[Analytical Perspectives]
[Federal Receipts and Collections]
[3. Federal Receipts]
[From the U.S. Government Printing Office, www.gpo.gov]
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FEDERAL RECEIPTS AND COLLECTIONS
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[[Page 35]]
3. FEDERAL RECEIPTS
Receipts (budget and off-budget) are taxes and other collections from
the public that result from the exercise of the Government's sovereign
or governmental powers. The difference between receipts and outlays
determines the surplus or deficit.
Growth in receipts.--Total receipts in 1997 are estimated to be
$1,495.2 billion, an increase of $68.5 billion or 4.8 percent relative
to 1996. This increase is largely due to assumed increases in incomes
resulting from both real economic growth and inflation. Receipts are
projected to grow at an average annual rate of 5.0 percent between 1997
and 2002, rising to $1912.2 billion.
As a share of GDP, receipts are projected to remain fairly constant,
declining from 19.0 percent in 1996 to 18.9 percent in 2002.
Table 3-1. RECEIPTS BY SOURCE--SUMMARY
(In billions of dollars)
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Estimate
Source 1995 actual -------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001 2002
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Individual income taxes................. 590.2 630.9 645.1 683.4 714.2 748.7 790.0 834.5
Corporation income taxes................ 157.0 167.1 185.0 201.7 212.7 225.4 236.7 245.8
Social insurance taxes and contributions 484.5 507.5 536.2 560.9 589.4 618.8 647.0 679.5
(On-budget)........................... (133.4) (140.1) (148.2) (154.6) (161.6) (168.8) (175.8) (184.8)
(Off-budget).......................... (351.1) (367.4) (388.0) (406.3) (427.8) (450.0) (471.2) (494.6)
Excise taxes............................ 57.5 53.9 59.6 60.4 61.7 62.8 64.2 65.6
Estate and gift taxes................... 14.8 15.9 17.1 18.1 19.5 20.9 22.5 24.1
Customs duties.......................... 19.3 19.3 20.5 20.8 20.9 21.9 22.4 24.3
Miscellaneous receipts.................. 31.9 32.1 31.8 32.7 34.2 35.3 37.1 38.4
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Total receipts........................ 1,355.2 1,426.8 1,495.2 1,577.9 1,652.5 1,733.8 1,819.8 1,912.2
(On-budget)......................... (1,004.1) (1,059.3) (1,107.2) (1,171.6) ( 1,224.8) (1,283.9) (1,348.6) (1,417.6)
(Off-budget)........................ (351.1) (367.4) ( 388.0) (406.3) (427.8) (450.0) (471.2) (494.6)
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Table 3-2. CHANGES IN RECEIPTS
(In billions of dollars)
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Estimate
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1996 1997 1998 1999 2000 2001 2002
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Receipts under tax rates and
structure in effect January 1,
1996\1\........................... 1,423.6 1,495.8 1,569.0 1,640.2 1,719.4 1,800.3 1,886.0
Telecommunications Act of 1996..... 4.3 4.7 5.5 6.3 7.0 7.7 7.9
Social security (OASDI) taxable
earnings base increases:..........
$62,700 to $65,100 on Jan. 1,
1997............................ ......... 1.0 2.8 3.1 3.5 3.9 4.3
$65,100 to $68,100 on Jan. 1,
1998............................ ......... ......... 1.3 3.5 3.9 4.3 4.9
$68,100 to $71,100 on Jan. 1,
1999............................ ......... ......... ......... 1.3 3.5 3.9 4.3
$71,100 to $74,100 on Jan. 1,
2000............................ ......... ......... ......... ......... 1.3 3.5 3.9
$74,100 to $76,800 on Jan. 1,
2001............................ ......... ......... ......... ......... ......... 1.2 3.2
$76,800 to $80,100 on Jan. 1,
2002............................ ......... ......... ......... ......... ......... ......... 1.4
Proposals\2\....................... -1.6 -11.7 -6.3 -7.8 -11.0 -11.6 -10.7
Extension of expired trust fund
excise taxes\2\................... 0.5 5.5 5.7 6.0 6.3 6.7 7.0
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Total, receipts under existing
and proposed legislation........ 1,426.8 1,495.2 1,577.9 1,652.5 1,733.8 1,819.8 1,912.2
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\1\These estimates assume a social security taxable earnings base of $62,700 through 2002.
\2\Net of income offsets.
[[Page 36]]
ENACTED LEGISLATION
Self-Employed Health Insurance Act.--This Act restored the 25 percent
health insurance deduction for the self-employed for 1994 and increased
it to 30 percent thereafter. The associated revenue losses were more
than offset by other revenue and outlay provisions. The major provisions
of the Act that affected receipts are described below.
Restore and increase deduction for health insurance costs of self-
employed individuals.--The 25 percent health insurance deduction for
self-employed individuals and their dependents, which had expired for
taxable years beginning after December 31, 1993, was retroactively
reinstated. In addition, the deduction was permanently increased to 30
percent for taxable years beginning after December 31, 1994.
Repeal special rules applicable to Federal Communications Commission
(FCC) certified sales of broadcast property.--Under prior law, sellers
of FCC-licensed broadcast facilities were allowed to defer taxes on
gains realized in the sale or exchange of FCC-licensed broadcast
properties to minority owners. Such deferrals were executed through FCC-
issued tax certificates. Under this Act, deferral was repealed effective
for all sales and exchanges on or after January 17, 1995 and for all
sales and exchanges occuring before that date for which the FCC tax
certificate was issued on or after January 17, 1995. The repeal did not
apply to binding written contracts for which the seller had applied to
the FCC for a certificate of deferral before January 17, 1995.
Modify earned income tax credit (EITC) eligibility.--Effective for
taxable years beginning after December 31, 1995, taxpayers with annual
aggregate interest, dividend, tax-exempt interest and net rental and
royalty income exceeding $2,350 would no longer be eligible for the
EITC.
Prohibit nonrecognition of gain on involuntary conversions in certain
related-party transactions.--Section 1033 of the Internal Revenue Code
allows certain taxpayers to defer a gain realized from certain
involuntary conversions of property if the taxpayer purchases similar or
related property within a specified period. Under this Act, taxpayers
would no longer be allowed to defer gain on involuntary conversions
occurring on or after February 6, 1995 if the replacement property or
stock were purchased from a related person.
Extend New York State hospital surcharge provision.--Under the Omnibus
Budget Reconciliation Act of 1993, certain employers were prohibited
from receiving a Federal tax deduction for health insurance expenses if
they failed to comply with New York State's hospital rate-setting/
surcharge laws. This provision, which expired on May 12, 1995, was
extended through December 31, 1995.
Telecommunications Act of 1996.--This Act, which provided for a major
restructuring of the Nation's communications laws, fulfilled this
Administration's promise to reform telecommunications laws in a manner
that leads to competition and private investment, promotes universal
service and open access to information networks, and provides for
flexible government regulation. Under the Act, all interstate
telecommunications carriers would be required to contribute funds, as
prescribed by the FCC, to the preservation and advancement of universal
service. The contributions would be used to provide and upgrade
facilities and services, as prescribed by the FCC. Telecommunications
carriers would receive credit toward their contribution by providing
discount service to schools, libraries, and health care providers in
rural areas. Because the amounts collected would be spent, the net
budget effect would be zero.
ADMINISTRATION PROPOSALS
Provide Tax Relief
The President's plan targets tax relief to middle-income Americans
through his Middle Class Bill of Rights, which was originally proposed
in last year's budget. His plan also includes estate tax relief for
small businesses and family farms, expanded expensing for small
businesses, pension simplification, and initiatives for economically
distressed areas.
Middle Class Bill of Rights.--The Administration is again proposing
the three features of its Middle Class Bill of Rights designed to give
middle-income families the tax relief they need to help them raise their
children, save for the future and pay for postsecondary education. These
provisions would be subject to trigger-off (that is, would cease to be
effective) on January 1, 2001 in the event that the Federal budget
deficit is not at least $20 billion below the Congressional Budget
Office's (CBO's) estimate for the year 2000.
Provide tax credit for dependent children.--A non-refundable credit
would be allowed for each dependent child under the age of 13. The
credit would equal $300 for 1996, 1997 and 1998, and would rise to $500
for 1999 and subsequent years. The credit would be phased out for
taxpayers with adjusted gross income (AGI) between $60,000 and $75,000.
Both the credit amount and the phase-out range would be indexed for
inflation beginning in 2000. The credit would be applied before the
earned income tax credit but could not be used to offset alternative
minimum tax liability.
Expand Individual Retirement Accounts (IRAs).--Under present law,
eligibility for deductible IRAs is phased out for single taxpayers with
AGI between $25,000 and $35,000 and for couples filing a joint return
with AGI between $40,000 and $50,000, if the
[[Page 37]]
individual (or the
individual's spouse) is an active participant in an employer-sponsored
retirement plan. Under the Administration's proposal, the AGI thresholds
and phase-out ranges would be doubled over time. For 1996 through 1998,
eligibility would be phased out for single taxpayers with AGI between
$45,000 and $65,000, and for couples filing a joint return with AGI
between $70,000 and $90,000. For 1999 and later years, eligibility would
be phased out for single taxpayers with AGI between $50,000 and $70,000
and for couples filing a joint return with AGI between $80,000 and
$100,000. These thresholds and the present law annual contribution limit
of $2,000 would be indexed for inflation. Withdrawals from IRAs would
not be subject to the 10 percent early withdrawal tax if the proceeds
were used to pay post-secondary education costs, to buy or build a first
home, to cover living expenses if unemployed for at least 12 consecutive
weeks, or to pay catastrophic medical expenses (including nursing home
or other costs associated with caring for an incapacitated parent or
grandparent). In addition, each individual eligible for a deductible IRA
would have the option of contributing an amount up to the contribution
limit to a traditional deductible IRA or to a new back-loaded special
IRA. Contributions to this special IRA would not be tax deductible, but
distributions of the contributions would be tax-free. If the
contributions remained in the account for at least five years, earnings
on the contributions also would be tax-free when withdrawn. Withdrawals
of account balances from special IRAs during the five-year period would
be subject to ordinary income tax and a 10 percent early withdrawal tax.
