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THE WHITE HOUSE
WASHINGTON
FROM:
ERSKINE BOWLES
LAURA TYSON
GENE SPERLING
SUBJECT:
Budget Working Group
eff~rt,
Of~~
Each White House office has loaned a senior staff member to this
as, have several
the Cabinet Agencies. The Working Group as a whole meets daily. as do sub-groups on
Medicare~ Education and Training, the Environment, Technology, and Taxes.
I:he Budget Working Group has been responsible for marketing your budget priorities on
the local, regional. and national level, This effort includes: rapid response to the
appropriations votes, issuing daily talking pOints, ~obilizing outside groups and validators,
providing information to friendly Members of Congress, saturating the media markets of
pivotat Members, and planning events ~d media .for yourself, the Vice-President, Mrs:
Clinton, and Cabinet officials,
The net result has been a series of positive news stories at the national and local level,
highlighting the impact of the extreme GOP cuts, in sharp contrast with your mon:
reasonuble approach.
This document summari7.,cs some of the major accomplishments
Group to clute.
1
or [he
Budget Working
�,'
I.
•
MEDICARE
Medicare Vouchers:: Realizing that Republicans had left themselves highly
vulnerable on Medicare plans, the Budget Working Group began its activities in mid- .
July with an attack on the Republican Medicare voucher proposals. We prepared and
distributed materials to Members of Congress and the press, arguing that under the
GOP voucher proposal, beneficiaries face a simple, crucl choice: choose to pay more
or choose to get less.
Strategy. rollowing the Robert Pear story in the·New York Times on Monday,
July 17, which suggested that the GOP Medicare proposal would raise costs for
millions of beneficiaries, we built a strategy around Judy Feder's July 18
testimony before the House Commerce Committee and HCF A Administrator
Bruce Vladeck's July 20. testimony before the House Ways and Means Health
,Subcommittee. Both were very critical of Republican voucher proposals:,
focusing on: (l) how the Republicans would constrain spending far below the
private sector; and (2) how much more beneficiaries would pay under the
Republican plan to stay in a plan that allowed "them to choose .their own doctor.
Amplificatiolt. Democratic SenntNs held a press conference following
Administrator Vladeck's testimony and talking points were widely distributed to
Democrats on the hilL Members of the Cabinet 3!1d Sub-Cabinet conducted
print and radio interviews into 50 tnrgeted markets, Secretary Shala)a, Dr,
Tyson, Alice Rivlin, and Gene Sperling interviewed with the major national
newspapers.
Media Coverage. Our attack received significant positive press coverage,
including; the New York Times, the Washington Post, the Wall Street Journal,
USA Toduy, and AP. On Friday, July.21, CNN aired a story in their hourly
news-reel on the heat the Republicans' arc feeling over Medicarc cuts:
..
Medicare 30th Anniversary Event. This (;Vent was designed to show Democrats On
the Hill that we would stand with them in the coming weeks and make Medicare a
major issue in the Budget battle, This event also provided a major forum for yO'll to
highlight the Republican increases in Medicare premiums and Qutwof-p(xket costs to
seniors on the 30th anniversary of the bilL
.Media Coverage. Your speech reccived extensive positive conv..:rgc on thc
evening newscasts on NBC, ABC, eNS, CNN, and CNBC. Tv,:o of the three
network!-\ quoted you saying, "we emmot aflord to bankrupt older Americans: in
the name of tax cuts for the wealthiest Americans."
The New York Times printed an opwcd the day of your speech, warning that 011
the 30th anniversary of Medicare, the Republican plan to eut $270 billion over
seven YCttrs by giving vQuchers to beneficiaries "could cause serious damage,"
2
�Amplification. Cabinet and senior White House staff were booked into targeted
radio 10 more than 40 local media markets. Cabinet and senior White House
staff also conducted press calls to nati~oal press, focusing attention on your
message about the Republican movement from the 30 year commo~ ground of
protecting the health security of older Americans. Your speech was mailed to
150 edjtorial boards and older American and health care trade press.
•
Medicare 30tb Anniversary Radio Add~s (taped Friday, July 28). Realizing that
a "news hook" was needed for the radio address we acted on an idea suggested by
Alan Cohen at Treasury and directed HHS and Treasury to compute the number of
Americans who would be forced into poverty under the latest draft of the Republican
~edicare proposal.
j
The 500~OOO poverty number was inserted into your remarks and your radio address
with the First Lady received extensive press cO\-'erage~ leading CNN news all day
Saturday~ and producing favorable stories in both the Washington Post and the New
York Times] - the 500~OOO number was featured prominently in each of the stories.
Amplification.
Your radio address was mailed to top 150 editorial boards, African-American,
Hispanic, women's and older American press. We issued a press paper
detailing the number of seniors who viiH he forced into poverty wlder the
Republican plan. Regional radio and print interviews were conducted v.rirh the
seniors auc-nding the radio address, into their hometowns.
•
Statc-by-S~atc- )lata on !\-lcdicare: State-by· State analyses of the Republican
Medicare and Medicaid cuts were released on Friday, July 28, coinciding with your
radio address.
. .
.
Amplification. Chief of Staff Panetta briefed reporters on the state-by~state
data; Friday afternoon July 28. Analyses were sent to radio stations, ed.
boards, and television outlets in all 50 states. Cabinet and sub-Cabinet officials
r.:onductcd numerous radio and print interviews into targeted markets.
j
Press releases/sfatements were released by: State Democratic Legislative .
Leadership in CA, FL, IL, 10\'.':1, Ml, MO, NB, NJ, NY, PA, OR; the governors
in: WV A, MD, FL, DE, CO. and Lt. Governors in CA, MO. Itt
3
.,.,""
�,
Medicare Education: Seeing the need to provide- reporters with basic education on
the status of the 'Medicare Trust Fund, Administration actions, and the Republican
plan, we organized a series of reporter briefings by Dr. Tyson and Judy Feder (HHS)
with assistanee from Chris Jennings, and Gcne Sperling.
These briefings, based on the "White House Medicare Briefing Document,!! which you
have read. explains:
(I)
(2)
(3)
(4)
•
What the Part A Trust Fund is and how it differs from the Part B
Trust Fund;
The history of the solvency of the Part A Trust Fund;
What you have done to improve the solvency of the Trust Fund; and
How the proposed Republican.") cuts are not necessary to extend the
solvency of the Trust Fund.
To date, we have conducted 17 Medi<:are briefings .... 5 for nationa~ media and"12
for regional reporters -- using the <:ounty-by~eounty data as a hook for ·regional
reporters. Lorrie McHugh, April Mellody, Peggy Lewis, Josh Silverman and Laura
Schwartz from the Press Office played an instrumental role in putting these briefings
together.
Net\""ork Corespondents
Bureau Chiefs
National Newspaper Writers (Toner, Pearl, Oliphant, Dowd; etc.)
Pundits (Clift, Broder, etc)
Rustbclt Tong
Big East Tong
Business Writers Tong
Banking, Finance, and taxes Tong
Economic Tong
Shanahan Tong
Loubsdorf Tong
Radio Tong
Ct-.1'J Bureau
..
County-by-County Data: County~by-county data on Medicare was released on
Monday, August 7 to coincide wilh .thc series of Medicare education briefings for
rcport(:rs, and the Gingrich Medicare event in Atlanta, also hcid that day. The county
bywcotmty datn has exceeded all or om expectations in terms of media coverage .
each of the state~widc AP wires broadca:;.tcd the county data and stories were printed
in literally hundreds of local papers.
Amplification. Press releases on the county numbers by county executives in
the following .")tates; Ohio, Iowa. Wisconsin, Michigan, Florida. Virginia,
Washington. Illinois, CA, Minl1" MI), Kentucky, Georgia, Dc!ewarc, PA,
Oregon.
�'"
Regional Media. We have also set up a recess regional media strategy focusing
primarily on Medicare, The attached grid indicates the hundreds of media calls being
placed.
•
Trustees Op--Ed: Jennifer Klein from the First Lady's office pieced together an
excellent op-ed by Secretaries Rubin, Shalala, and Reich for placement later this week.
n. EDt..:CATION
•
State-by-Statc Data on GOP Education Cuts: With significant coordination by Ken
Apfel at OMB, and help from NEC, DoEd, and DOL; a state·by.state analysis was
prepared for release Friday, July 21, 1995, Over 50 reporters were targeted for calls
by Cabinet and Senior White House Staff. 50 Separate press releases were prepared
for each state. When the .Committee did not finish within the news cycle, we decided
10 hold this report for release Monday, July 24 in conjunction with your Boys' Nation
j
Spee"h,
Waiting for your Monday speech proved to be a major positive. While national media
cove::age of the speech centered mostly on your re~engagement in the budget debate,
(Your·threat, "I will continue to act, alone if necessary," was heavily reported),
regional coverage paid significant attention to the education numbers.
