Order Code RL30801
CRS Report for Congress
Received through the CRS Web
Tax Activity in the 106th Congress
Updated February 27, 2001
Jane G. Gravelle
Senior Specialist in Economic Policy
Government and Finance Division
Congressional Research Service ˜ The Library of Congress
Tax Activity in the 106th Congress
A general tax cut (H.R. 2488), costing $792 billion over 10 years, was vetoed
in September 1999. The general tax cut proposal included across-the-board tax cuts,
benefits for married couples, phase-out of the alternative minimum tax, a reduction
in capital gains taxes, a phase-out of the estate tax and provisions relating to
education and health. A more narrowly focused bill (H.R. 1180), largely focused on
extending certain expiring provisions, was passed and signed by the President adopted
in December, 1999.
Several tax proposals, primarily reflecting individuals provisions of H.R. 2488,
were considered in 2000. The largest of these was marriage penalty legislation.
Other important proposals included estate and gift tax reductions, Individual
Retirement Account (IRA) and pension provisions, and deductions for health care
insurance. At the end of 2000, another limited tax bill was adopted, which included
distressed communities legislation and an extension of medical savings accounts. Two
smaller bills, a revision of the foreign sales corporation provision and a repeal of the
installment sales restriction included in the 1999 extenders bill were also adopted.
This report is an overview of legislative activity in the 106th Congress and will
not be updated.
Miscellaneous Tax Legislation, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Marriage Tax Penalty Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Estate and Gift Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Education Tax Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Patient Protection Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Minimum Wage Bill, Pension, IRA and Small Business Provisions . . . . . . . . . . . 4
Enacted Legislation 2000: Community Renewal, Medical Savings Accounts, FSC and
Installment Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Enacted Legislation 1999: Extenders Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Overview of the 1999 General Tax Cut (H.R. 2488) . . . . . . . . . . . . . . . . . . . . . 6
Conference Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
House Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Senate Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Finance Committee Democrats Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
House Democrats Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Tax Activity in the 106th Congress
The 106th Congress was characterized by a number of tax bills that saw some
action, including several that were vetoed. In 1999, a general tax bill, H.R. 2488,
which contained a variety of tax provisions, including across-the-board tax cuts, was
adopted. This bill, with a 10-year revenue cost of $792 billion (the on-budget surplus
projected at that time) was vetoed on September 23, 1999. A much smaller bill, H.R.
1180, primarily extending expiring tax provisions, was enacted and signed by the
President in December 1999.
During 2000, however, a number of stand-alone tax bills, often identical to
individual sections of H.R. 2488, were considered by Congress. In several cases, bills
were passed and then vetoed. In a post-election session, Congress passed and the
President signed three smaller tax bills: (1) H.R. 5662, which provided community
renewal provisions and an extension of medical savings accounts, (2) H. R. 4896,
revising the foreign sales corporation (FSC) rules, and (3) H.R. 3594, restoring
installment accounting methods that were restricted in H.R. 1180.
Statements made after the election by President-Elect Bush and congressional
leaders suggest that tax cuts will be a high priority in the 107th Congress. Some of the
proposals considered may reflect legislation considered but ultimately not enacted
during the 106th Congress.
House leaders initially indicated they would consider three proposals early in
2000: marriage penalty legislation, extending education savings accounts, and
providing tax benefits for distressed communities. Several additional tax-related bills
were subsequently identified for consideration: Internet taxes, repealing the telephone
tax elimination, the estate and gift tax, and expanding Individual Retirement Accounts
(IRAs). Most, although not all, of those proposals had been elements of H.R. 2488.
On March 24, the House passed a budget agreeing to $150 billion in tax cuts
over five years with a possibility of additional cuts if certain conditions were met. The
Senate agreed on a similar tax cut in its budget resolution that passed April 7. The
final budget resolution provided for $150 billion of tax cuts and passed both houses
on April 13.
