[Analytical Perspectives]
[Federal Receipts and Collections]
[3. Federal Receipts]
[From the U.S. Government Publishing Office, www.gpo.gov]
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FEDERAL RECEIPTS AND COLLECTIONS
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3. FEDERAL RECEIPTS
Receipts (budget and off-budget) are taxes and other collections from
the public that result from the exercise of the Federal Government's
sovereign or governmental powers. The difference between receipts and
outlays determines the surplus or deficit.
The Federal Government also collects income from the public from
market-oriented activities. Collections from these activities, which are
subtracted from gross outlays, rather than added to taxes and other
governmental receipts, are discussed in the following chapter.
Growth in receipts.--Total receipts in 2002 are estimated to be
$2,191.7 billion, an increase of $54.8 billion or 2.6 percent relative
to 2001. Receipts are projected to grow at an average annual rate of 3.6
percent between 2002 and 2006, rising to $2,528.7 billion. This growth
in receipts is largely due to assumed increases in incomes resulting
from both real economic growth and inflation, partially offset by the
effects of the President's proposed tax reductions. In the absence of
the President's proposed tax reductions, receipts are projected to grow
at an average annual rate of 5.0 percent between 2002 and 2006.
As a share of GDP, receipts are projected to decline from 20.7 percent
in 2001 to 20.2 percent in 2002. As the President's proposed tax plan
phases in, the receipts share of GDP is projected to decline annually,
falling to 18.9 percent in 2006; this is 1.3 percentage points below the
share of 20.2 percent that would be attained in the absence of the
proposed reductions.
Table 3-1. RECEIPTS BY SOURCE--SUMMARY
(In billions of dollars)
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Estimate
Source 2000 actual -----------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
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Individual income taxes............................... 1,004.5 1,072.9 1,078.8 1,092.3 1,117.9 1,157.0 1,196.6
Corporation income taxes.............................. 207.3 213.1 218.8 227.3 235.5 244.2 252.2
Social insurance and retirement receipts.............. 652.9 689.7 725.8 766.0 806.0 855.8 896.4
(On-budget)......................................... (172.3) (185.8) (194.9) (205.2) (215.8) (226.8) (237.9)
(Off-budget)........................................ (480.6) (503.9) (530.9) (560.8) (590.3) (629.0) (658.5)
Excise taxes.......................................... 68.9 71.1 74.0 76.3 78.3 80.5 82.3
Estate and gift taxes................................. 29.0 31.1 28.7 26.6 28.3 24.9 22.5
Customs duties........................................ 19.9 21.4 22.5 24.3 25.0 26.0 27.7
Miscellaneous receipts................................ 42.8 37.6 43.1 45.4 47.8 49.3 51.0
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Total receipts.................................... 2,025.2 2,136.9 2,191.7 2,258.2 2,338.8 2,437.8 2,528.7
(On-budget)..................................... (1,544.6) (1,633.1) (1,660.8) (1,697.4) (1,748.5) (1,808.8) (1,870.2)
(Off-budget).................................... (480.6) (503.9) (530.9) (560.8) (590.3) (629.0) (658.5)
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Table 3-2. EFFECT ON RECEIPTS OF CHANGES IN THE SOCIAL SECURITY TAXABLE EARNINGS BASE
(In billions of dollars)
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Estimate
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2002 2003 2004 2005 2006
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Social security (OASDI) taxable earnings base increases:
$80,400 to $84,600 on Jan. 1, 2002..................... 1.9 5.2 5.8 6.5 7.2
$84,600 to $88,800 on Jan. 1, 2003..................... ......... 1.9 5.2 5.9 6.5
$88,800 to $93,600 on Jan. 1, 2004..................... ......... ......... 2.2 6.0 6.6
$93,600 to $98,100 on Jan. 1, 2005..................... ......... ......... ......... 2.1 5.6
$98,100 to $102,600 on Jan. 1, 2006.................... ......... ......... ......... ......... 2.1
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ENACTED LEGISLATION
Several laws were enacted in 2000 that have an effect on governmental
receipts. The major legislative changes affecting receipts are described
below.
Community Renewal Tax Relief Act of 2000.--This Act contains a package
of tax incentives designed to encourage investment in economically
distressed communities, a provision that extends the availability of
tax-favored Medical Savings Accounts (MSAs), and several administrative
and technical provisions. The major incentives and changes provided in
this Act include the following:
Designate ``renewal communities''.--The Secretary of HUD is authorized
to designate up to 40 ``renewal communities'' (12 of which must be
rural), which will be eligible for the following tax incentives: (1) a
zero-percent capital gains tax rate on the sale of qualifying assets
held more than five years; (2) a 15-percent wage credit to employers for
the first $10,000 of qualified wages; (3) a ``commercial revitalization
deduction;'' (4) an additional $35,000 of section 179 expensing for
qualified property; and (5) an expansion of the work opportunity tax
credit with respect to individuals who live in a renewal community.
These communities must be designated before January 1, 2002 and the tax
benefits will be available for the period beginning on January 1, 2002
and ending December 31, 2009.
Extend and expand empowerment zones.--The Omnibus Budget
Reconciliation Act of 1993 (OBRA93) authorized the designation of 9
empowerment zones (Round I empowerment zones). Two additional Round I
empowerment zones were authorized under the Taxpayer Relief Act of 1997;
the designation of 20 Round II empowerment zones was also authorized.
The tax incentives with respect to the original 9 Round I empowerment
zones, which differ from those provided the two additional Round I zones
and the Round II zones, generally would have expired after 2004. The tax
incentives with respect to the Round II empowerment zones generally are
available through 2008. The Community Renewal Tax Relief Act of 2000
extends Round I and Round II empowerment zone designations through
December 31, 2009. In addition, the tax incentives provided Round I and
Round II empowerment zones are equalized and in some cases (the wage
credit, tax-exempt bond financing and section 179 expensing) enhanced.
The Secretaries of HUD and Agriculture are authorized to designate nine
additional empowerment zones (seven in urban areas and two in rural
areas) before January 1, 2002. Businesses in these new zones are
eligible for the same tax incentives provided to existing zones (as
modified by this Act), which will be available through December 31,
2009. In addition, this Act (1) permits taxpayers to rollover gain from
the sale or exchange of any qualified empowerment zone asset held for
more than one year if the proceeds are used to purchase other qualifying
empowerment zone assets, and (2) increases from 50 percent to 60 percent
the exclusion of gain from the sale of qualifying small business stock
held more than five years if such stock satisfies the requirements of a
qualifying business under the empowerment zone rules.
Provide New Markets Tax Credit.--A new tax credit is provided for
qualified equity investments made after December 31, 2000 to acquire
stock in a selected community development entity (CDE). A credit of five
percent is provided to the investor for the first three years of
investment. The credit increases to six percent for the following four
years. The maximum amount of annual qualifying equity investment is
capped at $1.0 billion for 2001, $1.5 billion for 2002 and 2003, $2.0
billion for 2004 and 2005, and $3.5 billion for 2006 and 2007. A CDE is
any domestic corporation or partnership (1) whose primary mission is
serving or providing investment capital for low-income communities or
low-income persons, (2) that maintains accountability to residents, and
(3) is certified by the Department of Treasury as an eligible CDE.
Increase and modify the low-income housing tax credit.--The low-income
housing tax credit may be claimed over a 10-year period for the cost of
rental housing occupied by tenants having incomes below specified
levels. The aggregate first-year credit authority provided annually to
each State under prior law was $1.25 per resident. This Act increases
the per-capita housing credit cap to $1.50 per capita in calendar year
2001, to $1.75 in 2002, and provides for annual indexation for inflation
beginning in 2003. A minimum annual cap of $2 million (to be adjusted
annually for inflation beginning in 2003) is provided for small States
beginning in calendar year 2001.