Amplificatwn. We released a press document highlighting the Republican
movement from the common ground on the issues of Education, Health Care
For Seniors, Helping Working Families, and EnvironrnentiPubljc Safety,
George Stcphanopoulos and Dr, Tyson hosted a breakfast with Network .
Correspondents the morning of the speech. Director Rivlin, Dr. Tyson, and
George Stepbanopoulos briefed columnists. Director Rivlin and Dr, Tyson
briefed business journalists. Your speech was mailed to top ISO editorial
boards, African-American, Hispanic, women's nnd older American press.
Nearly :2000 copies of the report were distributed to education groups; members
of Congress. state and local officials and regional media. Over SO calls by
senior Administration officials were made to regional media and editorial
boards, Statements were issued by elcctcd officials in nearly 25 states.
Rcgiunal media conference calls were conducted by Secretaries Reieh and Riley
and by White House staff. rille following Governors issued releases on how the
EducationiLaborlHHS appropriations bill will impact their stale: Caperton.
Nelson, Bob Miller, Romer, Glendening. Carper, Knowles, CClrnahan. Gray
David (LL Gov. CAl, LL Gov, of VA..l3cyer
5
�Education Committee Chairs in the state legislatures from the following states
sent out press releases on how the EducationfLaborlHHS appropriations bill will
impact their state: Arkansas, Kentucky. Louisiana, Mississippi, ~issouri~ New
York. Oklahoma. California., Massachusetts, and Oregon.
The Democratic Legislative Leadership in the fonowing state,S is.
.'med releases:
Ohio, Minnesota~ and Michigan. Vennont, Connecticut. .
Medla Coverage. The state reports received good press coverage -- the data
was picked up by the AP Newswire and stories appeared 1n several regional
papers.
•
American Federation of Teachers (Friday, July 28) The Republicans handed us a
gift, by choosing to caH for the elimination of Direct Lending on the same day as your
speech. Your quotes On Direct Lenrling.were picked up by the news Wires and the
insidc~ Washington press (Posl, Congress, T<?day, Hotline, etc.)
AmplifICation. Your speech was mailed to 150 editorial boards, The
Department of Education issued several press rclea."ics on Direct Lending and
Deputy Secretary Kunin held several conference calls with reporters, A dozen
African American college presidents wrote op-eds blasting the GOP cuts. OMS
Director Rivlin released a letter blasting the Republicans for trying to repeal
Direct Lending,
•
Meeting with Congressional Democrats and Education Practitiuners. Your
meeting in the Cabinet Room on August 3 with Congressional Democrats and JO
education practitioners on the day of the .House vote on Labor/HHS/Education
appropriations served to reinforce your commitment to education and your concerns
regarding the bill approved by the House later that day,
Amplification. The people chosen to participate were so strategically to
pressure on key Members of Congress as they cast their voles on Labor/HHS.
Media Affairs set-up print, TV nnd radio interviews in targeted CCtngressional
mnrkets (Buffalo, Cleveland. Pittsburgh, Worcester. Madison and Baltimore)
with tile partiCipants.
Media Coverage, This event received heavy coverage from CNN ull day as a
lead-in to stories on the House vote, ;-.Icwspapcr and television slories appeared
in all of participants' home media markets. Your quotes from the pool stray
were in the New Vork Times and Washingum Post,
Impact. While the bill was cvcntuaUy approved, it should be noted that none of
the targeted Y1embers: representing individuals we invhed 10 1he event ended up
voting in favor of final pti5sagc.
6
'0'. . . . ,
�..
III. ENVIRONMENT
•
GOP Anti-~:nvironm.nt Ride... (Rapid Response - Part 1). On Friday, July 29,
the I·louse considered the VAlHUD Appropriations bill. An amendment to retain the
Environmental Protection Agency's jurisdiction to enforce clean air and clean 'Water
rules was passed (212-206).
Following the floor vOle, the Budget Working Group mobilized and had the Vice
President brief reporters on the GOP Environmental cuts. The Vice Presidept did a
White House briefing and was quoted in a very positive ABC News story. His quotes
also appeared in the first few paragraphs of stories in the Washington Post and New
York Times.
• GOP
Anti~Environmcnt
Riders (Quick Response - Part 2), On Tuesday evenin'g,
August 2) the !-IQuse voted to restore the anti-environment riders to the Va/HUD
appropri.tions bill. The Budget Working Group mobilized quickly, and prepared."
hard hitting statement for' you to read to reporters in the \V11ite House briefing room
the following morning,
'/
You s..tement was Dicked up by all CNN, ABC, NBC, and CBS, and
Ike WashinglOn Post, New York Times. LDS Angeles Times. Boston
HeraI4m[;'hicago Tribune, and numerous' local and regional
newspapers,_
•
En\'ironment Speech and Issuance of Executive Order. After m'o weeks of
planning by the Budget Working Group (and negotiations with the various offices
involved), an Executive order was prepared (or you to deliver a strong rebu~tal to the
G01' environmental roll-hack .
•r
Your health,safety, and environment event in Baltimore on August 8,
was by all accounts a success, titeciving very positive coverag;e on
NBC, ,BS, eNN, , FOX and in hundreds of major daily newspapers
and r9gional print and radio.
NBC news ran a 5 minute storY desct.i.12.i.ng how the Republican cuts
woqlg drasticallv rollback ycarsmof environmental progress.Rcgional
clips arc attached.
Prior t(. the event, we put Carol Browncr in the press briefing room to expluin til..:
afrect of the Executive Order. Carot and her Communications Director Loretta Ucelti
played an exceptional role developing .md implementing our Envlroncmta! message.
7
�.
·
Time, Business Week, and the Washington Posrare expected to run articles in the next
two weeks on the influence of special interests on the Republican budget cuts.
In conjunction with your event, Governors and Legislative Leaders and Committee
Chairs: put out press releases on the environmentai impact of the Republican cuts.
We mleased Environmental
State-by~Stlte
impact numbers,
IV. COMPREHENSIVE STATE-BY-SIATE ANALYSES
We prepared a booklet for the House Recess highlighting the state~by~state impact of
the Republican cuts on Older Americans, Students, and Working Families. As of
8114195, this book has been distributed to more than 10,000 persons and media olitlets
from the White House. The DNe has also reproduced the book and scnnt to
thousands of local supporters on the' ground in states across the country. Groups are
a1sa using the book daily in their attacks on the GOP cuts. Book is available via the
internet and through various forms of electronic media.
V.
PEROT
In preparation for Perot's United We Stand convention in Dallas, we released a report
10 the press comparing the Administration's record with Perot's campaign promises.
VI. MEIlICAID
\Ve are preparing a Medicaid document similar to the White House Medicare Briefing
Document that we have been using to educate the press.
VII,CrrV-IlY-CITY DATA
Analysis of impact of GOP euts on 50 major cities sbould be completed this week,
We arc looking at several options for tinting the release (possibly in conjunction with
the M<!YOfS' meetings ill Seattle on August 28, or as part of the back to school rollout
VIII.[!~CK
TO Sl:;HOOL
A memo was sent to you on Monday. August 14, outlining our back to school plans,
including two \vceks of ramp up activity by Cabinet and groups, and 1 week of White
House events (September II), A suh~~roup mei ioday to finalize phms .md hegin
implementation.
8
�. , .'. .
IX. GOP MEDICARE PLAN
Planning continues for the last two weeks of September. We are working on strategy
to counter GOP release of Medicare plan set for September 21.
X.
V ALIDATORS
Attached is a comprehensive ,grid indicating our strategy for validation
outreach on Medicare. This grid, the product of the tireless efforts of
Susan Brophy (Legislative Affairs), Emily Bromberg (Intergovernmental
Affairs), Marilyn Yager (Public Liaison), Kris Balderston (Cabinet), and
Leslie Thornton (Validators), we have laid out a plan for massive regional
media outreach over the next few weeks on Medicare.
This plan includes: Cabinet, SulrCabinel, Regional Administrators,
Groups, and Intergovernmental Officials,
9
.""