The following sections of this paper discuss the main topics of legislative activity
in the tax area. The first sections discuss tax proposals considered but not finally
enacted in 2000, including miscellaneous tax legislation, the marriage penalty, estate
and gift taxes, education tax incentives, the health tax provisions in the patient
protection act, and provisions relating to small business, including IRAs and pensions,
that were associated with the minimum wage and bankruptcy bills at various points.
The final enacted bills are then summarized. The next sections discuss tax activity in
1999, including the enacted extenders bill, H.R. 1180 and the comprehensive tax bill
H.R. 2488 that was not enacted.
Miscellaneous Tax Legislation, 2000
High gasoline prices led to some consideration of a temporary cut in gasoline
taxes. Such a tax cut (S. 2285) was considered in the Senate, but put on hold April
11 after a failure to invoke cloture; the Senate rejected this measure as an amendment
to the estate tax bill, H.R. 8 . Concerns were raised about the effect of such a tax cut
on funds for highway construction.
The House marked the tax-filing week of April 10 with: H.R. 4163 (keeping
taxpayer records confidential, which passed on April 11); H.R. 4199 ( a commission
to rewrite the tax code and sunset current regulations in 2005, passed April 13), and
H. J. Res. 94, a constitutional amendment requiring a two-thirds majority vote in the
House to pass tax legislation (fell short of the required two thirds majority on April
On May 10, the House approved H.R. 3709 to extend the moratorium on
Internet access taxes by five years and eliminate existing access taxes in 10 states. On
May 25, the House approved H.R. 3916, a phase-out of communications taxes
costing $19 billion over five years (immediate repeal would have cost over $50
On July 25, the House approved H.R. 4923, the bipartisan community renewal
bill that would provide tax benefits for distressed areas. On July 27, the House
approved H.R. 4865, a bill to eliminate income taxation of Social Security benefits.
On that same day, the Ways and Means Committee approved H.R. 4986, revising the
tax treatment of multinationals in a way designed to deal with the foreign sales
corporations (FSC) provisions that have been found to be illegal by the World Trade
During the August recesss, Speaker Hastert proposed that minimum wage
legislation, with a smaller set of tax cuts (dropping estate and gift tax and pension and
IRA provisions) be considered when the House returned in September. While the
estate tax provisions were dropped, the IRA and pension provisions were kept in the
bill (as discussed below).
Marriage Tax Penalty Legislation
H.R. 2488 included provisions addressing the marriage penalty. The original
House bill included only an increase in the standard deduction for joint returns to
twice the size of the those of single returns; most of the reductions in the bill were
across-the-board rate cuts. The Senate opted for optional separate filing. The final
bill approved by both houses would have increased the standard deduction for married
couples to an amount equal to twice the standard deduction for singles, and would
also have increased the width of the 15% rate bracket for joint returns to twice that
of single returns. The bill would also raise the income phase-out limit in the earned
income tax credit by $2,000 for joint returns.
These provisions were incorporated H.R. 6, a stand-alone marriage penalty
reduction bill, which was passed by the House in February, 2000 and cost $182.3
billion over 10 years. The Senate approved a $247.8 billion marriage penalty
reduction proposal similar to that in H.R. 6, S. 2346, although it broadened the 28%
bracket as well as the 15% bracket. It also added a provision that allowed personal
tax credits to be offset against the AMT; without such a change some families would
be pushed on to the AMT by the marriage penalty legislation. Cloture motions on S.
2346 failed in the Senate: on July 18, the Senate approved a reconciliation bill
containing these provisions. Because of procedural rules, these changes sunsetted in
2004. The House approved a reconciliation bill, H.R. 4810, containing their marriage
penalty provisions on July12. On July 20 and 21 the House and Senate approved
conference versions. The bill was vetoed August 7. The final bill included the
personal credit provision, but not expansion of the 28% bracket.
There was some criticism of these bills by Democrats, including considering the
bill in isolation from other tax provisions and before the budget resolution was
developed, and providing tax cuts to couples with marriage bonuses. In the House,
Democrats proposed to increase the standard deduction, but not the rate bracket,
which would target lower income couples. It would also adjust the Alternative
Minimum Tax (AMT)to allow the full benefits of the tax cut, and allow an eventual
$2,500 increase in the phase-out of the earned income tax credit. Democrats have
also proposed optional separate filing.