However, withdrawals during the five-year period for the purposes
described above (or upon death or disability of the taxpayer) would not
be subject to the early withdrawal tax. Individuals whose AGI for a year
fell within the eligibility thresholds would be allowed to convert an
existing IRA into a special IRA, and for conversions before 1998, income
inclusion would be spread over four years.
Provide tax incentive for education and training.--Effective January
1, 1996, a deduction would be permitted for up to $5,000 in expenditures
on post-secondary school education and training for the taxpayer, the
taxpayer's spouse and dependents. The maximum allowable deduction would
increase to $10,000 effective January 1, 1999. The maximum allowable
deduction would be phased out for taxpayers filing a joint return with
AGI (before the proposed deduction) between $100,000 and $120,000. For
taxpayers filing a head-of-household or single return, the maximum
allowable deduction would be phased out for those with AGI between
$70,000 and $90,000. The phase-out ranges would be indexed for inflation
beginning in 2000. Qualifying education expenses are those related to
post-secondary education paid to institutions and programs eligible for
Federal assistance. Deductible expenses would include tuition and fees,
but would not include meals, lodging, books or transportation.
Increase deduction for self-employed health insurance.--For a
discussion of this proposal, see ``Other Provisions'' category below.
Increase expensing for small business.--In lieu of depreciation, a
taxpayer with a sufficiently small amount of annual investment may elect
to deduct up to $17,500 of the cost of qualifying property placed in
service during the taxable year. The amount of tangible depreciable
property that small businesses can expense each year would be increased
to $25,000 under the Administration's proposal. The increase would be
effective for property placed in service in taxable years beginning
after December 31, 1995 and would be phased in, starting at $19,000 in
1996, and then increasing over a six-year period in annual increments of
$1,000. This provision would be subject to trigger-off (that is, the
amount of tangible depreciable property that small businesses can
expense each year would revert to $17,500) on January 1, 2001 in the
event that the Federal budget deficit is not at least $20 billion below
CBO's estimate for the year 2000.
Provide estate tax relief for small business.--Estate tax attributable
to certain interests in closely held businesses may be paid in
installments over a period of up to 14 years. A special four percent
interest rate is provided for the tax deferred on the first $1 million
of value. The $1 million cap has been in effect since 1976. To address
the liquidity problems that may arise upon the death of a farmer or
small business owner, and to adjust for inflation, the Administration
proposes to increase the amount of property eligible for the special
interest rate from $1 million to $2.5 million. The proposal also
simplifies current law by eliminating distinctions based on the form of
ownership, providing alternatives to the estate tax lien, and reducing
the interest rate by 50 percent or more in exchange for making the
interest payments nondeductible. The proposal would be effective for
decedents who die after December 31, 1996.
Simplify pension plan rules.--The Administration proposes to simplify
the design and administration of retirement plans sponsored by
businesses of all sizes, nonprofit organizations, and State and local
governments, as well as for multiemployer plans. These measures not only
would simplify the rules governing these plans, but also would
potentially expand pension coverage and stimulate private savings,
particularly for employees of small firms. These measures include, a
new, simple retirement savings plan (the National Employee Savings Trust
or the NEST) for small businesses. It combines the most attractive
features of the IRA and the 401(k) plan, minimizes administrative and
compliance costs, and eliminates the need for employer involvement with
the Government. The NEST is designed to encourage retirement savings by
middle- and low-income workers, not only the highly paid, without
complicated forms or calculations.
[[Page 38]]
Provide tax incentives for distressed areas.--The Administration is
proposing tax incentives for the cleanup of polluted urban and rural
areas and is proposing an expansion of the empowerment zone and
enterprise community program, as described below. The proposal would be
subject to trigger-off for qualified expenses incurred after December
31, 2000 in the event that the Federal budget deficit is not at least
$20 billion below CBO's estimate for the year 2000.
Provide tax incentives to clean up environmentally contaminated areas
known as brownfields in distressed communities.--To encourage the
cleanup of polluted urban and rural areas known as brownfields, the
Administration proposes to allow certain nondeductible costs incurred by
businesses to remediate environmentally contaminated land in certain
areas to be capitalized and amortized over a 60-month period. Qualified
sites generally would be limited to those properties located in high-
poverty areas, Federal empowerment zones and enterprise communities, and
areas subject to current Environmental Protection Agency (EPA)
Brownfields Pilots. To claim this incentive, taxpayers would be required
to obtain from the appropriate State or local agency, or the EPA in
certain circumstances, verification that the site satisfies the
geographic requirement. The proposal would be effective for qualified
expenses incurred after the date of enactment.
Expand Empowerment Zone and Enterprise Community program.--Under the
Omnibus Budget Reconciliation Act of 1993, certain tax incentives were
provided for nine empowerment zones and 95 enterprise communities. The
tax incentives were a 20-percent employer wage credit, increased Section
179 expensing, and a new category of tax-exempt financing. Qualifying
businesses in empowerment zones were eligible for all three incentives,
while businesses in enterprise communities were eligible for the tax-
exempt financing. Over 500 communities submitted applications for these
104 designations that were announced in December 1994. The
Administration proposes a three-part expansion of this program. First,
the designation of two additional urban empowerment zones would be
authorized, to be made within 180 days of enactment. Second, the
restrictions on the tax-exempt financing would be loosened to make this
incentive more accessible. Third, the designation of 40 additional
empowerment zones and 65 additional enterprise communities would be
authorized. Businesses in the new enterprise communities would be
eligible for the current-law tax-exempt financing, as revised, as well
as the brownfields tax incentive described above on an additional 500
acres. Businesses in the new empowerment zones would be eligible for the
current-law section 179 expensing, the brownfields tax incentive on an
additional 1,000 acres, and tax-exempt financing that would not be
subject to the current-law State volume caps, but rather would only be
subject to zone-by-zone volume caps. The current-law wage credit would
not be applicable in any of the new zones and communities. The
designations of these new zones and communities would be required to
occur before 1998, and the designations would generally be effective for
10 years.
Provide tax relief for troops involved in the Bosnian peacekeeping
operations.--For a discussion of this proposal, see ``Other Provisions''
category below.
Eliminate Unwarranted Benefits and Adopt Other Revenue Measures
The President's plan cuts unwarranted corporate tax subsidies, closes
tax loopholes, improves tax compliance and adopts other revenue
measures. These reforms, which are estimated to save $43.6 billion
during the 7-year period, 1996-2002, are described below.
Disallow interest deduction for corporate-owned life insurance (COLI)
policy loans.--Under existing law, a company that sets up a COLI program
may borrow against the cash value of the life insurance contracts on the
lives of its employees. The interest paid on such loans generally is
deductible by the company, subject to certain limitations. However, the
earnings credited to the COLI policies are not subject to current tax.
In addition, benefits that the company receives upon the deaths of
insured employees are not taxed, ensuring that the income credited under
the contracts is never subject to tax. To restrict further this tax-
arbitrage opportunity, the Administration proposes to phase out the
deduction of interest on COLI contracts. The proposal generally would be
effective with respect to interest paid or accrued after December 31,
1995.
Deny interest deduction on certain debt instruments.--If an instrument
qualifies as equity, the issuer generally does not receive a deduction
for dividends paid. If an instrument qualifies as debt, the issuer may
receive a deduction for accrued interest and the holder generally
includes interest in income, subject to certain limitations. The line
between debt and equity is uncertain and it has proven difficult to
formulate general rules of classification. Taxpayers have exploited this
lack of guidance by issuing instruments that have substantial equity
features, but for which they claim interest deductions. Generally
effective for instruments issued on or after December 7, 1995, subject
to certain transition rules, the Administration proposes that no
deduction be allowed for interest or original issue discount (OID) on an
instrument issued by a corporation that has a maximum term of more than
40 years, or is payable in stock of the issuer or a related party. The
proposal also modifies the rules for indebtedness that is reflected as
equity on the issuer's financial statements.
Defer original issue discount deduction on convertible debt.--If a
debt instrument is convertible into stock and provides no payment of, or
adjustment for, accrued interest on conversion, no deduction is allowed
for accrued but unpaid stated interest. In contrast, the accrued but
unpaid discount on a convertible debt instrument with OID generally is
deductible, even if the
[[Page 39]]
instrument is converted before the issuer pays
any OID. The Administration proposal would defer the deduction for OID
on convertible debt until payment and would be effective for convertible
debt issued on or after December 7, 1995, subject to certain transition
rules.
Reduce dividends-received deduction to 50 percent.--A corporate holder
of stock generally is entitled to a deduction for dividends received on
stock in the following amounts: 70 percent if the recipient owns less
than 20 percent of the stock of the payor, 80 percent if the recipient
owns 20 percent or more of the stock, and 100 percent if the recipient
owns 80 percent or more of the stock. The Administration proposes to
reduce the deduction to 50 percent for corporations owning less than 20
percent of the stock of a U.S. corporation because the existing 70-
percent deduction is too generous for corporations that do not have a
sufficient ownership interest in the issuing corporation. The proposal
would be effective for dividends paid or accrued more than 30 days after
the date of enactment.
Modify holding period for dividends-received deduction.--The
dividends-received deduction is allowed to a corporate shareholder only
if the shareholder satisfies a 46-day holding period for the dividend-
paying stock or a 91-day period for certain dividends on preferred
stock. The 46- or 91-day holding period generally does not include any
time in which the shareholder is protected from the risk of loss
otherwise inherent in the ownership of an equity interest. However, the
holding period requirement does not have to be proximate to the time the
dividend distribution is made. Effective for dividends paid or accrued
more than 30 days after the date of enactment, the Administration
proposes that in order for a dividend to be eligible for the dividends-
received deduction, the holding period requirement must be satisfied
with respect to that dividend over a period immediately before or
immediately after the taxpayer becomes entitled to receive the dividend.
