 -.1 *
*
*
--
-.2
k. Placed-in-service date for nonconventional fuels
(section 29).
JCT
*
*
:
*
:
*
:
-.1
OTA
*
*
*
:
-.1
1. Orphan drug testing credit.
JCT
:
*
*
*
*
:
*
OTA
*
*
*
*
:
*
TOTALS: JCT
-2.2 -3.1 -4.0 -3.4 -2.8 -- -15.7
OTA
-2.0 -3.2 -4.1 -2.8 -1.7 -- -13.7
64. 5-year extension.
a. Employer-provided educational assistance.
JCT
-.3 -.3 -.3 -.4 -.4 -- -1.7
OTA
-.3 -.3 -.4 -.4 -.4 -- -1.8
b. Group legal services.
JCT
-.1 -.1 -.1 -.1 -.1 --
-.5
OTA
-.1 -.1 -.1 -.1 -.1 --
-.5
c. Health insurance for self-employed.
JCT
-.3 -.3 -.4 -.4 -.5 -- -1.8
OTA
-.2 -.4 -.5 -.5 -.6 -- -2.2
d. Mortgage revenue bonds.
JCT
: -.1 -.1 -.2 -.3 --
-.1 -.1 -.2 -.3 --
-.8
-.7
OTA
23
e.
Small-issue manufacturing bonds.
JCT
*
-.1 -.1 -.2 -.3 --
-.6
OTA
*
-.1 -.1 -.2 -.2 --
-.6
f. R&E allocation rules.
JCT
-.5 -.7 -.8 -.8 -.9 --
3.7
OTA
-.4 -.7 -.8 -.8 -.9 -- -3.6
g. R&E tax credit.
JCT
-.9 -1.2 -1.3 -1.4 -1.6 -- -6.4
OTA
-.5 -1.0 -1.1 -1.3 -1.6 -- -5.5
h. Low-income housing credit.
JCT
-.2 -.4 -.7 -1.1 -1.4 -- -3.7
OTA
-.1 -.4 -.7 -1.0 -1.4 -- -3.6
i. Targeted jobs tax credit.
JCT
-.1 -.2 -.3 -.4 -.4 -- -1.4
OTA
-.1 -.2 -.3 -.3 -.4 -- -1.3
j. Business energy credits.
JCT
-.1 -.1 * * * -- -.2
OTA
-.1 -.1 * * * -- -.2
k. Placed-in-service date for nonconventional fuels
(section 29).
JCT
*
*
*
*
*
--
*
OTA
*
*
*
*
*
--
-.1
1. Orphan drug testing credit.
JCT
*
*
*
*
--
*
*
:
OTA
*
*
*
*
--
*
TOTALS: JCT
-2.2 -3.2 -4.1 -4.9 -5.7 -- -20.3
OTA
-1.8 -3.4 -4.1 -4.8 -5.9 -- -19.9
65. Extend FUTA surtax. Effective 1/1/91.
JCT
.7 1.1 1.1 1.1 1.2 -- 5.2
OTA
.8 1.1 1.1 1.2 1.2 -- 5.4
TALKING POINTS FOR 3:30 MEETING
1.
In putting together the Budget package including both the
short-term growth package and long-term incentives (e.g.,
flexible IRAs, R&D credit, deduction for student loan
interest), we
--
Did not want to increase the deficit;
--
Did not want to increase income taxes;
--
Did not want to impose a broad-based tax such as an
energy or value-added tax; and
--
Did not want to create tax shelters.
2.
We needed some revenue gainers to avoid the charge that the
revenue losers were all paid for by "smoke and mirrors"
accounting changes.
3.
The Budget contained revenue losers totalling $34 billion
(1992-1997) without the family tax allowance.
The family tax allowance cost about $24 billion (1992-1997).
Total revenue losers were approximately $58 billion.
4.
Revenue gainers totalled about $29 billion (with $15 billion
from capital gains ($6.9 billion) and HI extension to State
and local employees ($8.1 billion))
In picking the other revenue gainers the objective was
--
to select items to promote a level playing field among
types of investments and among financial institutions;
--
to avoid broad-based revenue increases.
5.
Revenue raising proposals that were taken off the table:
A.
Individual income tax increases:
--
Tax rate increases;
--
Millionaires surtax;
--
Limit itemized deductions, e.g., home equity
interest;
--
Extend PEP and Pease provisions of 1990 Budget
Act; Limit other individual deductions, e.g., business
--
meals, club dues, sporting tickets;
--
Withholding on pensions;
--
Withholding on independent contractors;
--
Estate tax increases;
--
Tax capital gains at death.
- 2 -
B.
Corporate tax increases:
-- Corporate rate increase;
-- Reduce deduction for business meals, entertainment
expenses, etc.;
-- Limit deductions for interest.
C.
Excise tax increases:
-- Tobacco or alcohol taxes;
-- Gasoline or other energy taxes;
-- Securities transfer tax;
-- Telephone tax increase;
-- Airport tax increase.
6.
This left targeted tax increases where certain investments
or industries enjoy a competitive advantage, for example,
securities industry, credit unions, certain life insurance
industry products; or compliance measures.
7.
The other option was to make deeper cuts in mandatory
spending cuts than called for in your budget to pay for the
revenue losers, but Congress has been unwilling to endorse
even the cuts we have proposed. In addition, we did not
want to propose further cuts in Medicare.
THE WHITE HOUSE
WASHINGTON
DCF HAS S
DATE: 03/21/92
TO:
SAMUEL K. SKINNER
for
FROM: PHILLIP D. BRADY
Assistant to the President and
Staff Secretary
The attached has been forwarded
to the President
(The attached was not
included in the Senior
Staff's copy of the
Cabinet Report.)
EEN
Dear mr. hesident:
Thank you so much for your
very gracious letter inviting me and
Rod to spend a day or two at
Camp David. Whether or not we
are able to arrange our time
to accept your splented
invitation, I wanted you to know
how very much me appreciate
your thought fulness.
Smirily,
Carla
3-15-92
Elliday
#315827
THE OFFICE OF THE SECRETARY
WASHINGTON
March 17, 1992
The President
The White House
Washington, D. C. 20500
Dear Mr. President:
This afternoon, I had a press conference
to discuss my status as one of the 355 House
members who had problems with the Sergeant at
Arms Bank.
I discussed this with Boyden Gray before
proceeding and have attached a copy of the
statement that I made.
I sincerely apologize for any embarrass-
ment that this may bring to you.
Respectfully,
GE
Edward Madigan
Statement
News Division, Office of Public Affairs, Room 404-A, U.S. Department of Agriculture, Washington, D.C. 20250
STATEMENT OF EDWARD MADIGAN, SECRETARY OF AGRICULTURE
March 17, 1992
None of my bank statements show an overdraft or a negative balance.
Because the statements are no longer considered to be reliable, I have
reconstructed my account using the deposit slips and the cancelled checks.
During the 31-month period, 49 checks were held for payment for an average
of 2 business days.
During the 31-month period, I made 114 deposits to the House Bank. Here
is a breakdown:
--Only 39 were recorded on the day they were made.
--51 were recorded on the next business day.
--15 were recorded after 2 business days.
--6 were recorded after 3 business days.
--1 was recorded after 7 business days.
--1 was recorded after 8 business days.
--1 was recorded after 10 business days.
The largest check was for $8,618.84 and was written after banking hours on
January 23, 1989, for a real estate settlement in the Washington area. I
transferred $9,000 from savings to my checking account on January 24, the same
day the check was presented for payment. The check was held until January 25,
when the deposit was recorded.
I had more than enough money in checking and savings accounts in four
institutions that could have been deposited in the Sergeant-at-Arms account if
I had known that checks were being held.
