[Analytical Perspectives]
[Federal Receipts and Collections]
[17. Federal Receipts]
[From the U.S. Government Printing Office, www.gpo.gov]
[[Page 237]]
17. 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.
Total receipts in 2007 are estimated to be $2,415.9 billion, an
increase of $130.4 billion or 5.7 percent relative to 2006. Receipts are
projected to grow at an average annual rate of 5.9 percent between 2007
and 2011, rising to $3,034.9 billion. This growth in receipts is largely
due to assumed increases in incomes resulting from both real economic
growth and inflation.
As a share of GDP, receipts are projected to increase from 17.5
percent in 2006 to 17.6 percent in 2007. The receipts share of GDP is
projected to increase to 17.9 percent in 2011.
Table 17-1. RECEIPTS BY SOURCE--SUMMARY
(in billions of dollars)
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Estimate
2005 Actual -----------------------------------------------------------------------------------------
2006 2007 2008 2009 2010 2011
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Individual income taxes........................ 927.2 997.6 1,096.4 1,208.5 1,268.4 1,370.1 1,466.9
Corporation income taxes....................... 278.3 277.1 260.6 268.5 277.1 282.0 292.0
Social insurance and retirement receipts....... 794.1 841.1 884.1 932.1 980.7 1,037.4 1,096.7
(On-budget).................................. (216.6) (231.1) (241.8) (253.0) (264.5) (278.9) (295.1)
(Off-budget)................................. (577.5) (610.0) (642.3) (679.1) (716.2) (758.5) (801.6)
Excise taxes................................... 73.1 73.5 74.6 75.9 77.5 78.9 83.1
Estate and gift taxes.......................... 24.8 27.5 23.7 24.4 26.0 20.1 1.6
Customs duties................................. 23.4 25.9 28.1 31.4 31.7 34.0 36.2
Miscellaneous receipts......................... 33.0 42.8 48.4 49.4 52.7 55.7 58.4
--------------------------------------------------------------------------------------------------------
Total receipts............................... 2,153.9 2,285.5 2,415.9 2,590.3 2,714.2 2,878.2 3,034.9
(On-budget)................................ (1,576.4) (1,675.5) (1,773.5) (1,911.1) (1,998.0) (2,119.7) (2,233.3)
(Off-budget)............................... (577.5) (610.0) (642.3) (679.1) (716.2) (758.5) (801.6)
Total receipts as a percentage of GDP........ 17.5 17.5 17.6 17.8 17.7 17.9 17.9
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Table 17-2. EFFECT ON RECEIPTS OF CHANGES IN THE SOCIAL SECURITY TAXABLE EARNINGS BASE
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
------------------------------------------------------
2007 2008 2009 2010 2011
----------------------------------------------------------------------------------------------------------------
Social security (OASDI) taxable earnings base increases:
$94,200 to $98,700 on Jan. 1, 2007..................... 2.3 6.1 6.8 7.6 8.6
$98,700 to $103,500 on Jan. 1, 2008.................... ......... 2.5 6.5 7.3 8.2
$103,500 to $108,600 on Jan. 1, 2009................... ......... ......... 2.6 7.0 7.8
$108,600 to $114,000 on Jan. 1, 2010................... ......... ......... ......... 2.8 7.4
$114,000 to $119,400 on Jan. 1, 2011................... ......... ......... ......... ......... 2.8
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[[Page 238]]
Chart 17-1. Major Provisions of the Tax Code Under the 2001, 2003 and 2004 Tax Cuts
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Provision 2003 2004 2005 2006 2007 2008 2009 2010 2011
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Individual Income Tax Rates reduced to ................ ................ ................... ................ ............... ............... ............... Rates increased
Rates 35, 33, 28, and 25 to 39.6, 36,
percent 31, and 28
percent
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
10 Percent Bracket Top of bracket ................ ................ ................... ................ ............... ............... ............... Bracket
increased to eliminated,
$7,000/$14,000 for making lowest
single/joint bracket 15
filers and percent
inflation-indexed
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
15 Percent Bracket for Top of bracket for ................ ................ ................... ................ ............... ............... ............... Top of bracket
Joint Filers joint filers for joint
increased to 200 filers reduced
percent of top of to 167 percent
bracket for single of top of
filers bracket for
single filers
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Standard Deduction for Standard deduction ................ ................ ................... ................ ............... ............... ............... Standard
Joint Filers for joint filers deduction for
increased to 200 joint filers
percent of reduced to 167
standard deduction percent of
for single filers standard
deduction for
single filers
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Child Credit Tax credit for each ................ ................ ................... ................ ............... ............... ............... Tax credit for
qualifying child each
under age 17 qualifying
increased to child under
$1,000 age 17 reduced
to $500
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Estate Taxes Top rate reduced to Top rate reduced Top Rate reduced Top rate reduced to Top rate reduced ............... Exempt amount Estate tax Top rate
49 percent to 48 percent to 47 percent 46 percent to 45 percent increased to repealed increased to
Exempt amount Exempt amount $3.5 million 60 percent
increased to increased to $2 Exempt amount
$1.5 million million reduced to $1
million
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Small Business Expensing Deduction increased ................ ................ ................... ................ Deduction ............... ............... ...............
to $100,000, declines to
reduced by amount $25,000,
qualifying reduced by
property exceeds amount
$400,000, and both qualifying
amounts inflation- property
indexed exceeds
Includes software $200,000 and
amounts not
inflation-
indexed
Does not apply
to software
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Capital Gains Tax rate on capital ................ ................ ................... ................ Tax on capital Tax rate on ............... ...............
gains reduced to 5/ gains capital gains
15 percent eliminated for increased to
taxpayers in 10/20 percent
10/15 percent
tax brackets
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[[Page 239]]
Dividends Tax rate on ................ ................ ................... ................ Tax on Dividends taxed ............... ...............
dividends reduced dividends at standard
to 5/15 percent eliminated for income tax
taxpayers in rates
10/15 percent
tax brackets
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Bonus Depreciation Bonus depreciation ................ Bonus ................... ................ ............... ............... ............... ...............
increased to 50 depreciation
percent of expires
qualified property
aquired after
5/5/03
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Alternative Minimum Tax AMT exemption ................ ................ AMT exemption ................ ............... ............... ............... ...............
amount increased amount reduced to
to $40,250/$58,000 $33,750/$45,000
for single/joint for single /joint
filers filers
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ENACTED LEGISLATION
Several laws were enacted in 2005 that have an effect on governmental
receipts. The major legislative changes affecting receipts are described
below.
ENERGY POLICY ACT OF 2005
This Act, which was signed by President Bush on August 8, 2005, laid
the groundwork for a more energy-independent United States. The major
provisions of this Act were designed to help secure our energy future
and reduce our dependence on foreign sources of energy by encouraging
conservation and efficiency, diversifying our energy supply with
alternative and renewable sources, expanding domestic energy production
in an environmentally sensitive way, and modernizing our electricity
infrastructure. The major provisions of this Act affecting receipts are
described below.
Energy Infrastructure
Extend and modify tax credit for producing electricity from certain
renewable resources.--Taxpayers are allowed a tax credit for electricity
produced from wind, biomass, landfill gas and certain other sources.
Biomass includes closed-loop biomass (organic material from a plant
grown exclusively for use at a qualifying facility to produce
electricity) and open-loop biomass (biomass from agricultural livestock
waste nutrients or cellulosic waste material derived from forest-related
resources, agricultural sources, and other specified sources). Closed-
loop biomass may be co-fired with coal, with other biomass, or with both
coal and other biomass. The credit rate is 1.5 cents per kilowatt hour
for electricity produced from wind and closed-loop biomass and 0.75 cent
per kilowatt hour for electricity produced from open-loop biomass and
landfill gas (both rates are adjusted for inflation since 1992). To
qualify for the credit under prior law, the electricity had to be
produced at a facility placed in service before January 1, 2006 unless
it was a refined coal facility, for which the placed-in-service date was
extended three years, through December 31, 2008. This Act extended the
placed-in-service date by two years, through December 31, 2007, for
electricity produced from all qualifying facilities, except those
producing electricity from solar energy and refined coal. For facilities
producing electricity from solar energy and refined coal, the placed-in-
service termination dates of prior law were not changed.
This Act expanded the energy production credit to apply to electricity
produced from hydropower at a facility: (1) that produced hydroelectric
power before August 8, 2005 and to which efficiency improvements or
additions to capacity are made after August 8, 2005 and before January
1, 2008; or (2) that did not produce hydroelectric power before August
8, 2005 and to which turbines or other electricity generating equipment
is added after August 8, 2005 and before January 1, 2008. This Act also
expanded the credit to apply to sales of coal produced from coal
reserves that on June 14, 2005 were: (1) owned by a tribe of Indians
recognized by the United States; or (2) were held in trust for a tribe
of Indians or its members by the United States. The credit for Indian
coal is $1.50 per ton for coal sold after December 31, 2005 and before
January 1, 2010, and $2.00 per ton for coal sold after December 31, 2009
and before January 1, 2013 (both rates are adjusted for inflation).
Under prior law, cooperatives were not allowed to pass any portion of
the energy production credit through to their patrons. Under this Act,
eligible cooperatives may elect to pass any portion of the credit
through to their patrons.
Provide tax credits for investment in clean coal facilities.--Under
this Act, a 20-percent tax credit was provided for qualified investments
in electricity production facilities using integrated gasification
combined cycle (IGCC) technologies and a 15-percent credit was
[[Page 240]]
provided to qualified investments in electricity production facilities
using other advanced coal-based technologies. Qualified projects must be
economically feasible and use the appropriate clean coal technologies.
The Secretary of Treasury, in consultation with the Secretary of Energy,
may allocate $800 million of credits to IGCC projects and $500 million
of credits to projects using other advanced coal-based technologies. A
20-percent tax credit was also provided for investment in certified
gasification projects. The total amount of gasification credits
allocable by the Secretary of the Treasury is $350 million. These three
credits are effective for qualified investments made after August 8,
2005.
Modify treatment of nuclear decommissioning funds.--Under prior law,
deductible contributions to nuclear decommissioning funds were limited
to the amount included in the taxpayer's cost of service to ratepayers.
In addition, deductible contributions were not permitted to exceed the
amount the Internal Revenue Service (IRS) determined to be necessary to
provide for level funding of an amount equal to the taxpayer's post-1983
decommissioning costs. Effective for taxable years beginning after
December 31, 2005, this Act repealed the cost-of-service requirement for
deductible contributions to a nuclear decommissioning fund and expanded
the deduction to apply to pre-1984 decommissioning costs. As provided
under prior law, deductible contributions may not be made more rapidly
than required to provide for level funding of the taxpayer's
decommissioning costs.
Reduce recovery period for certain assets used in the transmission of
electricity.--Under the Modified Accelerated Cost Recovery System
(MACRS) of current law, assets used in the transmission and distribution
of electricity for sale may be depreciated over 20 years. This Act
reduced the recovery period for certain assets used in the transmission
of electricity for sale to 15 years. To qualify for the reduced recovery
period: (1) the original use of the property must commence with the
taxpayer after April 11, 2005; (2) the property must be used in the
transmission at 69 or more kilovolts of electricity for sale; and (3)
the property must not be subject to a binding contract on or before
April 11, 2005 or, if self-constructed, the taxpayer or a related party
must not have started construction on or before such date.
