Congress Repeals Tobacco Tax Credit

Wednesday, Sept. 17, 1997

OnLine

The House approved the Senate’s version of the repeal of the tax credit for tobacco companies that was contained in the appropriations bill for the Departments of Labor and Health and Human Services.

Both chambers now have approved the repeal of the credit, effectively killing the provision. The Taxpayer Relief Act (H.R. 2014) would have allowed tobacco companies to deduct the amount of revenue to be raised by the 15-cent increase in the cigarette excise tax from the cost of the $368 billion tobacco settlement.

The repeal will not go into effect until differences with other provisions in the bill are resolved between the House and Senate and President Clinton signs the measure into law.

Technical Fixes, Restoring Vetoed Items Possible: Congressional staffs are discussing whether "time sensitive" technical corrections, such as the capital gains interest netting and individual retirement account problems, can be enacted in 1997, Joint Committee on Taxation Chief of Staff Ken Kies told reporters Sept. 17.

The Taxpayer Relief Act of 1997 changes the capital gains rate structure without modifying the netting rules, as a result taxpayers with capital losses on mid-term property may face uncertain or unintended results when they try to net gains and losses.

The IRA problem emerges in cases in which taxpayers roll a traditional IRA into a back-ended Roth IRA, agreeing to pay the tax due over four years, but also immediately withdrawing the funds from the account without paying a penalty.

Congressional aides, industry representatives, and administration officials also are discussing ways to alleviate the Treasury Department’s concerns with the tax provisions from the act that were vetoed by President Clinton under the new line-item veto procedure.

One tax provision struck down would have exempted for one year certain foreign-source income derived from insurance, banking, or financing businesses. The other provision would have allowed deferral of gain on certain sales of farm product refiners, and primarily would have benefited one Texas businessman, according to news reports.

Congress may wrap the technical corrections and the line-item veto language into an appropriate legislative vehicle that could be enacted this year, Kies said.

The transportation bill may contain tax provisions so it could be the legislative vehicle for the tax law changes, Kies said. Another possible vehicle is the shipbuilding-related trade bill.

Kasich Introduces Marriage Penalty Bill: House Budget Committee Chairman John Kasich, R-Ohio, introduced a bill (H.R. 2462) that would repeal the federal income tax marriage penalty.

"If there is one institution we need to strengthen in this country, it is the family and if there’s one step we can take to aid the family, it should be elimination of this oppressive, unfair penalty on married couples," Kasich said.

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