My account was closed in April, 1991, with a balance of $1,970.28. More
attention should have been paid to the workings of this account. Clearly, this
is an embarrassment to me, my family and friends.
0265-92
UNITED OF VETERANS AMERICA
THE SECRETARY OF VETERANS AFFAIRS
WASHINGTON
March 18, 1992
MEMORANDUM TO: The President
Ed
FROM:
Edward J. Derwinsk
SUBJECT:
Greek-American Views
I learned the following in recent discussions with leaders
of the Greek-American community which may be of interest to you:
1. Cyprus -- There is continued concern regarding Cyprus,
especially whether Turkish President Demirel's meeting with you
will lead to positive Turkish cooperation with the UN
initiative on Cyprus.
2. President Vassiliou -- Cypriot President Vasilleou, who
faces a tough election soon, will be in the US from March 26 to
April 1. I strongly recommend that you receive him, at least
for a brief courtesy call, to show our support for his
efforts. Among his opponents is former President Kyprianou,
whose election many believe would further degrade the
possibility of an agreement on Cyprus.
3. Macedonia -- The Greek-American community is being
stirred up to oppose any recognition of independence by the
Yugoslav Republic of Macedonia unless the Slavs change their
name to something less Hellenic than "Macedonia". Greek
Foreign Minister Samaras has been particularly aggressive in
alerting the Greek-American community to the "threat" of a
"Greater Macedonia", that is, an independent Slavic Macedonian
Republic having territorial ambitions in Northern Greece.
4. Paul Tsongas -- Greek-Americans are far less
enthusiastic over Paul Tsongas than they were four years ago
over the possibility of a Dukakis presidency. Conventional
wisdom in the community is that Tsongas will continue to fail.
Consequently, pro-Bush forces among Greek-Americans are
extremely energetic and positive.
5. Andrew Athens -- Andy Athens, a leading layman in the
Greek Orthodox Church, will be the chairman for the
Greek-American Bush-Quayle Campaign. Your March 25 meeting
with members of the community, to be led by Archbishop Iakovos,
might be a good time for you to acknowledge Athens in his
campaign role.
SUPARTMENT US OF MOUSING
DEVELOPMENT
THE SECRETARY
WASHINGTON, D.C. 20410-0001
U.S. DEPARTMENT OF HOUSING AND URBAN (Purnel) DEVELOPMENT
March 19, 1992
President George Bush
The White House
Washington, DC 20500
Dear Mr. President:
I'm pleased to send you copies of two speeches delivered
this past week at Harvard University.
The first speech by Ted Forstmann of Forstmann Little, a
world class entrepreneur, outlines the compelling need to create
incentives for entrepreneurs, risk-takers, and innovators. The
second speech represents my efforts to apply your message of
economic growth, job creation, and property ownership to the
great challenge of fighting poverty and despair in America's
inner cities.
As you know, I profoundly share your belief that these
issues are vitally important to our Administration, our Party,
and our Nation. I hope you can find the opportunity to read both
as all of us in your Administration seek better ways to explain
our case for entrepreneurial capitalism, growth, and expanding
equity in the American Dream.
Respectfully,
Jack Kinp Jack Kemp
P.S. while our Cabent meeting, this D.M.,
was helpful + hopeful, we are missing the opportunity
of a lifetime, if are ht mere static budget projections
force us into a compromise on our issues of mecro-
Srowth of injecting into our inner citris
Blacks can of will bote for beoye Bush if we give equal them opportune hope of
REMARKS BY
SECRETARY JACK KEMP
DEPARTMENT AND U.S. URBAN DEVELOPMENT OF
at
the
HARVARD UNIVERSITY
JOHN F. KENNEDY SCHOOL OF GOVERNMENT
CAMBRIDGE, MASSACHUSETTS
MARCH 18, 1992
Thank you very much, Al Carnesale, for that very kind introduction and thanks
for that warm welcome to Harvard's John F. Kennedy School of Government.
It's an honor to return once again to this world-famous forum. And it's a
pleasure to return to a state whose Governor says he's a "supply-sider." Bill Weld is
turning conventional wisdom on its head. He's responding to Massachusetts' fiscal crisis
not by raising taxes but by cutting them; not by redistributing wealth, but by
encouraging the creation of new wealth. He wants to turn this entire state into a "free
enterprise zone" by phasing out the capital gains tax and helping low-income men and
women recapture the American Dream of jobs, homes, equal opportunity,
entrepreneurship, and ownership. And thanks to Joe Malone and his new program for
homeownership, Massachusetts is on the move.
In other states, governors are dealing with fiscal crises of their own creation with
policies that punish poor people. In New Jersey, the Governor is proposing to deny very
low-income welfare mothers additional benefits to support newborn children. What a
different vision of how to help low-income Americans. Instead of jobs, education,
opportunity, and incentives, some on the Left and on the Far Right are advocating --
albeit unwittingly -- 18th Century Social Darwinism "survival of the fittest."
When I last spoke here, I explained the Bush Administration's ideas for fighting
poverty. Since then, we've extracted from Congress some modest funding to begin a
radical redirection of American welfare policy. In the meantime, all across America, a
new debate has emerged over welfare policy -- but the debate is not between Republicans
and Democrats, or between the President and Congress.
1
It wasn't just conservatives who rescued funding for President Bush's HOPE
initiative to help low-income people become homeowners -- it never could have happened
without Representative Mike Espy, a black, liberal Democratic Congressman from the
Mississippi Delta. He said he learned from his mother that whoever controls your home
controls your very life.
The Bush Administration's favored Enterprise Zone bill in the House wasn't
authored by a conservative Republican, but by liberal Congressman Charlie Rangel of
Harlem, New York.
Today, the fault line and fundamental choice is not between Republican and
Democratic proposals but between the old bureaucratic, statist, and elitist welfare model
of spending and consumption and the new entrepreneurial and incentive-based model of
economic empowerment and access to private property ownership. It's not Left or Right,
it's forward or backward.
I want to help define that choice here tonight.
For years, liberals complained that we spent too much on guns and not enough
on butter. Soon we'll be spending about the same relative amount on each. But many
Americans are beginning to notice a strange paradox.
On the one hand, President Bush has told the American people that by 1996 --
with about three and a half percent of GNP -- the Pentagon will be able to adequately
defend America's far-flung interests from the Persian Gulf to the Gulf of Mexico.
Thanks to President Bush, Dick Cheney, and Colin Powell, we'll be able to keep Gaddafi
in his cage, keep Saddam away from the oil fields and Israel, keep Kim II Sung above
2
the 38th parallel, and then some.
On the other hand, today -- with about the same share of our national wealth --
we can't keep joblessness and despair, or even gunfire, off our streets. We can make the
Third World safe for democracy, but we can't keep Third World conditions from showing
up in East Harlem or East L.A.
The reason? Well, spending more money is not the solution. Indeed, the way we
spend money is the core of the problem.
Since 1965, we've spent more than $2.5 trillion -- an amount almost equal to our
entire national debt -- fighting poverty. Yet there are more people living in poverty now
than before, a poverty that is more intractable and durable.
One thing is clear: We haven't failed for lack of trying. We tried UDAG, CETA,
and Model Cities Urban Renewal, Community Action Agencies, and other Great
Society programs. Yet even as new programs were enacted in the late 1960s and early
1970s, the long decline in poverty rates since World War II ended, and was replaced by a
more resistent strain of poverty and despair. Instead of a middle class renaissance, we
discovered an underclass stuck in poverty. Instead of a welfare system providing
temporary assistance, we found perpetual dependence.
The poverty rate began to exhibit a chilling independence from the ebb and flow
of the American economy. The economy boomed, and poverty stayed the same. The
economy stagnated, and poverty stayed the same.
