A Analysis:

President Clinton's Fiscal Year 2000 Tax Proposals

March 1999

OnLine

To understand the tax increase proposals in President Clinton’s fiscal year 2000 budget, it is useful to start with a larger picture. President Clinton opposes using any of the $2.4 trillion in estimated federal surpluses over the next 10 years for tax cuts. He has asked Congress to reserve 62 percent of that surplus to "save Social Security," 16 percent to shore up Medicare, 11 percent for increased military spending, and 11 percent for the creation of new Universal Savings Accounts.

In this context, President Clinton must recommend tax increases whenever he wants to add a new tax expenditure or a new spending program. In his current proposal, Clinton outlined $33 billion in tax credits and other benefits over the next five years. He then asked the business community to pay for most of these proposals through about $30 billion in tax increases. Of this total, about $15 billion would come from proposals that previously have been made by the administration or others (in similar or slightly modified form) and that have been rejected by Congress or left unconsidered. Most of these probably will be consigned to the junk pile again.

We have marked each of these recycled items with this symbol: a

The budget also contains an additional $45 billion in new taxes associated with a proposed increase in the tobacco tax, reinstating certain environmental taxes, and converting air travel taxes to a cost-based user fee system. Concurrent with this $78 billion gross tax increase, the administration offers only a one-year extension of the research and experimentation tax credit, the work opportunity tax credit, and the welfare-to-work tax credit. This extension of tax benefits, although welcome, is not much of a bargain for businesses, considering the huge tax increases the president proposes to impose on them.

TAX-PLANNING CONSTRAINTS – The Re-Labeling of Tax Increases

Even though more than 85 percent of President Clinton’s business tax increase proposals come from items Congress previously rejected or from items that are substantive changes to long-standing and non-controversial provisions of the tax code, the administration attempts to characterize its entire package as one that addresses "abusive corporate tax shelters." The problem is that nearly every significant business transaction could fall within the administration's sweeping definition of a tax shelter. In reality, only a small fraction of the revenue proposals in this budget are anything other than plain tax increases.

The administration says it will raise a little over $2 billion from procedural changes that will place substantial restrictions on corporate tax planning. These proposals go well beyond any common understandings of a tax shelter. They would restrict taxpayers’ ability to engage in normal, necessary tax planning.

A little under $2 billion would be raised by other provisions aimed at specific transactions. Under present law, these transactions are permitted, but lead to results that are questionable from a tax policy perspective. For example, the administration proposes to amend Internal Revenue Code section 357(c) to eliminate in certain circumstances a taxpayer’s ability to create basis in a section 351 transaction. This and others like it are sound proposals. Most of these types of transactions, however, resulted from deliberate government action that caused essentially self-inflicted wounds. In the 351 case, the Internal Revenue Service created the basis increase possibility by ruling that a series of transactions caused one taxpayer to be liable for tax on the same gain four times.

TAX-PLANNING CONSTRAINTS – The Uncertainty

The administration proposes new rules aimed at what it characterizes as "abusive corporate tax shelters." In fact, these rules are an all-out effort to change the basic rules of corporate planning. Five of these new rules build from a new concept: the "tax avoidance transaction." A tax avoidance transaction (TAT) is defined as one in which the reasonably expected pre-tax profit of the transaction (on a present value basis) is insignificant relative to the reasonably expected net tax benefits of the transaction (on a present value basis). A transaction also is deemed to be a TAT if it involves "improper elimination or reduction of tax on economic income." In turn, a "corporate tax shelter" is defined as any entity, plan, or arrangement in which a direct or indirect corporate participant attempts to obtain a tax benefit in a tax avoidance transaction.

The seemingly bright-line definition of a TAT is simply an invitation to an entirely new realm of ambiguity. Consider these few questions:

• What tax or accounting rules define the expected pre-tax profit? Do deductible and non-deductible expenses enter into the calculation? How about tax-exempt income? How should taxpayers gauge the value of receiving a stream of income that is tax-free? How is the profit in a business combination calculated? What is the economic profit when assets are re-deployed within a group of related entities?

• What is a "reasonably expected" profit? Is it the projection that you used? Or, one that you did not use but that turned out to be more accurate? Or, one an IRS agent created using your model and the agent’s assumptions? How are interest, overhead, goodwill, foreign tax, and other general expenses to be taken into account? Is interest treated differently if debt is incurred as part of the transaction or in association with it? What tracing rules would apply?