Estate and Gift Taxes
On June 9, 2000, the House approved H.R.8, a bill to repeal the estate and gift
tax by 2010. This bill would cost $28 billion over the next five years, but the cost
would rise rapidly. H.R. 8 was approved by the Senate on July 19. The President
indicated that he would veto H.R. 8 (and did so on August 31) but said he might
support a less expensive relief provision; the veto was sustained in the House on
The estate and gift tax bill (H.R. 8) would have converted the unified credit into
an exemption in 2001, and repeal tax rates in excess of 53% and the 5% surtax. In
2002 all rates in excess of 50% would be repealed. All rates would be reduced by one
percentage point a year from 2003-2006, by 1.5 percentage points per year in 2007,
and by 2 percentage points in 2009 and 2009. The tax would be repealed entirely in
2010. State death tax credits would be reduced in proportion to the estate and gift tax
reductions from 2003-2009. This proposal would cost $28.3 billion over five years,
but the Treasury Department estimated that the annual cost would be $50 billion by
A Democratic alternative would have reduced estate and gift tax rates across the
board by 20%, created a $2 million exclusion for farms and closely held businesses
and allowed any portion not used in the estate of one spouse to be allowed in the
estate of the second spouse, and increased the exemption equivalent of the unified
credit to $1.1 million immediately and to $1.2 million in 2006.
Education Tax Provisions
S. 1134, which passed the Senate on March 2, 2000, would have increased the
annual contribution limit to tax favored savings accounts from $500 to $2,000 and
allowed accounts to be used for elementary and secondary education (including
private and home schooling), extended the exclusion for employer provided education
assistance, allowed taxpayers to use both the education savings account and the Hope
credit, allowed tax-free distributions from state-sponsored prepaid tuition plans and
expanded these plans to include private schools, eliminated the 60-month limit on the
deductibility of student loan interest, and increased the limit on the amount of school
bonds that may be issued without being subject to arbitrage requirements. These
provisions would cost $21.3 billion over the next 10 years. The House Ways and
Means Committee approved H.R. 7, which was similar to the Senate bill; H.R. 7
would cost $11.6 billion over the next 10 years.
Patient Protection Legislation
The House and Senate both included a number of tax provisions relating to
health care in their 2000 patient protection legislation (H.R. 2990 and S. 1344),
including deductions for health insurance and an expansion of medical savings
accounts (MSAs). Agreement between the Senate and House was not reached. Final
tax legislation at the end of the 106th Congress (the Community Renewal Tax Relief
Act of 2000, H.R. 5662, incorporated into H.R. 4577) included a 2-year extension of
eligibility for new medical savings accounts. Deductions for health care were
considered in other bills (see next section).
Minimum Wage Bill, Pension, IRA and Small
The minimum wage bill (H.R. 3081) contained a number of tax provisions
costing $45.7 billion over five years. Some of these tax changes were targeted at
small businesses. More than half of the cost ($26.9 billion) was for estate and gift tax
reductions, including a phased in reduction of the top rate from 55% to 50% by 2002,
and an additional one percentage point reduction in all rates in each of the following
2 years. There were also provisions for pension reforms (costing $6.1 billion), and
a variety of provisions such as acceleration of the full deduction for health insurance
for the self employed, increases in the share of business meals that can be deducted
(from 50% to 60%) and the limit on equipment that can be expensed from $19,000
to $30,000. The bill would also have reinstated the installment sales treatment that
was disallowed in last year’s extender bill. There were also some provisions for
distressed communities and increases in the low income housing tax credit. The Ways
and Means Committee had earlier marked up certain provisions on November 9th,
1999 with a resultant $30.2 billion cost. Also on November 9th, 1999 the Senate
attached the minimum wage bill including $75 billion of tax cuts (of a similar nature)
over 10 years to the bankruptcy reform bill, H.R. 833, formerly S. 625. The President
indicated he would veto the minimum wage legislation if it threatened “fiscal
discipline” because of tax cuts.
