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News & Views |Rubin Advises Veto of Education BillThursday, May 20, 1999 OnLine The education tax bill approved by the Senate Finance Committee May 19 would unfairly benefit the rich and would create compliance problems for the Internal Revenue Service , Clinton Administration officials wrote in a letter advising Congress they believe President should veto the measure, if it passes. The bill, which would expand education individual retirement accounts, "disproportionately benefits the most affluent families and provides little benefit to lower- and middle-income families," wrote Treasury Secretary Robert Rubin and Education Secretary Richard Riley. Expanding the list of items that tax-free savings could be used for would complicate enforcement, the administration officials said. Tax-free withdrawals from education IRAs could be used to pay for tuition, books and supplies, room and board, uniforms, transportation, and other items, under the bill. "Distinguishing between an appropriately tax-free withdrawal and one that should be subject to tax would lead to significant additional record-keeping burdens for families and schools, as well as disputes when discretionary purchases are made," the secretaries warned. In addition to expanding education individual retirement accounts, the bill would extend and expand the Section 127 exclusion for employer-provided education expenses, provide tax-free financing for school construction, and provide for tax-free treatment for qualified state tuition plans. |
Tax Increases Opposition from the administration almost guarantees that the effort to pass legislation will be symbolic and the bill will be vetoed, if passed. Nevertheless, the choice of tax increases is significant because Congress probably will enact most tax increases that are approved by one of the tax-writing committees. Many of the tax-increase proposals in the bill have been used on other measures that have not been enacted, including proposals to shorten the foreign tax credit carryback from two years to one year and to lengthen the carryforward from five years to seven years, limit the nonaccrual experience method of accounting to amounts to be received for the performance of qualified professional services, impose information reporting on cancellation of indebtedness by non-bank financial institutions, extend Internal Revenue Service user fees, and curtail the use of Section 357(c) to get a step up in basis. Also included in the bill are tax increases Congress has not previously approved, including the proposal to deny the deduction for charitable split-dollar life insurance, to allow employers to transfer excess defined benefit plan assets to a special account for health benefits of retirees, to impose pre-funding limits on certain employee benefits, to repeal the installment method for most accrual-basis taxpayers, and to add an item to the list of taxable vaccines. The text of the bill that the committee approved is not expected to be available until the week of May 24. |
Social Security Reform Bill Introduced: A group of bipartisan Senators unveiled their plan to reform Social Security May 20, though congressional leaders and the White House have expressed little interest in moving ahead on the issue this year. The plan would allow workers to invest a portion of their payroll taxes in personal accounts in selected stock and bond mutual funds. The deposited funds would belong to individuals, who could will the money to survivors. The legislation was introduced by Sens. John Breaux, D-La.; Sen. Judd Gregg, R-N.H.; Charles Grassley, R-Iowa; and Bob Kerrey, D-Neb. The measure is similar to legislation introduced by Rep. Jim Kolbe, R-Ariz., and Rep. Charles Stenholm, D-Texas. House Ways and Means Committee Chairman Bill Archer, R-Texas, who has his own Social Security reform proposal, plans to hold a hearing on various overhaul plans after Memorial Day. Hearing on IRS Budget Planned: The budget and strategic plan of the Internal Revenue Service will examined during a June 1 hearing conducted by House and Senate committees. Two Republicans and one Democratic member from the House Ways and Means,
Appropriations, and Government Reform Committees and from the Senate Finance,
Appropriations, and Governmental Affairs Committees will participate in the hearing, which
was mandated by the IRS restructuring legislation. |
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