Provide 84-month amortization for certain air pollution control
facilities.--A taxpayer may elect to recover a portion of the cost of a
certified pollution control facility over a period of 60 months under
current law. To be eligible, the pollution control facility must be new,
used in connection with a plant in operation before January 1, 1976,
certified as being in conformity with State and Federal environmental
laws, and meet certain other requirements. The amortizable portion is
100 percent if the facility has a depreciation recovery period of 15
years or less; otherwise, the portion equals 15 divided by the recovery
period. This Act provided 84-month amortization to a similar portion of
the cost of certified air pollution control facilities used in
connection with an electric generation plant that is primarily coal
fired and that was not in operation before January 1, 1976. For an air
pollution control facility to be eligible for cost recovery over a
period of 84 months: (1) its construction, reconstruction, or erection
must be completed after April 11, 2005; or (2) it must be acquired after
April 11, 2005 and its original use must commence with the taxpayer
after that date.
Domestic Fossil Fuel Security
Allow expensing of equipment used in the refining of liquid fuels.--
This Act allowed a taxpayer to elect to treat 50 percent of the cost of
qualified refinery investments as a current expense. An eligible
investment must be placed in service after August 8, 2005 and before
January 1, 2012, and cannot be subject to a written binding construction
contract in effect on or before June 14, 2005. If self-constructed,
construction must begin after June 14, 2005 and before January 1, 2008;
otherwise, a written binding contract for construction must be entered
into before January 1, 2008, or the property must be placed in service
before that date. The original use of the property must commence with
the taxpayer, and the property must meet all applicable environmental
laws. If part of an existing refinery, the investment must increase
refining capacity by at least five percent or increase the throughput of
qualified fuels by at least 25 percent. Qualified fuels include oil
produced from shale and tar sands. As a condition of eligibility,
refineries of liquid fuels must report to the IRS on refinery
operations.
Reduce recovery period for certain natural gas distribution lines.--
Under MACRS, natural gas distribution lines are assigned a 20-year
recovery period. This Act established a 15-year recovery period for
natural gas distribution lines, the original use of which begins with
the taxpayer after April 11, 2005 and before January 1, 2011. The
shortened recovery period does not apply to property subject to a
binding contract on or before April 11, 2005, or, if self-constructed,
the taxpayer or a related party must not have started construction on or
before such date.
Treat natural gas gathering lines as seven-year property.--This Act
clarified existing law by establishing a statutory seven-year recovery
period for natural gas gathering lines, the original use of which
commences with the taxpayer after April 11, 2005. In addition, no
depreciation adjustment must be made with respect to this property in
computing a taxpayer's alternative minimum taxable income.
Provide two-year amortization for certain geological and geophysical
expenditures.--Geological and geophysical expenditures (G&G costs) are
costs incurred by a taxpayer for the purpose of obtaining and
accumulating data that will serve as the basis for the
[[Page 241]]
acquisition and retention of mineral properties by taxpayers exploring
for minerals. A key issue with regard to such costs has been whether or
not they are capital in nature. Various courts have held that G&G costs
are capital and allocable to the cost of the property acquired or
retained; IRS administrative rulings have provided further guidance
regarding the definition and proper tax treatment of such costs. Under
this Act, G&G costs paid or incurred in taxable years beginning after
August 8, 2005, in connection with oil and gas exploration in the United
States, may be amortized over two years.
Conservation and Energy Efficiency
Provide personal tax credit for certain solar energy equipment.--This
Act provided a new nonrefundable tax credit for individuals who purchase
qualified solar energy equipment to generate electricity (photovoltaic
equipment) or heat water (solar water heating equipment) for use in a
dwelling unit that the individual uses as a residence. Expenditures that
are properly allocable to a swimming pool or hot tub do not qualify for
the credit. The credit, which applies to property placed in service
after December 31, 2005 and before January 1, 2008, is equal to 30-
percent of the cost of the equipment and its installation, with a
maximum credit of $2,000 for each system. A 30-percent credit for the
cost of qualified fuel cell power plants, not to exceed $500 for each
0.5 kilowatt of capacity, was also provided.
Provide tax credit for energy-efficient improvements to principal
residences.--This Act provided a nonrefundable 10-percent tax credit to
homeowners for the cost of purchasing qualified energy efficient
improvements installed in or on a dwelling unit in the United States
that is used as their principal residence. Qualified energy efficient
improvements include any energy efficiency building envelope component
that meets or exceeds the prescriptive criteria for such a component
established by the 2000 International Energy Conservation Code as
supplemented and in effect on August 8, 2005. Building envelope
components are: (1) insulation materials or systems that are
specifically and primarily designed to reduce the heat loss or gain for
a dwelling; (2) exterior windows (including skylights) and doors; and
(3) metal roofs with appropriate pigmented coating specifically and
primarily designed to reduce the heat gain for a dwelling. The credit,
which applies to property placed in service after December 31, 2005 and
before January 1, 2008, may not exceed $500 over all taxable years, and
no more than $200 of such credit may be attributable to expenditures on
windows.
This Act also provided a tax credit to homeowners for the cost of
residential energy property installed in or on a dwelling unit in the
United States that is used as their principal residence. Residential
energy property includes: (1) advanced main air circulating fans; (2)
qualified natural gas, propane, or oil furnaces and hot water boilers;
and (3) energy-efficient building property (certain electric and
geothermal heat pumps, air conditioners, and natural gas, propane, or
oil water heaters). The credit, which applies to property placed in
service after December 31, 2005 and before January 1, 2008, may not
exceed $50 per fan, $150 for each furnace or boiler, and $300 for each
item of energy-efficient building property.
Provide tax credit for the purchase of qualified hybrid, fuel cell and
alternative fuel motor vehicles.--A qualified fuel cell vehicle is
propelled by power derived from one or more cells that convert chemical
energy directly into electricity. This Act provided a credit for the
purchase of fuel cell vehicles, effective for vehicles placed in service
after December 31, 2005 and before January 1, 2015. The amount of the
credit is equal to a base credit amount, determined by the weight class
of the vehicle and, in the case of automobiles and light trucks, an
additional credit amount, determined by the rated fuel economy of the
vehicle compared to the 2002 model year city fuel economy rating for
vehicles of various weight classes. The base credit amount ranges from
$8,000 ($4,000 after December 31, 2009) for vehicles with a gross weight
less than or equal to 8,500 pounds, to $40,000 for vehicles weighting
over 26,000 pounds. The additional credit amount ranges from $1,000 for
a fuel economy rating that is at least 150 percent, but less than 175
percent of the 2002 model year city fuel economy rating, to $4,000 for a
fuel economy rating that is at least 300 percent of the 2002 model year
city fuel economy rating.
A qualified alternative fuel motor vehicle operates only on qualifying
alternative fuels (compressed natural gas, liquefied natural gas,
liquefied petroleum gas, hydrogen and any liquid fuel that is at least
85 percent methanol) and is incapable of operating on gasoline or diesel
fuel (except to the extent that gasoline or diesel fuel is part of a
qualified mixed fuel). This Act provided a credit for the purchase of
alternative fuel vehicles, effective for vehicles placed in service
after December 31, 2005 and before January 1, 2011. The credit is equal
to 50 percent of the incremental cost of the vehicle (the excess of the
manufacturer's suggested retail price over the manufacturer's suggested
retail price for a comparable gasoline or diesel vehicle), plus an
additional 30 percent if the vehicle meets certain emissions standards.
Depending on the weight of the vehicle, a maximum allowable incremental
cost is specified, ranging from $5,000 for a vehicle weighing less than
or equal to 8,500 pounds, to $40,000 for a vehicle weighing more than
26,000 pounds. The total credit for the purchase of a new alternative
fuel vehicle may not exceed $4,000 for a vehicle weighing less than or
equal to 8,500 pounds and $32,000 for a vehicle weighing more than
26,000 pounds. Certain mixed fuel vehicles (vehicles that use a
combination of an alternative fuel and a petroleum-based fuel) are
eligible for a reduced credit. Specifically, if the vehicle operates on
a mixed fuel that is at least 75 percent alternative fuel, the vehicle
is eligible for 70 percent of the other
[[Page 242]]
wise allowable alternative fuel vehicle credit and if the vehicle
operates on a mixed fuel that is at least 90 percent alternative fuel,
the vehicle is eligible for 90 percent of the otherwise allowable
credit.
A qualified hybrid vehicle is a motor vehicle that draws propulsion
energy from on-board sources of stored energy that include both an
internal combustion engine or heat engine using combustible fuel and a
rechargeable energy storage system. This Act provided a credit for the
purchase of qualified hybrid motor vehicles placed in service after
December 31 2005 and before January 1, 2011 (January 1, 2010 in the case
of a qualified hybrid vehicle weighing more than 8,500 pounds). For a
qualified hybrid automobile or light truck weighing less than or equal
to 8,500 pounds, or a lean-burn technology motor vehicle, the credit
consists of two components: (1) a fuel economy credit of $400 to $2,400,
depending upon the rated fuel economy of the vehicle compared to the
2002 model year standard; and (2) a conservation credit of $250 to
$1,000, depending upon the estimated lifetime fuel savings of the
vehicle compared to a comparable 2002 model year vehicle. For a
qualified hybrid vehicle weighing more than 8,500 pounds (a medium or
heavy truck), the amount of credit is determined by the estimated
increase in fuel economy and the incremental cost of the hybrid vehicle
compared to a vehicle comparable in weight, size and use that is powered
solely by a gasoline or diesel internal combustion engine. Depending on
the weight of the vehicle, a maximum incremental cost is specified,
ranging from $7,500 for a vehicle weighing more than 8,500 pounds but
less than or equal to 14,000 pounds, to $30,000 for a vehicle weighing
more than 26,000 pounds. For a vehicle that achieves a fuel economy
increase of at least 30 percent but less than 40 percent, the credit is
equal to 20 percent of the incremental cost of the vehicle. The credit
increases to 30 percent of the incremental cost for a vehicle that
achieves a fuel economy increase of at least 40 percent but less than 50
percent, and to 40 percent of the incremental cost for a vehicle that
achieves a fuel economy increase of 50 percent or more. In the case of
passenger automobiles and light trucks, a limitation is imposed on the
number of qualified hybrid motor vehicles and advanced lean-burn
technology motor vehicles sold by each manufacturer. Taxpayers may claim
the full amount of the allowable credit up to the end of the first
calendar quarter following the quarter in which the manufacturer from
whom they purchased their vehicle records its 60,000th sale of a hybrid
or advanced lean-burn technology passenger automobile or light truck.
The credit declines to one half the otherwise allowable amount in the
subsequent two quarters, to one quarter of the otherwise allowable
amount in the next two quarters, and then expires.
Provide additional incentives to promote energy conservation and
efficiency.--This Act provided a number of additional incentives to
promote energy conservation and efficiency, which included: (1) a tax
deduction for energy-efficient property installed during the
construction of a commercial building; (2) tax credits for the purchase
of qualified fuel cell and stationary micro-turbine power plants; (3) a
tax credit for the construction of qualified new energy-efficient homes;
and (4) a tax credit for the production of certain energy-efficient
dishwashers, clothes washers and refrigerators.