Provisions of H.R. 3081, the minimum wage proposal that included $45.7 billion
of tax cuts ($122.7 billion over 10 years), were adopted in the House on March 9,
2000; the tax provisions and minimum wage were in separate bills (H.R. 3832 and
H.R. 3846) which were then be combined into H.R. 3081. This legislation included
a rollback of the installment sales provision that was included in the smaller extenders
bill, H.R. 1180, passed in 1999. House Speaker Hastert has proposed to drop some
of the tax provisions (estate and gift and pension) of this bill as a compromise with the
The Ways and Means Committee subsequently approved H. R. 4843, to expand
contribution limits to Individual Retirement Accounts (IRAs) and to liberalize pension
treatment; IRA provisions would have cost $10 billion over five years and $35 billion
over 10 years; pension provisions would have cost $6 billion over five years and $19
billion over 10 years. This proposal was folded into H.R. 1102 and passed by the
House on July 19, 2000.
The most recent of the bills containing these provisions was the Tax Relief Act
of 2000, originally H.R. 5542, but attached to H.R. 2614; it was passed by the House
on October 26, 2000. The bill would have cost $240 billion over 10 years. It included
a variety of provisions. Among them were deductions for individual purchase of
health insurance; increases in the benefits for pensions and IRAs, including an increase
in the limit on IRA contributions to $5,000; a number of tax benefits for small
businesses (increased deductions for business meals, allowing installment accounting
methods, increased limits on the amount of equipment that can be expensed for tax
purposes); revision of the FSC provision; and repeal of some excise taxes on alcoholic
beverages. Most of these provisions had been under consideration in other bills. The
President indicated he would veto this bill and it was not considered by the Senate in
the post-election session..
Enacted Legislation 2000: Community Renewal,
Medical Savings Accounts, FSC and Installment
Returning to its post-election session in December, Congress instead passed and
the President signed, more limited tax cut bills. The largest of these in revenue terms,
costing $31.5 billion over 10 years, was attached to H.R. 4577, an omnibus
appropriations measure. It was subsequently separated into a separate tax bill, H.R.
5662, which included several provisions aimed at community renewal, and a two-year
extension of medical savings accounts provisions. The bill is estimated to reduce
revenue by $31.5 billion over 10 years. Congress also passed (and the President
signed) two other bills, H.R. 4686, to revise FSC and H.R. 3594 to alter installment
Community renewal provisions included tax provisions for up to 40 renewal
communities; the tax benefits included wage credits, rapid depreciation of certain
assets, and forgiveness of capital gains taxes. The bill also extended and expanded tax
benefits for empowerment zones, allowed a new markets tax credit for certain equity
investments, increased the low-income housing tax credit cap, increased volume limits
on private activity bonds, extended expensing for brownfield expenditures, extended
the D.C. home buyer tax credit and extended the D.C. enterprise zone designation.
The bill also extended medical savings accounts for two years, and made a number of
Foreign sales corporation revisions, costing $1.5 billion over five years, were a
response to a complaint about the existing tax law brought by countries of the
European Union (EU) with the World Trade Organization (WTO).
The installment sales provision was designed to reinstate the ability to use
installment sales treatment that was changed in the 1999 tax extenders bill, which had
resulted in complaints by small businesses.