�,
" '
NEe STAFFING MEMORANDUM
Date:
to '13
Subject:
Action/ConcurrencelComment Due By: _ _ _ _ _ __
s"",c'<V'"i P,v~i,.,
ACTION
Laura Tyson
So Cutter
Gene Sperling
Tom O'Donnell
Pauline Abernathy
Lael Brainard
Julia Chamovltz
Paul Deegan
Michael Deleh
Paul Dimond
Chris Dorval
Wendy ElnheUig
Michael Froman
Jason Goldberg
Elgie Holstein,
Gay,loshlyn
Tom Kalil
Sob Kyle
David Lane
Uz Lindemuth
Sonyla Matthews
0
0
'0
0
0
0
0
0
[J
0
0
0
0
0
0
0
0
0
0
0
0
MQlAb
\0 hTvS
61"
S.~ 1=;,,;", (,.. Tu.x 0/''''_
ACTION
FYI
d
r;;i1
g
0
0
@
FYI
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Mark Mazur
Elaine Mltsler
Aaron Rappaport
Dorothy Robyn
Ellen Seidman
Daniel Taberskl
Helen Walsh
Dena Weinstein
.G1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
[J
0
0
0
0
0
0
0
g'
0
0
Remarks:__
Response:
David J, Lane
Executive Director
456-5352
.
.
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�DEPARTMENT OF THE TREASURY
WASHINGTON
, October 23, 1995
MEMORANDUM FOR J."RESIDENT CUNTON
FROM:
Leslie B. Samuels
Li!JS
THROUGH: Secretary RAlbert E. Rubin
SUBJECT:
Xl Q.
Senate Finance Committee Tax Bill
On October 19, 1995, the Senate F1lUUlCe Committee adopted, by party-line vote, a tax
package to be include(! in budget reconciliation. This package contains gross tax cuts of
about $245 .biJliQll over seven yean, with tbe net amount cut at $224 billion. Many.of these
items - such as the $500 per..:hild tax credit - are simi1ar to the 'Contract with America"
items contained in the larger tax bill that passed the House in March. In addition, the
Finance Committee previously has agreed to reduce the earned illCQJ!Jetax credjt fElTC) of
about 17 million t;\3J)ayw by $43.5 billion over seven years.
The analyses of both tbe Treasury Department and tbe loint Committee on Taxation agree
that the Finance Committee package (including the previously adopted changes to the EITC)
will, on averag", raiseJaxes on families with incomes under S30.QQQ - a category which
represents about 40 percent of tbe population. Moreover. 48 percent of the lax changes in
the Senate bill will benefit taxpayers with incomes over $loo,QQQ (12 percent of taxpayers).
The Finance Committee package also contains measures estimated to raise about $21 billlnn.
These revenue-raisers are similar to those contained in the recent Ways and Means package,
except that certain important revenue-raising items have been omitted, including repeal of the
low-income housing credit, repeal of the ethanol lax inoentives, and the taxation of Indian
gaming.
One of the revenue-raisers that is similar to a House provision relates to pension reversions.
, It would permit companies that sponsor pension plans for their employees to remove plan
assets equal in amount to their annual spending on retirement, health and other employee
benefits. provided that a minimum asset 'cushion" is retained in the pension plan. Given the
fungibility of moriey, companies could effectively r....eve assets from retirement plans and
use these fund. for any corporate purpose. The proposal'. minimum 'cushion" may prove
inadequate, in part beeause employers have significant flexibitity in calculating the cushion.
These and other changes in the Finance Committee pa<:kage are described in the attachment.
Attachment
ce: Laura Tyson
�......
A'ITACHMENT
MAJOR PROVISIONS IN FlNANCE CQMMll'I'EE TAX PACKAGE
(as approved October 19, 1995)
FAMILY TAX RELIEF
•
$500 Child Tax Credit. The Senate bill would provide a $500 per child
nonrefu"dable tax credit for each dependent child under age 18. It would be phased
out for individuals with adjusted gross income (AGI) over $75,000 and rnanied
eouples with AGI over $110,000. (The revenue loss is estimated at 8141 billion over
seven years,) 'This provision is moving closer to the Administration's child-credit
phase-<>ut, which begins at AGI of $60,000 for married eoupl.s,
•
MlitrlllJ!e Penalty Relief. The standard deduction for joint returns would be
gradually increased through 2005, in an effort to eliminate Ibe marriage penalty for
couples who do not itemize their deductions. Couples who itemize deductions would
receive no relief, (The revenue loss is estimated at $12,3 billion over seven years,)
Treasury is considering alternatives for marringe-penally relief that involve lower
revenue losses,
•
Credit for Student LoanJnteresl •. The bill would provide a nonrefundable credit of
20 percent of interest paid on a qualified student loan during. taxable year, capped at
$500 per )..... per borrower, and phased out for rnanied couples wilh AGI of $60,000
to $75,000 ($40,000 to $55,000 for singles). (The revenue loss is estimated at $1
billion over seven years.)
SAVJNGS AND INVESTMEl\'T INCENTIVES
•
Igdlvldual Retirernent.ACCOllnts CIRAsl. The bill generally is similar to !he
Administration proposal. It would expand Ihe income limits for deductible IRA
contributions somewhat furlher (but phased in more gradually) than the
Administration: Unlike the Administration proposal, the bill gives nonworking
spouses a separate $2,000 deductible IRA. Like the Administration proposal, !he bill
would allow "bacldoaded IRAs' (funded wilh nondeductible contributions on which
earnings accumulate and are distributed tax-free), but the bill would not ,ubject them
to any income limits.
•
l!ens!on Simplification. The Senate bill, like the House bill, incospora!eS numerous
Items from the Administration', pen,Ion Simplification proposal that built on
simplification legislation passed by the House in 1994 and that President Clinton
�announc.,d on June 12, 1995. The bill also includes additional items, a rew of which
raise policy concerns. The bill proposes a simple, new retirement savings plan for
small business (the "SIMPLE"), which is similar in many ways to the
Administration's "NEST" proposal. While the SIMPLE constitutes a constructive
step in Ihe right direction, it does not do enough to encourage retirement savings by
middle- and lower-wage workers or to protect their interests.
•
Capital Gai~
Individuals. Like the House bill, the Senate bill would provide a 50 percent
deduction for capiUll gains on property owned at least one year (providing a
maximum rate of 19.8 percent). Unlike the House bill, there would be no
inde:tirig for inflation. The reduction is effective for gains realized after
October 13, 1995. (The revenue loss is estimated at $33.5 billion over seven
years.)
Small IlusiDl\SS Stock. The bill would expand the preference that was
initialed by the Administration and enacted in OBRA 1993 for qualified small
business stock. 'The bill would increase the exclusion for individuals from 50
to 75 percent (resulting in a maximum effective rate of approximately 10
percent), and give corporations a favorable 21 percent rate, in addition to other
changes.
f,ptnornliom. 'The bill would decrease the maximum capital gains rate for
c~rporations
from 35 percent to 28 percent. The House bill would provide a
25 percent capital gai,; rate for corporations. (The revenue loss of the Senate
provision is estimated at $6.8 billion over seven years.)
•
Altom tiVil Minimum 1M (AMf). 'The bill would liberalize depreciation
allowances for AMT purposes. It also would allow for enhanced use of AMT credits
relating to investments previously made. This relief is more generous than what the
Admilili,tmtion proposed in 1993 (which was enacted in part). 'The enhanced use of
AMT credits is wilikely to contribute to increased investments. (The revenue loss is
estimated at $9.2 billion over seven years.)
lIEALTII-CARE RELATED PROPOSAlS
•
I&D~-Thrm CaVil !nsunmce. The bill would tax long-tom care insurance and
expenses generally in the same manner as medical insurance and expenses.
Employer-provided insurance would be deductible by the employer and excluded from
the employee'S income. Payments to a policyholder would be taxable only to the
extent IlleY exceeded $150 per day per insurer. (The revenue loss is estimated at
-2
..
�$9.9 billion over seven years.) This proposal is more generous tIum Ihe
Administration's proposal in tl!e Health S=rity Act.
'..