• What are the reasonably expected tax benefits and burdens? Can a taxpayer anticipate a proposed change in the law such as extension of the R&D credit or reform of section 357(c)? If a series of transactions places the taxpayer in an alternative minimum tax position, are benefits and liabilities from a particular transaction calculated at the regular tax rate, the AMT rate, or a blended effective rate?

• What discount rate would apply in determining net present values? A one-size-fits-all IRS rate? A series of risk adjusted discount rates? If a business venture is subject to a high risk of failure, should the income projection be discounted for that risk? If tax liabilities in certain periods will be sheltered by tax benefits from other transactions, do those benefits and liabilities net before discounting?

One bad answer to all of these questions is the probable Treasury Department response: "We will tell you in regulations." Treasury has ceased writing regulations. At its current pace, it would take Treasury more than six years to clear the present backlog of regulatory projects. Regardless, no regulation adequately could resolve the issues raised by these new concepts. Taxpayers would be left with the choice of doing things the IRS way or risking a no-fault penalty.

If the administration's proposals are enacted, absent clear guidance, no corporate taxpayer would have any assurance the IRS would leave intact a tax benefit obtained in conjunction with a routine business transaction (e.g., a tax-free reorganization). Taxpayers would not know whether benefits emanating from transactions that follow the words printed in the Internal Revenue Code would be available until the IRS blessed such transactions during examination. Providing the IRS with this power would be an abdication of legislative authority.

Treasury's premise in proposing these new rules suggests that the IRS lacks the necessary tools to prevent transactions that produce unintended tax benefits. This assumption is wrong. A review of recent court decisions leads to the opposite conclusion: courts will not countenance transactions that do not make economic sense.

To function efficiently and productively, business taxpayers must be able to depend on the rule of law. That means relying on the tax code and existing income tax regulations. If the administration's vague "tax shelter" proposals become law, few businesses would feel comfortable relying on those statutes or regulations. Treasury's proposed rules could cost the economy more in lost business activity than they produce in taxing previously "sheltered" income.

TAX-PLANNING CONSTRAINTS – The Rules

With its handy, all-purpose, all-inclusive definition of a TAT, Treasury proposes a multi-faceted attack on corporate tax-planning activity. First, under the proposals, a corporate taxpayer would be strictly liable for a 20 percent penalty on any underpayment associated with a TAT. The penalty would increase to 40 percent if the taxpayer failed to report its participation in the transaction within 30 days of entering into it.

Second, Treasury requests blanket regulatory authority to extend section 269 to disallow any deduction, credit, exclusion, or other allowance obtained in a TAT.

Third, Treasury could deny corporate taxpayers any deduction for fees paid in connection with the purchase or implementation of a TAT or for related tax advice. Advisors also would be subject to a 25 percent excise tax on such fees. Note that non-deductibility and the excise tax would apply even to advice provided by an independent advisor that the anticipated tax advantages would not be available and to after-the-fact advice on the consequences of a transaction consummated without advice. Treasury has not indicated how this rule would apply to internal costs incurred in implementing a TAT.

Fourth, the purchaser of a corporate tax shelter that also acquires a full or partial guarantee of the projected benefits would be subject to an excise tax equal to 25 percent of the benefits that were guaranteed. A guarantee would include a rescission clause for tax law changes, a guarantee against changes in the law, or simple insurance. Thus, if a taxpayer purchased insurance against a tax adjustment in a specific transaction for $10,000 and the limit on the policy was $1,000,000, the proposal would subject the corporate client to a $250,000 tax. This would be true even though the pricing of the policy demonstrates that the insurer rated the risk of loss at less than one percent. The same excise tax would apply if instead the insurer had seen very grave risks and charged a $200,000 premium.

Fifth, the proposals would tax otherwise tax-exempt entities when they are parties to a corporate taxpayer's TAT. These tax-exempt entities are exempt organizations, Native American tribal organizations, foreign persons, and domestic corporations with expiring net operating losses. The corporate parties would be jointly and severally liable for this tax if unpaid by the exempt taxpayer. In addition, in the case of a foreign person properly claiming the benefit of a treaty, or a Native American tribal organization, the tax on the income allocable to such persons in all cases would be collected from the corporate parties.

An additional provision would preclude taxpayers from taking tax positions inconsistent with the form of their transactions if a tax-indifferent party was involved in the transaction. A taxpayer could take an inconsistent position by disclosing the inconsistency. In effect, the rule is a reporting requirement (chiefly with respect to hybrid transactions) masquerading as a deduction limitation.