The tragic fact is this: Today, America has two economies. One is the
mainstream economy, which is entrepreneurial-based and democratic capitalist, driven
3
by incentives for productive work, saving, investment, risk-taking, education, and
ownership. A child born into this economy knows that if he or she goes to school, does
homework, and follows the rules, he or she can go to college, get a job, start a family, or
pursue the vast, boundless universe of American opportunity and upward mobility.
Then there is the second economy which all too often exists in American inner
cities. It resembles the "socialist" economies of the Third World and Eastern Europe
more than the capitalist economies of the West. In East Harlem, New York, one of
America's most notorious ghettos, more than 60 percent of the land is owned by the
government. Nearly two-thirds of the community lives in public housing, and, as a
consequence, almost a third of the people are dependent upon government support.
In the second economy, all the usual incentives are reversed. For welfare mothers
and unemployed fathers, work doesn't pay and saving is prohibited. In many states, an
AFDC recipient who manages to save for a child's college education or a new home risks
ending up in jail. In this upside-down world of perverse incentives, welfare recipients
aren't allowed to save more than $1,000, on penalty of criminal prosecution.
Last time I was here I think I told the story of Grace Capetillo. She's the young
chicano welfare mother in Milwaukee who managed to scrounge together a $3,000 nest
egg for her daughter's college education, before welfare bureaucrats took her to court. A
judge initially fined her $15,000, but relented and settled for the whole $3,000. Grace
Capetillo got the message: Don't save a penny, spend every cent you get.
When President Bush and our Administration first tried to expand
homeownership opportunities for the poor, letting residents of public housing own their
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own homes, the old-line welfare establishment couldn't believe it. Our critics said the
poor didn't want to own private property. One member of Congress even protested that
if we let public housing residents own their own homes they might turn around and sell
them for a profit or worse yet, they might someday leave their homes to their
children! Can you imagine how dangerous it would be if poor people actually made a
profit selling their homes? Imagine wanting to leave a home to your children. In the
first economy, sure. But in the second economy, never!
The first war on poverty failed because its architects forgot the power of
incentives, rewards, and values. They forgot the nature and causes of the wealth of
nations -- taught to us by Adam Smith -- and the wealth of families. People don't spend
their way out of poverty. They escape poverty by working, saving, acquiring property,
owning a home, starting a business. That's the classic formula for achieving the
American Dream, or, as President Bush called it at the U.N. -- Pax Universalis.
It is also the common-sense principle behind Abraham Lincoln's Homestead Act
of 1862, the most successful anti-poverty measure in American history. Lincoln gave
government land to any family which pledged to settle the land and make a home. A
year later, tens of thousands of homesteaders had claimed a million-and-a-half acres of
land. They came from as far away as Europe to stake their claim. People everywhere
want the chance to own something, contribute their labor to it, and make it a foundation
on which to build a better life. Policies which defy this timeless wisdom are bound to
fail.
It's time we Americans returned to our first principles. It's time we remembered
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the secrets of our own success.
Some people on the Left and on the Far Right think the poor won't respond to
incentives and rewards. Nonsense! They say that the poor don't share our values, that
they are mired in a "culture of poverty." I say: It's the welfare bureaucracy whose
culture needs to change. To use its own jargon, I say: The real thing that's
"dysfunctional" is a welfare policy which sets its sights too low, demeans the poor, and
robs America of a vast potential resource.
When the Iron Curtain came down in Eastern Europe, the skeptics said people
raised with a "cradle-to-grave" socialist mentality would never embrace free enterprise,
private property, and equality of opportunity.
But the opposite has happened. From Berlin to Belarus, they are seizing the
chance to own property, start new businesses, and risk capital in pursuit of capital gains.
The leader of Czechoslovakia's privatization program -- Dusan Triska -- said recently:
"Two months ago, people didn't know or care what it meant to be a shareholder. Now
all everyone talks about is investment, shares, and capital gains."
George Mitchell and the liberal Democratic leadership of Congress don't know
what to make of that. After all, everyone knows the people of Czechoslovakia aren't rich.
They don't own blue chip stocks and bonds. They don't have brokers in Zurich or
bankers on Wall Street. Until recently, they couldn't even own private property. Yet
today they're discovering the power of investment, entrepreneurship, wealth creation, and
capital gains -- the foundations of entrepreneurial capitalism.
There's no place in the old liberal worldview for poor people talking about capital
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gains. I still can't get over how confused the editors of the liberal St. Louis Post-
Dispatch were when President Bush visited a public housing community in St. Louis last
year. When the President called for a capital gains tax cut in his speech, the residents
cheered. In their editorial the next day, the editors just couldn't fathom it. But the real
surprise would have come if those low-income residents hadn't cheered for removing the
barriers to their opportunity to get a piece of the American Dream.
You see, the President wants to cut the capital gains tax to about 15% and
eliminate it in the inner city not to help the rich, but to help the poor get rich; not to
help the wealthy, but to create new wealth and new capital formation.
I've met with thousands of low-income people and public housing residents all
across America. And let me tell you, I have never met a single one who said, "Mr.
Kemp, I don't believe in the American Dream. Or, I just want to be a ward of the State,
and I want the same thing for my children and my children's children."
It sounds silly, I know. And yet the liberal welfare establishment treats the poor
as though that is exactly how poor people think. It is this elitist attitude towards the
poor that is hurting the poor and impoverishing America's inner cities.
Low-income Americans are not afraid to throw in their lot with the rest of us and
try their hand at competing in the mainstream economy. To a remarkable extent, they
still believe that this is a land of opportunity. They have not lost faith in the American
Dream, they are being denied access to the American Dream.
And the truth is, America is still the closest thing to a classless society the world
has ever known. A few weeks back the New York Times ran a story about how the "top
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1%" of Americans got most of the new wealth between 1977 and 1989. What the New
York Times neglects to tell us is that the composition of that top 1% bracket is
constantly changing.
According to IRS data, between 1985 and 1986, 40% of those in the top 1% fell
into a lower income bracket. Over the same period, Census Bureau data show that fully
one-third of all Americans moved from one income quintile to another. And income
mobility was generally higher during the 1980s than the 1970s, reflecting the new
dynamism of the American economy after we cut capital gains taxes in 1978 and 1981.
When capital gains taxes are high, wealth becomes locked up as people refrain from
investing or risking their wealth. America's class structure becomes more fixed. But
when capital gains taxes are low, as they were during the Reagan-Bush recovery, assets
are unlocked, income mobility increases, and wealth expands.
But the poorest Americans are still locked out of wealth and opportunity by
government-imposed barriers to opportunity. The time has come to lift those barriers.
The time has come to empower people, not bureaucracies; to combat poverty, not
perpetuate it; and to build a ladder of opportunity, not fill up the safety net. We must
discard the old top-down model of government paternalism and rechannel the power of
government toward clearing away the mistakes of a welfare policy that perpetuates
poverty and dependency.
Some people - some partisans - claim the Bush Administration is using welfare
reform as a cover for beating up on the poor, or worse, as Governor Cuomo charged, as
an excuse for pandering to racists. But we're not attacking the poor, we're attacking the
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system which has so misserved them. And incidentally, I don't think class warfare
makes good politics, whether it scapegoats the rich or the poor. The American people
don't want blame, they want answers.
In his fiscal 1993 budget, President Bush is seeking $1 billion to help public
housing residents become homeowners, through his radical HOPE initiative --
Homeownership and Opportunity for People Everywhere. Once again, the President is
also asking Congress to authorize 50 Federal Enterprise Zones, in which the capital
gains tax would be eliminated to help give low-income entrepreneurs access to capital.