Offsets
Reinstate excise taxes deposited in the Oil Spill Liability Trust
Fund.--Between December 31, 1989 and January 1, 1995, a five-cent-per-
barrel tax was imposed on: (1) crude oil received at a U.S. refinery;
(2) imported petroleum products received for consumption, use or
warehousing; and (3) any domestically produced crude oil that was
exported from the United States if, before exportation, no taxes were
imposed on the crude oil. Collections of the tax, which were deposited
in the Oil Spill Liability Trust Fund, were used for several purposes,
including the payment of costs associated with responding to and
removing oil spills. The tax was imposed only if the unobligated balance
in the Oil Spill Liability Trust Fund was less than $1 billion. This Act
reinstated this tax, effective April 1, 2006 through December 31, 2014.
The tax will be suspended during a calendar quarter if, at the close of
the preceding quarter, the unobligated balance in the Fund exceeds $2.7
billion.
Extend excise taxes deposited in the Leaking Underground Storage Tank
(LUST) Trust Fund.--An excise tax is imposed, generally at a rate of 0.1
cents per gallon, on gasoline and other liquid motor fuels used on
highways, in aviation, on inland waterways, and in diesel-powered
trains. The tax, which is deposited in the LUST Trust Fund, was
scheduled to expire on October 1, 2005 under prior law. This Act
extended the tax through September 30, 2011. In addition, the tax was
expanded to apply to dyed fuel, which was exempt from the tax under
prior law and all other liquid fuel that is not exported.
Modify recapture of section 197 amortization.--Gain on the sale of
depreciable property must be recaptured as ordinary income to the extent
of depreciation deductions previously claimed. The recapture amount is
computed separately for each item of property that is sold. This Act
modified the recapture rules of current law with respect to dispositions
of section 197 intangibles. Section 197 intangibles include goodwill; a
patent, copyright, formula, design or similar item; any license, permit,
or other right granted by a governmental unit or agency; and any
franchise, trademark, or trade name. Under this Act, multiple section
197 intangibles sold in a single transaction or in a series of
transactions after August 8, 2005 are treated as a single asset for the
purpose of calculating the amount of gain to be recaptured as ordinary
income. This rule does not apply to any amortizable section 197
intangible for which adjusted basis exceeds fair market value.
[[Page 243]]
SAFE, ACCOUNTABLE, FLEXIBLE, EFFICIENT
TRANSPORTATION EQUITY ACT: A LEGACY FOR USERS
This Act, which was signed by President Bush on August 10, 2005,
reauthorized Federal spending for surface transportation programs
through 2009, extended Federal highway taxes through 2011, and made
numerous changes to transportation laws affecting safety, the
environment, and other matters. The major provisions of this Act
affecting receipts are described below.
Trust Fund Reauthorization
Extend excise taxes deposited in the Highway Trust Fund.--Excise taxes
imposed on nonaviation gasoline, diesel fuel, kerosene, special motor
fuels, heavy highway vehicles, and tires for heavy highway vehicles
generally are deposited in the Highway Trust Fund. Taxes deposited in
the Highway Trust Fund are imposed on nonaviation gasoline at a rate of
18.3 cents per gallon, on diesel fuel and kerosene at a rate of 24.3
cents per gallon, and on special motor fuels at varying rates. Under
prior law, these tax rates were scheduled to fall to 4.3 cents per
gallon (or comparable rates in the case of special motor fuels) on
October 1, 2005. A tax equal to 12 percent of the sales price is imposed
on the first retail sale of heavy highway vehicles (generally, trucks
with a gross weight greater than 33,000 pounds, trailers with a gross
weight greater than 26,000 pounds, and highway tractors). In addition, a
heavy highway vehicle use tax of up to $550 per year is imposed on
highway vehicles with a gross weight of at least 55,000 pounds. A tax is
also imposed on tires with a rated load capacity exceeding 3,500 pounds,
generally at a rate of 0.945 cent per pound of excess. Under prior law,
the taxes on heavy highway vehicles and tires for heavy highway vehicles
were scheduled to expire on September 30, 2005; the heavy vehicle use
tax was scheduled to expire on September 30, 2006. This Act extended the
taxes on nonaviation gasoline, diesel fuel, kerosene, special motor
fuels, heavy highway vehicles, tires for heavy highway vehicles, and the
use of heavy highway vehicles at their prior law rates through September
30, 2011.
Eliminate Aquatic Resources Trust Fund and create Sport Fish
Restoration and Boating Trust Fund.--Under prior law, 13.5 cents per
gallon of the excise taxes imposed on motorboat gasoline and special
motor fuels, and on gasoline used as a fuel in the nonbusiness use of
small-engine outdoor power equipment, was transferred from the Highway
Trust Fund to the Land and Water Conservation Fund and to the Boat
Safety and Sport Fish Restoration Accounts of the Aquatic Resources
Trust Fund. The remaining 4.8 cents per gallon of these taxes was
retained in the General Fund of the Treasury. Amounts transferred from
the Highway Trust Fund to the Land and Water Conservation Fund and the
Aquatic Resources Trust Fund were allocated as follows: (1) Up to $70
million in annual collections was transferred to the Boat Safety
Account, subject to an overall limit equal to the amount that would not
cause the Boat Safety Account to have an unobligated balance in excess
of $70 million. (2) The next $1 million in annual collections was
transferred to the Land and Water Conservation Fund. (3) All remaining
annual collections were transferred to the Sport Fish Restoration
Account. As explained in the preceding discussion of the Highway Trust
Fund, these excise taxes were scheduled to decline to 4.3 cents per
gallon on September 30, 2005; in addition, the retention of 4.8 cents
per gallon of these taxes in the General Fund of the Treasury was
scheduled to expire on that date.
Effective October 1, 2005, this Act eliminated the Aquatic Resources
Trust Fund and created the Sport Fish Restoration and Boating Trust
Fund. This Act also extended the taxes on motorboat fuels and on
gasoline used as a fuel in the nonbusiness use of small-engine outdoor
power equipment at their prior law rates through September 30, 2011, but
did not extend the retention of 4.8 cents per gallon of these taxes in
the General Fund of the Treasury. Therefore, effective October 1, 2005,
18.3 cents per gallon of the taxes on these fuels is deposited in the
Highway Trust Fund and then transferred to the Land and Water
Conservation Fund and to the Sport Fish Restoration and Boating Trust
Fund as follows: (1) The first $1 million in annual collections is
transferred to the Land and Water Conservation Fund. (2) All remaining
annual collections are transferred to the Sport Fish Restoration and
Boating Trust Fund.
Excise Tax Simplification and Reform
Modify excise taxes on the retail sale of certain automobiles, heavy
trucks and trailers.--An excise tax is imposed on the sale of
automobiles weighing less than or equal to 6,000 pounds with a fuel
economy less than or equal to 22.5 miles per gallon. The tax ranges from
$1,000 to $7,700, depending on the fuel economy of the automobile. Under
prior law, the tax applied to all limousines, regardless of their
weight. Effective for sales after September 30, 2005, this Act repealed
the tax with respect to limousines weighing more than 6,000 pounds.
A tax equal to 12 percent of the sales price is imposed on the first
retail sale of heavy highway vehicles. Under prior law, the tax was
imposed on trucks with a gross weight greater than 33,000 pounds;
trailers with a gross weight greater than 26,000 pounds; and highway
tractors, regardless of weight. Effective for sales after September 30,
2005, this Act repealed the tax with respect to tractors weighing less
than or equal to 19,500 pounds, provided that when combined with a towed
vehicle, the total weight does not exceed 33,000 pounds.
Modify taxation of alternative fuels.--In general, nonaviation
gasoline is taxed at 18.3 cents per gallon, aviation gasoline is taxed
at 19.3 cents per gallon, and diesel fuel and kerosene are taxed at 24.3
cents per gallon. Although most special motor fuels are subject
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to tax at 18.3 cents per gallon, certain special motor fuels and
compressed natural gas are taxed at reduced rates. Effective for sales
after September 30, 2006, this Act increased the tax on certain special
motor fuels as follows: (1) Liquefied petroleum gas and P Series fuels
(as defined by the Secretary of Energy) will be taxed at 18.3 cents per
gallon. (2) Compressed natural gas will be taxed at 18.3 cents per
energy equivalent of a gallon of gasoline. (3) Liquefied natural gas,
any liquid fuel derived from coal (other than ethanol or methanol) and
liquid hydrocarbons derived from biomass will be taxed at 24.3 cents per
gallon. This Act also created two new excise tax credits--the
alternative fuel credit and the alternative fuel mixture credit--for the
sale or use of alternative fuels. For purposes of the credits,
alternative fuels are defined as liquefied petroleum gas, P Series fuels
(as defined by the Secretary of Energy), compressed or liquefied natural
gas, liquefied hydrogen, liquid fuel derived from coal through the
Fisher-Tropsch process, and liquid hydrocarbons derived from biomass.
The alternative fuel credit is 50 cents for each gallon of alternative
fuel or gasoline-gallon equivalent of nonliquid alternative fuel sold by
the taxpayer for use as a motor fuel in a motor vehicle or motorboat.
The alternative fuel mixture credit is 50 cents for each gallon of
alternative fuel used in producing an alternative fuel mixture for sale
or use in a trade or business of the taxpayer. These credits, which are
effective for qualified fuels sold or used after October 1, 2006 and
before October 1, 2009 (October 1, 2014 for liquefied hydrogen), are to
be paid from the General Fund of the Treasury.
Cap excise tax on certain fishing equipment.--Effective for sales
after September 30, 2005, the 10-percent excise tax imposed on the sale
of fishing rods and poles is capped at $10.00 on each rod and pole sold.
Modify aviation excise taxes.--Fuel used on a farm for farming
purposes is exempt from Federal excise taxes on fuel. Under prior law,
crop-dusters, instead of farm owners and operators, were allowed to
claim a refund for taxes on aviation fuel consumed while operating over
a farm if they had written consent from the farm owner or operator. Fuel
consumed traveling to and from the farm was not exempt from Federal
excise taxes on fuel. This Act repealed the requirement that crop-
dusters receive written consent to apply for a refund and clarified that
travel to and from a farm is exempt use, effective for fuel used after
September 30, 2005.