•
,
Penni! MediCllI SaYings AceQ!!nts IMSAsl. The bill would create • new IRA-type
account called a Medical Savings Acmunt (MSA) that could be used to pay for health
care if an individual is covered by catastrophic insurance. Employees could exclude
from income employer contributions to an MSA of up to 52,000 ($4,000 for a
family). Individuals (including the self-employed) would be subject to the current law
limitations on deductions for health care. Earnings within the MSA would accumulate
tax-free. MSAdistributions would be nontaxable only if used to pay for medical
care. ('The revenue loss is estimated at $1.3 billion over seven years.) The proposal
raises a number of concerns: it would divide tl!e population besed on medical risk,
create a complex new tax shelter for healthy individuals, and may not significanUy
contain health-care costs.
FSTATE TAX REFORM
•
familv=Owned Businesses. The bill exempts from estate tax the ftrst $1.5 million
and 50% of the next $3.5 million of "qualiJied family owned business interests.' The
House bill contains no such provision. This proposal would give an estate tax
reduction in excess 0($1,750,000 to any decedent who owned a family business
worth more tIum $5,000,000. ('The revenue loss is estimated at $5.5 billion over
seven years.) The Treasury Department is working on a proposal to provide more
targeted relief for family-owned small businesses and farms_
EXPIRING I'ROVISIONS
•
Prorlsions Extended Through February 28, 1m. The aggregate cost of these
temPOlary extensions is estimated at $5.4 billion over seven years. These temporary
extensions include:
The Targeted Jobs Tax Credit. As in the House bill, it would be renamed
tl!e Work Opportunity Tax Credit, and modified, including a reduction in the
credit rate from 40 percent to 35 pereent.
Employer-Provided EduClltionai Assistance. The provision would extend the
$5,250 exclusion for employer·provided eduClltionai assistance, which expired
after December 31, 1994.
Research and Development (R&D) Tax Credit
�ReinsUte Tax-Free Treatment of Employ....Provided Group Legal
Services. The Administnltion rejected extending this provision in the budget it
proposed in 1993. •
.. ' .. ',
Orphan Drug Tax Credit
Commercial Aviation Fuel. The effective date of the 4.3-cents-per-gallon tax
on commercial aviation fuel would be delayed from October I, 1995, through
February 28, 1997.
REVENUE RAISERS
•
Pension Asset Reversions. The Senate bill would permit employ"'" to tmnsfer
without any excise tax - pension assets in excess of 125 percent of a pension plan's
"current liability" to pay the annual cost of the employer's rellaement, health and
other employee benefits. In effect, this would allow comparties, during a six-year
window, to use pension assets to free up other corporate funds for any purpose.
Currently, an employer generally cannot use pension assets for nonpension purposes
without terminating the plan and paying a substantial excise tax (of up to 50 percent)
that recaptures the benefit of the tax~free accumulation of pension earnings. The
Administration strongly opposes this proposal.
•
ElillBtriation Proposal. The Senate bill taxes expatriates on their accumulated gain.
when the expatriate ceases to be a U.S. taxpayer. The provision generally follows
Senator Moynihan's proposal, which was based on a proposal contained in the
Administration', budget.
•
ReJI«!l Tax Cwiit for Contribullons to Co_rotv Deve10mnent Corp!l!'lllions.
Like the House bill, the Senate bill would repeal this credit, which was enacted as
part of OBRA 1993 with the objective of providing economic opportunities for low
income individuals.
•
COrDQI'l!te-Owned Life Insurance. As under the House bill, deductions for interest
attributable to the purchase of so-called corporate owned life insurance (COLI)
policies would be denied. The Administration does not oppose this proposal.
•
8tasc Out Preferential Tax DeCem! for Certain Law family Corporations
ReaujreP..1l! Use Accru.1 Accountin2. The Revenue Act of 1987 required certain
closely held farming corporations (with gross reecipts over $25 million) to change
from the cash to the acerual method of accounting. However, these taxpayers were
allowed a potentially indefinite deferral of the one-time tax liability that otherwise
would have been incurred as the result of the change. Like the House bill, the Senate
bill would eliminate this deferral and generally recover it over a 2o-year period.
�•
•
Phase Out Puerto Rico and Possession Tax Credit (Section 936). Section 936
would be repealed with respect to new investment as of the end of 1995, and phased
out with respect to existing beneficiaries of the credit. The phase-out rules favor
\ali;payers using the economic-activity branch of the credit, which was enacted in 1993
in response to Administration efforts to reformulate the credit to better promote job
creating investment. However, the bill eliminates the incentive for iI!UC new
investment in Puerto Rico and the possessions. The Administration indicated that a
credit based on economic activity is appropriate, and that if section 936 is repealed,
another similar incentive is needed to encourage economic activity in Puerto Rico.
•
m£ll!dl' in meow. all Punitive Pama!!§ and Damage Recoyerl§ (or Non-l'bysI!:al
Injuries. As under the House bill, no exclusion would apply to damages on account
of solely nonphysical injury (such as those related to discrimination or emotional
distte.ss) or to any punitive damages received. The Administration opposed this
proposal.
•
Refonll Foreign Trust Rul§. The proposal contains a package of information
reporting and anti-abuse rules directed at sophisticated tax-planning techrtiques
involving foreign trusts. The bill generally follows Senator Moynihan'. proposal,
which was based on a provision contained in the Administration's budget.
•
R~I1!ll11
Qf tbe Inteoo Exclusjon [or ESOP;;. The bill would repeal the special
exclusion for interest on employee stock ownership plan (ESOP) loans. In general,
current law permits commercia1lenders to exclude 50 percent of the interest on loans
used to purchase employer stock for ESOPs that own a majority of the employer after
the acquisition. The Administration does "at support dtis proposal.
•
CO!lllgduSO Retjree H!llI1tb Equity. Under the 1992 Coal Act, liabillty for
financing coal industry retiree heallh benefits was spread broadly among companies
that bad signed collective bargaining agreements. The bill would reduce premiull1ll of
certain companies for two years, thereby increasing the financial risk to the retiree
health benefit fund. Senator RoclrefeUer strongly opposes dtis provision. The
Administration previously has testified that the 1992 Cnal Act should not be amended.
SPECIAL-INTEREST PROVlSIONS
The Senate bill contains a number of special-interest provisions. Among them are:
•
Special treatment for a 401(1<) plan sponsored by the American Foothall Coaches
Association.
•
Favorable depre<:iation treatment for convenience stores that marlret petroleum
products.
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�. '..
•
•
Tax-exempt status for a private foundation's common investmerit fund.
•
Favorable treatment for rea1-estate losses of life insurance companies.
•
Targeted relief for one category of private activity bonds.
The Senate Finance Committee Democrats raised the issue of special-interest provisions in
the course of the mark-up debate.
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Ceo')-<-
~bLD
NEC STAFFING MEMORANDUM
"."
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Date:
10 .~)
Subject:
Action/Concurrence/Comment Due By:
?".. . \Si~ ~ \l..-~ ~-"'-;~
...
ACTION
Laura Tyson
BoCutter
Gene Sperling
Tom O'Oonnell
Pauline Abernathy
. Lael Brainard
Julia Chamovitz
Paul Deegsn
Michael Deieh
Paul Dimond
Chris Dorval
Wendy Einhellig
Michael Froman
Jason Goldberg
Elgie Holstein.
Gay Joshlyn
Tom Kalil
Bob Kylo
David Lano
liz Lindemuth
.
Sony,s Matthews
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FYI
g
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121
C.~\iI,~ ... 1~ ~
ACTION
FYI
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0
0
0
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G:r
0
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Ii
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Mark Mazur
Elaine Mitsler
Aaron Rappaport
Dorothy Robyn
Ellen Seidman
Daniel Taberski
Helen Walsh
Dena Weinstein
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•
•
Remarks:._ _ _ _
c::._L-=I,)'-~-=e..::.---'~...::..:: _'V'___ _ _ _ _ _ _ _ _ __
•..:L'
Response: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
David J. Lane
Executive Director
456·5352
�•
DEPARTMENT OF THE TREASURY
WASHINGTON
ASStSTANT SECRETARY
CLOSE HOLD
O<:tQber 23, 1995
MEMORANDl)M FOR LAURA TYSON
mOM:
L~S~ ~~~
THROUGH: SECRETARY RUBIN ~ .'<:...
SUBJECT:
\l
~
Provisions In the Fmance Committee Chairman's Mark
This memorandum briefly describes a number of signlficanl proposal. that were included in
Chairman Roth'. mark as considered by the Senate Finance Committee last week. Included
are recommended Administration positions, as discussed althe October 13, 1995, NEC
meeting.
L
FAMILY TAX RELIEF
A.
