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Congressional Aide Assesses Prospects for Clinton Proposals

Friday, February 21, 1997

OnLine

President Clinton’s proposals to curtail short-against-the-box transactions and to require registration of certain corporate tax shelters are meeting little resistance on Capitol Hill, but the proposal to replace the foreign sales source rule with an activity-based rule is meeting the most resistance of all his proposals, Joint Committee on Taxation Chief of Staff Ken Kies said Feb. 20.

All of the President’s proposals unveiled Feb. 6 will be closely examined by Congress, the congressional aide told the Aluminum Association, according to the Bureau of National Affairs’ Daily Tax Report.

"They’re not going to give a knee-jerk reaction and say ‘We’re not going to even talk about these things.’ I think they want to have a good faith negotiation" on the proposals, Kies added.

The greatest problem in writing legislative language curtailing the short-against-the-box technique is to make sure it only cuts off that particular transaction and does not affect other trading techniques, Kies also said.

Other items meeting little or no resistance include proposals to restrict like-kind exchanges involving foreign personal property, require registration of certain tax shelters, and require tax reporting for certain payments to attorneys.

Controversial items

The proposal to replace the foreign sales source rule is controversial because it would significantly increase the tax burden on U.S. multinational corporations that are manufacturing in the United States for export, Kies said.

Another potentially controversial proposal would extend the 0.2% Federal Unemployment Tax Act surtax through 2007, Kies said. The tax currently is set to expire in 1998. Many members of Congress view the proposal as a tax hike, he said.

Proposals requiring taxpayers to determine their basis in similar securities by using the average of their cost-basis and denying a deduction for interest or original issue on instruments that have maturities of more than 40 years also are raising concerns, the congressional aide said.