The President's budget would further permit AFDC recipients to save up to
$10,000, and it would strengthen incentives for long-term AFDC recipients to find
employment. Existing rules generally reduce benefits for recipients who join the work
force. The Administration proposal would set aside in an escrow account the amount by
which a family's benefits are reduced, then pay it out in a lump sum if the family
succeeds in working its way off welfare.
Whenever possible, we in the Bush Administration are striving to place real
economic power in the hands of individuals, not bureaucracies. Philosophically
speaking, for a society which believes as Thomas Jefferson did -- that all men and
women are created equal, there is no other way. Pragmatically speaking, we've already
tried the alternative, and it doesn't work.
In his first inaugural address, Jefferson condemned those nations which "feel
power and forget right." Half a century later, Abraham Lincoln expressed a more
modern concern. In a speech at Peoria, Illinois, he called slavery "a sad evidence that,
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feeling prosperity we forget right."
We are by far the wealthiest nation the world has ever known. But feeling
prosperity, we must not forget right. We must not forget the moral obligation -- of
which Lincoln often reminded us -- to welcome all Americans of every background and
color into what he called "the race of life."
It is not just a moral issue. Our inner cities are overflowing with human capital,
an untapped reservoir of human creativity. Bringing millions of low-income Americans
back into the mainstream economy will create new wealth for all Americans -- rich and
poor, black and white. With the right policies and the right incentives, the 34 million
Americans living in poverty will become not a hindrance -- not a drain -- but a source of
vast promise and unimagined potential. America can once again be the "city on a hill" --
an example to the "new world" waiting to be created, shaped, and inspired.
Thank you very much, and God Bless America and the cause of freedom.
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THEODORE J. FORSTMANN
Senior Partner
Forstmann Little & Co.
THE AMERICAN POTENTIAL
Restructuring and Renewal of the U.S. Economy
for the
HARVARD BUSINESS SCHOOL
Monday, March 16, 1992
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I hope you don't expect to hear anything terribly conventional, because that's really
not my style. In fact, the semi-serious joke around Forstmann Little has always been that
the main reason I needed to start my own firm was because I was so thoroughly
unemployable. Actually, I believe that conventional wisdom is almost always wrong.
Sometimes it's the best we have for many ordinary purposes, but it can be kind of
dangerous because often it's engaged in fighting the last war.
Therefore, those people who would be our leaders cannot confine themselves to
conventional thought. If they don't think and act on the margin, where all change takes
place, they don't add to the life of the nation. They should be seeing every day as a new
frontier, where life is a risky business, but the key is to know when risk is only perceptual
and when it is real.
For a minute or two, permit me to elaborate on the experiences of my firm,
Forstmann Little & Co., from 1978 until the present, as an example of the difference
between real and perceptual risk; and to put into context the body of this speech - which
will deal with the great possibilities which I believe are on the horizon, on the frontier.
In our first years, the late 1970s and early 1980s, the climate for business was
chaotic. Inflation and interest rates were in double digits for the first time in the nation's
history, the dollar was gyrating wildly, the price of gold was inching toward $1,000 an
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ounce, and many intelligent people worried that the financial system was headed for a
complete breakdown. The wild shifts in monetary policy of the late 1970s and early 1980s,
the legacy of the breakdown of the Bretton Woods system, presented such risks to business
that the value of traded equity in the American markets had fallen to very low levels.
While inflationary growth was possible, real growth was almost nonexistent. There was a
very high level of management entrenchment and shareholder disenfranchisement.
Change had occurred so rapidly that conventional wisdom was obsolete and useless,
baffled by events and accepting the status quo. Acquisitions were few and far between. A
leveraged balance sheet using a capital structure adapted to these changes was unheard of.
Productivity stalled, as there was almost no capital available to propel change.
On the frontier at this point, a few financial innovators like Forstmann Little
appeared, realizing that because of the years of inflation, many companies could be bought
for a fraction of the replacement cost of their assets. During the first half of the 1980s,
well-designed leveraged acquisitions increased efficiency and productivity and helped
companies grow, as management became significant owners of their own enterprises.
The tax system favored debt over equity, making it possible to purchase undervalued
assets with relatively inexpensive credit. As the monetary and tax environment improved
through the mid-1980s, the value of our equity rose and we were able to achieve rates of
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return hitherto thought impossible. It turned out that investing in a Forstmann Little
leveraged buyout was far less risky and far more rewarding than buying shares of General
Motors, Citibank or IBM. By the second half of the 1980s, however, the imitators had
arrived. Conventional wisdom had made a 180-degree turn, decreeing that credit would
expand exponentially without limit and debt had gone from essentially evil to virtually
utopian. At this point, scholarly studies appeared, claiming that managements would
perform better under a heavy debt load than otherwise. This was a far cry from our
original insight, the idea that managements would perform much more effectively as paid
up owners of their businesses irrespective of debt levels, and that effort was elastic with
respect to reward.
Our continued success in the second half of the decade lay again in rejecting
conventional wisdom. As I warned in the late 1980s of the building excesses and their
inevitable results, while almost everyone else was buying, we were selling, for incredibly
high prices, much of what we had bought earlier. We did not make significant acquisitions
until 1990 and 1991, when we bought Gulfstream Aerospace and General Instruments
Corp., respectively; a time in which all the imitators had been forced from the scene as
their sources for junk financing disappeared.
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Currently, conventional thinkers are pretty depressed. We hear a great deal from
those who are seeking to lead us about soaring deficits, temporary middle class tax breaks,
the inevitability of Japanese and German economic might and the worry that we may
become a second class economic entity. It seems that each of our aspiring leaders has a
different colored bandaid to apply to our country's broken leg.
Today I would like to turn your attention away from this conventional banality and
direct it to the possibilities I see before us and the steps that need to be taken to implement
our country's ability to take advantage of these opportunities.
We will soon conclude one of the most turbulent centuries in human experience.
Essentially, the 20th century can be seen as the age of failed experiments in socialism --
including its fascist, communist and welfare-statist variants -- in contrast to the 19th
century, the age of no-holds-barred entrepreneurial capitalism. As a result of the fall of
Soviet communism, the political revolution throughout Eastern Europe and the economic
transformation of China, we Americans must rid ourselves of obsolete policies that have
built up like so many barnacles during our contest with the socialist experiment, what we
have most recently called the Cold War.
As the grip of socialism loosens across the planet, we are seeing some of the world's
most backward regions turn into the most dynamic. Mexico, which most considered a
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hopeless cause until very recently, has become the fastest-growing economy in this
hemisphere. The southern coast of China has become a gigantic enterprise zone, growing
so fast that private industry will produce half of China's national product this year. India,
with its population of a billion, is opening its economy to the world. No one can predict
where Russia's path will lead, but it is wise to remember that Russia was the fastest-
growing economy in the world during the two decades before World War I.
In fact, the fall of socialism will set loose entrepreneurial energies that will produce
bursts of productivity in places not now predictable. The past few years have produced a
change in the way of life for the better for millions of people which they will not easily
abandon. The concern we hear expressed about competition from Europe or Japan is really
about ten years behind the curve. These are mature economies, known quantities, with
problems of their own. It is the chance to take advantage of entrepreneurial capitalism and
liberal democracy as they spread around the globe that will present the important
opportunities and those who grasp them will produce results that will amaze conventional
thinkers.
With this truly splendid view spread before us, why do things feel so bad here in the
United States? Never before in our history, perhaps, have we felt a greater disparity
between our unchallenged domination of the world political stage and our uneasiness about
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our national economic life. Since 1989 we have endured a cumulative rate of growth of
zero and a recession that has been the longest, if not the deepest, since World War II.