Domestic passenger tickets are subject to an air passenger ticket tax
equal to 7.5 percent of the ticket price, plus $3.20 per domestic flight
segment. Amounts paid to persons engaged in the business of transporting
property by air for hire are subject to an air cargo tax of 6.25
percent. The air passenger ticket tax does not apply to: (1)
transportation by helicopter if the helicopter does not use Federally
funded airport and airway services and is used for certain timber
operations or the exploration, development or removal of oil, gas, or
hard minerals; and (2) helicopters and fixed-wing aircraft that provide
emergency medical services. In addition, the $3.20 tax on flight
segments does not apply to a domestic segment beginning or ending at a
rural airport. Neither the air passenger ticket tax nor the air cargo
tax apply to transportation by an aircraft having a maximum certificated
takeoff weight of 6,000 pounds or less unless the aircraft is operated
on an established line. Under prior law, a rural airport was defined as
an airport that: (1) had fewer than 100,000 passengers departing by air
during the second preceding calendar year and was located more than 75
miles from a larger airport; or (2) was receiving essential air service
subsidy payments as of August 5, 1997. This Act expanded the definition
of a rural airport, effective October 1, 2005, to include airports not
connected by paved roads to another airport and having fewer than
100,000 passengers departing on flight segments of at least 100 miles
during the second preceding calendar year. This Act also expanded the
types of transportation exempt from the passenger ticket and/or air
cargo tax, effective with respect to transportation beginning after
September 30, 2005. The expansions included the following: (1) The
exemption of transportation by a seaplane from the air passenger ticket
tax and the air cargo tax, provided the take off is from, and the
landing is on, water, and the places from which such landings and
takeoffs occur have not received or are not receiving financial
assistance from the Airport and Airway Trust Fund. (2) The exemption of
fixed-wing aircraft engaged in timber operations from aviation excise
taxes if they are not using Federally-funded airport and airway
services. (3) The exemption of sightseeing flights from the passenger
ticket tax.
Modify alcohol-related excise taxes.--The 2004 job creation act
suspended the special occupational taxes imposed on producers and others
engaged in the marketing of distilled spirits, wine, and beer, for the
period July 1, 2005 through June 30, 2008. This Act repealed these taxes
effective July 1, 2008. This Act also: (1) provided an income tax credit
to eligible wholesalers, distillers, and importers of distilled spirits
for the cost of carrying tax-paid products in inventory, effective for
taxable years beginning after September 30, 2005; and (2) allowed
certain domestic producers and importers of distilled spirits, wine, and
beer with annual excise tax liability of $50,000 or less attributable to
these articles in the preceding calendar year to file returns and pay
taxes quarterly (rather than semi-monthly) in most cases effective for
quarterly periods beginning after December 31, 2005.
Provide custom gunsmiths an exemption from taxes on firearms and
ammunition.--Sales of firearms and ammunition by the manufacturer,
producer or importer generally are subject to an excise tax of 10 or 11
percent of the retail price, depending upon the type of good sold. Sales
of machine guns and short-barreled firearms are exempt from the tax.
This Act
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expanded the exemption to apply to sales of firearms, pistols, and
revolvers by a person who manufactures, produces, or imports less than
50 of such articles during the calendar year. The exemption is effective
for sales after September 30, 2005.
Other Provisions
Provide tax-exempt financing for highway projects and rail-truck
transfer facilities.--This Act authorized $15 billion of tax-exempt bond
authority to finance qualified highway or surface freight transfer
facilities.
Modify treatment of kerosene for use in aviation.--In general,
aviation-grade kerosene is taxed at a rate of 21.8 cents per gallon when
it enters the United States, is removed from a refinery or terminal, or
is sold to an unregistered person, unless there was a prior taxation
upon entry or removal of the fuel. Aviation-grade kerosene may be taxed
at a reduced rate, either 4.3 or zero cents per gallon, if it is removed
directly into the fuel tank of an aircraft for use in commercial
aviation or is for a use that is exempt from tax. Kerosene used for
surface transportation is taxed at the diesel fuel rate of 24.3 cents
per gallon. Under this Act, all kerosene is taxed at a rate of 24.3
cents per gallon unless it is removed directly into the fuel tank of an
aircraft or is for a use that is exempt from tax. This change is
effective for kerosene that enters the United States, is removed from a
refinery or terminal, or is sold after September 30, 2005. If the
kerosene taxed at 24.3 cents per gallon is used for aviation or tax
exempt purposes, a credit or refund may be claimed.
Combat fuel fraud.--This Act included a number of provisions designed
to combat fuel fraud. Under this Act: (1) Farmers who purchase clear
diesel fuel must pay the excise tax on that fuel and then claim a refund
for taxes paid on fuel used for farming purposes. (2) Credit card
companies that allow tax-exempt fuel purchases on their cards must
register with the IRS and be the party responsible for claiming refunds
of the tax. (3) Blenders, importers, pipeline operators, position
holders, refiners, terminal operators, and vessel operators who are
registered with the IRS must reregister in the event of a change in
ownership. (4) Information regarding taxable fuels destined for the
United States must be transmitted electronically from the Bureau of
Customs and Border Control to the IRS. (5) Operators of deep-draft
ocean-going vessels used in the bulk transfer of fuel must register with
the IRS.
KATRINA EMERGENCY TAX RELIEF
ACT OF 2005
This Act, which was signed by President Bush on September 23, 2005,
provided emergency tax relief for individuals and employers affected by
Hurricane Katrina and incentives for charitable giving. For purposes of
this Act, the ``Hurricane Katrina disaster area'' is the area with
respect to which a major disaster was declared by President Bush before
September 14, 2005 by reason of Hurricane Katrina and the term ``core
disaster area'' means that portion of the Hurricane Katrina disaster
area determined by the President to warrant individual or individual and
public assistance. The major provisions of this Act are described below.
Tax Relief for Victims of Hurricane Katrina
Suspend certain limitations on personal casualty losses.--Under
current law, a taxpayer generally is allowed to claim a deduction for
any uncompensated loss of nonbusiness property arising from theft or
casualty (e.g., fire, storm). Personal theft and casualty losses are
deductible only if they exceed $100 per casualty or theft. In addition,
aggregate net losses from casualty or theft are deductible only to the
extent that they exceed 10 percent of the taxpayer's adjusted gross
income (AGI). Effective for personal casualty and theft losses occurring
in the Hurricane Katrina disaster area on or after August 25, 2005 and
attributable to the hurricane, this Act suspended both the $100 and 10-
percent-of-AGI limitations otherwise applicable under current law. In
addition, losses under this provision are disregarded when applying the
10-percent-of-AGI threshold to other personal casualty or theft losses.
Extend replacement period for non-recognition of gain.--Gain realized
by a taxpayer on the involuntary conversion of property generally is
deferred to the extent the taxpayer purchases property similar or
related in service or use to the converted property within the
replacement period. The replacement period generally begins with the
date of the disposition of the converted property and ends two years
after the close of the first taxable year in which any part of the gain
upon conversion is realized. Under current law, special rules extend the
replacement period for certain real property and principal residences
damaged by a Presidentially declared disaster or the terrorist attacks
on September 11, 2001, and for livestock sold as the result of drought,
flood, or other weather-related conditions. This Act extended from two
to five years the replacement period for property in the Hurricane
Katrina disaster area compulsorily or involuntarily converted on or
after August 25, 2005, as a result of the hurricane.
Provide exclusion for certain cancellations of indebtedness.--Under
current law, gross income generally includes any income realized by a
debtor from the discharge of indebtedness, subject to certain exceptions
for debtors in Title 11 bankruptcy cases, insolvent debtors, certain
farm indebtedness, and certain real property business indebtedness. This
Act excluded from gross income the discharge of nonbusiness debt on or
after August 28, 2005 and before January 1, 2007, if the debtor's
principal place of abode on August 25, 2005 was located in: (1) the core
disaster area, or (2) the Hurricane Katrina disaster area and such
person suffered economic loss as a result of the hurricane.
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Provide special rule for purposes of computing the child tax credit
and earned income tax credit.--The earned income tax credit (EITC) is a
refundable credit for low-income workers, the amount of which depends on
the earned income of the taxpayer and whether the taxpayer has one, more
than one, or no qualifying children. Taxpayers with income below certain
thresholds also are eligible for a child credit for each qualifying
child, which may be refundable. Under this Act, qualified individuals
were permitted to elect to use their earned income from the prior
taxable year to determine eligibility for these credits for the taxable
year that includes August 25, 2005 if their earned income for the
taxable year that includes August 25, 2005 was less than their earned
income for the preceding taxable year. Qualified individuals are those
whose principal place of abode on August 25, 2005 was located in: (1)
the core disaster area, or (2) in the Hurricane Katrina disaster area
and who were displaced by the hurricane.
Provide special rules for mortgage revenue bonds.--Under current law
State and local governments may issue mortgage revenue bonds (MRBs) to
provide low-interest rate financing to qualified individuals for the
purchase, improvement, or rehabilitation of owner-occupied residences.
Several restrictions, including purchase price limitations, mortgagor
income, and the first-time homebuyer requirement (except with regard to
residences in certain targeted areas) apply to the financing of
mortgages with MRBs. Effective for financing provided before January 1,
2008, this Act waived the first-time homebuyer requirement of current
law with respect to financing for: (1) residences located in the core
disaster area, and (2) any other residence if the mortgagor owned a
principal residence in the Hurricane Katrina disaster area on August 28,
2005 that was rendered uninhabitable by the hurricane and the residence
being financed is located in the same State as the prior principal
residence. This Act also increased the current law limitation on home
improvement loans financed with MRBs from $15,000 to $150,000 for
residences located in the Hurricane Katrina disaster area, to the extent
the loan is for the repair of damage caused by the hurricane.
Extend tax filing and payment deadlines.--Deadlines for the filing of
tax returns and the payment of taxes, including employment and excise
taxes, otherwise required on or after August 25, 2005, were extended
until February 28, 2006 for taxpayers affected by Hurricane Katrina.
Authorize the Secretary of the Treasury to make adjustment regarding
taxpayer and dependency status.--This Act authorized the Secretary of
the Treasury to make adjustments in applying the Federal tax laws that
may be necessary to ensure that taxpayers do not lose any deduction or
credit or experience a change of filing status because of temporary
relocations caused by Hurricane Katrina. This provision applies to
taxable years beginning in 2005 and 2006.
Tax Relief for Employers
Expand eligibility for the work opportunity tax credit.--Under current
law, the work opportunity tax credit is available for first-year wages
paid to a qualified individual from one or more of eight targeted groups
who begins work before January 1, 2006. This Act expanded eligibility
for the credit to include wages paid to: (1) an individual who on August
28, 2005 had a principal place of abode in the core disaster area and is
hired during the two-year period beginning on such date for a position,
the principal place of employment of which is located in the core
disaster area; and (2) an individual who on August 28, 2005 had a
principal place of abode in the core disaster area, was displaced from
such abode by reason of Hurricane Katrina, and is hired during the
period beginning on such date and ending on December 31, 2005, without
regard to whether the new principal place of employment is in the core
disaster area.
Provide an employee retention credit to employers affected by
Hurricane Katrina.--Under this Act, a 40-percent tax credit was provided
to eligible employers for the first $6,000 in qualified wages paid to an
eligible employee. To be eligible, an employer must have employed an
average of 200 or fewer employees in a business located in the core
disaster area on August 28, 2005 that was inoperable on any day
beginning on that date and ending on December 31, 2005, as a result of
damage caused by the hurricane. An eligible employee, with respect to an
eligible employer, is one whose principal place of employment with that
employer was in the core disaster zone on August 28, 2005. Qualified
wages are those paid by an eligible employer to an eligible employee on
any day after August 28, 2005 and before January 1, 2006 during the
period beginning on the date on which the trade or business first became
inoperable at the principal place of employment of the employee and
ending on the date on which such trade or business resumed significant
operations at such principal place of employment. Qualified wages
include those paid without regard to whether the employee performs a
service, performs services at a different place of employment than such
principal place of employment, or performs services at such principal
place of employment before significant operations have resumed.