Enacted Legislation 1999: Extenders Bill
The Ways and Means Committee approved H.R. 2923, a bill to extend expiring
tax provisions contained in the tax cut proposal (research and experimentation credit,
welfare-to-work credit, work opportunity credit, and exemption from Subpart F for
certain financing income). The periods of extension varied across the provisions, with
a number extended through 2004. The bill would have made permanent a provision
allowing nonrefundable tax credits to count against the alternative minimum tax. This
proposal was estimated to cost $23 billion over the next five years. On October 29,
the Senate approved the Finance Committee version of the extenders bill, which
would extend provisions through 2000 and cost $8.5 billion over 10 years. It would
also extend certain environmental subsidies and tax exclusions for employer provided
educational assistance. On November 18, the House approved tax extenders as part
of a conference report on H.R. 1180, extending the R&E credit through 2004 and
other provisions through 2001 (allowing personal credits to count against the AMT,
the work opportunity credit, the exclusion for education assistant, zone academy
bonds, tax deductions for brownfields, the Subpart F exemption for finance income,
the $5,000 DC tax credit for first time homebuyers, and the closed loop biomass tax
credit.) A number of provisions for revenue offsets were included. The bill passed
the Senate on November 19, 1999 and was signed by the President on December 17.
Overview of the 1999 General Tax Cut (H.R. 2488)
Both House Ways and Means Chairman Archer and Senate Finance Chairman
Roth proposed major tax packages in 1999. The House plan, originally estimated to
cost $864 billion over 10 years, was scaled down to $792 billion, the same as the cost
of the Senate plan. The House approved the bill on a largely party-line vote on July
22; the Senate bill was approved by a 57 to 43 vote on July 30. The conference
committee completed consideration on H.R. 2488 on August 3; the House and Senate
approved the bill on August 5 (the Senate by a one-vote margin, the House along
party lines). The President vetoed the bill on September 23.
The conference committee compromised between the House rate cut (a 10%
across-the-board cut) and the Senate rate reduction (a reduction in the 15% rate to
14% in the lowest rate bracket and an expansion of the new 14% bracket) by reducing
taxes one percentage point across all tax rates. However, this tax cut would have
sunsetted after 2008. In the case of the marriage penalty, they included the increase
in standard deduction for joint returns in the House bill, and also increased the width
of the new 14% bracket for joint returns; the latter provision also sunsetted in 2008.
Several other provisions would also have sunsetted before the end of the budget
Chairman Archer’s original proposal was passed by the Ways and Means
Committee on July 15th. A concern that the $864 billion cost was not in compliance
with the budget resolution resulted in a proposal to cut back the provisions as part of
the rule. There had been some uncertainty about whether a tax cut of this size wouldl
pass the House, given reservations by some Republicans, and a trigger provision was
added to delay the across-the-board tax cuts if interest on the public debt rose. There
were also some concerns by other Republican members that the bill did not fully
address the marriage penalty.
Senator Roth’s proposal, the Taxpayer Refund Act of 1999, S. 1429, was
approved on July 21 by the Finance Committee with minor amendments, among them
a permanent extension of the R&D tax credit. The Senate passed the plan as their
version of H. R. 2488 on July 30, with some amendments, most of them minor. One
amendment would, however, allow a deduction for the first $1,000 of capital gains.
As the result of a procedural vote relating to budget rules, the Senate tax cut would
expire in 2009.
House Democrats had offered a smaller plan and the President indicated a
willingness to support a $250 billion cut; the Treasury had projected that the cost of
the Ways and Means Committee bill would explode in the second 10 years. Senate
Finance Committee Democrats proposed a tax cut of $290 billion (which was
defeated). A bi-partisan plan costing $500 billion (Senators Breaux, Kerrey, Chafee,
Jeffords, and others) was withdrawn: this proposal would allocate $283 billion to an
increase in the standard deduction (eliminating the marriage penalty for taxpayers with
lower and moderate incomes). A plan by Senators Gramm, Lott and others which
was similar to the House bill failed to gain the 60 votes needed to set aside a
budgetary point of order. Several other proposals were also defeated on procedural
The House and Senate plans differed in some fundamental ways. The largest
elements in both bills were the rate cuts. The general rate reductions in the House bill
cost more than in the Senate bill and by the year 2009 the annual cost would have
been twice as large as that in the Senate bill ($112 billion versus $47 billion) if the
expansion of the 14% rate for joint returns is included and $112 billion versus $27
billion if the expansion of the bracket is excluded; the Senate version targeted a larger
share of its benefits to middle income taxpayers and to married couples. Including
rate changes for all marriage penalty relief, the House bill would have cost $117
billion in 2009 while the Senate bill would have cost $96 billion. Revenue estimates
do not allow these distinctions for the Conference agreement, but in 2008, before the
sunset, there would have been a $57 billion revenue loss from the percentage point
rate reduction plus an increase in the 14% bracket for non-joint returns that accounted
for about $13 billion of the total. Increases in the standard deduction and the size of
the first bracket for joint returns to make them twice the size of singles would have
added $28 billion, for a total of $85 billion. The Conference agreement would have
been subject to sunset provisions which automatically sunset in 2009 due to a
procedural budget rule; in addition a number of provisions are terminated in 2008,
which is not a budget rule requirement. There was also a trigger similar to that in the
All revenue effects reported below are for fiscal years 1999-2009 and are based
on the Joint Tax Committee’s estimates.