Extend pro rata disallowance of tax-exempt interest expense to all
corporations.--No income tax deduction is allowed for interest on debt
used directly or indirectly to acquire or hold investments the income on
which is tax-exempt. The determination of whether debt is used to
acquire or hold tax-exempt investments depends on the holder of the
instrument. For financial institutions and dealers in tax-exempt
investments, debt generally is treated as financing all of the
taxpayer's assets proportionately. For corporations, other than
financial institutions and dealers, and for individuals, deductions are
disallowed only when indebtedness is incurred or continued for the
purpose of purchasing or carrying tax-exempt investments. These
corporations are therefore able to reduce their tax liabilities
inappropriately through the double Federal tax benefits of interest
expense deductions and tax-exempt interest income. Effective for taxable
years beginning after the date of enactment, with respect to obligations
acquired after December 7, 1995, the Administration proposes that all
corporations other than insurance companies be treated the same as
financial institutions are treated under current law with regard to
deductions for interest on debt used directly or indirectly to acquire
or hold tax-exempt obligations. The proposal also would expressly apply
these rules to related parties, by treating all members of a
consolidated group (other than members that are insurance companies) as
a single entity and by tracing debt and tax-exempt holdings among other
related parties.
Require average-cost basis for stocks, securities, etc.--A taxpayer
who sells stock or other securities is allowed to account for the
transaction by specifically identifying the stock or securities or by
using an accounting system such as first-in, first-out or last-in,
first-out. The Administration proposes to require taxpayers to determine
their basis in substantially identical securities using the average of
all their holdings in the securities. Holding period would be determined
on a first-in, first-out basis. The method of determining basis and
holding period would apply to all securities, including stocks, notes,
bonds, and derivative financial instruments. A special rule would allow
the Treasury to treat securities that are substantially identical as not
subject to the average-cost rule if they have a special status under a
provision of the Code (such as built-in gain with respect to a
partnership). Securities not subject to average cost under this rule
would be treated as sold on a first-in, first-out basis. The proposal
would be effective 30 days after the date of enactment.
Require recognition of gain on certain stocks, indebtedness and
partnership interests.--Gain and loss are generally taken into account
for tax purposes when realized. Gain or loss is usually realized with
respect to a capital asset at the time the asset is sold. Many
transactions designed to reduce or eliminate risk of loss and
opportunity for gain on financial assets generally do not cause
realization. For example, taxpayers may lock in gain on securities by
entering into a ``short against the box,'' that is, the taxpayer owns
securities that are the same as or substantially identical to the
securities borrowed and sold short. It is inappropriate for taxpayers to
be able to dispose of the economic risks and rewards of owning
appreciated property without realizing income for tax purposes.
Therefore, the Administration proposes to require a taxpayer to
recognize gain (but not loss) upon entering into a constructive sale of
any appreciated position in stock, a debt instrument, or a partnership
interest. A taxpayer would be treated as making a constructive sale of
an appreciated position when the taxpayer (or in certain limited
circumstances, a person related to the taxpayer) substantially
eliminates risk of loss and opportunity for gain by entering into one or
more positions with respect to the same or substantially identical
property. The proposal would generally be effective for constructive
sales entered into after the date of enactment.
[[Page 40]]
Change the treatment of gains and losses on extinguishment.--The tax
law distinguishes between the sale of a right or obligation to a third
party and the extinguishment or retirement of the right or obligation. A
sale to a third party can give rise to capital treatment while an
extinguishment is ordinary. Extinguishment treatment has been eliminated
for all debt instruments except those issued by natural persons and for
most options and other positions in actively traded property. The
application of the extinguishment doctrine in other contexts is unclear.
The extinguishment doctrine allows taxpayers to control whether gain or
loss is capital or ordinary by deciding whether to sell or extinguish a
contract. The Administration proposes to eliminate the remaining
portions of the extinguishment doctrine so that gain or loss
attributable to the cancellation, lapse, expiration, or other
termination of any right or obligation with respect to property that is
or would be a capital asset in the hands of the taxpayer would be
treated as gain or loss from the sale or exchange of a capital asset. In
addition, the proposal would repeal the natural person exception for
debt instruments. The proposal would be effective 30 days after the date
of enactment.
Require reasonable payment assumptions for interest accruals on
certain debt instruments.--The original issue discount (OID) rules do
not measure income appropriately for certain debt instruments that are
prepayable. If the instruments are held in large pools, it can be
statistically predicted that a certain portion will prepay. Prepayment
assumptions are used to account for certain debt instruments with
payments based on mortgages, but the OID rules otherwise ignore these
probabilities. The proposal would require taxpayers that hold prepayable
debt instruments in large pools to use prepayment assumptions similar to
the rules that apply for debt instruments with payments based on
mortgages. The proposal would be effective for taxable years beginning
after the date of enactment.
Require gain recognition for certain extraordinary dividends.--A
corporate shareholder is generally allowed to deduct a percentage of
dividends received from another domestic corporation. Certain dividends
and dividend equivalent transactions are treated as ``extraordinary''
dividends. If a corporate shareholder receives an extraordinary
dividend, the corporate shareholder must reduce the basis of the stock
to which the distribution relates by the amount of the nontaxed portion
of the dividend (generally the amount of the dividend that was
deducted). If the nontaxed portion of the dividend exceeds the basis of
the stock, the excess is deferred and recognized on a later disposition
of the stock. If a shareholder's stock is redeemed, the redemption may
be treated as a dividend if the shareholder's interest in the
corporation has not been meaningfully reduced. In determining if a
shareholder's interest has been meaningfully reduced, the ownership of
options to purchase stock may be treated as actual stock ownership. The
exclusion of a substantial portion of the amount received by a corporate
shareholder on the redemption of its stock is inappropriate in certain
cases when options are used to create stock ownership. Also, it is
inappropriate to defer gain recognition when the portion of the
distribution that is excluded due to the dividends received deduction
exceeds the basis of the stock with respect to which the extraordinary
dividend is received. The Administration proposes that corporate
shareholders will recognize gain on redemptions of stock that are
treated as dividends because of options when the nontaxed portion of the
dividend exceeds the basis of the shares surrendered. In addition,
immediate gain recognition would be required whenever the basis of stock
with respect to which any extraordinary dividend was received was
reduced below zero. The proposed change generally would be effective for
distributions after May 3, 1995.
Repeal percentage depletion for non-fuel minerals mined on Federal and
formerly Federal lands.--Taxpayers are allowed to deduct a reasonable
allowance for depletion relating to certain mineral deposits. The
depletion deduction for any taxable year is calculated under either the
cost depletion method or the percentage depletion method, whichever
results in the greater allowance for depletion for the year. The
percentage depletion method is viewed as an incentive for mineral
production rather than as a normative rule for recovering the taxpayer's
investment in the property. This incentive is excessive with respect to
minerals mined on Federal and formerly Federal lands under the 1872
mining act, in light of the minimal costs of acquiring the mining rights
($5.00 or less per acre). Effective for taxable years beginning after
the date of enactment, the Administration proposes to repeal percentage
depletion for non-fuel minerals mined on lands where the mining rights
were originally acquired under the 1872 law.
Modify loss carryback and carryforward rules.--Net operating losses
(NOLs) generally can be used to offset taxable income from the prior
three taxable years (carrybacks) and the succeeding 15 taxable years
(carryforwards). Because of the increased complexity and administrative
burden associated with carrybacks, the carryback period should be
shortened. The carryforward period could be lengthened, however, to
allow taxpayers more time to utilize their NOLs without increasing
either complexity or administrative burdens. The Administration proposes
to limit carrybacks of NOLs to one year and to extend carryforwards to
20 years, effective for NOLs arising in taxable years beginning after
the date of enactment.
Treat certain preferred stock as ``boot.''--In reorganization
transactions, no gain or loss is recognized except to the extent ``other
property'' (boot) is received; that is, property other than certain
stock, including preferred stock. Upon the receipt of ``other
property,'' gain but not loss can be recognized. Because preferred stock
has an enhanced likelihood of recovery of principal
[[Page 41]]
or of maintaining a
dividend or both, such tax-free treatment is inappropriate. The
Administration therefore proposes to treat certain preferred stock as
``other property,'' subject to certain exceptions. The proposal
generally would be effective for transactions after December 7, 1995.
Repeal tax-free conversions of large C corporations to S
corporations.--A corporation can avoid the existing two-tier tax by
electing to be treated as an S corporation or by converting to a
partnership. Converting to a partnership is a taxable event that
generally requires the corporation to recognize any built-in gain on its
assets and requires the shareholders to recognize any built-in gain on
their stock. By contrast, the conversion to an S corporation is
generally tax-free, except that the S corporation generally must
recognize the built-in gain on assets held at the time of conversion if
the assets are sold within 10 years. Under the Administration's
proposal, the conversion of a C corporation with a value of more than $5
million into an S corporation would be treated as a liquidation of the C
corporation followed by a contribution of the assets to an S corporation
by the recipient shareholders. Thus, the proposal would require
immediate gain recognition by both the corporation (with respect to its
appreciated assets) and its shareholders (with respect to their stock).
This proposal makes the tax treatment of conversions to an S corporation
generally consistent with conversions to a partnership. The proposal
would apply to elections that are first effective for a taxable year
beginning after January 1, 1997 and to acquisitions of a C corporation
by an S corporation made after December 31, 1996.
Require gain recognition on certain distributions of controlled
corporation stock.--A corporation is generally required to recognize
gain on a distribution of property (including stock of a controlled
corporation) unless the distribution meets certain requirements. If
various requirements are met, including restrictions relating to
acquisitions and dispositions of stock of the distributing corporation
or the controlled corporation, a distribution of the stock of a
controlled corporation will be tax-free to the distributing corporation.
Certain distributions may effectively be dispositions of a business, in
which case tax-free treatment for the distributing corporation is
inappropriate. Accordingly, the Administration proposes to adopt
additional restrictions on acquisitions and dispositions of the stock of
a distributing corporation or controlled corporation that are related to
the distribution. Under this proposal, the distributing corporation
would recognize gain on the distribution of the stock of the controlled
corporation if the shareholders of the distributing corporation do not
retain a sufficient stock interest (generally 50 percent) in the
distributing and controlled corporations during the four-year period
commencing two years prior to the distribution. For this purpose,
unrelated transactions (such as public trading on the stock market)
would be disregarded. This proposal would be effective generally for
distributions occurring after the date of announcement.