$500 Child Iax Credit. The Senate proposal would provide a $500 per cbild
noorefundable tax credit for each dependent child under age 18. The credit w<>uld be
effective on January I, 1996, and would be permanent. The credit w<>uld not be
indexed for inflation. The credit W<>uld be phased out for individuals with adjusted
gross income (AGI) over $75,000 and married couples with adjusted gross income
over $110,000. The taxpayer'. tela! credits would be phased out $25 at a time for
each $1,000 or the taxpayer's AGI over the thresholds. Thus, large families would
not be penalized.
IWcommended Administratlllll D!lSltiOIl: Support, with modifications. The
Atintinistration supports the concept of a $500 per child tax credit. The
President's budget included a proposal for a nonrefundable $500 per child tax
credit for depandenl children under age 13 that would be phased out for
taxpayers with AGt between $60,000 and $75,000. The Administration also
proposed allowing the credit only after the BITe has been applied. The
:Senate proposal improves upon the House proposal, which would have phased
oul the credit for taxpayers with AGt berween $200,000 and $250,000.
Nonetheless, the Senate version still could be improved if it were more
targeted to middle-income taxpayers.
AdQptlon Credit. The proposal would provide a nonrefundable tax credit of
B.
up to $5,000 for adoption expenses. The credit would be allowed for alIl.ga1 and
finalized adoptions, not solely for the adoption of a child with speria! nzeds. The
House has a similar provision.
�In addition, the proposal would provide a maximum $5,000 exclusion from the gross
income of an employee for amounts paid by the employer in connection with the
adoption of a child. The amounts must be furnished pursuant to an adoption
assistance program or an employer cafeteria plan. No cradit would be available for
adoption expenses paid as reimbursed under an adoption assistance program, The
House has no such provision.
Both the credit and the exclusion from income would be phased oul for taJ<payers with
AGI between $60,000 and $100,000.
ReclllDlllended Administration oosition: Do not oppose. We believe that it
is generally more cost-effective to target federal support for adoption to
edoption of special needs children. By applying to all adoptions, this proposal
provides benefits for adoptions that would Q<X:ur even without the credit. To
the extent that any new assistance for adoption is warranted, it should be
targeted to taxpayers with lower incomes who most need assistance to enable
them to undertake adoptions,
The exclusion for adoption expenses paid under an employer's plan could
impose administtative burdens on the employer. For example, an employee
would have to disclose total taJ<able income and, in order to implement payroll
withholding under a cafeteria plan, an employee's taJ<able income for a year
would have to be pradicted at the beginning of the year.
C.
Maniaee Penatty Relief. The standard deduction for jOint returns would be
gradually increased, in an effort to eliminate the mamage penalty for couples who do
not itemize their deductions. The phase-in would O".cur between 1996 threugh 2005,
and be indexed for inflation thereafter, Couples who itemize deductions would not be
affected. The House would provide broader relief in a more complicated fashion.
Rel:lllDIIIended Administration oosition: Do not oppose marriage penalty
relief In concept. However, this provision is expensive (according to JCT, it
costs $28.5 billion over 10 years). Also, this proposal would not be Iintited to
couples in whlch both spouses work and thus would have the effect of
mcreasing marriage bonuses for certain couples,
D.
emit fur Slndont l.oan Ipterm:. The proposal would provide a credit of
20 percenl of interest paid on a qualified studenlloan during a taJ<able year. The
credit would be capped.1 $500 per year per borrower (or $1,000 if the taxpayer
borrows for two or more students) and apply to the first five years of repayment.
The credit would be phased out at AGI, of $60.000 to $75,000 for married couples
($40,001) to $55,000 for singles),
-2
�••
Recommended Administllltion position: Do nol oppose, but prefer
Admlnlstration's education initiatives. The AdminiSlmtion geoerally
supports the policy of providing tax benefits to aid with higher education
expenses. In its budget, the Administration proposed a tuition tax deduction.
and it is also favoring penalty-free withdrawals from IRAs to be used for
higber edocation expenses. The partial credit for studeot-loan interest should
be coosidered in conjunction with other changes to the studeot-loan program
that are being considered by Congress. To the extent that student loans may
become less readily available or subject to higher interest rates, this proposal
may do little to creale meaningful new education incentives.
n.
INCREASE SAVINGS AND INVESlMENT
A.
~4Illilal
GaiDs
1.
Indiriduals. Similar to the House proposal, the Senate proposal would
provide a 50% deduction for capital gains on property owned at least one year
(providing a maximum rate of 19.8 %). Collectibles would remain at the
current 28 % rate. One half of the capital gain deduction would be treated as a
tLX preference for the alternative minimum tax. The deduction would apply to
sales and exchanges after October 13, 1995 (as opposed to sales and exchanges
after December 31, 1994, under the House bill). Unlike the House bill, there
would be no indexing for inflation.
Recommended Administration position: Oppose. The 50%
exclusion is too generous and not well targeted, both with respect to the
investor's benefits and the assets included.
2.
Venture Capital. Section 1202 (introduced by the Administration in
1993) excludes 50 percent of the gain on the sale of qualified small business
stock held for more than five years. The proposal would expand this
preference by increasing the exclusion to 75 percent (resulting in a maximum
effective rate of approximately 10 percent), inereasing the size of a qualified
business from $50 million to $100 million, removing the current $10 million
gain limitation on the atnount of gain that can be excluded, and allowing a
deferral of gain from the sale of qualified stock If the proceeds are rolled over
to other qualified stock within 60 days. The proposal also contains tecJntical
changes to certain redemption and working capital provisions in the current
'1ersion of Section 1202.
Recommended Administration position: [Further discussion needed
on provisions to expand the preference.] We support the increased
�75 percent exclusion (assuming the 28 percenl rate cal' for all capital
gains is eliminated) and the technical amendments to the current
provisions on shareholder redemptions and working capital, which can
create problems in certain circumstances.
3.
COllloratiQIIS. The proposal would provide a maximum capital gains
rate of 28% for corporations. The proposal would apply to sales and
exchanges after OclOber 13, 1995. There would be no indexing for inflation.
( The House would provide a 25 % capital gains rate for corporations, for
assets sold after December 31, 1994.)
Recommended Administration position: Do not support.
The arguments fur capital gains relief for individual. do not
extend to corporations. For example, corporations noed little
incentive, beyond that of existing law, to invest in capital assets.
B.
Alkrnqtive Minimum Tax !AMll. This proposal would reduce the amount
of AMT imposed on all taxpayers by maldng two changes. First, the ro~tlwd of
depreciation allowed for AMT purposes would be the same as the method allowed for
regular tax purposes with respect to property plaeed in service after December 31,
1995 (L"., 200 percent declining balance would be pc:rmitsed for AMT purposes if
used for regular·tax purposes; however, AMT depreciation would continue 10 be
computed over the property's class life, which is generally longer than that allowed
for regular-tax purposes.) Second, the AMT credit from prior taxable years, which
currently may be used 10 reduce a taxpayer's regular tax liability to the amount of its
tentative AMT, would also be allowed 10 reduce up 10 50 percent of ilS current-year
AMT liability, bUI not below the regular tax liability of the taxpayer. The AMT
credits do not qualify for this additioual benefit unless they are at least five years old.
Admlnistm!iog IlQsIUQU: .Oppose, but reafrmn willingness
to work on revisions and simplificatiQn~ In 1993, as part of its economic
,timulus pllCkage, the Administration proposed relief from the AMT with
respect to depreciation, ouIy a portion of which was enacted. Tlte 1993
proposal was carefully targeted 10 enhance investmenl incentives for capital
intensive taxpayers subject 10 the AMT. The Fmance proposal is more
generous and would benefit primarily very large corporations (those with
assets over $250 million) and corporations in manufacturing, as opposed to
small and mooiumMsized corporations, and businesses in other industries. The
provision allowing for enhanced use of AMT credits relates 10 investments
previously made, and so will not contribute to increased,investments. We
would be prepared to work with Congress to provide some more acceptable
AMT relief.
~Qmmended
�......ill.
.ESTATE TAX REFORM
A.
Eamily-Owned Businesses. The proposal exempts from estate tax the first
$15 million and 50% of the next $3.5 million of 'qualified family owned business
interests.' To qualify, the value of the business must constitute at least 50% of the
value of the estate. The House does not have such. provision.