! Percentage point rate reductions (including the alternative minimum tax, or
AMT) and increasing the width of the 14% bracket, with greater increases for
married couples, and increases in the standard deduction for joint returns
would cost $399 billion; marriage penalty relief for the earned income credit
would cost $4 billion.
! The dependent care credit would be increased ($5 billion).
! The individual AMT would be modified to allow immediately the use of
personal credits, and would be phased out ($103 billion), but sunset would
occur in 2008.
! Savings incentives include a reduction in long term capital gains tax rates from
20% and 10% to 18% and 8%, and prospective inflation indexing after 2009;
this prospective indexing led to behavioral responses causing a $15 billion
temporary revenue gain in 2001, for a net cost of $32 billion. Sunset would
occur in 2008. Individual retirement contributions were increased gradually
to $5,000, with sunset in 2008, for a cost of $27 billion. Other increases led
to a total of $67 billion for savings provisions. Pension plan revisions would
cost $15 billion.
! Education provisions include expansion of education savings accounts,
increases in student loan deductions, extension of employer provided education
assistance, and tax-exempt bond provisions, for an $11 billion total.
! Health care provisions include a deduction for health insurance ($31 billion),
long term care insurance in cafeteria plans ($7 billion), more dependency
deductions for caretakers of elderly family members ($3 billion) and other
provisions (total of $43 billion), with $3 billion for expansion of the selfemployed deduction.
! The estate tax rates would be gradually eliminated, for a cost of $65 billion.
! Business tax revisions: corporate AMT ($8 billion); increasing equipment
expensing to $30,000 ($2.5 billion), increasing business meals deductions to
60% ($4 billion), multinationals, mostly interest allocation ($31 billion).
! There are also provisions for special areas including benefits for tax exempt
organizations at $2 billion, for real estate at $7 billion, with $4 billion of that
amount an extension of the low income housing credit.
! Expiring tax credit provisions will be extended at a cost of $21 billion.
There are also some revenue offset provisions amounting to $6 billion.
Almost half of the revenue cost ($373 billion) would come from an across-theboard 10% reduction in tax rates, which would be gradually phased in. There are
several more targeted provisions. The plan included the following provisions:
! Marriage penalty provisions would increase the standard deduction, eliminating
the marriage penalty for certain taxpayers (and increasing marriage bonuses for
others), at a cost of $45 billion. Income limits for student loan deductions and
Roth IRAs would be increased for married couples ($2 billion and $1 billion
! The individual Alternative Minimum Tax (AMT) would be modified to allow
immediately the use of personal credits, and would be phased out ($64 billion).
! Maximum capital gains tax rates would be cut from 20% to 15% and taxpayers
in the 15% bracket would see their capital gains tax rates cut from 10% to
7.5%; this revision would cost $52 billion over 10 years. Another tax benefit
for capital income is a phased in exclusion of $400 ($200 for single taxpayers)
of dividends and interest ($20 billion). Some smaller provisions relating to
capital gains on settlement funds and owner occupied housing and other
provisions bring the total for these provisions to $73 billion. A series of
pension revisions would cost $14 billion.