Accelerate scheduled increase in State volume limits on tax-exempt
private activity bonds.--Interest on bonds issued by State and local
governments to finance activities carried out and paid for by private
persons (private activity bonds) is taxable unless the activities are
specified in the Internal Revenue code. The volume of certain tax-exempt
private activity bonds that State and local governments may issue in
each calendar year is limited by State-wide volume limits. Under prior
law the annual volume limits were the greater of $50 per resident of the
State or $150 million, increasing to the greater of $55 per resident or
$165 million in 2003, and increasing ratably each succeeding year,
reaching the greater of $75 per resident or $225 million in 2007. This
Act accelerates the scheduled increase in the volume limits to the
greater of $62.50 per resident or $187.5 million in 2001 and to the
greater of $75 per resident or $225 million in 2002. Beginning in 2003,
the volume limits are increased annually for inflation.
Extend the expensing of brownfields remediation costs.--Taxpayers can
elect to treat certain environmental remediation expenditures that would
otherwise be chargeable to capital accounts as deductible in the year
paid or incurred. This Act extends the expensing of these costs, which
was scheduled to expire with re
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spect to expenditures paid or incurred after December 31, 2001, through
December 31, 2003 and removes the geographic targeting of this
provision.
Extend District of Columbia homebuyer tax credit.--The $5,000 tax
credit provided for the first-time purchase of a principal residence in
the District of Columbia, which was scheduled to expire after December
31, 2001, is extended through December 31, 2003.
Extend District of Columbia Enterprise Zone designation.--The Taxpayer
Relief Act of 1997 designated certain economically depressed census
tracts within the District of Columbia as the District of Columbia
Enterprise Zone, within which businesses and individual residents are
eligible for special tax incentives through December 31, 2002. This Act
extends the D.C. enterprise zone designation through December 31, 2003.
Extend and modify deduction for corporate donations of computer
technology.--The charitable contribution deduction that may be claimed
by a corporation for donations of inventory property generally is
limited to the lesser of fair market value or the corporation's basis in
the property. However, corporations are provided augmented deductions,
not subject to this limitation, for certain contributions. These
augmented deductions equal the lesser of (1) the basis of the property
plus one-half of the amount of ordinary income that would have been
realized if the property had been sold, or (2) twice the basis of the
donated property. Under prior law, an augmented deduction was provided
for contributions of computer technology and equipment to U.S. schools
for educational purposes in grades K-12, provided the contribution was
made before January 1, 2001. This Act extends this augmented deduction
to apply to donations made before January 1, 2004. In addition, the
deduction is expanded to apply to donations to public libraries, to
apply to property donated no later than three years (instead of two
years as required under prior law) after the date the taxpayer acquires
the property, and to apply to property donated after reacquisition by a
computer manufacturer.
Treat Indian Tribal Governments as non-profit organizations or State
or local governments for purposes of the Federal unemployment tax
(FUTA).--Non-profit organizations and State and local governments are
not required to pay FUTA taxes. Instead, they may elect to reimburse the
unemployment compensation system for unemployment compensation benefits
actually paid to their former employees. This Act provides that an
Indian tribal government be treated like a non-profit organization or
State or local government for FUTA tax purposes.
Extend the Medical Savings Account (MSA) program.--Within limits,
contributions to an MSA are deductible in determining adjusted gross
income if made by an eligible individual and are excludable from gross
income and wages for employment tax purposes if made by the employer of
an eligible individual. Earnings on amounts in an MSA are not currently
taxable. Distributions from an MSA for medical expenses are not taxable.
Distributions not used for medical expenses are taxable and subject to
an additional 15-percent tax unless the distribution is made after age
65, death, or disability. MSAs are available to self-employed
individuals and to employees covered under a high-deductible plan
sponsored by a small employer. This Act extends the MSA program through
December 31, 2002 and renames MSAs as Archer MSAs. Under prior law, no
new contributions could be made to MSAs after December 31, 2000, except
by and on behalf of self-employed individuals and employees who had
participated in the program before that date or were employed by a
participating employer.
Make administrative and technical changes.--Several administrative
and technical provisions are provided in this Act, including the
following: (1) clarification of the allowance of certain tax benefits
with respect to kidnaped children, (2) authorization of agencies to use
corrected levels of the consumer price index (CPI) for purposes of
determining benefits and taxes, (3) prevention of the duplication or
acceleration of loss through assumption of certain liabilities, and (4)
disclosure of return information to the Congressional Budget Office.
FSC Repeal and Extraterritorial Income Exclusion Act of 2000.--This
Act repeals the foreign sales corporation (FSC) tax provisions of the
Internal Revenue Code that the World Trade Organization (WTO) found to
be a prohibited export subsidy in violation of international tax
standards. In the absence of the repeal, the United States would have
faced WTO-approved sanctions. The repealed rules are replaced with an
exclusion from U.S. tax for extraterritorial income. Because the
exclusion of such income is a means of avoiding double taxation, no
foreign tax credit is allowed for foreign income taxes paid with respect
to such excluded income. Extraterritorial income is eligible for the
exclusion to the extent that it is ``qualifying foreign trade income.''
Installment Tax Correction Act of 2000.--Generally, an accrual method
of accounting requires a taxpayer to recognize income when all events
have occurred that fix the right to its receipt and its amount can be
determined with reasonable accuracy. The installment method of
accounting provides an exception to these general recognition principles
by allowing a taxpayer to defer recognition of income from the
disposition of certain property until payment is received. This Act
repeals provisions of law provided in the Ticket to Work and Work
Incentives Improvement Act of 1999 that generally prohibited the use of
the installment method of accounting for dispositions of property
entered into on or after December 17, 1999 that would otherwise have
been reported for Federal income tax purposes using an accrual method of
accounting.
Trade and Development Act of 2000.--This Act provides eligibility for
expanded trade benefits to 48 sub-Saharan African and 27 Caribbean Basin
countries, reduces tariffs for certain worsted wool fabric, and shifts
$32 million in rum excise tax cover over pay
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ments to Puerto Rico and the Virgin Islands from 2001 to 2000.
Tariff Suspension and Trade Act of 2000.--Technical corrections and
miscellaneous amendments are made to certain trade laws, including the
temporary suspension or refund of duties on approximately 200 categories
of imported items and the alteration of the treatment of certain
imported goods. The items affected by these changes include a wide
variety of chemicals, some of which are used to develop cancer and AIDS-
fighting drugs, environmentally-friendly herbicides and insecticides,
and a number of pigments and dyes.
Department of Transportation Appropriations Act for Fiscal Year
2001.--Under prior law, the required retirement contribution of Federal
employees participating in the Civil Service Retirement System (CSRS)
was to increase to 7.5 percent of salary for calendar years 2001 and
2002 and to decline to 7 percent of salary effective January 1, 2003.
This Act amends Federal civil service retirement law by reducing the
required retirement contribution of Federal employees participating in
CSRS to 7 percent of salary effective January 1, 2001. Similar
reductions (from 1.3 to 0.8 percent) are made for participants in the
Federal Employees' Retirement System (FERS).
Federal Employee Thrift Savings Plan Amendments.--Under prior law,
contributions of employees to the Federal Thrift Savings Plan (TSP)
could not begin until the second open season following an employee's
date of commencing service. This Act allows employees to elect to
contribute to the TSP on the date of commencing service. Matching and
automatic contributions by agencies will continue to begin during the
second open season after an employee's date of commencing service. This
Act also allows Federal employees to contribute eligible rollover
distributions from a qualified trust to the TSP.
National Defense Authorization Act for Fiscal Year 2001.--
Participation in the Federal Thrift Savings Plan (TSP) is extended to
members of the uniformed services on active duty and to members of the
Ready Reserve in any pay status.