Former Senate Minority Leader Everett Dirksen (R-Ill.) aptly complained about Congress’s spending habits in this familiar quotation. President Clinton has learned over the course of six budget submissions that the same is true in taxes. You cannot fund a $33 billion tax credit program on revenue increases in the $100 million to $300 million range. You need heavy anchors. The corporate tax increase portion of this year’s budget contains nine proposals projected to increase taxes by $1 billion or more each.

Three of these relate to life insurance:

• a Increases Deferred Acquisition Cost (DAC) Capitalization Percentages ($4.1 billion) The proposal would increase the percentage of life insurance and annuity premiums subject to DAC capitalization. House Ways and Means Committee Chairman Bill Archer, R-Texas, already has publicly announced that the DAC proposal will not be included in any package put forth by his committee.

• a Further Modifies the Corporate-Owned Life Insurance Rules ($1.9 billion) Continuing a four-year assault on COLI programs, the exception to the present law proportionate interest disallowance rules for life insurance on employees, officers or directors, other than 20 percent owners of the business that are the owners or beneficiaries of an annuity, endowment, or life insurance contract, would be repealed. This would make life insurance substantially less attractive to banks and other highly leveraged businesses.

• Recaptures Policyholder Surplus Accounts (PSA) ($1 billion) Companies would be required to include in their gross income over 10 years (one-tenth per year) the balances of the policyholder surplus accounts that they accumulated from 1959 through 1983. Generally, companies with such accounts never expected to pay tax on them.

Five additional mega-increases are simply recycled proposals from prior years:

• a Eliminates the 50/50 Inventory Sourcing Rule ($2.7 Billion) The administration again proposes to replace the 50/50 source rule that determines the source of the income from the manufacture of property in the United States and its sale outside the United States. An actual economic activity test rather than a fixed percentage would apply. Although the proposal is the second largest revenue raiser in the administration’s package, it is perceived as a tax on exports and likely will be rejected by Congress.

• a Repeals Lower-of-Cost-or–Market (LCM) Inventory Accounting Method ($2 billion)

The proposal would repeal the LCM and subnormal goods methods except for small taxpayers (average annual gross receipts over a three-year period of $5 million or less).

• a Subjects Investment Income of Trade Associations to Tax ($1.4 Billion) Trade associations including chambers of commerce, business leagues, and other similar not-for-profit organizations organized under section 501(c)(6) generally would be subject to tax on their net investment income in excess of $10,000. Unlike previous iterations of this proposal, other non-profit organizations not enumerated in section 501(c)(6) would not be subject to this new rule.

• a Reinstates Oil Spill Liability Trust Fund Tax ($1.3 Billion)

The Clinton Administration would reinstate the Oil Spill Liability Trust Fund excise tax for the period after the date of enactment and before October 1, 2009.

• a Eliminates Non-Business Valuation Discounts ($2 Billion)

The proposal would deny any valuation discounts for interests in entities holding "non-business assets." This provision would eliminate most of the value of using family limited partnerships to reduce the transfer tax value of gifted or inherited property.

The final new starter in the mega-raiser category affects an accounting method.

• Repeals the Installment Method for Accrual-Basis Taxpayers ($2 Billion)

The proposal simply would eliminate the installment method for accrual basis taxpayers. Although Treasury believes expenses are not really expenses until paid (see the premature accrual rules), it is more than happy to collect tax before payments are received.

CORPORATE AND FINANCIAL PRODUCTS PROVISIONS

In addition to the inordinately broad tax-planning constraints and the mega-revenue raisers discussed above, President Clinton’s budget contains a number of substantial tax increases on corporate taxpayers and other users of various financial products. The most significant provisions are described below:

• Taxes Issuance of Tracking Stock--"Tracking stock" is stock ownership interest in the issuer that is intended to relate to, and track the economic performance of, one or more separate assets of the issuer. It gives its holder a right to share in the earnings or value of less than all of the corporate issuer’s earnings or assets, but does not give the owner rights in the tracked assets. Under the proposal, issuance of tracking stock would trigger gain to the issuer in an amount equal to the excess of the fair market value of the tracked asset over its adjusted basis.

