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Archer To Unveil Bill June 9, List Of Possible Offsets Circulating

Friday, June 6, 1997

Deloitte & Touche OnLine

House Ways and Means Committee Chairman Bill Archer, R-Texas, plans to release June 9 the proposal that will be the basis for action when it meets June 11 to begin action on the tax bill.

Implementing the budget agreement reached in May, the bill will provide relief from the estate tax, cut the effective capital gains tax rate, expand individual retirement accounts, create a $500 per child tax credit, and provide education tax incentives. The net tax cut will be $85 billion over five years and the gross cut could be as much as $135 billion over that period.

It is expected that the Senate Finance Committee will meet to consider its version of the tax bill the week of June 16. The committees’ staffs will coordinate as much as possible over the next two weeks to work out as many of their differences as possible before a formal House-Senate conference on the bill convenes.

Not all differences between the two panels will be avoided. The Finance Committee probably will place greater emphasis than the Ways and Means Committee on expanding individual retirement accounts, reflecting its chairman’s interest in IRAs.

The bill that Archer plans to release on June 9 is not expected to be Archer’s final word on the tax bill. He has not signaled he will be open to the possibility of offering a perfecting amendment when the committee meets June 11. Archer’s openness to an amendment could give interested parties a final opportunity to influence the process before the panel meets.

Possible revenue raisers

Options that could be included in Archer’s bill is being circulated among congressional staffs and lobbyists. Nothing definite will be known until legislative language becomes available, but the list provides an indication of the direction the committee could be headed.

The revenue raising options being circulated include:

• An extension and expansion of the airline ticket tax, raising $35 to $37 billion over five years;
• Limit Section 355 (Morris Trust) spin-offs, but allow for transactions among related entities;
• A new tax on gaming on Indian reservations;
• Restrict short-against-the-box transactions and related-swap transactions;
• Eliminate the tax preference for ethanol;
• Limit net operating loss carrybacks to two years;
• Phase-out the low-income tax credit;
• Limit the capital gains tax cut by requiring recapture on depreciation; and
• Include some items on President Clinton’s proposals to alter the tax treatment of financial products.

The proposals affecting financial products that the President proposed to be effective on the date of first committee action are: deny interest deduction on certain debt instruments, defer deduction for accrued but unpaid interest on convertible debt, treat certain preferred stock as "boot," require gain recognition on certain distributions of controlled corporation stock, reform the treatment of certain corporate stock transfers, and further restrict like-kind exchanges involving foreign personal property.

The date of first committee action is the date the legislative language is released, which this year is expected to be June 9.

Administration Revises Child Tax Credit: The administration announced it is embracing an enhanced child-tax credit with a new tax-preferred investment component, Treasury Secretary Robert Rubin said.

The original $500 per child tax credit would be made refundable and it would be phased in at $200 per child in 1997, $300 per child in 1998, and $500 thereafter. It is not yet known if the proposal would retain the income phase-out limits in the Clinton budget proposal.

The plan also would create a new account to save for a child’s education in which parents could invest the $500 credit with interest accruing tax-free.

The revision suggest the President is willing to fine-tune his proposal to reflect the political realities in Congress. Similar steps were taken by Clinton earlier the week with respect to the education proposals.

Clinton is following the lead of Sens. John Breaux, D-La., and Bob Kerrey, D-Neb., who have introduced a bill that links a child credit with a new investment account for education savings.