Needless to say, our position in world affairs will be very dependent upon how we deal
with our current domestic economic ills, and I would like to suggest that, while many of the
pieces for a robust and growing economy and a just and fair society are in place, some of
these pieces need to be rearranged. The fundamental context of economic life has to be
restructured. In essence, we need an operation on the broken leg, not a bandaid.
Political philosophers from Aristotle to de Tocqueville have doubted the staying
power of democracy, arguing that it must lead to the looting of wealth by the mob.
American democracy has survived longer than any form of government in the world
primarily because American capitalism has historically provided more opportunities to
ordinary people than any other economic system.
But for most of the time since World War II ended, we have drifted further and
further from our basic principles. Now America needs economic policies once again that
maximize opportunities and therefore draw upon the best in each individual. By denying
opportunity, the fair chance to get ahead, we deny people's talent, and by so doing we deny
their human worth. Napoleon's quip that every one of his privates carried a marshal's
baton in his knapsack applies to Americans like no other people on earth.
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Economic policy should give individuals the maximum opportunity to do something
new and creative. That is the source of economic welfare. The growth of an economy
depends on individual's efforts to rise above their circumstances. It absolutely does not
depend upon the routine functioning of mature companies. If we value the potential of the
individual, then we must make economic policy accordingly. If we frustrate this potential,
we can hardly expect our social institutions to bear the pressure of this frustration. Most
Americans working for wages dream of working for themselves. Those who succeed will
do so by adding value to our economy to the general benefit. That is what risk-taking is all
about, and as I mentioned previously, risk is in the eye of the beholder: you will learn that
the world will view as risky some things which appear to be the simplest and most natural
transactions in the world to the nonconventional thinker.
But while the task of business is to take risks, the job of government is to be
predictable. Government policy must keep the hindrances to enterprise at a minimum
and, therefore, the tax penalties for the rewards of risk-taking must be as low as possible.
We have lived through two decades of abrupt shifts in monetary policy, arbitrary changes
in regulation, and flip-flops in tax policy and none of this has been beneficial to the
economic growth or social stability of our society.
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As an example, nothing is more disturbing about the present economic environment
than the decline of small businesses. You should be aware that small business are
responsible for most of the new jobs created in our country - 20 million during the first
half of the 1980s - while the Fortune 500, in their understandable desire to be efficient,
are net job losers. In each successive year since 1986, five years in a row, fewer new
businesses have been incorporated in the United States. In all the economic ups and downs
this country has had since World War II, nothing like this ever happened before. It is an
ominous statistic with predictable results, and because of it, it is no surprise that this
recession has lingered far beyond conventional predictions.
All economic activity, obviously including the startup of new businesses, requires
both labor and capital. The way to increase the rate of return to labor at the margin is to
invest relatively more capital. When capital is relatively abundant, labor is relatively
scarce and the return to labor must rise. Today, capital is very scarce. Why?
The value of any capital instrument is determined by expected future earnings,
discounted for risk. The biggest risk and depressant upon the rate of capital formation
today is the risk of confiscation by the government. I will give you a somewhat extreme
example: a couple purchased a representative stock portfolio worth $10,000 in June 1971,
just before the collapse of the Bretton Woods monetary system gave a generation of
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inflation. Upon retirement in 1990, the stocks sell for over $37,000. After inflation,
though, the real value of the stocks remains unchanged: the capital value of the stocks
buys the same amount of goods in 1990 as in 1971. The couple is liable for tax of more
than $10,000 on an illusory gain due entirely to inflation. This is clearly and obviously a
tax on capital, not on capital gains. No other industrial country in the world confiscates the
retirement savings of ordinary people in such capricious fashion.
The same calculations figure into the cost of raising capital for any venture, whether
it is a taxi medallion in New York City, a significant entry point into capitalism for
generations of immigrants, all the way to venture capital for high-tech investments in
Silicon Valley. Indeed, there are tens of thousands of research scientists and engineers
punching the clock at big corporations, putting in their eight hours, waiting for their
pensions, and griping about how their superiors fail to understand the commercial potential
of their inventions. Remove the tax penalty on capital formation, and, believe me, capital
will search them out. Instead of putting in eight hours a day for wages, they will put in
fifteen hours a day for the chance to realize their aspirations.
In fact, we should have an economy where businesses no longer have to build their
capital structure upon the shifting sands of inflation expectations, capital formation is not
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taxed at all, and legions of tax accountants, lobbyists and lawyers can be released into the
world to lead productive lives.
What combination of policies would create such an economic environment and most
effectively would provide for American enterprise and well-being? The answer is that the
spirit of enterprise inherent in most Americans, which is the foundation on which economic
growth depends, will flourish in an economic environment in which there is radical tax
simplification and certain and consistent monetary policy.
Our tax system, monster that it is, was born of the needs of war.
Until World War I, no country in the world envisioned marginal tax rates of 50% or
even 30%, let alone the application of these rates to working-class incomes. Once in place,
the oppressive tax regime of wartime was never dislodged; instead, large numbers of
people saw money to be made by becoming appendages of this monstrosity. Various
political interests kept adding to the Code to create penalties for certain kinds of behavior
and incentives for others. Various economic interests sought and won exceptions. The
process created hundreds of thousands of lobbyists, lawyers, tax accountants and politicians
who jumped on the bandwagon and turned this system into the largest single service
industry in the United States.
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Really, we should throw away our 4,000 page Tax Code and start anew. The top tax
rate in Hong Kong, the world's fastest-growing economy during the past ten years, is 15%,
and it takes less than an hour to fill out your annual tax return. A flat tax of 13% such as
Jerry Brown proposes is the kind of plan America will have to adopt by the end of the
1990s if we are to keep pace with a world that has rediscovered entrepreneurial capitalism.
Ten years from now, tax courses at Harvard Business School shouldn't even exist or, if
they do, should be the least interesting electives in the curriculum.
While drastic tax simplification should be the country's basic goal for the onset of the
next century; in the meantime, we need reform that will restore incentives to risk-taking.
First and foremost, as Federal Reserve Board Chairman Alan Greenspan proposes,
we should simply abolish the capital gains tax, which should be seen as a tax on capital
formation and liquidity.
It seems to me that so much misinformation has been disseminated on this subject
that even some of the political proponents of capital gains reduction do not accurately
understand the rationale of their position. Conventional wisdom states that this is a tax
which fundamentally applies only to the wealthy. Nothing could be further from the truth.
By definition, the wealthy already have capital and are not much concerned with capital
gains. It is the ordinary person who is penalized, virtually defrauded, by this tax. As my
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good friend the economist, Jude Wanniski, pointed out in a brilliant article written last
winter, elimination of the tax on capital formation would significantly help labor,
minorities, small town America and the elderly, as well as innovators of all sorts.
It will help labor. When you cut tax rates on labor, or ordinary income, more people
offer their labor in the market as work becomes more attractive. When this happens,
capital becomes relatively scarce. In the 1980s, tax rates on labor were cut sharply and
protected against inflation by indexation. Tax rates on capital were cut briefly, but
increased again in 1987, and were not protected against inflation. Labor is now plentiful
and capital is scarce, the "credit crunch." If capital were taxed at a lower rate, it would
become plentiful, and labor would become relatively scarce. If capital were not taxed at
all, it would become abundant. It would have to hire everyone in the unemployment lines
in order to realize all profit opportunities. It would even pay for capital to improve the
quality of their lives and train them, in order to realize profits. This would be especially
true for minorities.
For example, when the Negro slaves were freed during the Civil War, they came
into the market without a scrap of capital. Race prejudice has kept black Americans
starved for capital ever since. They have only essentially been able to use what they
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possessed from birth, their labor. No wonder in developing their potential as best they
could without capital, they became the best athletes and entertainers in society.
It would help small town America. Land, like labor, is a factor of production.