! Education provisions include tax breaks to assist with higher education,
expanding tax-favored savings accounts to cover primary and secondary
education, and changes in federal tax-exempt bond rules ($7 billion).
! Health and long term care provisions include a phased-in 100% deduction for
health insurance where the taxpayer pays at least half the cost ($34 billion) and
deductions for long term care insurance ($8 billion): an additional deduction
for taxpayers caring for elderly relatives ($3 billion); inclusion of long-term
care insurance in employee benefits plans; an expansion of medical savings
accounts; and provisions relating to orphan drug tax credits and vaccine
insurance, for a total of $51 billion. The 100% deduction for health insurance
for self-employed individuals would be accelerated, at a cost of $3 billion.
! The estate and gift tax would be phased out over 10 years ($65 billion); a
small amount ($85 million) of this total relates to generation skipping trusts.
! Several business tax reductions are included. For corporations in general,
capital gains taxes would be reduced ($7 billion) and the corporate alternative
minimum tax would be revised and eventually repealed ($10 billion). Small
businesses would receive an increase in the limits for expensing equipment
investment ($2.5 billion). The deduction for 80% of business meals and
entertainment would be restored ($8 billion.) There are a series of tax
provisions for multinational corporations amounting to $35 billion, the most
important of which is a change in the formula for allocating interest deductions
worldwide ($25 billion).
! There are also provisions that involve smaller costs. The low income tax credit
would be increased at a cost of $3.8 billion, and there are relatively small costs
relating to tax -exempt organizations (less than $200 million) and other real
estate ($670 million). A variety of miscellaneous provisions totals to $6
billion; almost half of this total is due to accelerated increases in private activity
tax exempt bond caps.
! Expiring tax provisions would be extended ($20 billion).
There were about $5 billion of revenue offsets, the most important one being an
adjustment in installment sales.
The final proposal was almost the same as the original proposal by Chairman
Archer. The proposal was modified by the Chairman on July 14 prior to being
submitted to the full committee; most of the modifications were quite minor, but there
was a provision to allow deduction for prescription drug coverage under Medicare in
the event this legislation is approved.
During committee markup further modifications were made including a slow
down in the phase-down of the corporate capital gains tax rate, along with additional
benefits for low income housing, the oil and gas industry, further extensions of
certain expiring provisions, and timber. The overall size of the tax cut is about the
same. Amendments offered by Democrats to scale back the tax cuts were rejected;
President Clinton indicated that he would veto the bill.
Chairman Archer proposed narrowing the corporate capital gains tax rate to
save $7 billion, and delaying the phase-in of several provisions: the individual AMT
(saving $18 billion), the corporate AMT (saving $2 billion), the broad based tax cuts
(saving $32 billion), the small savers provisions (saving $4 billion) and the estate tax
(saving $10 billion). These provisions, approved in the Rules Committee, brought
the cost to $792 billion. Certain provisions relating to the Employee Retirement
Income Security Act (ERISA) were also removed from the bill.
Chairman Roth’s proposal, the Taxpayer Refund Act of 1999, was approved by
the Senate on July 30. It would cut the 15% tax rate to 14%, which would be the
largest element of the proposal (in its effects on revenues), costing $216 billion. The
new 14% bracket would also be widened at a cost of $67 billion. These two
provisions would total $282 billion. Other provisions of the proposal included:
! Elimination of the marriage penalty by allowing optional filing of married
couples as singles ($112 billion), increasing the standard deduction for married
couples ($20 billion) and marriage penalty relief for the earned income tax
credit ($6 billion), for a total of $138 billion.
! Modifying the dependent care credit (credit for child care and other care of
family members), at a cost of $10 billion. Other minor family related
provisions include exclusion from income of certain foster care payments and
a tax credit for employer-provided child care.