Recommended Administration posltiOIl' Oppose, but reaffinn prior
testimony Ibnt we support revIsIOIIS to roles affecting small businesses and
farms. This pn:>posal would give a $1,750,000 estate tax reduction to any
deoedent who owned a family business worth more than $5,000,000. The
proposajls subject to abuse and could lead to estate-p1anning techoiques that
would give this benefit to many weIl·advised wealthy decedents.
B.
UnlflC!! Credjt. The proposal would increase the unified credit (which
currently exemp!S the first $600,000 from estate or gift tax) so that it would exempt
an additi.onal $25,000 per year until 2001, when it would exempt $750,000. The
House has a similar provision, but with a quielrer ph.....,.in of the increase.
Recommended Admillistrntloo 110511100' Do not support. The unified credit
lias not been increased since 1987; therefore its value has been diminished
due to inflation. Nevertheless, oul)' 1 percont of dying Americans pay any
estate tax and therefore it is questionable whether the revenue loss is
appn:>pri.te at this time.
c.
lexcluslJrn. flit Consealllioll Easements. Under cum:nt law, an estate is
entitled to a charitable deduction fot the reduction in the value of real property due to
the placement on such property of a conservation easement The proposal would
allow an executor to elect to exempt from estate tax the first $1.5 million of real
property subject to a conservation easement and 50% of value of such property in
excess of $1.5 million, up to $5 million. The House has no corresponding provision.
Recqmmended Administration D05itiQu: Oppose [need to consult with
Interlor). The deduction allowed under current law for the grant of a
.:baritable easement is sufficient. The proposal would essentially permit a
deduction for the fuiI value of the real property (up to $1.5 million, and one
half of the value between $1.5 and $5 million) rather than the value of the
charitable easement alone. The proposal would be subject to abuse and would
erode the tru< base.
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�IV.
EXPIRING PROVISIONS
,.
The Chairman's mark would extend moSt expiring provisions through February 28,
1997 (R&E, Targeted Jobs Tax Credit, etc.). Among the extensions are these two
items:
A.
~ommercinl Aviation Fuel. The effective date of the 4.3-<:ents·per·gallon tax
on commercial aviation fuel would be delayed from October I, 1995, through
February 28, 1997. The legislative history would express the Committee's desire that
!he IRS consider waiving !he semimonthly deposit ",,!uirements for this tax from
October I, 1995, until the budget reconciliation process is completed.
llilCommem!ed Administrn!Wn position: Follow prior Administration
(,Treaslll'Y and the Depnrtment of TrarulportationJ testimony before the
Ways and Means and Senate F1nance Commlttees In ihe summer DC 1995
aDd oppose any delay. The testimony was deared In the Interagency
process. The tax was enacted as part of the Omnibus Budget Reconciliation
Act of 1993, but the effective date was delayed because of concerns that !he
commercial airline industry generally was experiencing significant losses.
Since 1993, the financial condition of the airline industry bas greatly improved
and imposition of !he tax at this time will be less burdensome than it would
have beca in 1993. A further delay in the effective date of !he taX is
unwarranted and would be unfair to other sectors of !he t:ransportation
industry.
SWIIlll 29 Alter:l1l\tive Fuels Credit for Biomass and Coal Facilities. Under
section 29 of !he tax code, certain fuels produced from nonconventional sources are
eligible for a production credit equal to $3 (generally adjusted for inflation) per bairel
or Btu oil barrel equivalent. Qualified fuels must be' produced domestically from a
well drilled before January 1, 1993; or from a facility that produces gas from biomass
or that produces liquid, gaseous or solid synthetic fuels from coal (including lignite)
and Ihst is placed in service before January I, 1997, pursuant to. written binding
contract in effect before January I, 1996.
B.
Fer biomass and coal facilities, the proposal would extend !he writtee binding contract
date and the placed-in-service date by one year.
Becommwded Adminlsrnlion POSiUon: Oppose. A prior extension in 1992
for biomass and coal facilities was intended to be a Inlnsition rule for
taxpayers with facilities Ihst were soon to be placed in service. This t:ransition
period is now almost over and no extension is warranted. This credit is
growing faster than the Earned mcome Tax Credit.
-6
�V.
..
"
REVENUE RAISERS
- .".
The Chairman's mark raises about $20 billion additional revenues, through corporate
refonns and other measures. Almost all of these items are similar to revenue raisers
contained in the House package, except certain items have been omitted, including
repeal of the low-income housing credit, repeal of the ethanol tax incentives, and the
taxation of Indian gaming. Among the items included in the Chairman's mark are:
A.
Repeal Tax Credit for ContributioDS to Community Development
Cornorations. OBRA 1993 authorized a 50 percent credit (5 percent per year for 10
years) for certain contributions or long-term loans made to 20 community
development corporations (CDCs) designated by the Secretary of HlJD in 1994. Each
designated CDC, in turn, could designate up to $2 million in contributions or loans
qualifying for the credit (for a total of $40 million in contributions and $20 million in
credits). The Finance proposal would repeal this credit•
.E~ecQmmended
Administration position: Oppose. Th.is provision was part
of OBRA 1993, and more time is needed to achieve the intended benefits of
providing econontic opportunities for low-income individuals.
~ornorate-Owned Life Insurance. The Senate propoSal is sintilar to the
B.
House proposal, but generally has more generous transition rules. It denies
deductions for interest attributable to the purchase of ~ed corporate owned life
insurance (COLI) policies. Unlike the House proposal, it also contains an exception
for COll policies on a corporation's 25 key employees, subject to certain lintitations.
COll policies are frequently bought by corporations to insure large numbers of rank
and-me employees. However, the corporation is the beneficiary and the employees
frequentLy do not know they have been insured. Leveraged COll plans are best
viewed as investments that arbitrage a ~ deduction and tax-free income. The
arbitrag<: is so great that some companies agree to borrow at rates well in excess of
their market rates.
Recommended Administration position: Do not oppose, but we prefer a
combination of the House and Senate transition rules. Also, do not support
the exception for key employees. There is no tax policy justification for such
an exception, just as there is no small-business exception under current law to
the rule that denies deductions for interest incurred to purchase tax-exempt
debt.
C.
Phase Out Puerto Rico and Possession Tax Credit (Section 936). The
Chairm,",', mark generally would phase out section 936 by 2002. With respect to the
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�active-business portion of section 936, it would leave in plaee the present-law phase
down of the profits-based limit on the credit through taxable years beginning in 1998,
then phase out the remainder of the profit-based credit over the succeeding three
taxable years. It would leave in place the economic-activity limit on the credit
through taxable years beginning in 2001. The active-business portion of section 936
would be eliminated for taxable years beginning after 2001, regardless of whether the
-taxpayer had elected the profits-based lintit or the eoonomic-activity lintit. The
Chairman', mark would elintinale the portion of the 936 credit applicable to qualified
possessions source investment income (QPSIl) fur taxable years beginning after 1995,
with a grandfather for up to five years for investments made on or before October 13,
1995.
The Chairman's mark would apply a different phase out with respect to Guam,
American Samoa, and the Commonwealth of the Northern Mariana Island.. Section
936 would be repeaJed for operations in those possessions effeetive for taxable years
beginning after Decenther 31, 1995, with a grandfather rule for existing operations.
Under that rule, present law genemlly would oontinue in effect for 10 years with
respect to possessions operations that were in effcel on October 13, 1995.
Recommended Adminjstratlon oosjtion: Do not oppose, but only if
appropriate programs are In p!nce to assist Puerto Rico. The
Administration proposed to reformulate the credit in 1993 to malre it • more
efficient incentive for job creation and eoonomic activity in Puerto Rico; the
amendments enacted in 1993 moved part way toward the Administration',
proposals. We believe that seetion 936, to the extent retained, should provide
8JI1 incentive for increased economic activity in the possessions ",ther !ban
merely an incentive to attribute profits there. The Chairman', mark represents
8JI1 improvement over the House bili, in that it provides greater incentives for,
investment and econontic activity in the possessions during the u-..nsition
period. However, the Chalnnan's mark would fully repeal seetion 936 sooner
than the House bili and, like the-House bill, would fall to provide any other
programs to assist Puerto Rico.
D.