Miscellaneous Appropriations Act, 2001.--The maximum percentage
contribution limitations to the TSP (5 percent for CSRS and 10 percent
for FERS) are increased by one percentage point in each year, 2001
through 2005. The maximum percentage is eliminated beginning in 2006,
thus allowing for a 100 percent contribution, subject to the annual
dollar contribution limitation provided under prior law.
ADMINISTRATION PROPOSALS
The President's plan provides tax relief to individuals who pay
income taxes, reduces the marriage penalty, permanently extends the
research and experimentation (R&E) tax credit, phases out the death tax,
and provides tax incentives for education, farmers, the disabled, health
care, the environment, and charitable purposes. These proposed
reductions will allow taxpayers to keep roughly one-fourth of the
surplus that would be produced under existing tax law.
PRESIDENT'S TAX PLAN PRESENTED TO CONGRESS ON FEBRUARY 8TH
Create new 10-percent individual income tax bracket.--Under current
law, there are five statutory individual income tax rate brackets
ranging from 15 to 39.6 percent. The 15-percent bracket covers the first
$27,050 of taxable income (for calendar year 2001) for single taxpayers,
the first $36,250 for taxpayers who file as heads of household, and the
first $45,200 for married taxpayers filing joint returns ($22,600 for
married taxpayers filing separate returns). The Administration proposes
to split the existing 15-percent tax rate bracket into two tax rate
brackets of 10 and 15 percent. The 10-percent tax rate would apply to
the first $6,000 of taxable income for single taxpayers (and married
taxpayers filing separate returns), the first $10,000 of taxable income
for unmarried heads of household, and the first $12,000 of taxable
income for married taxpayers filing jointly. Taxable income above these
thresholds that is currently taxed at the 15-percent rate would continue
to be taxed at that rate. The new 10-percent rate would be phased in
over 5 years, beginning in 2002. The tax rate for the new bracket would
be 14 percent in 2002, 13 percent in 2003, 12 percent in 2004, 11
percent in 2005 and 10 percent in 2006 and subsequent years. The income
thresholds for the new tax rate bracket would be adjusted annually for
inflation beginning in 2007.
Reduce individual income tax rates.--The Administration proposes to
replace the five statutory individual income tax rate brackets of
current law (15, 28, 31, 36, and 39.6) with a simplified rate structure
of 10, 15, 25 and 33 percent. In addition to splitting the existing 15-
percent tax rate bracket into two rate brackets (see preceding
discussion), the Administration proposes to reduce the tax rates in the
existing 28-percent and 31-percent tax rate brackets to 25 percent, and
to reduce the tax rates in the existing 36-percent and 39.6-percent tax
rate brackets to 33 percent. The new, lower tax rates would be phased in
over 5 years, beginning in 2002. The income thresholds for these tax
rate brackets would be adjusted annually for inflation as provided under
current law.
The current 31-percent tax rate would be reduced to 30 percent in
2002, 29 percent in 2003, 28 percent in 2004, 27 percent in 2005 and 25
percent in 2006 and subsequent years. The current 28-percent tax rate
would be reduced to 27 percent in 2002 and 2003, 26
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percent in 2004 and 2005, and 25 percent in 2006 and subsequent years.
The current 39.6-percent tax rate would be reduced to 38 percent in
2002, 37 percent in 2003, 36 percent in 2004, 35 percent in 2005, and 33
percent in 2006. The current 36-percent tax rate would be reduced to 35
percent in 2002 and 2003, 34 percent in 2004 and 2005, and 33 percent in
2006 and subsequent years.
Increase the child tax credit.--Current law provides taxpayers a tax
credit of up to $500 for each qualifying child under the age of 17. The
credit is reduced by $50 for each $1,000 (or fraction thereof) by which
the taxpayer's modified adjusted gross income (AGI) exceeds $110,000
($75,000 if the taxpayer is not married and $55,000 if the taxpayer is
married but filing a separate return). These income thresholds are not
adjusted for inflation. Generally, the credit is nonrefundable; however,
taxpayers with three or more qualifying children may be eligible for an
additional refundable child tax credit if they have little or no
individual income tax liability. The additional credit may be offset
against social security payroll tax liability, provided that liability
exceeds the refundable portion of the earned income tax credit (EITC).
Beginning in taxable year 2002, the child tax credit (as well as other
nonrefundable personal tax credits) will be allowed only to the extent
that an individual's regular individual income tax liability exceeds his
or her tentative minimum tax. In addition, beginning in taxable year
2002, the refundable child tax credit and the EITC will be reduced by
the amount of the individual's alternative minimum tax.
To assist families with the costs of raising children, the
Administration proposes to double the amount of the child tax credit to
$1,000 per child, and to phase out the credit more slowly and at higher
levels of income. The increase in the amount of the credit would be
phased in over 5 years, rising to $600 in 2002, $700 in 2003, $800 in
2004, $900 in 2005, and $1,000 in 2006 and subsequent years. Beginning
in 2006, the credit would be reduced by $20 for each $1,000 (or fraction
thereof) by which the taxpayer's modified AGI exceeds $200,000 ($100,000
if the taxpayer is married but filing a separate return). The increase
in the modified AGI threshold would be gradually implemented in $18,000
annual increments ($25,000 if the taxpayer is not married and $9,000 if
the taxpayer is married and filing a separate return) between 2002 and
2006. Under the Administration's proposal the credit could offset both
the regular tax and the alternative minimum tax; in addition, refundable
credits would no longer be reduced by the amount of the alternative
minimum tax.
Reduce the marriage penalty.--A couple has a marriage penalty if they
file a joint return and their individual income tax liability is greater
than what it would be if they were not married and each filed a separate
return. The Administration proposes to reduce the marriage penalty by
restoring the two-earner deduction that was in effect between 1982 and
1986, effective for taxable years beginning after December 31, 2001.
Joint filers would be allowed to deduct 10 percent of the first $30,000
of the earned income of the lower paid spouse. The limitation on
eligible earnings would be phased in over 5 years, increasing from
$6,000 in 2002 to $12,000 in 2003, $18,000 in 2004, $24,000 in 2005 and
$30,000 in 2006 and subsequent years.
Provide charitable contribution deduction for nonitemizers.--Under
current law, individual taxpayers who do not itemize their deductions
(nonitemizers) are not able to deduct contributions to qualified
charitable organizations. The Administration proposes to allow
nonitemizers to deduct charitable contributions in addition to claiming
the standard deduction, effective for taxable years beginning after
December 31, 2001. The deduction would be phased in between 2002 and
2006 by allowing deductible amounts to increase as a percentage of
contributions from 20 percent in 2002 to 40 percent in 2003, 60 percent
in 2004, 80 percent in 2005, and 100 percent in 2006 and subsequent
years. Deductible contributions would be limited to the amount of the
taxpayer's standard deduction and would be subject to existing rules
governing itemized charitable contributions, such as the substantiation
requirements and the percentage-of-AGI limitations.
Permit tax-free withdrawals from Individual Retirement Accounts (IRAs)
for charitable contributions.--Under current law, eligible individuals
may make deductible or non-deductible contributions to a traditional
IRA. Pre-tax amounts (including earnings) in a traditional IRA are
included in income when withdrawn. Effective for distributions after
December 31, 2001, the Administration proposes to allow individuals who
have attained age 59\1/2\ to exclude from gross income IRA distributions
made directly to a charitable organization. The exclusion would apply
without regard to the percentage-of-AGI limitations that apply to
deductible charitable contributions. The exclusion would apply only to
the extent the individual receives no return benefit in exchange for the
transfer, and no charitable deduction would be allowed with respect to
any amount that is excludable from income under this provision.
Raise the cap on corporate charitable contributions.--Current law
limits deductible charitable contributions by corporations to 10 percent
of net income (calculated before the deduction of the charitable
contributions and certain other deductions). The Administration proposes
to increase the limit on deductible charitable contributions by
corporations from 10 percent to 15 percent of net income, effective for
taxable years beginning after December 31, 2001.