Throughout America's history, with capital taxed lightly or not at all, it spread from capital
centers and found its way to profit opportunities throughout the grass roots. However, as
capital has become scarce through high taxation, it has become more concentrated at the
metropoles, drying up opportunities in the country's small towns. Japan, which taxes
capital lightly or not at all, is able to seek profit opportunities far beyond its own shores.
Ending the tax on capital gains would make American capital available again and would
push much of this Japanese capital in other directions, to Asia, Central and South America.
It would aid the elderly. As most capital assets are owned by people over 55 years,
and as the price of these has been exaggerated through the last generation of monetary
inflation, seniors are now unable to enjoy the fruits of their past investments without paying
exorbitant taxes not on capital gains, but on capital. In the nation as a whole, taking
account of inflation, there has been no net increase in the nation's capital this past quarter
century. Eliminating the tax on capital gains would permit the seniors to unlock their past
investments instead of being forced to pass them, at death, to their heirs. A second way
seniors would benefit would be in the future, as rapid economic growth provided the
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resources enabling society to take care of the health and retirement needs of an aging
population.
It would help innovators. When capital is scarce, it is reserved for the "sure things."
The current "credit crunch" simply reflects the difficulty of enterprises that are not
established in acquiring capital from the system. Capitalism, like any betting
establishment, must provide for large rewards for large risks. Eliminating the capital gains
tax entirely will maximize the reward for risk-taking, innovation and enterprise, enabling
capital to flow to longshots, because only one need win in order to make the entire portfolio
of bets worthwhile.
Under no circumstances, though, should we throw money down the drain of
"investment incentives" which subsidize established industries. Tax policy has to
distinguish between preserving the rewards to risk-taking, which creates growth, and
reducing the risk of investment, which does not. In an appropriate economic environment
where risk-taking is prevalent, some failure is always a distinct possibility. But this is
really the essence of capitalism. The creative aspect of Joseph Schumpeter's "creative
destruction" obviously can't exist without some destruction.
We must focus this policy for capital formation clearly upon the parts of our
economy that most need it. We need a special tax regime for the inner cities and other
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parts of this country that are desperately short of capital. The health of our economy, as
well as the endurance of a national political consensus on behalf of opportunity, demand
this.
Finally, we need to rethink the way we have conducted our monetary affairs in the
past two decades. Before the end of this decade, I believe, America will have emerged
from a long cycle of rising and falling inflation expectations, back to a regime of price
stability. This will have profound consequences for enterprise. Profit is the other side of
the coin of uncertainty, as Frank Knight argued half a century ago. By "uncertainty," I do
not mean sloppy guesswork in business decisions, but rather the kind of insight that sees
beyond what the market is able to discount or insure. Investment is uncertain enough
without added uncertainty from government monetary policy. A consensus on behalf of
certainty in monetary policy has been emerging for some years. Back in 1987, then
Treasury Secretary James Baker proposed to use as a yardstick for monetary policy a
basket of commodities including gold. More recently, there have been encouraging signs
that the Federal Reserve has a growing interest in maintaining price stability in terms of
commodities, with enormous implications for reducing the cost of capital in this country.
Essentially, I can envision a different kind of country as the century draws to a close.
Rather than dealing with problems such as inflation created by government interference, the
16
03/17/92 12:35
201539 4025
POLYCONOMICS
HUD : SECRETARY
012/012
best graduates of this great school should be pitting their skills against technological risk in
a new wave of innovation, and against political risk in a world of unparalleled opportunities
overseas. The 1990s should not be an age of diminished expectations. Never before have
world events presented such an imperative for entrepreneurial capitalism. As much as the
early 1980s were a period of growth and opportunity, I believe that the possibilities for the
1990s and beyond should be far greater. Our country can either restructure along the lines
I have suggested and lead the way, or heed conventional thinking and risk falling by the
competitive wayside. In any event, those of you who can segregate real risk from its
perception and who can therefore see further into these trends than others, will do great
things. I wish you all the very best of luck.
17
THE WHITE HOUSE
WASHINGTON
March 24, 1992
MEMORANDUM FOR KATHY SUPER
FROM:
SAMUEL K. SKINNER
NE
SUBJECT: SCHEDULING ITEMS
Rich Bond talked to the President today about a series of Presidential Trust
fundraisers between June and November. The Presidential Trust raises money
for the 1992 campaign, and I understand Presidents have done this in the past.
We will review details and see how it plays in the schedule.
It is probably time for another "credit crunch" meeting under Secretary
Brady/John Robson's auspices. Please make arrangements to set it up.
Republican National Finance Committee
DOROTHY M. MOLEY
Deputy Director
PRESIDENTIAL TRUST 1988
MAJOR EVENTS:
LA, DC, NY, CHICAGO, DALLAS
SMALLLER EVENTS: (approximately 12 or so)
ie Detroit, Cleveland, Omaha, San Francisco,
Boston, Miami, Denver, Kansas City, St. Louis
etc
Additionally this was a round of events with surrogates.
I don't have the precise number.
Official goal is 11 million = 733 members @$15,000
*
1
rub
I!
Republican National Committee
RICHARD N. BOND
Chairman
3/24/92
TO RNB
FROM DOROTHY MOLEY
Yes -- it's doable --- goal was 8.3 --
'88 - 633 Full trustees at $10,000
-- raised the balance through direct mail
and "bundlers" ($1,000 trusts in clumps) .
THE PRESIDENT HAS SEEN
3/30/92 SHOW
THE WHITE HOUSE
POTUS
WASHINGTON
March 27, 1992
MEMORANDUM FOR THE CHIEF OF STAFF
THROUGH
HENSON MOORE
WAS
DEPUTY CHIEF OF STAFF
FROM
KATHY SUPER K Super
DEPUTY ASSISTANT TO THE PRESIDENT
FOR APPOINTMENTS AND SCHEDULING
SUBJECT
PROPOSED DATES FOR BUSH-QUAYLE FUNDRAISERS
Listed below are recommended dates for the upcoming Bush-Quayle
Fundraisers. These dates would best accomodate events already
scheduled for the President. The campaign would like to precede
with these dates once approved.
APRIL 27
Charlotte, North Carolina Fundraising Dinner
(on return from Miami commencement address)
APRIL 30
Pittsburgh, Pennsylvania - Fundraising Lunch
Columbus, Ohio Address the Ohio Association of Broadcasters
Columbus, Ohio Fundraising Dinner
MAY 5
New Jersey - Fundraising Dinner
MAY 7
Atlanta, Georgia Fundraising Dinner
MAY 12
Philadelphia, Pennsylvania Fundraising Dinner
MAY 15
Cincinnati, Ohio Fundraising Lunch
(on the way to Houston, Texas)
MAY 21
Greenwich, Connecticut Fundraising Dinner
THE WHITE HOUSE
WASHINGTON
March 31, 1992
MEMORANDUM FOR SAM SKINNER
fill
FROM:
EDE HOLIDAY GAA
SUBJECT:
United Mine Workers of America (UMWA) Retiree
Benefits Issue
Attached is a memorandum detailing the background and status of
the UMWA retiree health benefits issue as well as a brief
description of Senator Rockefeller's "Coal Industry Retiree
Health Benefit Act of 1991."
Attachment
Summary & Status of UMWA Retiree Health Benefits Issue
Background:
The United Mine Workers of America (UMWA) and the Bituminous
Coal Operators Association (BCOA) have been providing health
benefits to retired UMWA miners and their dependents since the
1950's. The UMWA Health Benefit Funds provide very generous
benefits to their members, 83% of whom also participate in Medi-
care. The benefits are financed through contributions made by
members of the BCOA -- companies that are signatories to the
National Bituminous Coal Wage Agreement (NBCWA). Pittston Coal
Company pulled out of the BCOA precipitating a strike by the UMWA
in 1989. Then-Secretary of Labor Dole appointed a mediator,
Former Secretary of Labor Bill Usery, to resolve the strike. The
strike was resolved but without reaching agreement on one of the
most contentious issue -- the provision of health benefits to
retired UMWA miners. Instead, a Commission was appointed in
March 1990 to study the issue and make recommendations.
