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Congress Returns to Make Preparations for Tax Bill Markup

Friday, May 30, 1997

OnLine

Congress will return to work next week and will begin preparing for the next step in the fiscal 1998 budget process, marking up a tax bill in the tax-writing committees.

Both the House and Senate during the week of May 19 passed budget resolutions, which outline the broad tax and spending goals for the year. However, they failed to agree on a compromise that irons out the slight differences between the two resolutions.

Both versions of the resolution and the budget agreement call for a net tax cut of $85 billion and a gross tax cut of up to $135 billion, including a $500 per child tax credit, capital gains and estate tax relief, expanded individual retirement accounts, and $35 billion in education tax incentives.

The budget resolution passed by the House requires the Ways and Means Committee to report out legislation implementing the resolution by June 13, and the budget resolution passed by the Senate requires the Finance Committee to report out a bill by June 27.

Resistance to those dates from the Ways and Means Committee, which objected to the fact that its bill would be open to pot shots from lobbyists while waiting for the Finance Committee to act, and from at least one non-tax-writing committee, which said it could not accomplish its work by the deadline set by the resolution, may cause the dates to change.

The conference agreement on the budget resolution may require the Ways and Means Committee and the Senate Finance Committee both to report a bill by June 20, congressional sources said.

If this plan of action is followed, the Ways and Means Committee probably will act during the week of June 9, possibly beginning on June 10. Although it is rumored that House Ways and Means Committee Chairman Bill Archer, R-Texas, has the outlines of a proposal, precise details of his bill will not be known until that week. The Finance Committee then would act during the week of June 16, possibly beginning on June 17, according to the plan.

Some congressional aides expressed skepticism that the ambitious timetable will be met. Though an initial draft of the proposal has been completed, more time may be needed to get a majority of committee members to sign on to the bill and to workout precise details, House aides have said.

Congressional leaders this year will not be able to assume, as they were able to in past years, that members automatically will support the deal because they were co-opted into the process by adding their pet provisions to the bill, the aides say. Because so many big-ticket items must be shoe-horned into the bill, there will be little room this time for members to add revenue-losing ideas that are not offset by tax increases.

Tax Bills Introduced: The following bills were introduced May 22 and 23 by members of the tax-writing committees. It is important to remember that there are many steps that proposed legislation must take before enactment, and not all such proposals become law.

A bill (S.815) to provide tax treatment for foreign investment through a United States-regulated investment company comparable to the tax treatment for direct foreign investment and investment through a foreign mutual fund was introduced by Senate Finance Committee member Max Baucus, D-Mont., May 23.

"The Investment Competitiveness Act would correct this inequity and put U.S. mutual funds on a competitive footing with foreign funds. The bill would correctly permit interest income and short-term capital gain to retain their character upon distribution," Baucus said in his Senate floor statement.

A bill (H.R. 1729) to extend and modify the work opportunity credit by creating a two-tiered credit, redefining the period a person must have received public assistance, and a three-year extension of the program was introduced by House Ways and Means Committee member Amo Houghton, R-N.Y., May 22.

A bill (H.R. 1730) to provide that the amount of an overpayment otherwise payable to any person shall be reduced by the amount of past due, legally enforceable state tax obligations of such person was introduced May 22 by House Ways and Means Committee Member Nancy Johnson, R-Conn.

A bill (H.R. 1740) to modify the application of the pension nondiscrimination rules to governmental plans was introduced May 22 by House Ways and Means Committee Member Rob Portman, R-Ohio.

A bill (H.R. 1749) to amend the Employee Retirement Income Security Act and the Internal Revenue Code to improve and clarify accountability for violations with respect to managed care group health plans was introduced May 22 by House Ways and Means Committee Member Pete Stark, D-Calif.

"This bill would create a new cause of action under ERISA which would allow consumers to seek additional damages from employer-sponsored health plans. The new cause of action would have concurrent jurisdiction, allowing the action to be brought either in Federal or State court. Additionally, this legislation would protect physicians from unfair lawsuits by making the health plan responsible for constraints they place on providers," Stark said on the House floor.

Municipal Bond Proposal Opposed: A bipartisan group of 30 House members urged Archer to reject President Clinton’s proposal that would reduce corporate holdings of tax-exempt bonds.

The proposal, included in the President’s budget, would extend the pro rata disallowance of tax-exempt interest expenses to all corporations.

"While this proposal would certainly affect investment decisions by corporations, the true resulting tax burden would in fact be almost entirely borne by states and localities in the form of significantly higher borrowing costs," the May 22 letter said.

Democrats Oppose OID Proposals: Eight House Ways and Means Committee Democrats wrote Archer opposing proposals to eliminate the deductibility of interest for original issue discount on debt instruments with maturities of greater than 40 years and to defer original issue discount on convertible debt.

The members broke with the President, who proposed the revenue-raisers, by sending the opposition letter, stating the proposal "represents policy changes that go beyond ‘loophole closing’ and may in fact have a negative effect on capital gains formation and investment."

IRS Restructuring Panel To Vote: The National Commission on Restructuring the Internal Revenue Service June 5 plans to vote on a set of recommendations that make changes to the IRS’ structure and to the tax code, according to sources close to the process.

The draft proposal contains recommendations that fall into eight categories. The section on simplification could include language calling for alternative minimum tax relief for businesses and individuals, earned income tax credit reform, and low-income housing credit reform, sources close to the process said. About 10 to 15 specific proposals will be included in the section, the source said.

The panel also is considering recommending a board of directors that would oversee the IRS. It is unclear how broad the board’s powers would be and how it would be organized, under the proposal that will be included in management and governance section. The board would be stronger than the advisory board proposed by the Treasury Department as a way to help solve IRS’ management problems.

Another recommendation the board will consider June 5 will be altering the filing deadlines for tax returns so that IRS is not faced with a glut on April 15.

The other six broad categories of recommendations include taxpayer rights, electronic filing, internal financial accounting, systems modernization, customer service, and workforce and culture.