Increase and expand education savings accounts.--Under current law,
taxpayers may elect to contribute up to $500 per year to an education
savings account (an ``education IRA'') for beneficiaries under age
[[Page 40]]
18. The contribution limit is phased out for taxpayers with modified AGI
between $95,000 and $110,000 ($150,000 and $160,000 for married couples
filing a joint return). Contributions are not deductible, but earnings
on contributions accumulate tax-free. Distributions are excludable from
gross income to the extent they do not exceed qualified higher education
expenses incurred during the year the distributions are made. The
earnings portion of a distribution not used to cover qualified education
expenses is included in the gross income of the beneficiary and is
generally subject to an additional 10-percent tax. If any portion of a
distribution from an education savings account is excluded from gross
income, an education tax credit may not be claimed with respect to the
same student in the same taxable year.
The Administration proposes to increase the annual contribution limit
to education savings accounts to $5,000. The higher contribution limit
would be phased in over 5 years, increasing to $1,000 in 2002, $2,000 in
2003, $3,000 in 2004, $4,000 in 2005, and $5,000 in 2006 and subsequent
years. The Administration also proposes to expand education savings
accounts to allow tax-free and penalty-free distributions for certain
elementary, secondary, and after-school program expenses. Eligible
expenses generally would include tuition, fees, academic tutoring,
special needs services, books, supplies, computer equipment, and certain
expenses for room and board, uniforms, and transportation. Expenses for
both public and private educational institutions would qualify. Under
the proposal, both an education tax credit and a tax-free distribution
from an education savings account would be allowed with respect to the
same student in the same taxable year, provided the credit and the
distribution were not used for the same expenses. These changes are
proposed to be effective for contributions and distributions made after
December 31, 2001.
Permanently extend the research and experimentation (R&E) tax
credit.--The Administration proposes to permanently extend the 20-
percent tax credit for qualified research and experimentation
expenditures above a base amount and the alternative incremental credit,
which are scheduled to expire on June 30, 2004.
Phase out death tax.--The Administration proposes to reduce estate tax
rates between 2002 and 2008, and to repeal the estate, gift and
generation-skipping transfer tax completely in 2009. The tax rate
reductions would begin in 2002, with a 5-percentage-point reduction in
each existing tax rate bracket. The 5-percentage-point surtax, which
currently phases out the benefit of the graduated rate schedule, would
be repealed in 2002. State death tax credit rates would be reduced to
maintain the current relationship between the credit rates and the
Federal estate tax rates. After repeal of the estate, gift and
generation-skipping transfer taxes, inherited assets generally would
carry the decedent's tax basis. However, there would be an adjustment to
basis, so that in general, to the extent that taxpayers are not
currently subject to estate tax, they would not be subject to capital
gains tax on inherited assets. There would also be provisions to
discourage transfers made for the purpose of avoiding income or capital
gains tax.
ADDITIONAL TAX INCENTIVES
Strengthen and Reform Education
Allow teachers to deduct out-of-pocket classroom expenses.--Under
current law, teachers who incur unreimbursed, job-related expenses may
deduct those expenses to the extent that when combined with other
miscellaneous itemized deductions they exceed 2 percent of AGI.
Effective for expenses incurred in taxable years beginning after
December 31, 2001, the Administration proposes to allow teachers and
other elementary and secondary school professionals to treat up to $400
in qualified out-of-pocket classroom expenses as a non-itemized
deduction (above-the-line deduction). Unreimbursed expenditures for
certain books, supplies and equipment related to classroom instruction
and for certain professional training programs would qualify for the
deduction.
Allow tax-free distributions from Qualified State Tuition Plans
(QSTPs) for certain higher education expenses and allow private colleges
to offer prepaid tuition plans.--Current law provides two basic tax
benefits to contributions to, and beneficiaries of, QSTPs: (1) earnings
on amounts invested in a QSTP are not subject to tax until a
distribution is made (or educational benefits are provided), and (2)
distributions made on behalf of a beneficiary are taxed at the
beneficiary's (rather than the contributor's) individual income tax
rate. These programs generally take two forms - prepaid tuition plans
and savings plans. Under a prepaid tuition plan, an individual may
purchase tuition credits or certificates on behalf of a designated
beneficiary, which entitle the beneficiary to the waiver or payment of
qualified higher education expenses at participating educational
institutions. Under a savings plan, an individual may make contributions
to an account, which is established for the purpose of meeting the
qualified higher education expenses of a designated beneficiary.
Distributions from QSTPs for nonqualified expenses generally are subject
to a more than de minimus penalty (typically 10 percent of the earnings
portion of the distribution). There is no specific dollar cap on annual
contributions to a QSTP; in addition, there is no limit on contributions
to a QSTP based on the contributor's income. Contributions to a QSTP are
permitted at any time during the beneficiary's lifetime and the account
can remain open after the beneficiary reaches age 30. However, a QSTP
must provide adequate safeguards to prevent contributions on behalf of a
designated beneficiary in excess of amounts necessary to provide for
qualified education expenses.
Effective for taxable years beginning after December 31, 2001, the
Administration proposes to allow tax-free withdrawals from QSTPs for
qualified higher education
[[Page 41]]
expenses, including room and board, tuition and fees, and certain
expenses for books, supplies, and equipment. An education tax credit, a
tax-free distribution from an education savings account, and a tax-free
distribution from a QSTP would be allowed with respect to the same
student in the same taxable year, provided the credit and the
distributions were not used for the same expenses. The Administration
also proposes to allow private educational institutions to establish
qualified prepaid tuition plans (but not savings plans), provided the
institution is eligible to participate in Federal financial aid programs
under Title IV of the Higher Education Act of 1965.
Allow States to issue tax-exempt private activity bonds for school
construction.--Current law does not exclude from income the interest on
private activity bonds used to finance school construction or equipment.
The Administration proposes to provide States with annual authority of
$10 per resident (a minimum of $5 million is provided for small States)
to issue tax-exempt, private activity bonds for constructing and
equipping public elementary and secondary schools. Private entities
would construct the schools and own the schools while the bonds are
outstanding; ownership would revert to the school district when the
bonds are retired. The proposal would be effective for bonds issued
after December 31, 2001.
Invest in Health Care
Provide refundable tax credit for the purchase of health insurance.--
Current law provides a tax preference for employer-provided group health
insurance plans, but not for individually purchased health insurance
coverage except to the extent that deductible medical expenses exceed
7.5 percent of AGI or the individual has self-employment income. The
Administration proposes to make health insurance more affordable for
individuals not covered by an employer plan nor eligible for public
programs. Effective for taxable years beginning after December 31, 2001,
a new refundable tax credit would be provided for the cost of health
insurance purchased by individuals under age 65. The credit, which would
equal 90 percent of health insurance premiums, would be capped at $750
for single policies and $1,500 for family policies in 2002 and 2003, and
$1,000 for single policies and $2,000 for family policies in 2004 and
subsequent years. The credit would be phased out for single taxpayers
with AGI between $15,000 and $30,000 ($30,000 and $60,000 for married
couples filing a joint return and purchasing a family policy). The
maximum credit amounts and the income phase-out thresholds would be
indexed annually for inflation beginning in 2003. The Administration is
looking at ways to implement the credit so it is available to potential
beneficiaries when they need it. To qualify for the credit, the
purchased health insurance would be required to include coverage for
catastrophic medical expenses. Individuals would not be allowed to claim
the credit and make a contribution to an MSA for the same taxable year.
Provide an above-the-line deduction for long-term care insurance
premiums.--Current law provides a tax preference for employer-paid long-
term care insurance, but not for individually-purchased long-term case
insurance except to the extent that deductible medical expenses exceed
7.5 percent of AGI or the individual has self-employment income.