Incentives for Charitable Giving
Suspend limitations on charitable contributions.--Deductions for
charitable contributions are subject to certain limitations under
current law, depending on the type of taxpayer, the property being
contributed, and the donee organization. This Act suspended the current
law percentage limitations for individuals who itemize deductions and
corporations with respect to cash contributions to certain public
charities made after
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August 27, 2005 and before January 1, 2006; however, for corporations,
the suspension applied only to contributions for relief efforts related
to Hurricane Katrina.
Provide an exemption to taxpayers who housed individuals displaced by
Hurricane Katrina.--Taxpayers who provided housing to individuals
displaced by Hurricane Katrina were provided a one-time $500 exemption
for each individual whom they housed. Taxpayers may claim the exemption
for up to four displaced individuals, for a maximum exemption amount of
$2,000. An individual displaced by Hurricane Katrina is a person (other
than a spouse or dependent of the taxpayer): (1) whose principal place
of abode on August 28, 2005 was in the Hurricane Katrina disaster area,
(2) who is displaced from such abode, and (3) who is provided housing
free of charge in the taxpayer's principal residence for a period of 60
consecutive days, which ends in the taxable year in which the exemption
is claimed. For individuals whose principal place of abode on August 28,
2005 was in the Hurricane Katrina disaster area but outside the core
disaster area, in order to qualify as a displaced individual, their
abode must have been damaged by the hurricane or they must have been
evacuated as a result of the hurricane. This provision applies to
taxable years beginning in 2005 and 2006.
Increase deduction for the costs associated with the charitable use of
a motor vehicle.--Taxpayers may claim a deduction for the costs
associated with the use of a motor vehicle in providing donated services
to charity. The deduction may be calculated by using a standard mileage
rate of 14 cents per mile. This Act increased the charitable standard
mileage rate to 34 cents per mile for the costs associated with the use
of a vehicle in providing services to charity solely for the provision
of relief related to Hurricane Katrina. In addition, this Act excluded
from the gross income of a volunteer up to 48.5 cents per mile in
reimbursements paid by a charitable organization to the volunteer for
the costs associated with using a passenger automobile in performing
such charitable work. A volunteer may not claim a deduction or credit
with respect to reimbursed amounts. Certain recordkeeping requirements
apply. These changes apply to such relief provided during the period
beginning on August 25, 2005 and ending on December 31, 2006.
Expand enhanced deduction for contributions of food and books.--A
taxpayer's deduction for charitable contributions of inventory generally
is limited to the taxpayer's basis in the inventory, or, if less, the
fair market value of the inventory. However, an enhanced deduction is
provided to C corporations for certain contributions of inventory. This
Act expanded the enhanced deduction to apply to qualified contributions
of: (1) food inventory by all taxpayers (not just C corporations)
engaged in a trade or business, and to (2) books to public schools by C
corporations. The donated food must meet certain quality and labeling
standards, and the taxpayer's total deduction for donated food inventory
may not exceed 10 percent of the taxpayer's net income from the related
trade or business. The donated books must be suitable for use and used
by the public school in its educational programs. The enhanced deduction
applies to such qualified contributions of food and books made after
August 27, 2005 and before January 1, 2006.
Special Rules for the Use of Retirement Funds
Allow tax-favored and penalty-free withdrawals from retirement plans
for relief related to Hurricane Katrina.--Under current law, a
distribution from a qualified retirement plan, a tax-sheltered annuity
(a 403(b) annuity), an eligible deferred compensation plan maintained by
a State or local government (a governmental 457 plan), or an individual
retirement arrangement (IRA) generally is included in the taxpayer's
gross income in the year of distribution. In addition, a distribution
from a qualified retirement plan, a 403(b) plan, or an IRA received
before age 59 1/2, death, or disability generally is subject to a 10-
percent early withdrawal tax on the amount included in income, unless an
exception applies. A distribution from a qualified retirement plan, a
403(b) annuity, a governmental 457 plan, or an IRA rolled over within 60
days to another plan, annuity or IRA generally is not included in a
taxpayer's gross income and not subject to the 10-percent early
withdrawal tax. This Act provided an exemption from the 10-percent early
withdrawal tax for qualified Hurricane Katrina distributions. A
qualified Hurricane Katrina distribution is a distribution from a
qualified retirement plan, 403(b) annuity, or IRA made on or after
August 25, 2005 and before January 1, 2007 to an individual whose
principal place of abode on August 28, 2005 was located in the Hurricane
Katrina disaster area and who had sustained an economic loss as a result
of the hurricane. The total amount of qualified Hurricane Katrina
distributions that an individual can receive from all qualified
retirement plans, tax-sheltered annuities, or IRAs is $100,000. Any
amount required to be included in income as a result of a qualified
Hurricane Katrina distribution may be included in income ratably over
the three-year period beginning with the year of distribution. In
addition, any portion of a qualified Hurricane Katrina distribution
repaid to a qualified retirement plan, tax-sheltered annuity or IRA
within three years after the initial distribution is treated as a
rollover and thereby excluded from the taxpayer's gross income and
exempt from the 10-percent early withdrawal tax.
Provide tax-favored and penalty-free treatment for the recontribution
of withdrawals for home purchase cancelled as a result of Hurricane
Katrina.--Under current law, certain amounts held in a 401(k) plan or a
403(b) annuity may not be distributed before severance from employment,
age 59\1/2\, death, disability, or financial hardship of the employee.
For this purpose, subject to certain conditions, distribu
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tions for costs directly related to the purchase of a principal
residence by an employee (excluding mortgage payments) are deemed to be
distributions on account of financial hardship. Current law also allows
distributions of up to $10,000 from IRAs for the purchase or
construction of a principal residence of a first-time homebuyer. Under
this Act, hardship distributions from a 401(k) plan or 403(b) annuity,
and qualified first-time homebuyer distributions from an IRA received
after February 28, 2005 and before August 29, 2005 for the purchase or
construction of a principal residence in the Hurricane Katrina disaster
area can be recontributed to such a plan, annuity or IRA if the
residence was not purchased or constructed as a result of the hurricane.
Any amount recontributed to such a plan is treated as a rollover and
thereby excluded from the taxpayer's gross income and exempt from the
10-percent early withdrawal tax.
Modify treatment of loans from qualified retirement plans.--A loan
from a qualified retirement plan to a plan participant generally is
treated as a taxable distribution under current law. An exception to
this general rule is provided to the extent that the loan does not
exceed the lesser of (1) $50,000, reduced by the excess of the highest
outstanding balance of loans from such plans during the one-year period
ending on the day before the date the loan is made over the outstanding
balance of loans from the plan on the date the loan is made, or (2) the
greater of $10,000 or one half of the participant's accrued benefit
under the plan. This Act increased from $50,000 to $100,000 the limit on
loans from a qualified retirement plan to an individual whose principal
place of abode on August 28, 2005 was located in the Hurricane Katrina
disaster area and who sustained an economic loss as a result of
Hurricane Katrina. To qualify for the higher limit, the loan must be
made after September 23, 2005 and before January 1, 2007.
GULF OPPORTUNITY ZONE ACT OF 2005
This Act, which was signed by President Bush on December 21, 2005,
created a Gulf Opportunity Zone (GO Zone), in which additional tax
relief was provided to individuals and businesses affected by Hurricane
Katrina. This Act also extended many of the tax benefits provided in the
Katrina Emergency Tax Relief Act of 2005 to victims of Hurricane Rita
and Hurricane Wilma. For purposes of this Act, the ``Hurricane Rita
disaster area'' is that area with respect to which a major disaster was
declared by President Bush before October 6, 2005 by reason of Hurricane
Rita and the ``Hurricane Wilma disaster area'' is that area with respect
to which a major disaster was declared by President Bush before November
14, 2005 by reason of Hurricane Wilma. The ``Gulf Opportunity Zone,''
``Rita GO Zone,'' and ``Wilma GO Zone,'' are defined, respectively, as
that portion of the Hurricane Katrina, Rita and Wilma disaster areas
determined by the President to warrant individual or individual and
public assistance. The major provisions of this Act are described below.
Tax Relief for the Gulf Opportunity Zone
Provide tax-exempt bond financing.--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 this Act, Alabama, Louisiana, and Mississippi (or
any political subdivision thereof) were provided authority to issue tax-
exempt private activity bonds for: (1) the cost of any qualified rental
project in the Gulf Opportunity Zone (GO Zone); (2) the cost of
acquisition, construction, reconstruction, and renovation of
nonresidential real property and public utility property in the GO Zone;
and (3) the cost of certain owner-occupied residences in the GO Zone.
Authority to issue these bonds, which are not subject to the aggregate
annual State private activity bond volume limit, expires after December
31, 2010. The maximum aggregate amount of bonds issued in each State is
limited to $2,500 multiplied by the population of the State within the
GO Zone. Depending on the purpose for which such bonds are issued, they
are treated as either exempt facility bonds or qualified mortgage bonds
and are subject to the general rules applicable to the issuance of such
bonds, except as modified by this Act.
Allow advance refunding of certain tax-exempt bonds.--Refunding bonds
are used to pay principal, interest or redemption price on previously
issued bonds. Different rules apply to ``current'' and ``advance''
refunding bonds. A current refunding occurs when the refunded debt is
retired within 90 days of issuance of the refunding bonds. Tax-exempt
bonds may be currently refunded an indefinite number of times. An
advance refunding occurs when the refunded debt is not retired within 90
days after the refunding bonds are issued; instead, the proceeds of the
refunding bonds are invested in an escrow account and held until a
future date when the refunded debt may be retired. In general,
governmental bonds and tax-exempt private activity bonds for charitable
organizations (qualified 501(c)(3) bonds) may be advance refunded one
time.
This Act permitted an additional advance refunding of certain
governmental and qualified 501(c)(3) bonds issued by Alabama, Louisiana,
or Mississippi (or any political subdivision thereof). It also permitted
one advance refunding of certain exempt facility bonds for airports,
docks, or wharves issued by these States or any political subdivision
thereof. Eligible bonds include only those bonds outstanding on August
28, 2005 that could not be advance refunded because of restrictions in
effect on that date. The maximum amount of advance refunding bonds that
may be issued under this provision by Louisiana, Mississippi and Alabama
is $4.5 billion, $2.250 billion, and $1.125 billion, respectively.
Eligible advance refunding bonds must be designated as
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such by the governor of the respective State and must be issued before
January 1, 2011.
Increase and modify the low-income housing tax credit.--A low-income
housing tax credit is provided to owners of qualified low-income rental
units under current law. The credit may be claimed over a 10-year period
for a portion of the cost of rental housing occupied by tenants having
incomes below specified levels. The credit percentage for newly
constructed or substantially rehabilitated housing that is not federally
subsidized is adjusted monthly by the IRS so that the 10 annual credit
amounts have a present value of 70 percent of the qualified basis of the
structure. The credit percentage for newly constructed or substantially
rehabilitated housing that is federally subsidized is calculated to have
a present value of 30 percent of the qualified basis of the structure.