• Taxes Downstream Mergers--This provision would tax a downstream merger like a liquidation of the acquiring (downstream) corporation into the target corporation. The target corporation would recognize gain, but not loss, as if it distributed the acquiring corporation stock that it held immediately prior to the reorganization to its shareholders. This tax would be imposed even though no assets, in fact, left corporate solution.

• a Denies Dividends-Received Deduction for Certain Preferred Stock--In 1997, Congress denied non-recognition treatment on the issuance of nonqualified preferred stock. The budget proposal would eliminate the corporate dividends-received deduction for dividends on nonqualified preferred stock. Although the administration persists in characterizing nonqualified preferred stock as more like debt than equity, it does not propose allowing an interest paid deduction for dividends on such stock.

Other Targeted Tax Provisions

Several additional provisions target specific corporate transactions.

• Modifies Control Test for Purposes of Tax-free Incorporations, Distributions, and Reorganizations--The proposal would define "control" as ownership of at least 80 percent of both the total voting power and the total value of the corporation’s stock. As a result, flexibility in structured transactions, such as corporate divestitures, would be reduced.

• Requires Consistent Treatment and Provides Basis Allocation Rules for Transfers of Intangibles in Certain Nonrecognition Transactions--For purposes of the nonrecognition provisions regarding transfers of property to controlled corporations and partnerships, the transfer of an interest in intangible property constituting less than all of the substantial rights of the transferor in the property would be treated as a transfer of property. This simply eliminates the ability of taxpayers to choose between lines of authority in characterizing these contributions.

• Limits Conversion of Character of Income from Constructive Ownership Transactions with Respect to Partnership Interests--The amount of long-term capital gain a taxpayer could recognize from a constructive ownership transaction with respect to a partnership interest would be limited. Gain from a constructive ownership transaction would be treated as ordinary income to the extent that the gain exceeds the long-term capital gain the taxpayer would have realized from holding the partnership interest directly.

• Modifies Rules for Debt-financed Portfolio Stock--The standard for determining whether portfolio stock is debt-financed, for purposes of disallowing a portion of a corporate taxpayer’s dividends-received deduction, would be expanded to take into account stock that is indirectly financed by indebtedness.

• Modifies Certain Rules Relating to Debt-for-Debt Exchanges--The proposal would defer an issuer’s deduction for bond repurchase premium over the life of the new debt in a debt-for-debt exchange of publicly-traded debt (including a modification treated as an exchange). In addition, holders of such debt would be taxed at the time of the exchange.

• Modifies Straddle Rules--This proposal would deny interest and other deductions and loss associated with structured financial transactions that include a leg of a straddle. Stock would be defined as personal property for purposes of the straddle rules.

• Defers OID on Convertible Debt--The proposal defers original issue discount (OID) deductions on convertible debt exercisable by the holder until actual payment.

Other General Corporate Revenue Raisers

• Requires current accrual of market discount by accrual method taxpayers.

• Requires all banks to accrue interest, OID, and acquisition discount on short-term obligations.

INTERNATIONAL PROVISIONS

In addition to seeking effective repeal of the foreign sales source rule, the Clinton Administration offers a staggering number of tax increases that affect international activity. The budget includes a limited number of favorable international provisions, but most are detrimental to business taxpayers.

• Prevents Trafficking in Built-in Losses and Other Tax Attributes--Under current law, a person that becomes subject to U.S. tax for the first time determines the basis of property and other tax attributes as though the person had always been subject to U.S. tax. This has been the rule since the beginning of the income tax. As a result, a taxpayer coming under the U.S. system may take advantage of built-in losses and will be taxed on built-in gains. Treasury wants to replace the current rule with a "fresh start" that eliminates all tax attributes (including built-in losses and other items) and marks the taxpayer’s assets to market when they become subject to U.S. tax. This far-reaching proposal would add much complexity to the tax laws. It potentially may benefit some taxpayers who would be entitled to a tax-free step-up in basis in their appreciated property at the time they become subject to U.S. tax.

Other Provisions – Foreign Owners

• Limits Tax-Free Liquidations of US Holding Companies--The proposal would add an additional "back-stop" to outbound liquidations not taxed under existing rules.
• a Prevents Escaping the Imposition of the 4% Transportation Excise Tax –-The provision would prevent a foreign corporation from escaping the 4% excise tax by interposing a U.S. partnership between the foreign owners and the foreign corporation.