Premiums on qualified long-term care insurance are deductible as a
medical expense, subject to annual dollar limitations that increase with
age. The Administration proposes to make individually-purchased long-
term care insurance (the vast majority of the long-term care insurance
market) more affordable by creating an above-the-line deduction for
qualified long-term care insurance premiums. To qualify for the
deduction, the long-term care insurance would be required to meet
certain standards providing consumer protections. The deduction would be
available to taxpayers who individually purchase qualified long-term
care insurance and to those who pay at least 50 percent of the cost of
employer-provided coverage (the employer-paid share of the cost is less
than 50 percent). The deduction would be effective for taxable years
beginning after December 31, 2001 but would be phased in over six years.
The deduction would be subject to current law annual dollar limitations
on qualified long-term care insurance premiums.
Allow up to $500 in unused benefits in a health flexible spending
arrangement to be carried forward to the next year.--Under current law,
unused benefits in a health flexible spending arrangement under a
cafeteria plan for a particular year revert to the employer at the end
of the year. Effective for plan years beginning after December 31, 2001,
the Administration proposes to allow up to $500 in unused benefits in a
health flexible spending arrangement at the end of a particular year to
be carried forward to the next plan year.
Provide additional choice with regard to unused benefits in a health
flexible spending arrangement.--In addition to the proposed carryforward
of unused benefits (see preceding discussion), the Administration
proposes to allow up to $500 in unused benefits in a health flexible
spending arrangement at the end of a particular year to be distributed
to the participant as taxable income, contributed to an Archer MSA, or
contributed to the employer's 401(k), 403(b), or governmental 457(b)
retirement plan. Amounts distributed to the participant would be subject
to income tax withholding and employment taxes. Amounts contributed to
an Archer MSA or retirement plan would be subject to the normal rules
applicable to elective contributions to the receiving plan or account.
The proposal would be effective for plan years beginning after December
31, 2001.
[[Page 42]]
Permanently extend and reform Archer MSAs.--Current law allows only
self-employed individuals and employees of small firms to establish
Archer MSAs, and caps the number of accounts at 750,000. In addition to
other requirements, (1) individuals who establish MSAs must be covered
by a high-deductible health plan (and no other plan) with a deductible
of at least $1,600 but not greater than $2,400 for policies covering a
single person and a deductible of at least $3,200 but not greater than
$4,800 in all other cases, (2) tax-preferred contributions are limited
to 65 percent of the deductible for single policies and 75 percent of
the deductible for other policies, and (3) either an individual or an
employer, but not both, may make a tax-preferred contribution to an MSA
for a particular year. The Administration proposes to permanently extend
the MSA program, which is scheduled to expire on December 31, 2002.
Effective after December 31, 2001, the Administration proposes to remove
the 750,000 cap on the number of accounts. In addition, the program
would be reformed by (1) expanding eligibility to include all
individuals and employees of firms of all sizes covered by a high-
deductible health plan, (2) modifying the definition of high deductible
to permit a deductible as low as $1,000 for policies covering a single
person and $2,000 in all other cases, (3) increasing tax-preferred
contributions to 100 percent of the deductible, (4) allowing tax-
preferred contributions by both employers and employees for a particular
year, up to the applicable maximum, and (5) allowing contributions to
MSAs under cafeteria plans. Individuals would not be allowed to make a
contribution to an MSA and claim the proposed refundable tax credit for
health insurance premiums for the same taxable year.
Provide an additional personal exemption to home caretakers of family
members.--Current law provides a tax deduction for certain long-term
care expenses. In addition, taxpayers are allowed to claim exemptions
for themselves (and their spouses, if married) and dependents who they
support. However, neither provision may meet the needs of taxpayers who
provide long-term care in their own home for close family members.
Effective for taxable years beginning after December 31, 2001, the
Administration proposes to provide an additional personal exemption to
taxpayers who care for certain qualified spouses or ancestors with long-
term care needs. The spouse or ancestor must be a member of the
taxpayer's household for the entire year. There would be no support
requirement for the additional exemption. An individual would be
considered to have long-term care needs if he or she were certified by a
licensed physician as being unable for at least 180 consecutive days to
perform at least two activities of daily living without substantial
assistance from another individual due to a loss of functional capacity.
Alternatively, an individual would be considered to have long-term care
needs if he or she were certified by a licensed physician (1) as
requiring substantial supervision for at least 180 consecutive days to
be protected from threats to his or her own health and safety due to
severe cognitive impairment and (2) being unable for at least six months
to perform at least one activity of daily living or being unable to
engage in age appropriate activities.
Provide tax relief for awards under certain health education
programs.--Current law provides tax-free treatment for certain
scholarship and fellowship grants used to pay qualified tuition and
related expenses, but not to the extent that any grant represents
compensation for services. The Administration proposes to provide that
any amounts received by an individual under the National Health Service
Corps Scholarship Program or the Armed Forces Health Professions
Scholarship and Financial Assistance Program are ``qualified
scholarships'' excludable from income, without regard to the recipient's
future service obligation. The proposal would be effective for awards
received after December 31, 2001.
Assist Americans With Disabilities
Exclude from income the value of employer-provided computers, software
and peripherals.--The Administration proposes to allow individuals with
disabilities to exclude from income the value of employer-provided
computers, software or other office equipment that are necessary for the
individual to perform work for the employer at home. To qualify for the
exclusion, the employee would be required to make substantial use of the
equipment (relative to overall use) performing work for his or her
employer. However, unlike current law, which limits the exclusion to the
extent that the equipment is used to perform work for the employer, the
proposed exclusion would apply to all use of such equipment, including
use by the employee for personal or non-employer-related trade or
business purposes. Employees would be required to provide their employer
with a certification from a licensed physician that they meet
eligibility criteria. The proposal would be effective for taxable years
beginning after December 31, 2001.
Strengthen Families
Permanently extend and increase the adoption tax credit.--Current law
provides a permanent nonrefundable 100-percent tax credit for the first
$6,000 of qualified expenses incurred in the adoption of a child with
special needs. A nonrefundable 100-percent tax credit is provided for
the first $5,000 of qualified expenses incurred before January 1, 2002
in the adoption of a child without special needs. The dollar limits are
cumulative per adoption but may be used over more than one calendar
year. Qualified expenses do not include any expenses that are paid or
reimbursed under any other government or non-government program. The
credit is phased out ratably for taxpayers with incomes between $75,000
and $115,000; in addition, it is not available for adoptions by
stepparents. The Administration proposes to make the tax credit for the
adoption of children without special needs permanent. In addi
[[Page 43]]
tion, effective for expenses incurred after December 31, 2001, the
Administration proposes to increase the credit to $8,500 for the
adoption of a child with special needs and to $7,500 for the adoption of
a child without special needs.
Help Farmers and Fishermen Manage Economic Downturns
Establish Farm, Fish and Ranch Risk Management (FFARRM) savings
accounts.--Current law does not provide for the elective deferral of
farm or fishing income. However, farmers can elect to average their
farming income over a three-year period, and farmers may carry back net
operating losses over the five previous years. In addition, taxes can be
deferred on certain forms of income, including disaster payments, crop
insurance and proceeds from emergency livestock sales. The
Administration proposes to allow up to 20 percent of taxable income
attributable to an eligible farming or fishing business to be
contributed to a FFARRM savings account each year and deducted from
income. Earnings on contributions would be taxable as earned and
distributions from the account (except those attributable to earnings on
contributions) would be included in gross income. Any amount not
distributed within five years of deposit would be deemed to have been
distributed and included in gross income; in addition, such
distributions would be subject to a 10-percent surtax. The proposal
would be effective for taxable years beginning after December 31, 2001.