I'\lnnU CQrnnrntilms Tn Use..QErfuruled Peruiion Plan Assets To Fund
ERISAJ!rDtecled.Emruuee Begefit P101lll. The proposal would expand the narrow
current-law provision that permits 'excess ....ts· in 'overfunded' defined benefit
plan, to be redirected to provide current·year retiree health benefits for non-key
employees, Under the proposal, "excess assets' could be used to fund a year's woi:th
of employee health, retiree health, qualified retirement disability, educational
assistance, and child care benefits provided under ERISA-governed plan, covering a
'broad group of employees' or could be used to fund underfunded defmed benefit
pension plans, "Excess assets' for tills purpose are defined as assets exceeding the
greater of the full funding limit or 125% of 'current liability." Thus, "excess assets"
-8
�,,'
will be defined in accordance with the House bili and will not utilize the lighter
assumpti"n provided by GAIT for underfunded plans. Under current law, an
employer may not use pension plan asset> for nonretirement purposes without
terminating the plan and paying a substantial excise tax (of 20% to 50%). No excise
tax would be imposed under the Finance Committee proposal.
Recommended AdminislrntlQn position: Strongly oppose. The
Administration strongly objected 10 Ibe inclusion of a similar proposal in the
Ways and Means bill that permitted reversions for any corporate purpose. The
principal problems with Ibe Ways and Means proposal also apply 10 the
Finance Committee version: diverting assets from pension plans increases the
risk 10 the pension Insurance system, and eliminsting all or most of the
reversinn excise tax prevents recapture of the benefit of tax-free build-up
intended 10 promnte retirement savings through qualllied pension plans. The
proposal is less egregious than the Ways and Means provision (which allows
the assets 10 be used for any purpose) 10 the extent that the restrictinn limits
the total amounts thaI may be withdrawn from pension plans; however, the
proposal is still highly objectionable. Given the fungibility nf money, and the
large amount of current cash flow expended on ERISA-gnvemed benefits that
could be supplansed with funds withdrawn from pension plans, the limitations
on usage are largely illusory. Mnrenver, the circumstances pertaining to the
current proposal are vastly different than the circumstances that gave rise to
the mme limited retiree heallh provision. ThaI provision was enacted In
alleviate the crisis that developed in response 10 changes in financial
accounting rules, as employers began cutting back on retiree health programs.
No such crisis exists with respect to the other ERISA benefits that would be
covered by this proposal.
E.
Include il! Income all Punitiye Damaees and Damal!e Recoyerles for NOD
ftysigll Injuries. The propnsal would limit the currenHaw exclusion for damages
received on account of personal injury or sickness. The proposal would provide that
only amounts received on account of physical injury or physical sickness would be
excludable: no exclusion would apply In damages on account of snlely nonphysical
injury (such as those related 10 discriminstinn or emotional distress) or In any punitive
damages received.
:Recommended Adminlstrntion posltil!!!: Do not support. This proposal
would resolve many of tile issues that have generated much liligation between
the IRS and taxpayers, and would bring the exelusion mme in line with
modern concepts of income. On the other hand, it is unclear whether this is
the best approaell and whether significant new problems with administering the
provision (such as determining what constitutes a physieal injury) would arise.
-9
�•
'.
F.
)kpeal of the Interest Exclusion flll:JlSOPS (Seetio!l-.JJJl. Under current
law. in computing gross income, a bank, insurance company or other commercial
lender may exclude 50 % of the interest income received on a loan made to enable a
tax-qualified employee stock ownership plan (ESOP) to acquire stock of the employer
(or a loan made to refinance such a loan). The interest exclusion is intended to
encourage employee stock ownership by enabling an ESOP to borrow at a low interest
rate, Amendments adopted in 1989 limited the exclusion to ESOPs that own more
than 50% of the employer's stock after the acquisition. The proposal would repeal
the interest exclusion, presumably only for loans made after a specified effective date.
This repeal of section 133 would not affect other ESOP tax benefits, including the
deductibility of ESOP dividends and the nonrecognition of gain in certain sales of
stock to an ESOP that owns at least 30% of the employer's stock,
l!.1:!:!!mwended Administration position: [To be discussed with Department
of Labor - Do not oppose.] There are policy'reasons for and against
encouraging ESOPs. A plan investment in employer stock provides indirect
worker ownership. Such ownership provides an incentive for productivity and
allows employees automatically to share in the employer's economic growth.
On the other band, to the extent an ESOP displaees other types of retirement
benefits, the investment of retirement assets in employer stock, with limited
opportunity for diversification, puts employees at greater risk. If the
employer fuils, the employee's job and the value of the employee's retirement
savings may both be jeopardized. In addition, some have expressed concern
tbat ESOP, have often been used more to benefit sponsoring cosporations and
other investors than as a mean, of providing new benefits to workers. To the
extent a lax subsidy for ESOP, is appropriate, the goal of employee ownership
is best served by imposing conditions that require the ESOP tu have majority
ownership of the employer. as section 133 does,
VI.
MISCELLANEOUS
Coal Ind\lSlrr Retiree Health. Under current law, liability for health benefits of
ooal miners who retired on or before September 30, 1994, and their beneficiaries
generally is spread among all companies that signed a collective bargaining agreement
with the United Mine WorkOrs. Beneficiaries are assigned to the last signatory
company that employed the miner. Unassigned beneficiaries whose former employees
are no longer in business are allocated to all companies based on each company's
share of assigned beneficiaries. Funding for beneficiaries is also provided through
transfers, to the UMWA Combined Benefit Fund, of surplus assets of the UMWA
1950 Pension Plan and interest earnings of the Abandoned Mine Reclamation Fund,
The proposal would reduce the premium, that rcachbacl< companies (presumably
companies that did not sign the 1988 collective bargaining agreement, the last
agreement prior to the 1992 legisl.tion) are required to pay to the Combined Fund for
-10
�· '.
the period from October I, 1995 through September 3(}, 1997, to the extent of any
'surplus' in the Combined Fund, detennined by the trustees on a cash basis, The
amount of the 'surplus' would be reduced by 10 percent of the benefits and
administrntive eosts paid by the Combined Fund for the plan year, and would be
detennined without regard to amounts transferred to the Combined Fund from the
UMWA 1950 Pension Plan and the interest earnings from Abandoned Mine
Reclamation Fund,
R""ommended Administrntj21l position: Oppose, The Administration
pn.'Viously took the position that the Coal Act represents a reasonable
compromise to a difficult problem and that we do not believe that re-opening
the reachback financing method will result in any better or more equitIDle
sharing of eosts, The proposal raises two concerns, First, calculating the
'surplus' on a cash basis does not appropriately reflect liabilities, Seeond, the
proposed relief is not targeted to companies facing fmanelal hardship, The
proposal benefits reachback companies, many of which arguably caused the
initial funding crisis by pulling out of the UMWA agreement and 'dumping"
Illeir retirees on the fund. It is not clear if the proposal includes a provision
for additional funding by reachback companies if funds are insufficient in the
future, Therefore, if future funding is not sufficient, nonreachback companies,
winch compete with reachback eompanies in the eoaI business, may be
required to pay increased premiums to fmance future benefits, or benefits may
be decreased.
-11
..
�DEPARTMENT OF THE TREASURY
ASSISTANT SECRETARY
.
WASfilHGTOH
Janumy 5, 1996
MEMORANDUM FOR PRESIDENT CLINTON
FROM LESLIE B. SAMUElS
U3f5,
THROUGH SECRETARY ROBERT E. RUBIN
'SUBJECT:
t f f'-'"
ADOPTION TAX CREDITS: BACKGROUND AND ALTERNATIVES
The Balanced Budget Act (BBA) includes a tax credit for adoptions. It would provide
a 100% non· refundable credit for the first $5,000' per child of eligible adoption-related
expenditures (including expenditures that are reimbursed by the states for "special need.'
adoptions). No credit would be allowed for step.parenl adoptions; and the credit would be
phased out between $75,000 and $115,000 of AGI. JCT estimates that the BBA adoption
proposal would cost $1,945 million over FYl996-FY2002, and $2,%0 miltion over FYl996
FY2005.
'
We have significant concerns about the BBA adoption credit. The following policy issues
are presented for your considernlion as well as' two possible proposals which we believe
represent better tax policy than the BBA provision.
o
The number of people seeking to adopt non-special need. children exceeds by several
times the number of such children available for adoption. Conversely, there is a shortage
of adopters for "special needs' and similar children.
'
o
Adoption assistance should ~. la!Ileted. Adoption assi.tance is best targeted when
provided through outlay progr.ms. Adoption I1Ilt relief provides windfall benefits to those
who would undertake adoption. anyway but does not provide sufficient incentives for
lower income families to undertake adoptions.