Reform the treatment of certain stock transfers.--Certain sales of
stock to a related corporation are treated as the payment of a dividend
by the purchaser. In cases where the seller is a corporation that does
not actually own stock in the purchaser, taxpayers may take the position
that the transaction produces tax benefits that would be unavailable if
the purchaser distributed a dividend to its actual shareholders. For
example, if a foreign-controlled domestic corporation sells the stock of
a subsidiary to a foreign sister corporation, the domestic corporation
may take the position that it is entitled to credit foreign taxes that
were paid by the foreign sister corporation. In such cases, the
Administration proposes to limit the amount treated as a dividend (and
the associated foreign tax credits) from the purchaser to the amount of
the purchaser's earnings and profits attributable to stock owned by U.S.
persons related to the seller. If the purchaser is a domestic
corporation, taxpayers may take the position that stock basis need not
be reduced by the nontaxed portion of the dividend. The proposal would
also clarify that a deemed dividend from a purchaser that is a domestic
corporation should generally be treated as an extraordinary dividend
requiring a basis reduction. The proposal would further require gain
recognition to the extent that the nontaxed portion exceeds the basis of
the shares transferred. The proposal generally would be effective for
transactions after the date of announcement.
Reformulate Puerto Rico and possessions tax credit.--Domestic
corporations with business operations in U.S. possessions may elect the
Section 936 credit, which generally eliminates the U.S. tax on certain
income that is related to their possession-based operations. Income
exempt from U.S. tax under this provision falls into two broad
categories: (1) possession business income derived from the active
conduct of a trade or business within a possession or from the sale or
exchange of substantially all of the assets used in such a trade or
business; and (2) possession source investment income (QPSII), which is
attributable to investment in the possession or in certain Caribbean
Basin countries. The amount of the credit attributable to possession
business income is subject to limitations enacted under the Omnibus
Budget Reconciliation Act of 1993; Section 936 companies may elect
either a reduced percentage of the profits-based credit as allowed under
prior law (60 percent in 1994, phasing down to 40 percent beginning in
1998), or a limitation based on the company's economic activity in the
possessions (measured by wages and other compensation, depreciation, and
certain taxes paid). To provide a more efficient tax incentive for the
economic development of Puerto Rico and other U.S. possessions, and to
continue the effort toward this goal that was begun in the 1993 Act, the
Administration proposes to (1) phase out the profits-based branch of the
active-business portion of
[[Page 42]]
the credit over five years, beginning in
1997, and (2) allow excess amounts of economic-activity limitation to be
carried foward for up to five years. The proposal would retain the
economic-activity limitation on the active-business portion of the
credit, as well as the passive-income portion of the credit for taxes
otherwise payable on QPSII, as under present law. Revenues raised would
be made available to Puerto Rico for programs under the Social Security
Act and to promote job creation.
Expand Subpart F provisions regarding income from notional principal
contracts and stock lending transactions.--Subpart F income includes
income from notional principal contracts referenced to foreign currency,
commodities, or interest rates, or to indices based thereon. It also
includes income with respect to the lending of debt securities. Subpart
F income does not include income from equity swaps or other types of
notional principal contracts or income from transfers of equities.
Subpart F income should include income from all types of notional
principal contracts and from stock-lending transactions, because such
income is indistinguishable on policy grounds from other types of highly
mobile income already targeted by Subpart F. The Administration is
proposing to include in Subpart F income the net income from equity
swaps and certain categories of notional principal contracts that are
not reached by current law, as well as income from stock lending
transactions. An ordinary-course-of-business exception would be provided
for regular dealers in property, forwards, options, notional principal
contracts, and similar financial instruments. The proposal would be
effective for taxable years beginning after the date of enactment.
Modify taxation of captive ``insurance'' companies.--For tax purposes,
``insurance'' has been defined by the courts to require ``risk
shifting'' or ``risk distribution.'' In the case of a ``captive''
insurance company, one court has held that risk-shifting and risk-
distribution requirements are satisfied even if the captive's ``related
person insurance income'' accounts for nearly 70 percent of its total
business. The Administration proposes that an insurance arrangement
between a captive insurer and a large shareholder of the captive
generally would not be respected as a valid insurance arrangement if
more than 50 percent of the captive's net written premiums were
attributable to the insurance or reinsurance of large-shareholder risks.
In addition, such a captive would not be considered an insurance company
for tax purposes. The proposal would be effective generally for the
first taxable year beginning after the date of enactment.
Reform foreign tax credit.--The Administration proposes the following
foreign tax credit reforms.
Eliminate interest allocation exception for certain non-financial
corporation.--For foreign tax credit purposes, taxpayers generally are
required to allocate and apportion interest expense between U.S. and
foreign source income based on the proportion of the taxpayer's total
assets in each location. Such allocation and apportionment is required
to be made for affiliated groups as a whole rather than on a subsidiary-
by-subsidiary basis. However, certain types of financial institutions
that are members of an affiliated group are treated as members of a
separate affiliated group for purposes of the allocation and
apportionment of interest expense. The Tax Reform Act of 1986 included a
targeted rule that treats a certain corporation as a financial
institution for this purpose. The Administration believes that this
relief should not be provided. The proposal would repeal the targeted
exception provided by the Tax Reform Act of 1986, effective for taxable
years beginning after the date of enactment.
Modify foreign tax credit carryback and carryforward rules.--The
United States permits taxpayers to credit income taxes paid to a foreign
government against U.S. tax on foreign source income. Through the
foreign tax credit limitations, the Code prevents the use of foreign tax
credits to reduce U.S. tax on U.S. source income. Under the foreign tax
credit mechanism, current foreign income taxes in excess of the relevant
current-year foreign tax credit limitation are not creditable against
current U.S. tax liabilities. However, such excess foreign tax credits
generally may be carried back for two years and carried forward for five
years, and used as a credit to the extent there is excess foreign tax
credit limitation (that is, an excess of the foreign tax credit
limitation over creditable foreign taxes) in any of those years.
Experience over the years has shown, however, that carrybacks are
associated with increased complexity and administrative burdens as
compared to carryforwards. Therefore, to reduce such complexity and
burdens, the proposal would limit foreign tax credit carrybacks to one
year and extend foreign tax credit carryforwards to seven years. The
proposal would be effective for foreign taxes paid or accrued or deemed
paid or accrued in taxable years beginning after December 31, 1996.
Modify rules relating to foreign oil and gas extraction income.--To be
eligible for the U.S. foreign tax credit, a foreign levy must be the
substantial equivalent of an income tax in the U.S. sense, regardless of
the label the foreign government attaches to it. Under regulations, a
foreign levy is a tax if it is a compulsory payment under the authority
of a foreign government to levy taxes and is not compensation for a
specific economic benefit provided by the foreign country. Taxpayers
that are subject to a foreign levy and that also receive (directly or
indirectly) a specific economic benefit from the levying country are
referred to as ``dual capacity'' taxpayers and may not claim a credit
for that portion of the foreign levy paid as compensation for the
specific economic benefit received. The proposal would treat as taxes
payments by a dual-capacity taxpayer to a foreign country that would
otherwise qualify as income taxes or ``in lieu of'' taxes, only if there
is a ``generally applicable income tax'' in that country. For this
purpose, a generally applicable income tax is
[[Page 43]]
an income tax (or a series
of income taxes) that applies to trade or business income from sources
in that country, so long as the levy has substantial application both to
non-dual-capacity taxpayers and to persons who are citizens or residents
of that country. Where the foreign country does generally impose an
income tax, as under present law, credits would be allowed up to the
level of taxation that would be imposed under that general tax, so long
as the tax satisfies the new statutory definition of a ``generally
applicable income tax.'' The proposal would treat foreign oil and gas
income as Subpart F income. It also would create a new foreign tax
credit basket within Section 904 for foreign oil and gas income. The
proposal would be effective for taxable years beginning after the date
of enactment. The proposal would yield to U.S. treaty obligations that
allow a credit for taxes paid or accrued on certain oil or gas income.
Require thrifts to account for bad debts in the same manner as
banks.--A thrift institution that holds at least 60 percent of its
portfolio in home mortgages, cash, and government obligations is
permitted to maintain a reserve for bad debts. Annual additions to its
bad debt reserve may be calculated under either the ``percentage of
taxable income'' method or the ``experience'' method. These methods can
be more generous than the rules applicable to commercial banks. As a
result of the increasing convergence of the banking and thrift
industries, the special rules applicable to thrifts are no longer
warranted. The Administration proposes that effective for taxable years
beginning after the date of enactment, thrifts must account for bad
debts in the same manner as banks. Specifically, the percentage-of-
taxable-income method of computing bad debt reserves would no longer be
available; thrifts with $500 million or less of adjusted bases in their
assets would be permitted to use the experience method and thrifts with
greater than $500 million in adjusted bases in their assets would be
required to use the specific charge-off method. Post-1987 reserves would
be recaptured over six years, unless the former thrift meets mortgage
loan requirements, in which case recapture would be delayed up to two
years.
Reform depreciation under the income forecast method.--All estimated
income from the use of property or the sale of merchandise would be
taken into account in determining depreciation under the income forecast
method. This change, which would generally be effective for property
placed in service after September 13, 1995, would eliminate the
inappropriate acceleration of depreciation of the cost of motion picture
films, video tapes, sound recordings, and other similar property that
occurs under current law. Interest would be charged or credited to
compensate for errors in estimates.