Increase Housing Opportunities
Provide tax credit for developers of affordable single-family
housing.--The Administration proposes to provide annual tax credit
authority to States (including U.S. possessions) designed to promote the
development of affordable single-family housing in low-income urban and
rural neighborhoods. Beginning in calendar year 2002, first-year credit
authority of $1.75 per capita (indexed annually for inflation
thereafter) would be made available to each State. State housing
agencies would award first-year credits to single-family housing units
comprising a project located in a census tract with median income equal
to 80 percent or less of area median income. Units in condominiums and
cooperatives could qualify as single-family housing. Credits would be
awarded as a fixed amount for individual units comprising a project. The
present value of the credits, determined on the date of a qualifying
sale, could not exceed 50 percent of the cost of constructing a new home
or rehabilitating an existing property. The taxpayer (developer or
investor partnership) owning the housing unit immediately prior to the
sale to a qualified buyer would be eligible to claim credits over a 5-
year period beginning on the date of sale. Eligible homebuyers would be
required to have incomes equal to 80 per cent or less of area median
income. Technical features of the provision would follow similar
features of current law with respect to the low-income housing tax
credit and mortgage revenue bonds.
Encourage Saving
Establish Individual Development Accounts (IDAs).--The Administration
proposes to allow eligible individuals to make contributions to a new
savings vehicle, the Individual Development Account, which would be set
up and administered by financial institutions. Financial institutions
would be allowed a tax credit for a portion of their matching
contributions to an IDA. Matching contributions and the earnings on
those contributions would be deposited in a separate ``parallel
account.'' Contributions to an IDA by an eligible individual would not
be deductible, and earnings on those contributions would be included in
income. Matching contributions by financial institutions and the
earnings on those contributions would be tax free, provided they are
withdrawn for qualified purposes (higher education, the first-time
purchase of a home, business start-up, and qualified rollovers).
Withdrawals for other than qualified purposes would result in the
forfeiture of matching contributions and the earnings on those
contributions. Individuals eligible to contribute to an IDA would be
required to be at least 18 years of age, a citizen or legal resident of
the United States, and meet certain income limitations. The proposal
would be effective for contributions to IDAs and matching contributions
made with respect to such IDAs after December 31, 2001.
Promote Trade
Extend and expand Andean trade preferences.--The Administration
proposes to renew and enhance the Andean Trade Preference Program (ATPA)
when it expires on December 4, 2001. The current ATPA program was
enacted in 1991 to augment beneficiary countries' efforts to diversify
their economies away from narcotics production and drug trafficking. The
current program provides duty-free treatment on most, but not all,
imports from Bolivia, Columbia, Peru and Ecuador. The Administration is
seeking to work with Congress to expand the list of products eligible
for duty free treatment under a renewed ATPA. It supports extending ATPA
benefits for the period until the entry into force of the Free Trade
Area of the Americas (FTAA). The Administration is seeking to conclude
the FTAA negotiations in time for entry into force of the agreement by
January 1, 2005.
Protect the Environment
Permanently extend expensing of brownfields remediation costs.--
Taxpayers may elect to treat certain environmental remediation
expenditures that would otherwise be chargeable to capital account as
deductible in the year paid or incurred. Under current law, the ability
to deduct such expenditures expires with respect to expenditures paid or
incurred after December 31, 2003. The Administration proposes to
permanently extend this provision, facilitating its use by businesses to
undertake projects that may extend beyond the cur
[[Page 44]]
rent expiration date and be uncertain in overall duration.
Exclude 50 percent of gains from the sale of property for conservation
purposes.--The Administration proposes to create a new incentive for
private, voluntary land protection. This incentive is a cost-effective,
non-regulatory approach to conservation. Under the proposal, when land
(or an interest in land or water) is sold for conservation purposes,
only 50 percent of any gain would be included in the seller's income. To
be eligible for the exclusion, the sale may be either to a government
agency or to a qualified conservation organization, and the buyer must
supply a letter of intent that the acquisition will serve conservation
purposes. In addition, the taxpayer or a member of the taxpayer's family
must have owned the property for the three years immediately preceding
the sale. The provision would be effective for sales taking place on or
after the date of first committee action.
Energy Policy Proposals
Extend and modify the tax credit for producing electricity from
certain sources.--Taxpayers are provided a 1.5-cent-per-kilowatt-hour
tax credit, adjusted for inflation after 1992, for electricity produced
from wind, closed-loop biomass (organic material from a plant grown
exclusively for use at a qualified facility to produce electricity), and
poultry waste. To qualify for the credit, the electricity must be sold
to an unrelated third party and must be produced during the first 10
years of production at a facility placed in service before January 1,
2002. The Administration proposes to extend the credit for electricity
produced from wind and biomass to facilities placed in service before
January 1, 2005. In addition, eligible biomass sources would be expanded
to include certain biomass from forest-related resources, agricultural
sources, and other specified sources. Special rules would apply to
biomass facilities placed in service before January 1, 2002. Electricity
produced at such facilities from newly eligible sources would be
eligible for the credit only from January 1, 2002 through December 31,
2004, and at a rate equal to 60 percent of the generally applicable
rate. Electricity produced from newly eligible biomass co-fired in coal
plants would also be eligible for the credit only from January 1, 2002
through December 31, 2004, and at a rate equal to 30 percent of the
generally applicable rate.
Provide tax credit for residential solar energy systems.--Current law
provides a 10-percent investment tax credit to businesses for qualifying
equipment that uses solar energy to generate electricity; to heat, cool
or provide hot water for use in a structure; or to provide solar process
heat. A credit currently is not provided for nonbusiness purchases of
solar energy equipment. The Administration proposes a new tax credit for
individuals who purchase solar energy equipment to generate electricity
(photovoltaic equipment) or heat water (solar water heating equipment
used exclusively for purposes other than heating swimming pools) for use
in a dwelling unit that the individual uses as a residence. The proposed
nonrefundable credit would be equal to 15 percent of the cost of the
equipment and its installation; each individual taxpayer would be
allowed a maximum credit of $2,000 for photovoltaic equipment and $2,000
for solar water heating equipment. The credit would apply to
photovoltaic equipment placed in service after December 31, 2001 and
before January 1, 2008 and to solar water heating equipment placed in
service after December 31, 2001 and before January 1, 2006.
Modify treatment of nuclear decommissioning funds.--Under current law,
deductible contributions to nuclear decommissioning funds are limited to
the amount included in the taxpayer's cost of service for ratemaking
purposes. For deregulated utilities, this limitation may result in the
denial of any deduction for contributions to a nuclear decommissioning
fund. The Administration proposes to repeal this limitation.
Also under current law, deductible contributions are not permitted to
exceed the amount the IRS determines to be necessary to provide for
level funding of an amount equal to the taxpayer's post-1983
decommissioning costs. The Administration proposes to permit funding of
all decommissioning costs through deductible contributions. Any portion
of these additional contributions relating to pre-1983 costs that
exceeds the amount previously deducted (other than under the nuclear
decommissioning fund rules) or excluded from the taxpayer's gross income
on account of the taxpayer's liability for decommissioning costs, would
be allowed as a deduction ratably over the remaining useful life of the
nuclear power plant.
The Administration's proposal would also permit taxpayers to make
deductible contributions to a qualified fund after the end of the
nuclear power plant's estimated useful life and would provide that
nuclear decommissioning costs are deductible when paid. These changes in
the treatment of nuclear decommissioning funds are proposed to be
effective for taxable years beginning after December 31, 2001.
ONE-YEAR EXTENSION OF PROVISIONS EXPIRING IN 2001
Extend the work opportunity tax credit.--The work opportunity tax
credit provides an incentive for employers to expand the number of entry
level positions for individuals from certain targeted groups. The credit
generally applies to the first $6,000 of wages paid to several
categories of economically disadvantaged or handicapped workers. The
credit rate is 25 percent of qualified wages for employment of at least
120 hours but less than 400 hours and 40 percent for employment of 400
or more hours. The Administration proposes to extend the credit for one
year, making the credit available for workers hired after December 31,
2001 and before January 1, 2003.