Buildings located in high cost areas (qualified census tracts and
difficult development areas) are eligible for an enhanced credit,
provided no more than 20 percent of the population of each metropolitan
statistical area or nonmetropolitan statistical area is a difficult
development area. Under the enhanced credit, the 70 percent and 30
percent credits are increased to 91 percent and 39 percent,
respectively. The aggregate credit authority allocated to each State for
calendar year 2006 generally is the greater of $2.180 million or $1.90
per capita. These amounts are indexed annually for inflation. In
general, to qualify for the credit, a low-income housing project must
satisfy one of two tests: (1) 20 percent or more of the residential
units in the project are both rent-restricted and occupied by
individuals whose income is 50 percent or less of area median gross
income; or (2) 40 percent or more of the residential units in the
project are both rent-restricted and occupied by individuals whose
income is 60 percent or less of area median gross income.
Under this Act, for calendar years 2006 through 2008, the otherwise
applicable aggregate housing credit authority was increased for each
State within the GO Zone. The additional credit amount for each State is
equal to $18.00 multiplied by the number of such State's residents
within the GO Zone. This amount is not indexed for inflation. For
calendar year 2006, the otherwise applicable aggregate housing credit
authority amount for both Florida and Texas was increased by $3.5
million. This Act also replaced the area median gross income standards
of current law with a national nonmetropolitan median gross income
standard, with respect to property placed in service in a
nonmetropolitan area within the GO Zone during calendar years 2006,
2007, and 2008. The income targeting rules for property in metropolitan
areas in the Go Zone are the same as under current law. In addition,
property placed in service in calendar years 2006 through 2008 in the Go
Zone, the Rita Go Zone, and the Wilma GO Zone are treated as high-cost
areas and eligible for the enhanced credit; the 20 percent of population
restriction of current law is waived. The enhanced credit and modified
income targeting rules apply regardless of whether the property receives
its credit allocation under the otherwise applicable low-income housing
authority or the additional credit authority provided in this Act.
Provide special depreciation allowance for certain property.--
Taxpayers are allowed to recover the cost of certain property used in a
trade or business or for the production of income through annual
depreciation deductions. The amount of the allowable depreciation
deduction for a taxable year generally is determined under MACRS, which
assigns applicable recovery periods and depreciation methods to
different types of property. Under this Act, qualifying GO Zone property
is eligible for an additional first-year depreciation deduction equal to
50 percent of the adjusted basis of the property. The additional first-
year deprecation deduction is allowed for both regular and alternative
minimum tax purposes in the year the property is placed in service. The
basis of the property and the depreciation deductions allowable in other
years are adjusted to reflect the additional first-year depreciation
deduction. Qualifying property generally must be tangible property with
a recovery period of 20 years or less, and also includes: (1) certain
computer software; (2) water utility property; (3) leasehold improvement
property; (4) nonresidential real property; and (5) residential rental
property. In addition: (1) substantially all of the use of the property
must be in the GO Zone and in the active conduct of a trade or business
by the taxpayer in the GO Zone; (2) the original use of the property in
the Go Zone must commence with the taxpayer on or after August 28, 2005;
and (3) the property must be acquired by purchase by the taxpayer on or
after August 28, 2005 and placed in service on or before December 31,
2007 (December 31, 2008 in the case of nonresidential real property and
residential rental property). Property acquired under a binding written
contract entered into before August 28, 2005 is not eligible for the
additional first-year depreciation deduction provided under this
provision. Current law allowed certain property an extended placed-in-
service deadline (December 31, 2005) with respect to existing additional
first-year depreciation provisions. This Act granted the Department of
Treasury authority to extend that deadline for up to one year if such
property is placed in service in the GO Zone, the Rita GO Zone or the
Wilma GO Zone.
Increase expensing for small business.--Business taxpayers are
allowed to expense up to $100,000 in annual investment expenditures for
eligible property placed in service in taxable years 2003 through 2007.
The amount that may be expensed is reduced by the amount by which the
taxpayer's annual cost of qualifying property exceeds $400,000. Both the
deduction and annual investment limits are indexed annually for
inflation, effective for taxable years beginning after 2003 and before
2008. Eligible property includes tangible personal property, certain
real property, and, currently, off-the-shelf computer software. This Act
increased the amount of annual investment expenditures
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that business taxpayers are allowed to expense by the lesser of $100,000
or the cost of eligible property that is also qualified GO Zone property
placed in service during the taxable year. This Act also increased the
phase-out threshold investment amount by the lesser of $600,000 or the
cost of eligible property that is also qualified GO Zone property placed
in service during the taxable year. Neither of these increased values is
indexed for inflation. Qualified GO Zone property is property that meets
the requirements needed to qualify for the special depreciation
allowance (see discussion in the preceding paragraph).
Allow five-year carryback of certain net operating losses.--A net
operating loss (NOL) generally is the amount by which a taxpayer's
allowable deductions exceed the taxpayer's gross income. A carryback of
an NOL generally results in a refund of Federal income taxes paid for
the carryback year. A carryforward of an NOL generally reduces Federal
income tax payments for the carryforward year. Under current law, an NOL
generally can be carried back two years and carried forward 20 years.
This Act provided a special five-year carryback period for NOLs to the
extent of certain specified amounts related to Hurricane Katrina or the
GO Zone. The amount of the NOL eligible for the five-year carryback is
limited to the aggregate amount of the following deductions: (1)
qualified GO Zone casualty losses; (2) certain moving expenses; (3)
certain temporary housing expenses; (4) depreciation deductions with
respect to qualified GO Zone property for the taxable year the property
is placed in service; and (5) deductions for certain repair expenses
resulting form Hurricane Katrina. The five-year carryback applies to
losses paid or incurred after August 27, 2005 and before January 1,
2008.
Increase amount of qualifying investment eligible for the new markets
tax credit.--Under current law, the new markets tax credit is provided
for qualified equity investments made to acquire stock in a corporation
or a capital interest in a partnership that is a qualified 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 next four years. The maximum amount of annual
qualifying equity investment is capped at $2.0 billion for calendar
years 2004 and 2005, and $3.5 billion for calendar years 2006 and 2007.
This Act increased the annual qualifying equity investment cap by $300
million for 2005 and 2006, and $400 million for 2007. The additional
amount is to be allocated among qualified CDEs to make qualified low-
income community investments within the GO Zone. To qualify for the
allocation, a qualified CDE must have as a significant mission the
recovery and redevelopment of the GO Zone.
Provide tax relief for in-kind lodging provided by an employer.--Under
current law, employer-provided housing generally is includible in income
as compensation and is wages for purposes of social security, Medicare,
and unemployment insurance taxes. This Act provided an income tax
exclusion for the value of in-kind lodging provided for a month to a
qualified employee (and the employee's spouse or dependents) by or on
behalf of a qualified employer. The amount of the exclusion for any
month for which such lodging is furnished cannot exceed $600. For
purposes of this exclusion, a qualified employee is any individual who:
(1) on August 28, 2005, had a principal residence in the GO Zone; and
(2) performed substantially all of his or her employment services in the
Go Zone for the qualified employer furnishing the lodging. A qualified
employer is any employer with a trade or business located in the GO
Zone. The exclusion, which applies to lodging provided after December
31, 2005 and before July 1, 2006, does not apply for purposes of social
security, Medicare or unemployment insurance taxes. This Act also
provided a tax credit to qualified employers equal to 30 percent of the
value of such lodging excluded from the income of a qualified employee.
The amount taken as a credit is not deductible by the employer.
Provide other tax relief.--Other tax relief provided to property and
individuals located in the GO Zone included: (1) a deduction for 50
percent of certain clean-up costs; (2) a two-year extension of the
current law provision allow expensing of certain environmental
remediation costs; (3) an increase in the rehabilitation tax credit with
respect to certain buildings; (4) an increase in the expensing limit for
reforestation expenditures of certain small timber producers (also
applicable to the Rita and Wilma GO Zones); (5) a five-year carryback
for certain timber losses (also applicable to the Rita and Wilma GO
Zones); (6) a ten-year carryback for certain public utility casualty
losses; (7) a new category of tax-credit bonds to be issued by
Louisiana, Mississippi and Alabama; (8) modification of the treatment of
public utility disaster losses; and (9) expansion of the Hope and
Lifetime Learning credits.
Exclude certain property from specific tax benefits.--The provisions
of this Act relating to additional first-year depreciation, increased
expensing for small business, and the five-year carryback of NOLs do not
apply with respect to the following property: (1) any private or
commercial golf course, country club, massage parlor, hot tub facility,
or suntan facility; (2) any store the principal business of which is the
sale of alcoholic beverages for consumption off premises; and (3) any
gambling or animal racing property.
Tax Relief for Victims of Hurricanes Rita
and Wilma
Provide special rules for the use of retirement funds.--Under the
Katrina Emergency Tax Relief Act of 2005, special rules were provided
for the use of retirement funds by an individual whose principal place
of abode on August 28, 2005 was located in the Hurri
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cane Katrina disaster area and who had sustained an economic loss as a
result of the hurricane. These special rules, which are described in
greater detail under the discussion of the Katrina Emergency Tax Relief
Act of 2005, included the following: (1) tax-favored and penalty-free
withdrawals from retirement plans; (2) tax-favored and penalty-free
treatment for the recontribution of withdrawals for home purchase
cancelled as a result of the hurricane; and (3) modification of the
treatment of loans from qualified plans. This Act expanded that relief
to apply to: (1) an individual whose principal place of abode on
September 23, 2005 was located in the Hurricane Rita disaster area and
who sustained an economic loss as a result of the hurricane; and (2) an
individual whose principal place of abode on October 23, 2005 was
located in the Hurricane Wilma disaster area and who sustained an
economic loss as a result of the hurricane.
Provide an employee retention credit to employers affected by
Hurricanes Rita and Wilma.--Under the Katrina Emergency Tax Relief Act
of 2005, an employee retention credit was provided to employers who
employed an average of 200 or fewer employees in a business located in
the core Katrina disaster area on August 28, 2005, whose business was
inoperable on any day during the period August 28, 2005 through December
31, 2005, as a result of Hurricane Katrina. This Act repealed the
employer size limitation, effective for wages paid with respect to
Hurricane Katrina on any day after August 28, 2005 and before January 1,
2006. This Act also expanded eligibility for the employee retention
credit, as modified to repeal the employer size limitation, to apply to
employers affected by Hurricanes Rita and Wilma and located in the Rita
GO Zone on September 23, 2005 and in the Wilma GO Zone on October 23,
2005, respectively.
Suspend limitation on charitable contributions.--Deductions for
charitable contributions are subject to certain limitations under
current law. The Katrina Emergency Tax Relief Act of 2005 temporarily
suspended these limitations for corporations and individuals who itemize
deductions with respect to cash contributions to certain public
charities made after August 27, 2005 and before January 1, 2006. For
corporations, the suspension applied only to contributions for relief
efforts related to Hurricane Katrina. This Act expanded this temporary
suspension to apply to corporate cash contributions for relief efforts
related to Hurricanes Rita and Wilma.