Phase out preferential tax deferral for certain large farm
corporations required to use accrual accounting.--Under the Revenue Act
of 1987, family farm corporations were required to change to the accrual
method of accounting if their gross receipts exceeded $25 million in any
taxable year beginning after 1985. However, in lieu of including in
gross income the entire amount of the adjustment attributable to the
change in accounting method, a family farm corporation could establish a
suspense account. The amount of the suspense account was to be included
in gross income if the corporation ceased to be a family corporation or
to the extent the gross receipts of the corporation from farming
declined. To eliminate the potential indefinite deferral of the
adjustment, the Administration proposes to repeal the ability of family
farm corporations to establish such suspense accounts. Any taxpayer
subsequently required to change to the accrual method of accounting
would be required to take the adjustment into account generally over a
ten-year period. Any existing suspense accounts would be restored to
income ratably over a ten-year period, or sooner to the extent provided
under existing law. This provision would be effective for taxable years
beginning after September 13, 1995.
Repeal lower of cost or market inventory accounting method.--Taxpayers
required to maintain inventories are permitted to use a variety of
methods to determine the cost of their ending inventories, including the
last-in, first-out (LIFO) method, the first-in, first-out (FIFO) method,
and the retail method. Taxpayers not using a LIFO method may determine
the carrying values of their inventories by applying the lower of cost
or market (LCM) method and by writing down the cost of goods that are
unsalable at normal prices or unusable in the normal way because of
damage, imperfection or other causes (subnormal goods method). The
allowance of write-downs under the LCM and subnormal goods methods is
essentially a one-way mark-to-market method that understates taxable
income. The Administration proposes to repeal the LCM and subnormal
goods methods, effective for taxable years beginning after the date of
enactment.
Repeal components of cost inventory accounting method.--Taxpayers that
use the LIFO method to determine the cost of their ending inventories
may use a variety of dollar-value methods, including double extension,
link-chain and other index methods, in order to determine whether an
increment has occurred and the cost of that increment. Certain taxpayers
are permitted to use simplified LIFO methods based on externally
developed price indexes. Some taxpayers that use a dollar-value, double-
extension method make their computations with respect to the three
components of cost (materials, labor and overhead) of their finished
goods and work-in-process inventories (the COC method), rather than the
aggregate cost of these goods (the total product cost method). The COC
method, in many cases, does not adequately account for technological
efficiencies in which skilled labor is substituted for less-skilled
labor or where overhead costs replace direct labor costs. The
Administration is proposing to repeal
[[Page 44]]
the COC method effective for
taxable years beginning after the date of enactment.
Modify basis adjustment rules under Section 1033.--The Administration
proposes that when a taxpayer acquires a controlling interest in the
stock of a corporation as replacement property after an involuntary
conversion, the corporation must be required to reduce its adjusted
bases in its assets by the same amount as the taxpayer is required to
reduce its basis in the acquired stock. The corporation's adjusted bases
in its assets would not be reduced, in the aggregate, below the
taxpayer's basis in its stock. In addition, the basis of any individual
asset would not be reduced below zero. This proposal, which would allow
deferral of gain recognition, but not the avoidance of that gain, would
generally be effective for involuntary conversions occurring after
September 13, 1995.
Expand requirement that involuntarily converted property be replaced
with property acquired from an unrelated party.--Gain realized by
taxpayers from certain involuntary conversions is deferred to the extent
the taxpayer purchases property similar or related in service or use to
the converted property within a specified period of time. C corporations
(and partnerships with one or more corporate partners that own more than
50 percent of the capital or profits interest in the partnership)
generally are not entitled to defer gain if the replacement property is
purchased from a related person. The Administration proposes to extend
this rule to any other taxpayer, including an individual, that acquires
replacement property from a related person, unless the taxpayer has an
aggregate realized gain of $100,000 or less during the year as a result
of involuntary conversions. In the case of a partnership or S
corporation, the $100,000 annual limitation would apply to the entity
and each partner or shareholder. The proposal would generally be
effective for involuntary conversions occurring after September 13,
1995.
Place further restrictions on like-kind exchanges involving personal
property.--An exchange of property, like a sale, is generally a taxable
transaction. However, no gain or loss is recognized if property held for
productive use in a trade or business or for investment is exchanged for
property of a like kind that is to be held for productive use in a trade
or business or for investment. In general, any kind of real estate is
treated as of a like kind with other real property; however real
property located in the United States and real property located outside
the United State are not of a like kind. For personal property, property
of a ``like class'' is treated as being of a like kind; no restrictions
apply with regard to location in or outside the United States. To
conform the limitations on exchanges of personal property to the
limitations on exchanges of real property, the Administration proposes
that effective generally for exchanges after December 6, 1995, personal
property located in the United States and personal property located
outside the United States would not be treated as like kind.
Disallow rollover and one-time exclusion on sale of residence to the
extent of previously claimed depreciation.--Generally, under Section
1034, no gain is recognized on the sale or exchange of a principal
residence to the extent that the amount of the sales price is reinvested
in a new residence within a specified period. In addition, Section 121
generally provides a taxpayer with a one-time election to exclude from
gross income up to $125,000 of gain from the sale of a principal
residence if the taxpayer has attained the age of 55 before the sale and
has used the residence as a principal residence for three or more of the
five years preceding the sale. Because depreciation is allowed with
respect to a portion of a residence when that portion is used for
business purposes and those deductions reduce the owner's basis in the
residence, the Administration is proposing to require gain recognition
on the sale of a principal residence to the extent of any depreciation
allowable after December 31, 1995. Similarly, the amount of otherwise
allowable one-time exclusion would be reduced to the extent of
depreciation allowable after December 31, 1995.
Require registration of certain confidential corporate tax shelters.--
Many corporate tax shelters are not registered with the Internal Revenue
Service (IRS). Requiring registration of corporate tax shelters would
allow the IRS to make better informed judgments regarding the audit of
corporate tax returns and to monitor whether legislation or
administrative action is necessary regarding the type of transactions
being registered. The Administration is therefore proposing the
registration of any investment, plan, arrangement or transaction: (1) a
significant purpose of the structure of which is tax avoidance or
evasion by a corporate participant, (2) that is offered to any potential
participant under conditions of confidentiality, and (3) for which the
tax shelter promoter may receive total fees in excess of $100,000. The
proposal would be effective for any tax shelter offered to potential
participants after the date the Secretary of the Treasury prescribes
guidance regarding the filing requirements.
Require reporting of payments to corporations rendering services to
Federal agencies.--All persons engaged in a trade or business and making
payments of $600 or more to another person in remuneration for services
generally must report those payments to the IRS and to the recipient. No
reporting is required if the recipient is a corporation, permitting
significant amounts of income to escape the tax system. To ensure that
corporations that do business with the Federal Government appropriately
report as income their payments from the Federal Government, the
Administration proposes to require executive agencies to report payments
of $600 or more made to corporations for services rendered. The proposal
would be effective for
[[Page 45]]
returns the due date of which is more than 90
days after the date of enactment.
Increase penalties for failure to file correct information returns.--
All persons engaged in a trade or business and making payments of $600
or more to another person in remuneration for services generally must
report those payments to the IRS. Any person who fails to report such
payments in a timely manner or incorrectly reports such payments is
subject to penalties. For taxpayers filing large volumes of information
returns or reporting significant payments, existing penalties ($15 per
return, not to exceed $75,000 if corrected within 30 days; $30 per
return not to exceed $150,000 if corrected by August 1; and $50 per
return if not corrected at all) may not be sufficient to encourage
timely and accurate reporting. The Administration proposes to increase
the general penalty amount to the greater of $50 per return or five
percent of the total amount required to be reported. The increased
penalty would not apply if the aggregate amount actually reported by the
taxpayer on all returns filed for that calendar year was at least 97
percent of the amount required to be reported. The increased penalty
would be effective for returns the due date for which is more than 90
days after the date of enactment.
Extend Internal Revenue Service (IRS) user fees.--The IRS provides
written responses to questions of individuals, corporations, and
organizations relating to their tax status or the effects of particular
transactions for tax purposes. The IRS responds to these inquiries
through the issuance of letter rulings, determination letters, and
opinion letters. The authority to charge fees for these requests, which
is scheduled to expire effective with requests made after September 30,
2000, is proposed to be extended for two years through September 30,
2002.
Apply failure-to-pay penalty to substitute returns.--The failure-to-
pay penalty, which is a percentage of the tax due, generally runs from
the due date of a return until the tax is paid. If, however, a taxpayer
fails to file a return, and the Commissioner prepares a substitute
return for the taxpayer, then the tax on which the penalty is measured
is considered a deficiency and the penalty begins to run only ten days
after the IRS sends the taxpayer notice and demand for payment of the
tax. There is no reason to treat a taxpayer for whom the Commissioner
prepares a substitute return more favorably than taxpayers who pay late
but nevertheless file their own returns. Therefore, the proposal would
require that the failure-to-pay penalty apply to taxpayers for whom the
Commissioner prepares substitute returns, in the same manner as it
applies to delinquent taxpayers (that is, that the penalty commences
running from the due date of the return). The proposal would be
effective for returns due after the date of enactment.
Repeal exemption for withholding on gambling winnings from bingo and
keno in excess of $5,000.--Proceeds of most wagers with odds of less
than 300 to 1 are exempt from withholding, as are all bingo and keno
winnings. The proposal would impose withholding on proceeds of bingo or
keno in excess of $5,000 at a rate of 28 percent, regardless of the odds
of the wager, effective for payments made after the date of enactment.
Require tax reporting for payments to attorneys.--Tax information
reporting is required for persons engaged in a trade or business making
payments in the course of the trade or business of rent, salaries,
wages, or other fixed or determinable income. Treasury regulations
require a payor to report payments of attorney's fees if the payments
are made in the course of a trade or business, although generally a
payor is not required to report payments made to corporations. If a
payment to an attorney is a gross amount, and it cannot be determined
what portion is the attorney's fee (as in the case of lump-sum judgments
or settlements made jointly payable to a lawyer and a plaintiff), then
no reporting is required. The Administration proposes requiring that any
person making a payment in the course of a trade or business to a lawyer
or a law firm, whether as sole or joint payee, report the payment to the
IRS. When the portion that constitutes fees cannot be determined, the
amount paid would be reported as gross proceeds. A lawyer receiving a
payment would be required to provide his or her taxpayer identification
number to the payor or be subject to applicable penalties and backup
withholding. The exception for payments to corporations would not apply
to payments of attorney's fees. The proposal would be effective for
payments made after December 31, 1996.