[[Page 45]]
Extend the welfare-to-work tax credit.--The welfare-to-work tax credit
entitles employers to claim a tax credit for hiring certain recipients
of long-term family assistance. The purpose of the credit is to expand
job opportunities for persons making the transition from welfare to
work. The credit is 35 percent of the first $10,000 of eligible wages in
the first year of employment and 50 percent of the first $10,000 of
eligible wages in the second year of employment. Eligible wages include
cash wages plus the cash value of certain employer-paid health,
dependent care, and educational fringe benefits. The minimum employment
period that employees must work before employers can claim the credit is
400 hours. The Administration proposes to extend the credit for one
year, to apply to individuals who begin work after December 31, 2001 and
before January 1, 2003.
Extend exclusion for employer-provided educational assistance.--
Certain amounts paid or incurred by an employer for educational
assistance provided to an employee are excluded from the employee's
gross income for income and payroll tax purposes. The exclusion is
limited to $5,250 of educational assistance with respect to an
individual during a calendar year and applies whether or not the
education is job-related. The Administration proposes to extend the
exclusion, which is limited to undergraduate courses, to apply to
courses beginning after December 31, 2001 and before January 1, 2003.
Extend minimum tax relief for individuals.--A temporary provision of
prior law permits nonrefundable personal tax credits to be offset
against both the regular tax and the alternative minimum tax; in
addition, refundable credits are not reduced by the amount of the
alternative minimum tax. The temporary provision expires after taxable
year 2001. The Administration is concerned that the AMT may limit the
benefit of personal tax credits and impose financial and compliance
burdens on taxpayers who have few, if any, tax preference items and who
were not the originally intended targets of the AMT. The Administration
proposes to extend minimum tax relief for nonrefundable personal tax
credits (other than the child credit) one year, to apply to taxable year
2002. The Administration's proposal to double the child credit (see
earlier discussion) includes a provision providing permanent minimum tax
relief for the child credit and refundable personal credits.
Extend exceptions provided under subpart F for certain active
financing income.--Under the Subpart F rules, certain U.S. shareholders
of a controlled foreign corporation (CFC) are subject to U.S. tax
currently on certain income earned by the CFC, whether or not such
income is distributed to the shareholders. The income subject to current
inclusion under the subpart F rules includes, among other things,
``foreign personal holding company income'' and insurance income.
Foreign personal holding company income generally includes many types of
income derived by a financial service company, such as dividends;
interest; royalties; rents; annuities; net gains from the sale of
certain property, including securities, commodities and foreign
currency; and income from notional principal contracts and securities
lending activities. For taxable years beginning before 2002, certain
income derived in the active conduct of a banking, financing, insurance,
or similar business is excepted from Subpart F. The Administration
proposes to extend the exception for one year, to apply to taxable years
beginning in 2002.
Extend suspension of net income limitation on percentage depletion
from marginal oil and gas wells.--Taxpayers are allowed to recover their
investment in oil and gas wells through depletion deductions. For
certain properties, deductions may be determined using the percentage
depletion method; however, in any year, the amount deducted generally
may not exceed 100 percent of the net income from the property. For
taxable years beginning after December 31, 1997 and before January 1,
2002, domestic oil and gas production from ``marginal'' properties is
exempt from the 100-percent of net income limitation. The Administration
proposes to extend the exemption to apply to taxable years beginning
after December 31, 2001 and before January 1, 2003.
Extend Generalized System of Preferences (GSP).--Under GSP, duty-free
access is provided to over 4,000 items from eligible developing
countries that meet certain worker rights, intellectual property
protection, and other criteria. The Administration proposes to extend
this program, which is scheduled to expire after September 30, 2001,
through September 30, 2002.
Extend authority to issue Qualified Zone Academy Bonds.--Prior law
allows State and local governments to issue ``qualified zone academy
bonds,'' the interest on which is effectively paid by the Federal
government in the form of an annual income tax credit. The proceeds of
the bonds must be used for teacher training, purchases of equipment,
curricular development, or rehabilitation and repairs at certain public
school facilities. A nationwide total of $400 million of qualified zone
academy bonds was authorized to be issued in each of calendar years 1998
through 2001. In addition, unused authority arising in 1998 and 1999 may
be carried forward for up to three years and unused authority arising in
2000 and 2001 may be carried forward for up to two years. The
Administration proposes to authorize the issuance of an additional $400
million of qualified zone academy bonds in calendar year 2002.
OTHER PROVISIONS THAT AFFECT RECEIPTS
Recover State bank supervision and regulation expenses (receipt
effect).--The Administration proposes to require the Federal Deposit
Insurance Corporation (FDIC) and the Federal Reserve to recover their
[[Page 46]]
respective costs for supervision and regulation of State-chartered 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 recoveries.
Table 3-3. EFFECT OF PROPOSALS ON RECEIPTS
(In millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimate
---------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2002-2006 2002-2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
President's Tax Plan presented to Congress on February 8th:
Create new 10-percent individual income tax bracket........... ........ -5,678 -13,847 -21,932 -29,849 -37,407 -108,713 -310,618
Reduce individual income tax rates............................ ........ -11,793 -21,047 -33,493 -42,306 -57,299 -165,938 -500,666
Increase the child tax credit \1\............................. ........ -1,238 -7,505 -11,455 -16,347 -20,963 -57,508 -192,657
Reduce the marriage penalty................................... ........ -1,435 -4,844 -7,773 -10,343 -12,675 -37,070 -112,834
Provide charitable contribution deduction for nonitemizers.... ........ -482 -1,690 -2,963 -4,448 -6,065 -15,648 -52,171
Permit tax-free withdrawals from IRAs for charitable ........ -53 -181 -195 -210 -225 -864 -2,261
contributions................................................
Raise the cap on corporate charitable contributions........... ........ -85 -136 -136 -143 -149 -649 -1,579
Increase and expand education savings accounts................ ........ -3 -25 -88 -204 -373 -693 -5,645
Permanently extend the R&E tax credit......................... ........ ........ ........ -1,055 -3,431 -5,415 -9,901 -49,576
Phase out death tax........................................... -154 -4,930 -10,435 -11,442 -13,411 -16,263 -56,481 -261,257
---------------------------------------------------------------------------------------
Total, President's Tax Plan presented to Congress on -154 -25,697 -59,710 -90,532 -120,692 -156,834 -453,465 -1,489,264
February 8th \1\...........................................
Provide refundable tax credit for the purchase of health ........ -219 -1,513 -3,966 -5,796 -6,143 -17,637 -52,858
insurance \1\..................................................
Additional tax incentives \2\................................... -18 -1,812 -3,602 -4,322 -5,090 -6,001 -20,827 -66,531
One-year extension of provisions expiring in 2001 \2\........... ........ -1,614 -1,355 -170 -94 -66 -3,299 -3,410
---------------------------------------------------------------------------------------
Total tax reduction \1\, \2\.............................. -172 -29,342 -66,180 -98,990 -131,672 -169,044 -495,228 -1,612,063
---------------------------------------------------------------------------------------
Other provisions that affect receipts:
Recover State bank supervision and regulation expenses \1\, ........ 70 74 76 80 84 384 866
\2\..........................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Affects both receipts and outlays. Only the receipt effect is shown here; the outlay effect is shown in Table S-9 of the Budget of the United
States Government, Fiscal Year 2002.