• Prevents Capital Gains Avoidance Through Redemption Transaction--The proposal would apply certain basis reduction rules to a foreign shareholder where a redemption treated as a dividend is subject to a reduced rate of tax or no tax at all under an income tax treaty. U.S. persons, therefore, are prevented from obtaining a tax benefit via the resulting basis-shifting transaction.

• a Prevents 80/20 Companies from Manipulating the Testing Period--The proposal would apply the 80/20 test (under which at least 80 percent of the gross income of the corporation is attributable to the active conduct of a foreign trade or business) that exempts some foreign taxpayers from U.S. withholding, on a group-wide rather than separate company basis.

• Expands Effectively Connected Income to Include Foreign Source Guarantee and Commitment Fees--The proposal would tax certain foreign-source dividend and interest equivalents (i.e., letter of credit fees, guarantee fees, and loan commitment fees), as effectively connected income.

Other Provisions – U.S. Parents

• Prevents Mismatching of Deductions and Income Inclusions in Transactions with Related Foreign Persons--The proposal would delay deductions for expenses accrued but unpaid to related controlled foreign corporations, passive foreign investment companies, or foreign personal holding companies until the amounts are reflected in the income of the direct or indirect U.S. owner(s) of the related foreign corporations.

• a Limits the Material Participation Exception Applicable to Inventory Sales--Income from a sale of inventory property outside the U.S. through a foreign office that materially participates in the sale will not be foreign source unless the income is subject to at least a 10 percent rate of tax in the foreign jurisdiction.

• Recaptures Overall Foreign Loss (OFL) on Disposition of CFC Stock--The provision would apply the OFL recapture rules to dispositions of CFC stock.

• Applies "Passive Loss" Type Rules to Leased Property--The proposal would apply passive loss restrictions to property leased to foreign persons by suspending the lessor’s net loss from the leasing transaction until income from the property is recognized or the lessor disposes of the property.

• a Foreign Oil & Gas Extraction Income Tax—The proposal would require a new separate foreign tax credit basket for foreign oil and gas extraction income and would treat a foreign levy imposed on a dual capacity taxpayer as a tax only if the foreign country has a generally applicable income tax.
  
  

• a Eliminates U.S. Withholding Tax on Payments from Certain U.S. Mutual Funds--To put U.S. mutual funds on a level playing field with foreign mutual funds, this provision would allow income distributed to a foreign investor by a mutual fund that holds substantially all of its assets in cash or U.S. debt securities an exemption from U.S. withholding tax.

• a Accelerates Look-Through for 10/50 Companies--The proposal would accelerate and simplify the elimination of the 10/50 foreign tax credit basket regime by adopting a look-through approach immediately for all dividends paid by a 10/50 company (a foreign corporation in which the taxpayer owns at least 10 percent of the stock by vote and which is neither a CFC or a PFIC) regardless of the year in which the distributed earnings and profits were accumulated.

• a Extends Puerto Rico Activities Credit--The proposal would extend through 2009 the Puerto Rico Economic Activity Credit, and allow newly established business operations to avail themselves of the credit for taxable years beginning after 1998.

PARTNERSHIP PROVISIONS

The Administration proposes five coordinated changes relating to basis adjustments rules for partnership distributions.

First, under the proposal, depreciable or amortizable property could never receive a step up on distribution to a partner; only capital assets could receive an increase. If the partner’s basis in its partnership interest exceeds the basis of the property distributed to it (and no capital assets were distributed), the partner would recognize a long-term capital loss.

Second, the adjustment to the basis of partnership assets under section 734(b), which is currently elective, would become mandatory.

Third, the rules regarding basis adjustments under section 734(b) would be harmonized with the distribution rule discussed above. As a result, it would not be possible under section 734(b) to increase the basis of depreciable or amortizable property. Instead, basis increases would be made only to capital assets. If the partnership did not own any capital assets, the partnership would recognize a long-term capital loss.

Fourth, the proposal would require that, when a partner’s interest is partially redeemed, the partner allocate its basis in its partnership interest between the redeemed portion and the retained portion. The allocation would be made in accordance with the percentage reduction in the partner’s share of partnership "capital." This would increase the likelihood that partners will recognize gain on partial redemptions.

Fifth, the proposal would repeal section 751(b) under which a distribution from a partnership of more or less than its "share" of the partnership’s hot assets (such as inventory, accounts receivable, depreciation recapture, and section 1248 amounts with respect to CFC stock) can give rise to current tax to both the distributee partner and the partnership.