Repeal advance refunds of diesel fuel tax for diesel cars and light
trucks.--The first purchaser of a diesel-powered automobile or light
truck is entitled to a payment in the nature of an advance refund of the
difference between the diesel fuel excise tax and the gasoline excise
tax. The amount of the refund typically is small, not warranting the
resources required to effectively administer the procedure. Accordingly,
the Administration proposes to repeal the provision allowing these
payments, effective for vehicles purchased after the date of enactment.
Extend oil spill excise tax.--Before January 1, 1995, a five-cents-
per-barrel excise tax was imposed on domestic crude oil and imported
petroleum products. The tax was dedicated to the Oil Spill Liability
Trust Fund to finance the cleanup of oil spills and was not imposed for
a calendar quarter if the unobligated balance in the Trust Fund exceeded
$1 billion at the close of the preceding quarter. The Administration
proposes to reinstate this tax for the period after the date of
enactment and before October 1, 2006. The tax would be suspended for a
given calendar quarter if the unobligated
[[Page 46]]
Trust Fund balances at the end
of the preceding quarter exceeded $2.5 billion.
Impose excise taxes on kerosene as diesel fuel.--A 24.3-cents-per-
gallon excise tax is imposed on diesel fuel upon removal from a
registered terminal facility unless the fuel is indelibly dyed and is
destined for a nontaxable use. Treasury regulations provide that
kerosene is not treated as a diesel fuel for this purpose; thus, undyed
kerosene is not subject to the diesel fuel excise tax when it is removed
from a terminal. Undyed kerosene is subject to tax, however, when it is
blended with diesel fuel. Distributors of this blended fuel frequently
do not pay the tax, thereby placing complying taxpayers at a competitive
disadvantage and resulting in revenue losses to the Federal government.
Effective July 1, 1997, the Administration proposes to tax kerosene as
diesel fuel when it is removed from a terminal, unless the kerosene
qualifies as aviation fuel. Exceptions would be provided for aviation
fuel and, to the extent provided in regulations, for feedstock uses. In
addition, special refund rules would apply in certain cases of kerosene
used for heating purposes.
Permanently extend luxury excise tax on passenger vehicles.--A 10
percent luxury excise tax is levied on the retail price of passenger
vehicles in excess of an inflation-adjusted threshold ($34,000 in 1996).
The Administration proposes to permanently extend this tax, which is
scheduled to expire after December 31, 1999.
Extend and modify Federal Unemployment Act (FUTA) provisions.--The
temporary unemployment surtax of 0.2 percent imposed on employers, which
is scheduled to expire with respect to wages paid after December 31,
1998, is proposed to be extended through December 31, 2006. Beginning in
2002, the Administration proposes to require an employer to pay Federal
and State unemployment taxes monthly (instead of quarterly) in a given
year, if the employer's FUTA tax liability in the immediately prior year
was $1,100 or more.
Other Provisions That Affect Receipts
Assess fees for examination of FDIC-insured banks and bank holding
companies (receipt effect).--The Administration proposes to require the
Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve to
assess fees for examination of FDIC-insured banks and bank holding
companies. The Federal Reserve currently funds the costs of such
examinations from earnings; therefore, deposits of earnings by the
Federal Reserve, which are classified as governmental receipts, will
increase by the amount of the fees.
Expand fees collected under the securities laws.--The Administration
proposes to expand certain fees collected under the securities laws as
part of a legislative package to provide the Securities and Exchange
Commission with a sound and stable long term funding structure. The
Administration intends to work with Congress to secure early enactment
of such a legislative proposal.
Establish IRS continuous levy.--The Administration seeks to strengthen
the enforcement tools available to the IRS to recover delinquent tax
debt. New authority is proposed for the IRS to effect a continuous levy
on non-means tested Federal payments, such as Federal salaries and
pensions, received by individuals who owe delinquent tax debt.
Extend the Generalized System of Preferences (GSP) and modify other
trade provisions.--Under GSP duty-free access is provided to over 4,000
items from about 142 eligible developing countries that meet certain
worker rights and other criteria. This program is proposed to apply
retroactively to July 31, 1995, when it expired, and to be extended
through September 30, 2000. The Administration also proposes to provide
expanded trade benefits mainly on textiles and apparel to Caribbean
Basin countries who meet new eligibility criteria needed to prepare for
a future free trade agreement with the U.S. The program is proposed to
expire on September 30, 2001.
Increase deduction for self-employed health insurance.--The
Administration proposes to increase the 30 percent deduction for health
insurance expenses of self-employed individuals and their dependents to
35 percent for 1996 and 1997, 40 percent for 1998, 45 percent for 1999,
and 50 percent for 2000 and subsequent years. The increased deduction
would be subject to trigger-off (that is, the deductible percentage
would revert to 30 percent) on January 1, 2001 in the event that the
Federal budget deficit is not at least $20 billion below CBO's estimate
for the year 2000.
Increase employee contributions to the Civil Service Retirement System
(CSRS) and the Federal Employees Retirement System (FERS).--The
Administration proposes to increase employee contributions to CSRS and
FERS by 0.5 percent of base pay in three steps. Contributions would
increase by 0.25 percent of base pay on April 1, 1996, another 0.15
percent on January 1, 1997 and a final 0.10 percent on January 1, 1998.
These higher contribution rates would be effective through 2002; on
January 1, 2003, contribution rates would return to the levels in effect
on March 31, 1996.
Deter expatriation tax avoidance.--The United States requires U.S.
citizens and residents to pay tax on their worldwide income. However,
some U.S. taxpayers relinquish their U.S. citizenship or residence and
thereby avoid future U.S. tax on unrealized gains. To ensure that these
individuals pay their fair share of U.S. tax, when a U.S. citizen
renounces U.S. citizenship or when a noncitizen who has been a lawful
permanent resident of the United States for at least 10
[[Page 47]]
years becomes a
nonresident of the United States, the Administration is proposing that
such individual's assets be deemed to be disposed of and reacquired at
their fair market value in a transaction in which gain or loss is
recognized. There would be an exemption for up to $600,000 of gain and
for U.S. real property interests. The provision would apply to any
expatriation after February 6, 1995.
Tighten rules for taxing foreign trusts.--Some U.S. taxpayers avoid
paying applicable U.S. tax on their share of income earned by foreign
trusts. To ensure that U.S. tax is collected on this income, the
Administration is proposing enhanced information reporting requirements
for assets transferred to foreign trusts, effective generally for
taxable years beginning after the date of enactment. In addition, under
current law, distributions received by U.S. taxpayers from certain
foreign trusts may be treated as nontaxable gifts. The Administration is
proposing that, effective generally on the date of enactment, U.S.
taxpayers who receive such distributions pay U.S. tax on the
distributions that represent trust income, unless U.S. law treats a U.S
taxpayer as owning the trust assets.
Extend environmental tax on corporate taxable income deposited in the
Hazardous Substance Superfund Trust Fund.--A tax equal to 0.12 percent
of alternative minimum taxable income in excess of $2 million is levied
on all corporations and deposited in the Hazardous Substance Superfund
Trust Fund. The Administration proposes to reinstate this tax, which
expired on December 31, 1995, for taxable years beginning after December
31, 1995 and before January 1, 2007.
Improve compliance by tax-exempt entities through intermediate
sanctions and other measures.--The Administration proposes to add new
excise taxes on parties that use their control over charitable and
nonprofit organizations to extract benefits without providing property
or services of at least equal value in return (effective generally for
transactions occurring on or after September 14, 1995). In addition, the
Administration is proposing to expand the reporting and disclosure
requirements that relate to information returns filed by tax-exempt
organizations and to increase the penalties for failure to comply with
these requirements, generally effective 90 days after the date of
enactment.
Modify Federal pay raise (receipt effect).--The Administration is
proposing a pay raise of 3 percent for 1997, less than the raise that
would take effect under normal operation of the law. This 3 percent
raise would cover both the national schedule and the locality pay
adjustments. The lower proposed pay raise affects Federal employees'
contributions to CSRS and FERS.
Provide tax relief for troops involved in the Bosnia peacekeeping
operations.--The Administration is proposing tax relief for troops
involved in the Bosnia peacekeeping operations. All of the military pay
of enlisted personnel and part of the pay of officers would be exempt
from income tax, and filing deadlines would be extended, similar to the
relief afforded personnel in the Persian Gulf. The Bosnia peacekeeping
operation involves the dangers of combat situations; this benefit is
proposed in recognition of our troops' sacrifice. The Administration
will work with Congress to ensure early enactment of tax relief for
these troops.
Modify Earned Income Tax Credit
Modify earned income tax credit (EITC).--The Administration is
proposing the following modifications designed to target the EITC to
intended recipients: (1) Individuals who are living in the U.S.
illegally or who do not have proper documentation for employment
purposes would not be eligible to claim the EITC. (2) The IRS would be
allowed to use mathematical error procedures to deny claims for the EITC
and the dependency exemption. (3) The definition of adjusted gross
income used for phasing out the credit would be modified to disregard
net capital losses, net losses from nonbusiness rents and royalties, net
losses from trusts and estates, and 50 percent of net losses from sole
proprietorships, partnerships and S corporations. (4) The definition of
disqualified income for purposes of determining eligibility for the EITC
would be expanded to include net passive income that is not included in
self-employment income and net capital gain; in addition, the
disqualified income threshold would be lowered to $2,200 in 1996 and
indexed for inflation in subsequent years. (5) Demonstration projects in
up to four states would be authorized to test the provision of advance
payment of the EITC through State agencies, generally effective 90 days
after the date of enactment.
Extend Expired Trust Fund Excise Taxes
The President's plan includes extension of the following excise taxes
that have been previously reflected in the baseline.
Extend excise taxes deposited in the Hazardous Substance Superfund
Trust Fund.--The excise taxes that are levied on petroleum, chemicals,
and imported substances and deposited in the Hazardous Substance
Superfund Trust Fund, are proposed to be reinstated for the period after
the date of enactment and before October 1, 2006. These taxes expired on
December 31, 1995.