\2\ Net of income offsets
[[Page 47]]
Table 3-4. RECEIPTS BY SOURCE
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Source 2000 -----------------------------------------------------------------------
Actual 2001 2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
Individual income taxes
(federal funds):
Existing law.............. 1,004,462 1,073,088 1,102,871 1,148,882 1,205,565 1,273,084 1,345,297
Proposed Legislation .......... -161 -24,082 -56,592 -87,684 -116,040 -148,690
(PAYGO)................
-----------------------------------------------------------------------------------
Total individual income 1,004,462 1,072,927 1,078,789 1,092,290 1,117,881 1,157,044 1,196,607
taxes......................
===================================================================================
Corporation income taxes:
Federal funds:
Existing law............ 207,286 213,080 219,984 228,800 237,816 249,059 259,360
Proposed Legislation .......... -11 -1,198 -1,507 -2,319 -4,907 -7,201
(PAYGO)..............
-----------------------------------------------------------------------------------
Total Federal funds 207,286 213,069 218,786 227,293 235,497 244,152 252,159
corporation income taxes.
-----------------------------------------------------------------------------------
Trust funds:
Hazardous substance 3 .......... .......... .......... .......... .......... ..........
superfund..............
-----------------------------------------------------------------------------------
Total corporation income 207,289 213,069 218,786 227,293 235,497 244,152 252,159
taxes......................
===================================================================================
Social insurance and
retirement receipts (trust
funds):
Employment and general
retirement:
Old-age and survivors 411,677 430,916 453,853 479,405 504,598 537,690 562,913
insurance (Off-budget).
Disability insurance 68,907 72,954 77,067 81,407 85,689 91,307 95,594
(Off-budget)...........
Hospital insurance...... 135,529 147,228 154,098 162,932 171,656 182,952 191,783
Railroad retirement:
Social Security 1,650 1,713 1,755 1,801 1,836 1,877 1,916
equivalent account...
Rail pension and 2,688 2,694 2,758 2,826 2,881 2,932 2,981
supplemental annuity.
-----------------------------------------------------------------------------------
Total employment and 620,451 655,505 689,531 728,371 766,660 816,758 855,187
general retirement.......
On-budget............... 139,867 151,635 158,611 167,559 176,373 187,761 196,680
Off-budget.............. 480,584 503,870 530,920 560,812 590,287 628,997 658,507
-----------------------------------------------------------------------------------
Unemployment insurance:
Deposits by States \1\ . 20,701 22,405 24,601 25,944 27,623 27,362 29,485
Federal unemployment 6,871 7,105 7,257 7,437 7,619 7,805 7,998
receipts \1\ ..........
Railroad unemployment 68 50 88 134 149 105 74
receipts \1\ ..........
-----------------------------------------------------------------------------------
Total unemployment 27,640 29,560 31,946 33,515 35,391 35,272 37,557
insurance................
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Other retirement:
Federal employees' 4,691 4,523 4,259 4,106 3,948 3,767 3,582
retirement--employee
share..................
Non-Federal employees 70 68 62 53 50 45 41
retirement \2\ ........
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Total other retirement.... 4,761 4,591 4,321 4,159 3,998 3,812 3,623
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Total social insurance and 652,852 689,656 725,798 766,045 806,049 855,842 896,367
retirement receipts........
On-budget................. 172,268 185,786 194,878 205,233 215,762 226,845 237,860
Off-budget................ 480,584 503,870 530,920 560,812 590,287 628,997 658,507
===================================================================================
Excise taxes:
Federal funds:
Alcohol taxes........... 8,140 7,688 7,810 7,885 7,946 8,011 8,074
Tobacco taxes........... 7,221 7,548 8,140 8,175 7,941 7,778 7,643
Transportation fuels tax 819 779 743 759 766 784 306
Telephone and teletype 5,670 5,914 6,295 6,687 7,097 7,526 7,976
services...............
Ozone depleting 125 94 65 39 20 .......... ..........
chemicals and products.
Other Federal fund 717 1,961 1,863 1,774 1,772 1,826 1,885
excise taxes...........
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Total Federal funds excise 22,692 23,984 24,916 25,319 25,542 25,925 25,884
taxes....................
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Trust funds:
Highway................. 34,972 35,431 36,539 37,646 38,727 39,823 40,867
Airport and airway...... 9,739 10,414 11,183 11,875 12,578 13,311 14,085
Aquatic resources....... 342 352 392 401 420 429 440
Black lung disability 518 555 570 583 596 609 618
insurance..............
Inland waterway......... 101 93 93 94 95 96 97
Hazardous substance 2 .......... .......... .......... .......... .......... ..........
superfund..............
Oil spill liability..... 182 .......... .......... .......... .......... .......... ..........
[[Page 48]]
Vaccine injury 133 134 137 140 142 143 145
compensation...........
Leaking underground 184 185 190 196 200 207 210
storage tank...........
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Total trust funds excise 46,173 47,164 49,104 50,935 52,758 54,618 56,462
taxes....................
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Total excise taxes.......... 68,865 71,148 74,020 76,254 78,300 80,543 82,346
===================================================================================
Estate and gift taxes:
Federal funds............. 29,010 31,072 32,068 34,480 37,036 35,364 35,605
Proposed Legislation .......... .......... -3,369 -7,841 -8,739 -10,467 -13,107
(PAYGO)................
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Total estate and gift taxes. 29,010 31,072 28,699 26,639 28,297 24,897 22,498
===================================================================================
Customs duties:
Federal funds............. 19,172 20,635 22,403 23,650 24,299 25,302 26,775
Proposed Legislation .......... .......... -716 -264 -274 -285 -74
(PAYGO)................
Trust funds............... 742 807 850 895 936 972 1,023
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Total customs duties........ 19,914 21,442 22,537 24,281 24,961 25,989 27,724
===================================================================================
MISCELLANEOUS RECEIPTS: \3\
Miscellaneous taxes....... 99 104 109 111 113 115 118
United Mine Workers of 155 149 143 135 129 125 121
America combined benefit
fund.....................
Deposit of earnings, 32,293 26,599 31,800 33,345 34,944 35,881 36,693
Federal Reserve System...
Proposed Legislation .......... .......... 93 98 102 107 112
(PAYGO)................
Defense cooperation....... 12 6 6 6 6 6 6
Fees for permits and 7,664 8,919 9,189 9,969 10,771 11,314 12,189
regulatory and judicial
services.................
Fines, penalties, and 2,422 1,923 1,880 1,907 1,915 1,923 1,932
forfeitures..............
Gifts and contributions... 260 286 183 172 168 170 166
Refunds and recoveries.... -79 -354 -298 -305 -317 -325 -327
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Total miscellaneous receipts 42,826 37,632 43,105 45,438 47,831 49,316 51,010
===================================================================================
Total budget receipts....... 2,025,218 2,136,946 2,191,734 2,258,240 2,338,816 2,437,783 2,528,711
On-budget................. 1,544,634 1,633,076 1,660,814 1,697,428 1,748,529 1,808,786 1,870,204
Off-budget................ 480,584 503,870 530,920 560,812 590,287 628,997 658,507
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MEMORANDUM
Federal funds............. 1,325,755 1,401,028 1,416,473 1,440,883 1,479,627 1,526,937 1,575,483
Trust funds............... 426,651 450,829 478,176 504,047 527,620 557,380 586,271
Interfund transactions.... -207,772 -218,781 -233,835 -247,502 -258,718 -275,531 -291,550
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Total on-budget............. 1,544,634 1,633,076 1,660,814 1,697,428 1,748,529 1,808,786 1,870,204
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Off-budget (trust funds).... 480,584 503,870 530,920 560,812 590,287 628,997 658,507
===================================================================================
Total....................... 2,025,218 2,136,946 2,191,734 2,258,240 2,338,816 2,437,783 2,528,711
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\1\ Deposits by States cover the benefit part of the program. Federal unemployment receipts cover administrative
costs at both the Federal and State levels. Railroad unemployment receipts cover both the benefits and
administrative 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.