Suspend limitation on personal casualty losses.--The Katrina Emergency
Tax Relief Act of 2005 suspended both the $100 and 10-percent-of-AGI
limitations otherwise applicable to personal casualty losses, with
respect to such loses occurring in the Hurricane Katrina disaster area
on or after August 25, 2005 and attributable to the hurricane. This Act
expanded this suspension to apply to such losses occurring in the
Hurricane Rita disaster area on or after September 23, 2005 and the
Hurricane Wilma disaster area on or after October 23, 2005.
Provide other tax relief for victims of Hurricane Rita and Hurricane
Wilma.--Other tax relief provided to victims of Hurricanes Rita and
Wilma included: (1) a special rule for purposes of computing the
refundable portion of the child tax credit and the EITC; (2) authority
to make adjustments regarding taxpayer and dependency status; and (3)
special rules for mortgage revenue bonds.
Other Provisions
Extend election to treat combat pay as earned income for purposes of
computing the EITC.--This Act extended for one year, through December
31, 2006, the prior law election that allowed combat pay, which is
otherwise excluded from gross income, to be treated as earned income for
purposes of calculating the EITC.
Modify the rules regarding the suspension of interest and penalties
where the IRS fails to contact the taxpayer.--In general, interest and
penalties accrue during periods for which taxes are unpaid, without
regard to whether the taxpayer was aware that taxes were due. Beginning
18 months after the filing of a timely return, the accrual of certain
penalties and interest is suspended if the IRS failed to send the
taxpayer a notice specifically stating the taxpayer's liability and the
basis for the liability. Interest and penalties resume 21 days after the
required notice is sent to the taxpayer by the IRS. The temporary
suspension of certain penalties and interest does not apply to interest
accruing after October 3, 2004 with respect to underpayments resulting
from listed transactions or undisclosed reportable transactions. This
Act expanded the exception for listed transactions and undisclosed
reportable transactions to apply to interest accruing on or before
October 3, 2004. However, taxpayers remain eligible for the present-law
suspension of interest if: (1) the year in which the underpayment
occurred is barred by the statute of limitations (or a closing
agreement) as of December 14, 2005; (2) it is determined that the
taxpayer acted reasonably and in good faith with respect to the
transaction; or (3) as of January 23, 2006, the taxpayer participates in
the IRS settlement initiative with respect to the transaction. In
addition, if a taxpayer files an amended return or other signed written
document after December 21, 2005 that shows that the taxpayer owes an
additional amount of tax for a given taxable year, the 18-month period
is measured from the latest date on which such documents were provided.
Make technical corrections to recently enacted legislation.--This Act
also included technical corrections and other corrections to recently
enacted tax legislation.
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DOMINICAN REPUBLIC-CENTRAL AMERICA-
UNITED STATES FREE TRADE AGREEMENT
IMPLEMENTATION ACT
This Act, which was signed by President Bush on August 2, 2005,
approved and provided for U.S implementation of the Dominican Republic-
Central America-United States Free Trade Agreement, as signed by the
United States, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua
and the Dominican Republic. When this Agreement enters into force, it
will level the playing field for U.S. farmers, manufacturers and
entrepreneurs. This Agreement will expand access for U.S. manufactured
goods and agricultural products to a market of 44 million customers. In
addition to advancing U.S. economic interests, this Agreement provides a
unique opportunity to strengthen our political ties with Central America
and the Caribbean, thereby enhancing our Nation's security as democracy,
stability and prosperity advance throughout the region.
UNITED STATES-BAHRAIN FREE TRADE AGREEMENT IMPLEMENTATION ACT
This Act, which was signed by President Bush on January 11, 2006,
approved and provided for U.S. implementation of the United States-
Bahrain Free Trade Agreement, as signed by the United States and Bahrain
on September 14, 2004. When this Agreement enters into force, it will
provide increased access to Bahrain's markets for U.S. industrial,
consumer, and agricultural goods, and create new opportunities for U.S.
services firms. In addition to enhancing our bilateral relationship with
a strategic friend and ally in the Middle East region and promoting
economic growth and prosperity in both nations, this Agreement provides
an important opportunity to encourage economic development in a moderate
Muslim nation that is a leader of reform in the Gulf region. This
Agreement marks a significant step in implementing the President's plan
for a broader Middle East Free Trade Area.
ADMINISTRATION PROPOSALS
REFORM THE FEDERAL TAX SYSTEM
Americans deserve a tax system that is simple, fair, and pro-growth--
in tune with our dynamic, 21st century economy. The tax system should
allow taxpayers to make decisions based on economic merit, free of tax-
induced distortions. The bipartisan and unanimous Report of the
President's Advisory Panel on Federal Tax Reform has provided a strong
foundation for a national discussion on ways to ensure that our tax
system better meets the needs of today's economy.
The President has proposed several changes that move the tax code in
this direction. The Budget includes proposals to make health care more
affordable to a mobile labor force, to promote savings for all
Americans, to encourage investment by entrepreneurs, and to enhance our
competitiveness by lowering the cost of capital. The Budget also
recognizes that tax policy analysis needs to account fully for the
economic benefits of reform on our economy. In the coming months, the
Treasury Department will continue to study reform and engage in a public
dialogue on this important issue.
MAKE PERMANENT CERTAIN TAX CUTS ENACTED IN 2001 AND 2003
Extend permanently reductions in individual income taxes on capital
gains and dividends.--The maximum individual income tax rate on net
capital gains and dividends is 15 percent for taxpayers in individual
income tax rate brackets above 15 percent and 5 percent (zero in 2008)
for lower income taxpayers. The Administration proposes to extend
permanently these reduced rates (15 percent and zero), which are
scheduled to expire on December 31, 2008.
Extend permanently increased expensing for small business.--Business
taxpayers are allowed to expense up to $100,000 in annual investment
expenditures for qualifying property (expanded to include off-the-shelf
computer software) placed in service in taxable years 2003 through 2007.
The amount that may be expensed is reduced by the amount by which the
taxpayer's cost of qualifying property exceeds $400,000. Both the
deduction and annual investment limits are indexed annually for
inflation, effective for taxable years beginning after 2003 and before
2008. Also, with respect to a taxable year beginning after 2002 and
before 2008, taxpayers are permitted to make or revoke expensing
elections on amended returns without the consent of the IRS
Commissioner. The Administration proposes to extend permanently each of
these temporary provisions, applicable for qualifying property
(including off-the-shelf computer software) placed in service in taxable
years beginning after 2007.
Extend permanently provisions expiring in 2010.--Most of the
provisions of the 2001 tax cut sunset on December 31, 2010. The
Administration proposes to extend those provisions permanently.
TAX INCENTIVES
Simplify and Encourage Saving
Expand tax-free savings opportunities.--Under current law, individuals
can contribute to traditional Individual Retirement Accounts (IRAs),
nondeductible IRAs, and Roth IRAs, each subject to different sets of
rules. For example, contributions to traditional IRAs are deductible,
while distributions are taxed; contributions to Roth IRAs are taxed, but
distributions are excluded from income. In addition, eligibility to
contribute is subject to various age and income limits. While primarily
intended for retirement saving, withdrawals for certain education,
medical, and other non-retirement expenses are penalty free. The
eligibility and with
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drawal restrictions for these accounts complicate compliance and limit
incentives to save.
The Administration proposes to replace current law IRAs with two new
savings accounts: a Lifetime Savings Account (LSA) and a Retirement
Savings Account (RSA). Regardless of age or income, individuals could
make annual nondeductible contributions of $5,000 to an LSA and $5,000
(or earnings if less) to an RSA. Distributions from an LSA would be
excluded from income and could be made at anytime for any purpose
without restriction. Distributions from an RSA would be excluded from
income after attaining age 58 or in the event of death or disability.
All other distributions would be included in income (to the extent they
exceed basis) and subject to an additional tax. Distributions would be
deemed to come from basis first. The proposal would be effective for
contributions made after December 31, 2006 and future year contribution
limits would be indexed for inflation.
Existing Roth IRAs would be renamed RSAs and would be subject to the
new rules for RSAs. Existing traditional and nondeductible IRAs could be
converted into an RSA by including the conversion amount (excluding
basis) in gross income, similar to a current-law Roth conversion.
However, no income limit would apply to the ability to convert.
Taxpayers who convert IRAs to RSAs could spread the included conversion
amount over several years. Existing traditional or nondeductible IRAs
that are not converted to RSAs could not accept new contributions. New
traditional IRAs could be created to accommodate rollovers from employer
plans, but they could not accept new individual contributions.
Individuals wishing to roll an amount directly from an employer plan to
an RSA could do so by including the rollover amount (excluding basis) in
gross income (i.e., ``converting'' the rollover, similar to a current
law Roth conversion).
Saving will be further simplified and encouraged by administrative
changes already planned for the 2007 filing season that will allow
taxpayers to have their tax refunds directly deposited into more than
one account. Consequently, taxpayers will be able, for example, to
direct that a portion of their tax refunds be deposited into an LSA or
RSA.
Consolidate employer-based savings accounts.--Current law provides
multiple types of tax-preferred employer-based savings accounts to
encourage saving for retirement. The accounts have similar goals but are
subject to different sets of rules regulating eligibility, contribution
limits, tax treatment, and withdrawal restrictions. For example, 401(k)
plans for private employers, SIMPLE 401(k) plans for small employers,
403(b) plans for 501(c)(3) organizations and public schools, and 457
plans for State and local governments are all subject to different
rules. To qualify for tax benefits, plans must satisfy multiple
requirements. Among the requirements, the plan generally may not
discriminate in favor of highly compensated employees with regard either
to coverage or to amount or availability of contributions or benefits.
Rules covering employer-based savings accounts are among the lengthiest
and most complicated sections of the tax code and associated
regulations. This complexity imposes substantial costs on employers,
participants, and the Government, and likely has inhibited the adoption
of retirement plans by employers, especially small employers.
The Administration proposes to consolidate 401(k), SIMPLE 401(k),
403(b), and 457 plans, as well as SIMPLE IRAs and SARSEPs, into a single
type of plan--Employee Retirement Savings Accounts (ERSAs) that would be
available to all employers. ERSA non-discrimination rules would be
simpler and include a new ERSA non-discrimination safe-harbor. Under one
of the safe-harbor options, a plan would satisfy the nondiscrimination
rules with respect to employee deferrals and employee contributions if
it provided a 50-percent match on elective contributions up to six
percent of compensation. By creating a simplified and uniform set of
rules, the proposal would substantially reduce complexity. The proposal
would be effective for taxable years beginning after December 31, 2006.
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 qualified financial institutions, nonprofit
organizations, or Indian tribes (qualified entities). Citizens or legal
residents of the United States between the ages of 18 and 60 who cannot
be claimed as a dependent on another taxpayer's return, are not
students, and who meet certain income limitations would be eligible to
establish and contribute to an IDA. A single taxpayer would be eligible
to establish and contribute to an IDA if his or her modified AGI in the
preceding taxable year did not exceed $20,000 ($30,000 for heads of
household, and $40,000 for married taxpayers filing a joint return).
These thresholds would be indexed annually for inflation beginning in
2008. Qualified entities that set up and administer IDAs would be
required to match, dollar-for-dollar, the first $500 contributed by an
eligible individual to an IDA in a taxable year. Qualified entities
would be allowed a 100 percent tax credit for up to $500 in annual
matching contributions to each IDA, and a $50 tax credit for each IDA
maintained at the end of a taxable year with a balance of not less that
$100 (excluding the taxable year in which the account was established).