The Commission reached consensus on a number of items but
was unable to agree on a new structure or financing mechanism for
the funds. The Rockefeller legislation is modelled on the
recommendations put forth by UMWA President Richard Trumka and
Company. then-BCOA President Robert Quenon, then-Chairman of Peabody Coal
The Issue:
The financial problems currently confronting the UMWA Health
Benefit Funds (Funds) are attributable to various factors.
First, the number of companies making contributions to the Funds
has declined from 80 percent of the industry in 1950 to 30
percent in 1990. Second, over the past ten years, the cost of
providing health care to retired miners has doubled from $117
million to $245 million. Third, there has been an increase in
the number of "orphan" retirees -- retired coal miners covered by
the Fund whose employer is no longer in business or no longer
contributes to the Fund. Currently 75 percent of the 120,000
beneficiares of the Funds are orphan retirees. These factors
have contributed to the Funds' current deficit of approximately
$100 million.
The Bill:
Senator Rockefeller introduced the "Coal Industry Retiree
Health Benefit Act of 1991" (S. 1989) on November 13, 1991. The
bill would mandate a new entitlement program supported by
industry-wide taxes on domestic and imported coal. At the same
time it would do virtually nothing to increase health care
program efficiency or reduce medical costs. It would create a
Federal corporation to pay and guarantee health care benefits for
retirees covered by the Funds whose last employer is no longer in
business or no longer makes contributions to the Funds. The
Corporation would be financed by an industry-wide tax and could
increase employer taxes to cover its expenses, without
Congressional approval.
The bill would also assess "premiums" against companies who
were former signatories to the National Bituminous Coal Wage
Agreement but have since gone out of business or ceased to make
contributions to the Funds. In addition, the bill provides for a
transfer of excess assets from the miners 1950 UMWA Pension Fund
to cover a portion of the deficit.
DOL's Position
The Department opposed S. 1989 and recommended a veto
because the bill:
* subsidizes the privately negotiated health benefits of a
single industry and creates a dangerous precedent for other
industries that may seek similar subsidies;
*
prohibits significant cost sharing and cost containment
measures to control rising health care costs;
* taxes industry competitors who were never a party to the
agreement to pay UMWA retiree benefits;
* creates a new government corporation to administer the
program. The Corporation would not be subject to
substantial Congressional or Administration oversight, and
it could raise taxes without Congressional approval.
We believe that the tax is unnecessary because:
* The U. S. District Court for the District of Columbia
recently ruled that former signatories to the National
Bituminous Coal Wage Agreement are obligated to continue to
contribute to the Funds on behalf of their retirees. This
ruling requires those companies to pay retroactive
contributions, interest and liquidated damages. This
finding could result in the Funds receiving over $50 million
in retroactive payments.
*
A reasonable transfer of excess pension assets would be
acceptable as long as protections are in place to assure
that sufficient assets remain in the Pension Plan so that
pension benefits are properly protected. Based on the
Funds' most recent actuarial evaluation, this transfer could
add over $150 million to the health benefit fund.
* Cost sharing and cost containment measures could be
implemented. Savings from these measures, along with the
increased contributions from former signatories and the
transfer of excess pension assets to the Funds would
substantially contribute to the solvency of the Funds.
The Administration would not oppose limited legislative
action, such as the transfer of excess pension assets. This
action could ensure that benefits continue to be paid for the
duration of the collective bargaining agreement. We believe
the solution to this problem rests with the parties that promised that
taxes and entitlement programs.
the benefits, rather than through the creation of new federal
Status
The Rockefeller legislation, with modifications that
Democratic tax bill vetoed by the President.
exempted certain types of coal from the tax, was included in the
this bill to any new tax vehicle that becomes available.
Senator Rockefeller has said that he will attempt to attach
year. is a possibility that some minor tax bills may surface later There this
The Department has received at least 500 letters from miners
requesting our support of the bill. The majority of the letters
are form letters that we believe were provided by the UMWA.
SAM SKINNER
3/24/92
Ede
Have Comena
Prepare hady
$ thin same
and Damage
Proposed induy
Coats to first 8am it
DCF HAS SEEN
STATE OF WEST VIRGINIA
OFFICE OF THE GOVERNOR
CHARLESTON 25305
GASTON CAPERTON
GOVERNOR
March 18, 1992
The Honorable Samuel K. Skinner
Chief of Staff
The White House
Washington, D.C. 20500
Dear Sam:
This is a follow up to earlier conversations I've had with you
concerning the role of your office in preventing a major health care
and economic crisis in this country.
Over the years coal miner issues have been contentious between
the miners, the coal companies and the United States Government.
Usually the cause of the problem between the companies and the
miners has festered for a long time, and the White House has
ignored the problem until a true crisis, often with violence,
emerges. Then the White House or the Labor Department has become
directly involved in settling the issue. The loss of coal retiree
health benefits will reach a critical stage this year unless a
legislative solution is found soon. Major labor strife in the coal
fields could cause the economic recovery to stall in the Midwest.
While Judge Williams's decision yesterday temporarily prevents
a cutoff of benefits, it does nothing to solve the problem of
averting a crisis this summer. He also recognized that only
legislation can prevent a. loss of benefits.
In spite of Secretary Martin's recommendation to the
President, I urge you to follow the advice of Senator Simpson who
"pledges to work with him (Senator Rockefeller) and see if we can
resolve it in a way that none of us are ever going to watch these
people lose their coverage." Arguments that collective bargaining
can solve the problem are specious.
OFFICE OF THE GOVERNOR
Mr. Samuel Skinner
March 18, 1992
Page Two
I hope that you will encourage a legislative solution because
only federal action can prevent the loss of health care benefits to
orphaned miners.
Very truly yours,
Gaston Masson Caperton
Covernor
GC/lc
SAM SKINNER
3/24/92
Ede
Have Comena
Prepare hady
4this same
and Dumage
Proposal induy
Costs to fix it 8am
VIRGINIA WEST OF STATE
DCF HAS SEEN
MONTANI SEMPER
STATE OF WEST VIRGINIA
OFFICE OF THE GOVERNOR
CHARLESTON 25305
GASTON CAPERTON
GOVERNOR
March 18, 1992
The Honorable Samuel K. Skinner
Chief of Staff
The White House
Washington, D.C. 20500
Dear Sam:
This is a follow up to earlier conversations I've had with you
concerning the role of your office in preventing a major health care
and economic crisis in this country.
Over the years coal miner issues have been contentious between
the miners, the coal companies and the United States Government.
Usually the cause of the problem between the companies and the
miners has festered for a long time, and the White House has
ignored the problem until a true crisis, often with violence,
emerges. Then the White House or the Labor Department has become
directly involved in settling the issue. The loss of coal retiree
health benefits will reach a critical stage this year unless a
legislative solution is found soon. Major labor strife in the coal
fields could cause the economic recovery to stall in the Midwest.
While Judge Williams's decision yesterday temporarily prevents
a cutoff of benefits, it does nothing to solve the problem of
averting a crisis this summer. He also recognized that only
legislation can prevent a loss of benefits.
In spite of Secretary Martin's recommendation to the
President, I urge you to follow the advice of Senator Simpson who
"pledges to work with him (Senator Rockefeller) and see if we can
resolve it in a way that none of us are ever going to watch these
people lose their coverage." Arguments that collective bargaining
can solve the problem are specious.