Extend excise taxes deposited in the Airport and Airway Trust Fund.--
The excise taxes that are levied on domestic air passenger tickets,
international departures, domestic air cargo and non-commercial aviation
fuels and deposited in the Airport and Airway Trust Fund, are proposed
to be reinstated for the period after the date of enactment and before
October 1, 2006. These taxes (except for 14 cents per gallon of the tax
[[Page 48]]
on gasoline used in non-commercial aviation, which is being deposited in
the Highway Trust Fund absent authority to transfer the tax to the
Airport and Airway Trust Fund) expired on December 31, 1995.
Extend excise taxes deposited in the Leaking Underground Storage Tank
(LUST) Trust Fund.--The excise taxes that are levied on gasoline, other
motor fuels, methanol and ethanol fuels, and on fuels used in inland
waterways and deposited in the LUST Trust Fund, expired on December 31,
1995. The Administration proposes to reinstate these taxes for the
period after the date of enactment and before October 1, 2006.
Other Expired Provisions
A number of tax provisions have expired. The Administration supports
the revenue-neutral extension of these provisions as discussed below and
looks forward to working with the Congress to achieve that goal. These
provisions include the following:
Exclusion for employer-provided educational assistance.--Certain
amounts paid by an employer for educational assistance provided to an
employee are excluded from the employee's gross income for income and
payroll tax purposes. This exclusion expired with respect to amounts
paid after December 31, 1994. The Administration has previously proposed
permanent extension of this provision.
Targeted jobs tax credit.--A tax credit, generally equal to 40 percent
of up to $6,000 of qualified first year wages, is provided to employers
who hire individuals from several targeted groups. The credit expired
with respect to individuals hired after December 31, 1994. The
Administration strongly supports the goals of this program but has
serious concerns over the cost-effectiveness of its current design. The
Administration would support extension if the problems undermining the
credit's effectiveness are addressed.
Research and experimentation (R&E) tax credit.--The 20 percent tax
credit provided for certain research and experimentation expenditures
expired with respect to expenditures made after June 30, 1995. The
Administration has previously proposed permanent extension of this
provision.
Tax credit for orphan drug clinical testing expenses.--A 50 percent
non-refundable tax credit is allowed for a taxpayer's qualified clinical
testing expenses paid or incurred in the testing of certain drugs,
generally referred to as orphan drugs, for rare diseases or conditions.
This credit expired with respect to expenses incurred after December 31,
1994.
Tax deduction for contributions to private foundations.--The deduction
for a contribution to a private foundation is generally limited to the
adjusted basis of the contributed property. However, a taxpayer who
contributed qualified appreciated stock to a private foundation before
January 1, 1995 was allowed to deduct the full fair market value of the
stock, rather than the adjusted basis of the contributed stock.
Tax Simplification and Taxpayers' Rights
The Administration continues to support revenue-neutral initiatives
designed to promote sensible and equitable administration of the tax
laws. These include simplification, technical corrections, and taxpayer
compliance measures. In addition to legislative initiatives, such as the
pension simplification proposals described above, the Administration is
committed to taking appropriate administrative action to simplify tax
laws and enhance procedural safeguards for taxpayers. For instance, the
Administration recently has announced its intent to simplify the current
complex rules for classifying business organizations as either
corporations or partnerships for Federal income tax purposes. In
addition, the Administration recently has adopted administratively a
number of measures included in pending Taxpayer Bill of Rights
legislation.
Table 3-3. EFFECT OF PROPOSALS ON RECEIPTS
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
--------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001 2002 1996-2002
----------------------------------------------------------------------------------------------------------------
Provide tax relief:
Middle Class Bill of Rights:
Provide tax credit for
dependent children........ -1.1 -9.7 -7.0 -8.9 -10.7 -10.7 -10.6 -58.6
Expand Individual
Retirement Accounts (IRAs) ........ -1.4 -0.4 -0.7 -1.1 -1.6 -2.5 -7.7
Provide tax incentive for
education and training.... -0.2 -5.8 -5.6 -6.2 -7.5 -7.8 -8.0 -41.2
--------------------------------------------------------------------------------
Subtotal, Middle Class
Bill of Rights.......... -1.3 -17.0 -13.0 -15.8 -19.3 -20.0 -21.1 -107.5
Increase expensing for small
business.................... ........ -0.6 -0.5 -0.6 -0.7 -0.9 -0.8 -4.1
Provide estate tax relief for
small business.............. ........ ........ -0.2 -0.2 -0.2 -0.2 -0.2 -1.0
Simplify pension plan
rules\1\.................... * -* -0.1 -0.3 -0.3 -0.3 -0.3 -1.4
Provide tax incentives for
distressed areas............ -* -* -0.3 -0.6 -0.8 -0.9 -0.8 -3.4
--------------------------------------------------------------------------------
Subtotal, Provide tax
relief.................... -1.3 -17.6 -14.1 -17.5 -21.4 -22.4 -23.2 -117.4
Eliminate unwarranted benefits
and adopt other revenue
measures:
Disallow interest deduction
for corporate-owned life
insurance policy loans...... ........ 0.6 0.5 0.6 0.7 0.7 0.8 3.9
[[Page 49]]
Deny interest deduction on
certain debt instruments.... ........ 0.1 0.1 0.2 0.2 0.3 0.4 1.3
Defer original issue discount
deduction on convertible
debt........................ ........ * * * * * 0.1 0.2
Limit dividends-received
deduction (DRD):
Reduce DRD to 50 percent... ........ 0.2 0.4 0.4 0.4 0.4 0.4 2.0
Modify holding period for
DRD....................... ........ * * * * * * 0.2
Interaction................ ........ -* -* -* -* -* -* -*
Extend pro rata disallowance
of tax-exempt interest
expense to all corporations. ........ * 0.1 0.1 0.1 0.1 0.1 0.5
Require average-cost basis
for stocks, securities, etc. ........ 0.6 0.7 0.6 0.7 0.7 0.7 4.1
Require recognition of gain
on certain stocks,
indebtedness and partnership
interests................... ........ 0.2 -* 0.1 0.1 0.1 0.1 0.4
Change the treatment of gains
and losses on extinguishment ........ * * * * * * *
Require reasonable payment
assumptions for interest
accruals on certain debt
instruments................. ........ 0.1 0.2 0.3 0.3 0.2 0.1 1.1
Require gain recognition for
certain extraordinary
dividends................... ........ -0.1 0.1 0.1 0.1 0.1 0.1 0.3
Repeal percentage depletion
for non-fuel minerals mined
on Federal and formerly
Federal lands............... ........ 0.1 0.1 0.1 0.1 0.1 0.1 0.5
Modify loss carryback and
carryforward rules.......... -* * 0.7 0.8 0.7 0.6 0.6 3.4
Treat certain preferred stock
as ``boot''................. ........ 0.2 0.2 0.2 0.2 0.1 * 0.9
Repeal tax-free conversions
of large C corporations to S
corporations................ ........ * * * * * 0.1 0.2
Require gain recognition in
certain distributions of
controlled corporation stock ........ 0.1 0.1 0.1 0.1 0.1 0.1 0.5
Reform treatment of certain
stock transfers............. ........ 0.1 0.1 0.1 0.1 0.1 0.2 0.8
Reformulate Puerto Rico and
possessions tax credit...... ........ 0.1 0.2 0.5 0.8 1.0 1.1 3.7
Expand Subpart F provisions
regarding certain income.... ........ * * * * * * 0.2
Modify taxation of captive
``insurance'' companies..... ........ * * * * * * 0.1
Reform foreign tax credit.... ........ 0.2 0.9 1.1 1.0 0.9 0.9 4.9
Modify rules relating to
foreign oil and gas
extraction income........... ........ * * 0.1 0.1 0.1 0.1 0.4
Require thrifts to account
for bad debts in same manner
as banks.................... ........ 0.2 0.2 0.3 0.3 0.3 0.3 1.6
Reform depreciation under the
income forecast method...... ........ 0.1 0.1 0.1 * * * 0.3
Phase out preferential tax
deferral for certain large
farm corporations required
to use accrual accounting... 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.8
Initiate inventory reform:
Repeal lower of cost or
market method............. ........ 0.2 0.3 0.3 0.3 0.1 * 1.2
Repeal components of cost
method.................... ........ 0.2 0.2 0.2 0.2 0.2 0.2 1.1
Modify basis adjustment rules
under Section 1033.......... * * * * * * * 0.1
Expand requirement that
involuntarily converted
property be replaced with
property acquired from an
unrelated party............. ........ * * * * * * *
Place further restrictions on
like-kind exchanges
involving personal property. ........ * * * * * * 0.1
Disallow rollover and one-
time exclusion on sale of
residence to the extent of
previously claimed
depreciation................ ........ * * * * * * *
Require registration of
certain corporate tax
shelters.................... ........ ........ * * * * * *
Require reporting of payments
to corporations rendering
services to Federal agencies ........ * * * * 0.1 0.1 0.3
Increase penalties for
failure to file correct
information returns......... ........ * * * * * * 0.1
Extend IRS user fees......... ........ ........ ........ ........ ........ * * 0.1
Apply failure-to-pay penalty
to substitute returns....... * * * * * * * 0.1
Repeal exemption for
withholding on gambling
winnings from bingo and keno
in excess of $5,000......... * * * * * * * *
Require tax reporting for
payments to attorneys....... ........ ........ * * * * * *
Repeal advance refunds of
diesel fuel tax for diesel
cars and light trucks\1\.... * * * * * * * 0.1
Extend oil spill excise
tax\1\...................... * 0.2 0.2 0.2 0.2 0.2 0.2 1.4
Impose excise taxes on
kerosene as diesel fuel\1\.. ........ * * * * * * 0.2
Permanently extend luxury
excise tax on passenger
vehicles\1\................. ........ ........ ........ ........ 0.2 0.3 0.3 0.7
Extend and modify FUTA
provisions:
Extend FUTA surtax\1\...... ........ ........ ........ 0.8 1.2 1.2 1.2 4.4
Accelerate deposit of
unemployment insurance
taxes..................... ........ ........ ........ ........ ........ ........ 1.3 1.3
--------------------------------------------------------------------------------
