August 12, 1997
Citations to Provisions in 1997 Reconciliation Acts
Canceled Under the Line Item Veto Act
Specialist in American National Government
The Line Item Veto Act was enacted into law on April 9, 1996 (Public Law 104-130,
1200-1212) and became effective on January 1, 1997 The main procedures
under the act were incorporated into the Congressional Budget and Impoundment Control
Act of 1974, as amended, as a new Part C of Title X (Sections 102 1- 1027)
The act authorizes the President to cancel any dollar amount of discretionary budget
authority, any item of new direct spending, or any limited tax benefit in an act if such
cancellation wiU reduce the ddcit, not impair any essential government functions, and not
hann the national interest. The President may exercise this authority only within five days
of signing an act into law. Ifhe chooses to line-item veto any provisions in an act, he must
so notify Congress in a special message. Each cancellation must be separately identified
by its own reference number. Congress may consider, under expedited procedures set
forth in the act, special legislation to disapprove any cancellations.
At the end of July 1997, the House and Senate completed action on two
reconciliation measures implementing the tax cuts and most of the deficit reduction called
for in the FYI998 budget resolution (H.Con.Res. 84). The first reconciliation act, the
Balanced Budget Act of 1997 (H.R. 2015), makes net reductions in direct spending of
$122 billion over the next five fiscal years and increases the statutory limit on the public
debt to $5.950 trillion. The second reconciliation act, the Taxpayer Relief Act of 1997
(H.R. 2014), contains tax cuts which partially are offset by revenue increases. The net
effect of revenue changes in the Taxpayer Relief Act of 1997, coupled with several
revenue provisions in the Balanced Budget Act of 1997 (most notably, an increase in the
tobacco tax), is a revenue reduction of $95 billion.
President Clinton signed the two measures into law on Tuesday, August 5. The
BalancedBudget Act of 1997 is Public Law 105-33 (1 11 Stat.251); the Taxpayer Relief
Act of 1997 is Public Law 105-34 (1 11 Stat.788).
On Monday, August 11, President Clinton exercised his authority under the Line Item
Veto Act to cancel one item of direct spending in the Balanced Budget Act of 1997 and
CES Reports are prepared for Me
two limited tax benefits in the Taxpayer Relief Act of 1997. These actions represent the
first use of the lime-item veto authority.
Cancellation o f Limited Tax Benefits
Section 1027 of the Line Item Veto Act requires the Joint Tax Committee to prepare
a statement for any revenue or reconciliation measure (amending the Internal Revenue
Code of 1986) for which a conference report is being prepared, identifying whether such
legislation contains any limited tax benefits. The conferees, at their discretion, may include
the information fiom the Joint Tax Committee in a separate section of the measure, using
a form prescribed by the Line Item Veto Act. If such a section is included in the measure,
then the President may use the item-veto authority only against the limited tax benefits
identified in the section; otherwise, the President may use the authority against any
provision in the measure that he feels meets the definition of limited tax benefit provided
in the act.
A total of 80 limited tax benefits were identified in the two reconciliation bills sent
to the President. The conference report on the Balanced Budget Act of 1997 (H.Rept.
105-217) was fled on July 29. Section 9304 of the act identified one section as providing
a limited tax benefit subject to the line-item veto (see the CongressionulRecord of July
29, 1997, vol. 143, no. 109, part 11, at page H6140). That section, Section 5406,
pertained to the tax treatment of certain services performed by prison inmates.
The conference report on the Taxpayer Relief Act of 1997 (H.Rept. 105-220) was
fded on July 30. Section 1701, the last section of the measure, set forth a listing prepared
by the Joint Tax Committee of 79 limited tax benefits subject to the line-item veto (see the
CongressionalRecordofJuly 30, 1997, vol. 143, no. 110, part 11, at pages H6490-91 and
President Clinton applied the line-item veto to two limited tax benefits in the
Taxpayer Relief Act of 1997. The first, identified in his special message as Cancellation
No. 97-1, canceled Section 1175 (Exemption for Active Financing Income) of the act.
Cancellation No. 97-2 applied to Section 968 (Nonrecognition of Gain on Sale of Stock
to Certain Farmers' Cooperatives) of the act. These provisions were identified in Section
1701 of the act as items 54 and 30, respectively, and dealt with the sheltering of income
in foreign tax havens by financial services companies and the treatment of capital gains on
the sale of certain agricultural assets.
Cancellation o f Direct Spending Item
Unlike limited tax benefits, there is no special procedure for congressional
identification of items of new direct spending. The cost estimate prepared by the
Congressional Budget Office on the Balanced Budget Act of 1997 identified about a dozen
accounts that had increases in direct spending for one or more fiscal years. Presumably,
at least a dozen (inot dozens) of "items" of new direct spending are associated with these
President Clinton applied the line-item veto to one item of new direct spending in the
Balanced Budget Act of 1997. Cancellation No. 97-3 applied to subsection 4722(c)
(Waiver of Certain Provider Tax Provisions) of Section 4722 (Treatment of State Taxes
Imposed on Certain Hospitals), a Medicaid provision involving New York State.