OFFICE OF THE GOVERNOR
Mr. Samuel Skinner
March 18, 1992
Page Two
I hope that you will encourage a legislative solution because
only federal action can prevent the loss of health care benefits to
orphaned miners.
Very truly yours,
Gaston Caperton
Governor yaston
GC/lc
OF
THE SECRETARY OF VETERANS AFFAIRS
UNITED VETERAN
WASHINGTON
STATES OF
OF
March 6, 1992
bill
7yI
MEMORANDUM FOR SAMUEL K. SKINNER
CHIEF OF STAFF TO THE PRESIDENT
FROM:
EDWARD J. DERWINSKI
SUBJECT:
Andrew A. Athens' Request
Attached is a copy of a letter from Andrew A. Athens
requesting a meeting with the President for himself and
His Eminence Archbishop Iakovos.
It is my understanding the President is tentatively
scheduled to meet with Archbishop Iakovos sometime
between March 23-25, 1992. I would strongly recommend
that priority be given to Mr. Athens' request for a
meeting with the President.
Thank you.
Attachment
MAR 05 '92 18:38 MANATOS & MANATOS
P.2
COPY
UHAC
NATIONAL
400 North Franklin Street
Suite 215
Chicago, Illinois 60610-4403
March 4, 1992
(312) 822-9888
The Honorable George Bush
Fax (312) 822-0890
President
The White House
Washington, D.C. 20500
Dear Mr. President:
I was extremely disappointed to learn of the virtual breakdown
of the Cyprus settlement talks following the United Nations
negotiators' trip to Turkey, which occurred subsequent to your
meeting with Turkish Prime Minister Suleyman Demirel. Greek-
Americans all across the United States, particularly our most
consequential national leaders, are stunned by Mr. Demirel's lack
of responsiveness to your requests.
To pull back from his earlier positions on Cyprus was
extremely injurious to the good work you have done on the Cyprus
settlement, but to refuse to even meet with U.N. negotiators and
instead to pass them off to lower-level people is an insult to what
you have done for his country. The many millions of dollars Turkey
spends each year on Washington consulting keeps them up to the
minute on policy and political developments in America. Their
insensitivity at this crucial moment in the Cyprus issue and in
your presidency should not be tolerated.
At this juncture in the Cyprus settlement issue, I think it
is very important that His Eminence Archbishop Iakovos and I meet
with you at your earliest convenience, no matter where you may be
in the United States, to share with you some ideas about this
matter. I would further encourage that we meet as soon as
possible, for a number of reasons.
I know how busy you are these days, but I feel that this is
an important matter from a number of perspectives.
Warm personal regards.
Sincerely,
Andrew A.
Athens
DCF HAS SEEN
file
MEMORANDUM
TO:
Samuel K. Skinner, Chief of Staff
Robert M. Teeter, Campaign Chairman
Frederic V. Malek, Campaign Manager
FROM:
C. Boyden Gray, Counsel to the President
our
Bobby R. Burchfield, General Counsel
B&B
DATE:
March 10, 1992
RE:
Guidelines for Avoiding the Appearance
of Conflicts of Interest By Senior
Bush-Quayle 92 Officials
We are attaching guidelines for avoiding the appearance
of conflicts of interest by senior Bush-Quayle officials. These
guidelines go well beyond the legal requirements for avoiding
conflicts of interest, and if followed will in our view enable
the campaign to avoid even the appearance of impropriety. Please
distribute these guidelines to all affected persons.
Should you have any questions about these guidelines,
please do not hestitate to contact either of us.
GUIDELINES FOR AVOIDING THE
APPEARANCE OF CONFLICTS OF INTEREST BY
SENIOR BUSH-QUAYLE 92 OFFICIALS
1.
The White House Counsel's office has determined
that senior campaign officials are private citizens, not federal
employees, and are not subject to federal conflict of interest
laws.
2. Policymaking is the province of the Administra-
tion. Campaign officials do not make government policy. To
assure that campaign officials do not appear to be making
Administration policy or supervising Administration action, all
contacts between the campaign and the Executive Branch must be
cleared by the White House Chief of Staff, as was done in the
1984 campaign.
3. To avoid even the appearance of impropriety,
certain senior campaign officials who may have contacts with the
Administration concerning substantive policy matters have
volunteered to disclose their financial and business interests to
the White House Counsel's Office, the Office of the Chief of
Staff, and the Campaign General Counsel, and each has done so.
4.
Campaign officials will not participate on behalf
of Bush-Quayle 92 in discussions with Administration personnel of
a specific issue affecting an identifiable client or fiduciary of
that campaign official if the campaign official is currently or
has in the past year been personally involved with that issue on
behalf of that client or fiduciary.
DCF HAS SEEN
THE WHITE HOUSE
WASHINGTON
March 10, 1992
MEMORANDUM FOR SAM SKINNER
fro
FROM:
EDE HOLIDAY
SUBJECT:
Personal Leave
I plan to be out of town on personal and family business
beginning at 12 Noon on Thursday, March 12 through mid-afternoon
on Monday, March 16, 1992. My office and SIGNAL will know how to
reach me by telephone.
During my absence, Gary Blumenthal will be available to
handle any matters which do not require my personal attention.
Please let me know if you see any problem with this.
DCF HAS SEEN
THE WHITE HOUSE
WASHINGTON
March 11, 1992
MEMORANDUM FOR SAM SKINNER
fill
FROM:
EDE HOLIDAY
and
SUBJECT:
"Prime Time LIVE" Segment on Meat Inspection
ABC's "Prime Time LIVE" is preparing a story that will be highly
critical of the Department of Agriculture's (USDA) Streamlined
Inspection System (SIS) for cattle and the safety of the nation's
beef supply. USDA Food Safety and Inspection Service (FSIS)
Administrator Dr. H. Russell Cross, a food scientist in his third
week on the job, was interviewed for the segment by "Prime Time
LIVE" reporter John Quinones. It is believed that the segment
will air during "sweeps week" in May, although it could air any
Thursday between tomorrow and then.
SIS was proposed in 1988 to modernize traditional inspection at
cattle processing plants. Pilot testing of SIS continues today
in five plants. Opponents, including labor interests and some
members of Congress, claim the system allows unsafe meat to be
sold to American consumers. While SIS will reduce the number of
inspectors in beef processing plants, the system is based on
science, and is currently being evaluated for larger scale usage.
ABC used hidden cameras to obtain incriminating footage inside
SIS plants, which they will use in the segment. Some of the
allegations in the interview included findings of buckshot,
plastic shavings, and fecal matter in USDA-approved beef; poor
plant conditions; and purported evidence of a six-year old girl
dying as the result of eating contaminated beef inspected by
USDA. In USDA's candid view, given the overall tenor of
Quinones' questions and evidence, it is likely that "Prime Time"
will edit the Cross interview to portray a "worst case scenario."
Cross' performance is believed to be less than optimum.
America's beef supply is believed to be the safest in the world.
Data compiled by the Centers for Disease Control indicate that
cases and outbreaks of illnesses as a result of eating
contaminated beef are down about 75% from ten years ago. USDA
inspects five billion pounds of beef annually, however, and no
system is perfect. In addition, after beef leaves a packing
house, it may be processed further through a distributor, a
grocer or butcher, and the consumer.
Recognizing consumer concerns about the safety of the food
-2-
supply, Secretary Madigan began reviewing meat and poultry
inspection systems early in his tenure at USDA. Later today, the
department will commission a panel of independent experts to
review the operation of SIS plants and reaffirm, within 60 days,
the safety of the beef processed there. The department will also
announce establishment of a national microbiological data base so
that new standards can be set.
CC: M. Fitzwater