|  Home   |  Site Search   |  Tax News & Views  |

House and Senate Consider Budget Resolutions

Tuesday, May 20, 1997

OnLine

The House and Senate began debate May 20 on the fiscal 1998 budget resolution, which reflects the balanced budget agreement between the White House and Congress.

Several symbolic substitute budgets will be offered by Democrats and Republicans, but they are expected to fail. Having several substitutes offered reflects the fact that opposition to both the budget resolution and the underlying budget agreement has splintered.

House Minority Leader Dick Gephardt, D-Mo., announced to the House he will oppose the budget resolution on the grounds that the rich will benefit too much, and the budget will be balanced on the backs of the poor. By denouncing the agreement, Gephardt is challenging President Clinton and Vice President Gore, who probably will fight the minority leader for the Democratic Presidential nomination in 2000.

It is important to remember that the budget resolution outlines the spending and revenue-raising goals for the upcoming fiscal year. Work on legislation to implement the precise policy changes assumed by the resolution will begin in June when the House Ways and Means Committee and the Senate Finance Committee are expected to act.

Senate Budget Committee Chairman Pete Domenici, R-N.M., opened debate on the budget in the Senate acknowledging that the final tax bill may require additional compromises.

Many people wanted the bipartisan budget agreement between congressional leaders and President Clinton to specify precisely how much capital gains tax rates will be lowered and the effective dates for tax proposals such as the $500 per child tax credit, he said.

"Exactly what the capital gains tax rate will be, we can’t tell you," Domenici continued, "but it will be significantly reduced." Domenici also acknowledged that there may be some delay in implementing the $500 child tax credit, but "it will be" implemented.

Senate panel approves resolution

Paving the way for floor consideration, the Senate Budget Committee May 19 passed the bipartisan budget resolution, 17 to 4, alleviating concerns of a difficult passage through the Senate.

Several non-binding sense-of-the-Senate amendments were adopted by the panel including Sen. Kent Conrad’s, D-N.D., language that urges Congress and the President to enact entitlement reforms and adjust the consumer price index to measure cost of living changes accurately.

Another non-binding amendment adopted requests that resources be made available in the budget so that 100% of health insurance costs for the self-employed can be deductible immediately. The amendment was offered by Sens. Christopher Bond, R-Mo., and Richard Durbin, D-Ill.

Tax Bills Offered: Several House Ways and Means Committee and Senate Finance Committee members introduced tax bills last week.

Sen. Dale Bumpers, D-Ark., proposed the Small Business Capital Gains Enhancement Act (S. 745) that would reduce the capital gains tax on investments in new small businesses to 10% if held for five years.

Rep. Nancy Johnson, R-Conn., May 15 proposed the Higher Education Access and Affordability Act of 1997, H.R. 1627, which would offer an above-the-line deduction for student loan interest, permanently extend employer-provided educational assistance programs, allow penalty-free individual retirement account withdrawals for higher education expenses, make state-sponsored pre-paid tuition plans excludable from income, and allow non-deductible contributions of up to $1,500 per child per year into higher education savings accounts.

Rep. Jerry Weller, R-Ill., introduced a bill (H.R. 1656) May 16 to require gain recognition in the case of certain transactions that are equivalent to sales of financial instruments, which include stock, debt instruments, or partnership interests.

Weller also introduced a bill (H.R. 1652) to clarify the exemption from the self-employment tax for termination payments received by former life insurance agents.

Rep. John Ensign, R-Nev., introduced a bill (H.R. 1623) May 15 to provide that the rate of tax on certain fuels derived from natural gas shall be based on Btu equivalence with a gallon of gasoline, and for other purposes.

Rep. Wes Watkins, R-Okla., introduced a bill (H.R. 1648) May 15 to encourage production of oil and gas within the U.S. by the elimination of net income limitations on percentage depletion for oil and gas.

Opposition to S Corporation Proposal Mounts: President Clinton’s 1998 proposal that would treat the conversion of certain C corporations into S corporations as taxable liquidations was attacked by business groups, which sent a letter to the tax-writing committees.

"This proposal, which would repeal the IRC section 1374 method of taxing built-in gains, would be harmful to the small business community," the May 15 letter said.

The American Bankers Association, U.S. Chamber of Commerce, National Association of Manufacturers, National Association of Real Estate Investment Trusts, and other groups signed the letter.

The proposal would effectively inhibit C corporations from converting into S corporations, S corporations from acquiring C corporations, and businesses from making S elections in the future, the letter went on to say.

Tax Bills Offered: Several House Ways and Means Committee and Senate Finance Committee members introduced tax bills last week.

Sen. Dale Bumpers, D-Ark., proposed the Small Business Capital Gains Enhancement Act (S. 745) that would reduce the capital gains tax on investments in new small businesses to 10% if held for five years.

Rep. Nancy Johnson, R-Conn., May 15 proposed the Higher Education Access and Affordability Act of 1997, H.R. 1627, which would offer an above-the-line deduction for student loan interest, permanently extend employer-provided educational assistance programs, allow penalty-free individual retirement account withdrawals for higher education expenses, make state-sponsored pre-paid tuition plans excludable from income, and allow non-deductible contributions of up to $1,500 per child per year into higher education savings accounts.

Rep. Jerry Weller, R-Ill., introduced a bill (H.R. 1656) May 16 to require gain recognition in the case of certain transactions that are equivalent to sales of financial instruments, which include stock, debt instruments, or partnership interests.

Weller also introduced a bill (H.R. 1652) to clarify the exemption from the self-employment tax for termination payments received by former life insurance agents.

Rep. John Ensign, R-Nev., introduced a bill (H.R. 1623) May 15 to provide that the rate of tax on certain fuels derived from natural gas shall be based on Btu equivalence with a gallon of gasoline, and for other purposes.

Rep. Wes Watkins, R-Okla., introduced a bill (H.R. 1648) May 15 to encourage production of oil and gas within the U.S. by the elimination of net income limitations on percentage depletion for oil and gas.

IRS Commission To Retire: Commissioner of Internal Revenue Margaret Milner Richardson announced that May 23 will be her final day in office. Deputy IRS Commissioner Mike Dolan will be the acting commissioner until a permanent commissioner is named.