/II>
This is particularly true fOr "special needs" adoptions which are undertaken
predominauoly by foster parents (typically lower- and middle-income families)
who are already providing homes for these hard-to-piare porential adoptees.
A refundable tax oredi! would be of 'mOl" benefit to lowor income families for
whom the incentive created by tax relief would be grea1<!st. However, refundable
credits raise significant compliance problems.
o
A tax credit should not be for 100% of expenses. A 100% credit is essentially a direct
expenditure program. II would encoumge increases in adoption fees and costs, since they
will be reimbursed through the 100% ,credit. A 100% credit also presents compliance
and enforcement problems.
o
A tax benefit should not be allowed for reimbursed expenses. This "double dipping"
would encourage unnecessary increases in expenditures so that costs currently borne by
states or privare agencies would be shifted to the Federaigovemment, This is
particularly true for "special needs' adoptions wheregovemment programs currently
absorb most of the costs.
o
For "special needs' adoptions, the real need is for continuing long-uorm assistance, such
as medical benefits which could be provided by automatic eligibility for Medicaid.
�.
Option 1: Target Credit to "Special Needs" Adoptions.
The credit would be 1!!stricted to expenditures for 'special needs' adoptions, and no
credit would be allowed for reimbursed expenditures. The credit would be 50% of the first
$5,000 of eligible expenditures. With the same income phase out range as in 'BBA, the cost of
this option is S58 million over FYl996-FY2002, and $88 million over FYl996-FY2005.
By targeting ·special need,' adoptions and addressing some of the concerns mentioned
above, we believe that this option would be good tax policy and would encourage "special
needs' adoptions that would not otherwise occur.
.
Option 2 • Redu.., Maximum Credit to $2,000 as mentioned by Senator Dole.
The credit would be 50% of the tirst $4,000 per child of eligible adoption expenditures,
and would not covet reimbursed expenditures. With the same income phase out range as in
BBA, the cost of this option is $723 million over FYl996-FY2002, and $1,096 million over
FYI996-FY2005.
Option 2 is far more liberal than Option 1, but by providing only a 50% credit rate and
eliminating double-dipping, it eliminates the main objections to the BBA provision.
e<:: Laura Tyson
.>
�(I
DEPARTMENT OF THE TREASURY
WASHINGTON
ASSISTANT SECRETAliY
January 5" 1996
MEMORANDUM FOR PRESIDENT CLINTON
FROM:
Leslie B. Samuels l~
THROUGH: Secretary Robert E. Rubin
SUBJECT:
tt· I:.(\...
Indexing of &tate Tax Provisions
In discussing various options for estate and 9ift tax relief, the
issue has arisen as to the number of Americans who would be
benefited. Based on the most currently available IRS data for tax
year 1989, there were about 23,000 taxable estates, which
represented about one percent of all Americans dying in that year.
You asked for information on the indexing of several estate and
qift tax provisions. In response. we have estimated the revenue
loss from indexing the $600,000 estate and gift tax exemption (for
tranSfers after 1996) as weLl~s the four other estate and gift tax
provisions indexed under the Republican plan (for transfers after
2000, as in the GOP plan). The revenue loss from these indexinq
provisions would be $3.171 billion over*7 ye~rs, of which $3.158
billion is attributable to the indexing of the $600,000 exemption.
We have developed a targeted proposal to aid small businesses and
farms facing liquidity problems on the death of their owners. This
proposal (which loses $1.0 billion over 7 years and $1.3 billion
over 10 :iears) is desoribed in more detail in the attached
memorandum dated October 23# 1995. It could serve as a relatively
low-cost alternative to the family-business estate tax exemption
included in the Balanced Budget Act (which loses $4~6 billion over
7 years and $9.1 billion over 10 years). We continue to recommend
tarqeted estate tax relief for family-held small businesses and
farms, and believe that if additional resources are committed to
this area, that they should be directed to expanding the targeted
proposal.
Attachment
�.
DEPARTMENT OF' THE TREASURY
, W4SHINGTON
CLOSE HOLD
"'SSl$TANT SE:CRCTA R Y
ootober 23, ,1995
KEMORANDUM FOR PRESIDENT CLINTON
95 ocr 2a pi: 03
FROI!.
LESLIE B. aAlWELS i.-(7S
'I'IlROtJGH:
SECRETARY RtlBIN I'v (('--
StlBJECT:
ESTATE TAl: PROPOSAL TO StlBSTITl1'I'E POR SENATE
FAIIILY-OWNBD BUSINESS PROPOSAL
We. understand that you are interested in a proposal that
would offer'estate tax relief to farmers and small business
owners. We testified before the Senate Finance Committee 'in June
1995 in support of such relief. We view the problem of farmers
and small business owners as a liquidity problem and support the
notion tilat the heirs of such individuals should not be forced to
sell the farm or business in order to pay estate taxes. In
reviewing this area, it is noteworthy that of the 2.2 million
Americans who died in 1989, only about 1% owed an estate tax~ Of
those 23,000 taxable'estates t about 8,000 reported closely held
businesses or farm assets.
The Senate Finance Committee tax bill includes an estate tax
proposal to benefit family businesses by exempting from the
estate tax the first $1.5 million in value of the business as
well as~ 50% the value of the business between $1.'5 million and 5
million. Tbe Sengte bill .thereby gives an estate tax reduction
~xces§ ot $1.750,000 t@ anY gegedent ownina a family business
valued at-15 milligD gr more; We believe that this proposal
gives an excessive benefit to wealthy individuals. In addition,
the proposal would be subject to abuse~nd is likely to become an
estate tax loophole that enables many'wealthy people to reduce
their estate taxes. The proposal is scored at $5.5 billion over
7 years and $11 billion over 10 years, and is expected to benefit
approximately 3,000 estates annually.
The ,Senate Finance COllUllittee proposal is based on a bill
introduced by Senator Dole that had no cap Qn the value of the
-business and thus would have provided significant benefits to
owners of the largest family-owned businesses in the country,
including many individuals. on the Forbes 400 list.
Our alternative proposal described below more directly
addresses the liquidity problem faced by small business owners
and farmers, and does so at a much lower cost.
We propose to expand the availability of estate tax deferral
in ordor to address tho liquidity problem of estates owning small
businesses and farms. under current law, the estate tax on
certain cl.osely-held businesses (including farms) can be paid
over, at ltlost, a 14-year period. For the first five years, only
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Dublin Core
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Title
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Clinton Administration History Project
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Cinton Administration History Project
Council of Economic Advisers
Department of Commerce
Central Intelligence Agency
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Department of Defense
Corporation for National Service
Council on Environmental Quality
Department of Justice
Domestic Policy Council
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Office of Science & Technology Policy
Office of the Vice President
United States Trade Representative
Date
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1993-2001
Description
An account of the resource
<p>The Clinton Administration History Project describes in detail the accomplishments of President Clinton's Administration for the period 1993-2001. The records consist of the histories of 32 agencies or departments within the Executive Branch. In general, each organization associated with the Project submitted a narrative history along with supporting documents. These narrative accounts are primarily overviews of the various missions, special projects, and accomplishments of the agencies. The supplementary records include substantive memos, press releases, briefing papers, and publications illustrated with photos and charts.</p>
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The type of object, such as painting, sculpture, paper, photo, and additional data
Paper
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
Title
A name given to the resource
NEC – Balanced Budget Act of 1995 [3]
Creator
An entity primarily responsible for making the resource
History of the National Economic Council
Clinton Administration History Project
Date
A point or period of time associated with an event in the lifecycle of the resource
1993-2001
Is Part Of
A related resource in which the described resource is physically or logically included.
Box 39
<a href="http://clintonlibrary.gov/assets/Documents/Finding-Aids/Systematic/Administration-History-finding-aid.pdf">Collection Finding Aid</a>
<a href="http://catalog.archives.gov/id/1497354">National Archives Catalog Description</a>
Provenance
A statement of any changes in ownership and custody of the resource since its creation that are significant for its authenticity, integrity, and interpretation. The statement may include a description of any changes successive custodians made to the resource.
Clinton Presidential Records: White House Staff and Office Files
Format
The file format, physical medium, or dimensions of the resource
Adobe Acrobat Document
Publisher
An entity responsible for making the resource available
Clinton Presidential Library & Museum
Medium
The material or physical carrier of the resource.
Reproduction-Reference
Date Created
Date of creation of the resource.
6/24/2011
Source
A related resource from which the described resource is derived
1497354-nec-balanced-budget-act-of-1995-3
1497354