Subtotal, Eliminate
unwarranted benefits.... 0.1 3.8 5.6 7.5 8.3 8.5 9.9 43.6
Other provisions that affect
receipts:
Assess fees for examination
of FDIC-insured banks and
bank holding companies
(receipt effect)\1\......... ........ 0.1 0.1 0.1 0.1 0.1 0.1 0.5
Expand fees collected under
the securities laws......... ........ 0.3 0.3 0.3 0.3 0.4 0.4 2.0
Establish IRS continuous levy ........ 0.4 0.4 0.4 0.3 0.2 0.1 1.8
Extend GSP and modify other
trade provisions\1\......... -0.6 -0.6 -0.5 -0.6 -0.6 -0.3 ........ -3.2
Increase deduction for self-
employed health insurance... -* -0.1 -0.1 -0.2 -0.4 -0.5 -0.5 -1.9
Increase employee
contributions to CSRS and
FERS........................ 0.1 0.4 0.5 0.6 0.6 0.6 0.6 3.4
Deter expatriation tax
avoidance................... * 0.2 0.2 0.4 0.4 0.5 0.5 2.3
Tighten rules for taxing
foreign trusts.............. 0.1 0.3 0.3 0.3 0.3 0.3 0.3 2.1
Extend corporate
environmental tax\2\........ ........ 1.0 0.6 0.7 0.7 0.7 0.8 4.5
Improve compliance by tax-
exempt entities through
intermediate sanctions and
other measures.............. * * * * * * * *
[[Page 50]]
Modify Federal pay raise
(receipt effect)............ ........ -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.8
Provide tax relief to troops
in Bosnia................... -* -* ........ ........ ........ ........ ........ -*
--------------------------------------------------------------------------------
Subtotal, Other.......... -0.4 1.8 1.8 1.8 1.7 1.9 2.2 10.7
--------------------------------------------------------------------------------
Subtotal, Eliminate
unwarranted benefits
and other provisions
that affect receipts.. -0.3 5.6 7.3 9.3 10.0 10.3 12.1 54.3
--------------------------------------------------------------------------------
Modify earned income tax credit
(EITC)........................ * 0.3 0.4 0.4 0.4 0.4 0.4 2.3
================================================================================
Total effect of proposals\1\... -1.6 -11.7 -6.3 -7.8 -11.0 -11.6 -10.7 -60.8
Extend expired trust fund
excise taxes:
Extend superfund trust fund
excise taxes\1\............. 0.1 0.7 0.7 0.7 0.7 0.7 0.7 4.2
Extend airport and airway
trust fund taxes\1\......... 0.4 4.7 4.9 5.2 5.5 5.9 6.2 32.8
Extend LUST trust fund
taxes\1\.................... * 0.1 0.1 0.1 0.1 0.1 0.1 0.8
--------------------------------------------------------------------------------
Total effect of extending
expired trust fund excise
taxes\1\.................. 0.5 5.5 5.7 6.0 6.3 6.7 7.0 37.7
----------------------------------------------------------------------------------------------------------------
*$50 million or less.
\1\Net of income offsets.
\2\Net of deductibility for income tax purposes.
[[Page 51]]
3. FEDERAL RECEIPTS
---------------------------------------------------------------------------
Table 3-4. RECEIPTS BY SOURCE------------------------------------------
(In millions of dollars)
------------------------------------------------------------------------
1995 1996 1997
Source actual estimate estimate
------------------------------------------------------------------------
Individual income taxes (federal
funds):
Withheld.......................... 499,927 535,566 567,153
Proposed Legislation (PAYGO)...... .......... -1,285 -17,201
Other............................. 175,855 186,071 187,818
Refunds........................... -85,538 -89,479 -92,668
-----------------------------------
Total net individual income taxes... 590,244 630,873 645,102
===================================
Corporation income taxes:
Federal funds:
Gross Collections............... 173,810 184,632 200,143
Proposed Legislation (PAYGO).... .......... 136 2,113
Refunds......................... -17,418 -18,019 -18,510
-----------------------------------
Total Federal funds net
corporation income taxes......... 156,392 166,749 183,746
-----------------------------------
Trust funds:
Gross Collections (Hazardous
substance superfund)........... 612 359 10
Proposed Legislation (PAYGO).... .......... .......... 1,222
-----------------------------------
Total net corporation income taxes.. 157,004 167,108 184,978
===================================
Social insurance taxes and
contributions (trust funds):
Employment taxes and
contributions:
Old-age and survivors insurance
(Off-budget)................... 284,091 311,713 333,335
Disability insurance (Off-
budget)........................ 66,988 55,728 54,680
Hospital insurance.............. 96,024 101,848 108,770
Railroad retirement:
Social Security equivalent
account...................... 1,518 1,498 1,508
Rail pension and supplemental
annuity...................... 2,424 2,399 2,451
-----------------------------------
Total employment taxes and
contributions.................... 451,045 473,186 500,744
-----------------------------------
On-budget....................... 99,966 105,745 112,729
Off-budget...................... 351,079 367,441 388,015
-----------------------------------
Unemployment insurance:
State taxes deposited in
Treasury\1\.................... 23,158 24,047 25,006
Federal unemployment tax
receipts\1\.................... 5,696 5,739 5,806
Railroad unemployment tax
receipts\1\.................... 24 24 29
-----------------------------------
Total unemployment insurance...... 28,878 29,810 30,841
-----------------------------------
Other retirement contributions:
Federal employees' retirement--
employee contributions......... 4,461 4,359 4,144
Proposed Legislation (PAYGO).. .......... 90 356
Contributions for non-Federal
employees\2\................... 89 89 88
Proposed Legislation (PAYGO).. .......... 1 2
-----------------------------------
Total other retirement
contributions.................... 4,550 4,539 4,590
-----------------------------------
Total social insurance taxes and
contributions...................... 484,473 507,535 536,175
===================================
On-budget......................... 133,394 140,094 148,160
Off-budget........................ 351,079 367,441 388,015
===================================
Excise taxes:
Federal funds:
Alcohol taxes................... 7,216 7,189 7,173
Tobacco taxes................... 5,878 5,872 5,796
Transportation fuels tax........ 8,491 6,920 7,162
Telephone and teletype services. 3,794 4,010 4,241
Ozone depleting chemicals and
products....................... 616 205 13
Other Federal fund excise taxes. 946 1,598 1,520
Proposed Legislation (PAYGO).. .......... -382 5
-----------------------------------
Total Federal fund excise taxes... 26,941 25,412 25,910
-----------------------------------
Trust funds:
Highway......................... 22,611 24,564 24,900
Proposed Legislation (PAYGO).. .......... -10 4
Airport and airway.............. 5,534 1,383 ..........
Proposed Legislation (PAYGO).. .......... 898 6,251
Aquatic resources............... 306 320 325
Black lung disability insurance. 608 620 633
Inland waterway................. 103 125 131
Hazardous substance superfund... 867 261 ..........
Proposed Legislation (PAYGO).. .......... 102 883
Oil spill liability............. 211 .......... ..........
Proposed Legislation (PAYGO).. .......... 34 294
Vaccine injury compensation..... 138 123 123
Leaking underground storage tank 165 41 ..........
Proposed Legislation (PAYGO).. .......... 13 174
-----------------------------------
Total trust funds excise taxes.... 30,543 28,474 33,718
-----------------------------------
Total excise taxes.................. 57,484 53,886 59,628
===================================
Estate and gift taxes............... 14,763 15,924 17,067
Proposed Legislation (PAYGO)...... .......... .......... 10
-----------------------------------
Total estate and gift taxes......... 14,763 15,924 17,077
===================================
Customs duties:
Federal funds..................... 18,573 19,231 20,253
Proposed Legislation (PAYGO).... .......... -706 -675
Trust funds....................... 728 788 876
-----------------------------------
Total customs duties................ 19,301 19,313 20,454
===================================
MISCELLANEOUS RECEIPTS:\3\
Miscellaneous taxes............... 138 149 153
United Mine Workers of America
combined benefit fund............ 336 281 251
Deposit of earnings, Federal
Reserve System................... 23,378 23,752 22,580
Proposed Legislation (PAYGO).... .......... .......... 92
Fees for permits and regulatory
and judicial services............ 6,180 6,233 6,690
Proposed Legislation (PAYGO).... .......... .......... 307
Fines, penalties, and forfeitures. 1,781 1,580 1,598
Restitutions, reparations, and
recoveries under military
occupation....................... .......... 7 7
Gifts and contributions........... 131 139 151
Refunds and recoveries............ .......... -5 -5
-----------------------------------
Total miscellaneous receipts........ 31,944 32,136 31,824
===================================
Total budget receipts............... 1,355,213 1,426,775 1,495,238
On-budget......................... 1,004,134 1,059,334 1,107,223
Off-budget........................ 351,079 367,441 388,015
-----------------------------------
MEMORANDUM
Federal funds..................... 842,214 893,132 926,831
Trust funds....................... 326,739 355,579 377,918
Interfund transactions............ -164,819 -189,377 -197,526
-----------------------------------
Total on-budget..................... 1,004,134 1,059,334 1,107,223
-----------------------------------
Off-budget (trust funds)............ 351,079 367,441 388,015
[[Page 52]]
===================================
Total............................... 1,355,213 1,426,775 1,495,238
------------------------------------------------------------------------
\1\Deposits by States are State payroll taxes that cover the benefit
part of the program. Federal unemployment tax receipts cover
administrative costs at both the Federal and State level. Railroad
unemployment tax receipts cover both the benefits and adminstrative
costs of the program for the railroads.
\2\Represents employer and employee contributions to the civil service
retirement and disability fund for covered employees of Government-
sponsored, privately owned enterprises and the District of Columbia
municipal government.
\3\Includes both Federal and trust funds. Trust fund amounts in
miscellaneous receipts are 1995: $619 million; 1996: $575 million; and
1997: $571 million.