! Relief from the individual Alternative Minimum Tax (AMT), costing $87
! Additional savings incentives, including (1) increasing the contribution limits
for Individual Retirement Accounts (IRAs) from $2,000 to $5,000 and
increasing and eliminating income limits, (2) increasing contribution limits on
401(k), 403(b) and other retirement plans, generally by 50%, (3) creating
retirement plans like Roth IRAs, which do not allow up-front deductions but
exempt income from tax, (4) increasing the amount those 50 and over can
contribute to plans, and (5) revising pension plans in general. These provisions
cost $66 billion. There is also a $1000 annual capital gains exclusion ($8
! Additional benefits for tuition savings plans, increases in deductions for student
loans, permanent extension of employer provided education assistance, and
other education provisions costing $14 billion.
! Health care benefits including accelerating the full deductibility of individually
purchased health care; making long term health care insurance deductible and
allowing it as part of employer cafeteria plans, and allowing extra tax
exemptions for those who care for elderly family members ($52 billion). The
100% deduction for health insurance for the self-employed would also be
accelerated ($3 billion), and a tax credit would be allowed for small businesses
to insure low wage workers ($1 billion).
! Reduction in estate taxes and increases in the exclusion, along with some
minor revisions, costing $62 billion.
! Business tax reductions including an increase in the limits for expensing
equipment ($2.5 billion) and other minor provisions, tax benefits for
multinational corporations primarily through a change in the allocation of
interest ($11 billion); relief from the corporation alternative minimum tax or
AMT (at $5 billion), along with some other minor revisions.
! Provisions benefitting certain industries and activities including tax exempt
organizations and charitable contributions ($10 billion), and housing and real
estate ($8 billion),and small benefits for the oil and gas and timber industries.
! Extension of expired and expiring provisions ($39 billion).
! Other minor miscellaneous provisions amounting to about $2 billion.
! Revenue offsets primarily aimed at corporate tax shelters, raising $9 billion.
Several changes were made during markup, including a provision to make the
R&D tax credit permanent, costing an additional $17 billion. Other amendments
included some small provisions for energy and environmental subsidies, a provision
to allow leasehold improvements to be depreciated over 15 years ($2.7 billion),
extending tax benefits for the District of Columbia and a temporary exemption from
the airline ticket tax for seaplanes.
Several amendments were adopted on the Senate floor; these amendments were
in general minor or involved timing changes. However, the proposal to allow a
deduction for up to $1000 of capital gains was approved, along with a proposal to
increase the standard deduction for joint returns.
Finance Committee Democrats Plan
Finance Committee Democrats, led by Senator Moynihan proposed a $290
billion tax cut. About half of the cost, $169 billion, resulted from raising the standard
deduction for all taxpayers, with the proportional increases largest for joint returns.
Other provisions would :
! Allow a second earner deduction for married couples who itemize ($26
! Provide a deduction for health insurance for the self employed and a 30%
credit for those without employer provided health insurance ($27 billion).
! Relief from the alternative minimum tax or AMT ($11 billion).
! Estate tax relief ($10 billion).
! Permanent extension of the R&D credit and benefits for low income housing
! Education tax benefits ($17 billion).
! Small business tax credit for pensions and pension portability ($9 billion),
benefits for energy and environmental conservation ($5 billion), benefits for
agriculture ($5 billion). Small business provisions including health insurance
and pension credits already listed along with an increase in expensing of
equipment would be $11 billion.
There were also a number of revenue raisers amounting to $27 billion, including
corporate tax shelter revisions, modifications for Real Estate Investment Trusts
(REITs) and the largest one, reinstatement of superfund taxes.
House Democrats Plan
House Democrats offered a $250 billion alternative plan that was defeated.
These tax cuts were made contingent on solvency of Social Security and Medicare.
Among other provisions, their proposal increased the standard deduction for joint
returns to twice that of singles, permanently extended expiring tax provisions,
including the R&D tax credit, and provided tax benefits for school construction.
Their plan also included some revenue raisers in the President’s budget and measures
in H.R. 2255 concerning corporate tax shelters.