OTHER PASS-THROUGH PROVISIONS

• a Modifies Structure of Businesses Indirectly Conducted By REITs--The proposal would prohibit real estate investment trusts (REITs) from holding stock possessing more than10 percent of the vote or value of all classes of stock of a corporation. REITs would be permitted to have limited purpose "taxable REIT subsidiaries" to engage in specific real estate related activities.

• a Modifies Treatment of Closely Held REITs--Under the proposal, no person could own more than 50 percent of the vote or value of all classes of stock of a REIT.

• a Repeals Section 1374 for Large Corporations--The administration's proposal would repeal tax-free conversion to S corporation status for corporations with a value of more than $5 million at the time of conversion. This would require immediate gain recognition by both the corporation and its shareholders upon the conversion to S corporation status.

ACCOUNTING METHOD PROVISIONS

The Treasury proposals include four far-reaching changes to accounting methods and several other tax increases.

• Denies Deduction of Punitive Damages--The administration would deny taxpayers any deduction for punitive damages. If such damages were paid by insurance, the responsible taxpayer would have to include those amounts in income. Punitive damages would remain subject to tax in the hands of the recipient under the changes made to those rules in 1996. In effect, Treasury seeks a windfall from punitive damage payments by denying their deduction while taxing their receipt.

• Denies Change in Method Treatment to Tax-free Transactions--Under the proposal, methods of accounting would carry over when a business is contributed to a corporation or partnership in a tax-free transaction.

• Provides Consistent Amortization Periods for Intangibles--Start-up and organizational expenditures would be amortized over a 15-year period instead of the 60 months provided in present law. Electing taxpayers could deduct up to $5,000 of such expenditures.

• a Eliminates Income Recognition Exception for Accrual Method Service Providers--The proposal would repeal the non-accrual experience method for accrual method service providers. This would force an accrual of income even if, based on experience, the income is unlikely to be received.

Additional Accounting Methods Revenue Raisers:

• Applies uniform capitalization rules to certain taxpayers that perform certain manufacturing or processing operations on property owned by their customers (tollers).
• Limits tax benefits for lessors of tax-exempt use property.
• Clarifies class life of utility grading costs.
• a Expands the relevant definitions under the provisions related to the disallowance of interest on debt allocable to tax-exempt obligations.
  

• a Increases Property-Casualty Proration Percentage--In addition to the three mega-revenue raisers on the insurance industry described earlier, the administration would increase from 15 percent to 25 percent the portion of a property casualty insurance company’s tax-exempt income that is effectively subjected to tax through special proration rules. This effectively would eliminate any advantage of investment in tax-exempt bonds.

ESTATE AND GIFT PROVISIONS

In addition to the valuation discount proposal described above, the President's proposals include several minor provisions including elimination of qualified personal residence trusts, a technical correction to the phase-out of lower rates, and two income tax provisions that would eliminate the basis step-up at death for the surviving spouse's half of community property and impose reporting requirements on donors and executors with respect to the basis of transferred property.

MISCELLANEOUS PROVISIONS

• a Modifies FUTA--The President would require monthly payments of federal and state unemployment taxes if an employer’s Federal Unemployment Tax Act (FUTA) liability in the prior year was $1,100 or more.

• a Repeals Percentage Depletion for Certain Non-Fuel Minerals--The proposal would repeal percentage depletion provisions under current law for non-fuel minerals mined on federal lands where the mining rights originally were acquired under the 1872 mining act, and on private lands acquired under the 1872 law.

• a Imposes Excise Tax on Purchase of Structured Settlements--Under the proposal, any person purchasing a structured settlement payment stream would be subject to a 40 percent excise tax on the difference between the amount paid to the injured person and the undiscounted value of the purchased income stream. An exception applies if such purchase is pursuant to a court order finding that the extraordinary and unanticipated needs of the original intended recipient render such a transaction desirable.

CONCLUSION

The revenue proposals in the Clinton Administration's FY 2000 budget represent an opening gambit in this year's tax debate: middle and lower-income Americans receive tax credits and the business community pays for it. Congressional Republicans are more interested in cutting individual taxes than raising revenues, but they are not talking about business tax cuts. House Ways and Means Committee Chairman Bill Archer, R-Texas, has said he will review Treasury’s proposals to "ferret out abuses" that taxpayers are using to avoid paying tax, "but not just to raise money, as the administration did in most instances." As this analysis makes clear, most of Treasury's revenue proposals are nothing more than blatant tax increases.

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