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
qualified entities and the earnings on those contributions would be tax-
free.
Withdrawals from the parallel account may be made only for qualified
purposes (higher education, the first-time purchase of a home, business
start-up, and qualified rollovers). Withdrawals from the IDA for other
than qualified purposes may result in the forfeiture of some or all
matching contributions and the earnings
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on those contributions. The credit could be claimed for taxable years
ending after December 31, 2007 and beginning before January 1, 2015. The
credit would apply with respect to the first 900,000 IDA accounts opened
after December 31, 2007 and before January 1, 2013, and with respect to
matching funds for participant contributions that are made after
December 31, 2007 and before January 1, 2015.
Encourage Entrepreneurship and Investment
Increase expensing for small business.--Business taxpayers are allowed
to expense up to $100,000 in annual investment expenditures for
qualifying property (expanded to include off-the-shelf computer
software) placed in service in taxable years 2003 through 2007. The
amount that may be expensed is reduced by the amount by which the
taxpayer's cost of qualifying property exceeds $400,000. Both the
deduction and annual investment limits are indexed annually for
inflation, effective for taxable years beginning after 2003 and before
2008. Also, with respect to a taxable year beginning after 2002 and
before 2008, taxpayers are permitted to make or revoke expensing
elections on amended returns without the consent of the IRS
Commissioner. The Administration proposes to increase the amount of
annual investment expenditures that taxpayers are allowed to expense to
$200,000, and to raise the amount of qualifying investment at which the
phase-out begins to $800,000, effective for qualifying property placed
in service in taxable years beginning after 2006. These higher amounts
would be indexed for inflation, effective for taxable years beginning
after 2007.
Invest in Health Care
Expand health savings accounts (HSAs).--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, the
individual has self-employment income, or the individual is eligible
under the Trade Act of 2002 to purchase certain types of qualified
health insurance. In addition, individuals are allowed to accumulate
funds in a health savings account (HSA) or medical savings account (MSA)
on a tax-preferred basis to pay for medical expenses, provided they are
covered by an HSA-qualified high-deductible health plan (HDHP), and no
other health plan. Under current law, only employer contributions to
HSAs are excluded from income for payroll tax purposes.
The Administration proposes that individuals who make after-tax
contributions to an HSA would be allowed a credit equal to a percentage
of their after-tax contributions to the HSA to offset the employment
taxes on their contributions. The credit generally would be 15.3 percent
of their HSA contributions, but would be limited by the amount of wages
in the payroll tax base. In order to recapture the credit relating to
employment taxes for contributions that are not used for medical
expenses, the additional tax on non-medical withdrawals would increase
to 30 percent, with a 15 percent rate on non-medical distributions after
death, disability, or attaining the age of 65.
The Administration proposes to increase the maximum HSA contribution
for all eligible individuals. For any year, the maximum HSA contribution
would be increased to the bona fide out-of-pocket limit of the high-
deductible health plan.
Additional changes would be made to HSAs to encourage the use of HSAs
and coverage under the HSA-eligible high-deductible health plans,
including: (1) allowing HSA funds to be used tax-free for premiums for
the purchase of non-group high-deductible health plans; (2) allowing
qualified medical expenses to include any medical expense incurred on or
after the first day of HDHP coverage if individuals have established an
HSA by their return filing date for that year; (3) allowing employers to
contribute existing health reimbursement arrangement (HRA) balances to
the HSAs of employees who would be eligible individuals but for the HRA
coverage; and (4) excluding from the comparability rules extra employer
contributions to HSAs on behalf of employees who are chronically ill or
employees who have spouses or dependents who are chronically ill. All of
the HSA-related proposals would be effective for years beginning after
December 31, 2006.
Provide an above-the-line deduction for high-deductible insurance
premiums.--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, the individual has self-employment income, or
the individual is eligible under the Trade Act of 2002 to purchase
certain types of qualified health insurance. Current law also allows
individuals to accumulate funds in an HSA or MSA on a tax-preferred
basis to pay for medical expenses, provided they are covered by an HDHP,
and no other health plan.
The Administration proposes to allow individuals who are eligible for
an HSA because they are covered under an HDHP in the individual
insurance market to deduct the amount of the premium in determining AGI
(whether or not the person itemizes deductions). These individuals would
also be entitled to an income tax credit to account for employment
taxes. Individuals claiming other credits or deductions or covered by
public plans or otherwise not eligible to contribute to an HSA would not
qualify for the above-the-line deduction or the credit. The credit
generally would be 15.3 percent of their HDHP premium payment, but would
be limited by the amount of wages in the payroll tax base. The above-
the-line deduction and tax credit would be effective for taxable years
beginning after December 31, 2006.
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 purchase health
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insurance coverage except to the extent that deductible medical expenses
exceed 7.5 percent of AGI, the individual has self-employment income, or
the individual is eligible under the Trade Act of 2002 to purchase
certain types of qualified health insurance. In addition, individuals
are allowed to accumulate funds in an HSA or MSA on a tax-preferred
basis to pay for medical expenses, provided they are covered by an HDHP,
and no other health plan.
The Administration proposes to make health insurance more affordable
for individuals not covered by an employer plan or a public program.
Effective for taxable years beginning after December 31, 2006, a new
refundable tax credit would be provided for the cost of an HDHP
purchased by an individual under age 65. The credit would provide a
subsidy for a percentage of the health insurance premium, up to a
maximum includable premium. The maximum subsidy percentage would be 90
percent for low-income taxpayers and would phase down with income. The
maximum credit would be $1,000 for a plan covering one adult, $2,000 for
a plan covering two adults, $3,000 for a plan covering two adults and
one or more children, and $1,000 for a plan covering only children. The
credit would be phased out at an income of $30,000 for single taxpayers
and $60,000 for families purchasing a family policy. Individuals could
claim the tax credit for health insurance premiums paid as part of the
normal tax-filing process. Alternatively, beginning July 1, 2007, the
tax credit would be available in advance at the time the individual
purchases health insurance. The advance credit would reduce the premium
paid by the individual to the health insurer, and the health insurer
would be reimbursed directly by the Department of Treasury for the
amount of the advance credit. Eligibility for an advance credit would be
based on an individual's prior year tax return. Qualifying insurance
could be purchased in the individual market. Qualifying health insurance
could also be purchased through private purchasing groups, State-
sponsored insurance purchasing pools, and high-risk pools.
Improve the Health Coverage Tax Credit.--The Health Coverage Tax
Credit (HCTC) was created under the Trade Act of 2002 for the purchase
of qualified health insurance. Eligible persons include certain
individuals who are receiving benefits under the TAA or the Alternative
TAA (ATAA) program and certain individuals between the ages of 55 and 64
who are receiving pension benefits from the Pension Benefit Guaranty
Corporation (PBGC). The tax credit is refundable and can be claimed
through an advance payment mechanism at the time the insurance is
purchased.
To make the requirements for qualified State-based coverage under the
HCTC more consistent with the rules applicable under the Health
Insurance Portability and Accountability Act (HIPAA) and thus encourage
more plans to participate in the HCTC program, the Administration
proposes to allow State-based coverage to impose a pre-existing
condition restriction for a period of up to 12 months, provided the plan
reduces the restriction period by the length of the eligible
individual's creditable coverage (as of the date the individual applied
for the State-based coverage). This provision would be effective for
eligible individuals applying for coverage after December 31, 2006.
Also, in order to prevent an individual from losing the benefit of the
HCTC just because his or her spouse becomes eligible for Medicare, the
Administration proposes to permit spouses of HCTC-eligible individuals
to claim the HCTC when the HCTC-eligible individual becomes entitled to
Medicare coverage. The spouse, however, would have to be at least 55
years old and meet the other HCTC eligibility requirements. This
provision would be effective for taxable years beginning after December
31, 2006.
To improve the administration of the HCTC, the Administration proposes
to: (1) modify the definition of ``other specified coverage'' for
``eligible ATAA recipients,'' to be the same as the definition applied
to ``eligible TAA recipients;'' (2) clarify that certain PBGC pension
recipients are eligible for the tax credit; (3) allow State-based
continuation coverage to qualify without meeting the requirements for
State-based qualified coverage; and (4) for purposes of the State-based
coverage rules, permit the Commonwealths of Puerto Rico and Northern
Mariana Islands, as well as American Samoa, Guam, and the U.S. Virgin
Islands to be deemed as States.
Allow the orphan drug tax credit for certain pre-designation
expenses.--Current law provides a 50-percent credit for expenses related
to human clinical testing of drugs for the treatment of certain rare
diseases and conditions (``orphan drugs''). A taxpayer may claim the
credit only for expenses incurred after the Food and Drug Administration
(FDA) designates a drug as a potential treatment for a rare disease or
condition. This creates an incentive to defer clinical testing for
orphan drugs until the taxpayer receives the FDA's approval and
increases complexity for taxpayers by treating pre-designation and post-
designation clinical expenses differently. The Administration proposes
to allow taxpayers to claim the orphan drug credit for expenses incurred
prior to FDA designation if designation occurs before the due date
(including extensions) for filing the tax return for the year in which
the FDA application was filed. The proposal would be effective for
qualified expenses incurred after December 31, 2005.
Provide Incentives for Charitable Giving
Permit tax-free withdrawals from IRAs for charitable contributions.--
Under current law, eligible individuals may make deductible or non-
deductible contributions to a traditional IRA. Pre-tax contributions and
earnings in a traditional IRA are included in income when withdrawn.
Effective for distributions after date of enactment, the Administration
proposes to allow individuals who have attained age 65 to exclude from
gross income IRA distributions made directly to a chari
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table 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.
Expand and increase the enhanced charitable deduction for
contributions of food inventory.--A taxpayer's deduction for charitable
contributions of inventory generally is limited to the taxpayer's basis
(typically cost) in the inventory. However, for certain contributions of
inventory, C corporations may claim an enhanced deduction equal to the
lesser of: (1) basis plus one half of the fair market value in excess of
basis, or (2) two times basis. To be eligible for the enhanced
deduction, the contributed property generally must be inventory of the
taxpayer contributed to a charitable organization and the donee must:
(1) use the property consistent with the donee's exempt purpose solely
for the care of the ill, the needy, or infants; (2) not transfer the
property in exchange for money, other property, or services; and (3)
provide the taxpayer a written statement that the donee's use of the
property will be consistent with such requirements. To use the enhanced
deduction, the taxpayer must establish that the fair market value of the
donated item exceeds basis.
Under the Administration's proposal, which is designed to encourage
contributions of food inventory to charitable organizations, any
taxpayer engaged in a trade or business would be eligible to claim an
enhanced deduction for donations of food inventory. The enhanced
deduction for donations of food inventory would be increased to the
lesser of: (1) fair market value or (2) two times basis. However, to
ensure consistent treatment of all businesses claiming an enhanced
deduction for donations of food inventory, the enhanced deduction for
qualified food donations by S corporations and non-corporate taxpayers
would be limited to 10 percent of net income from the trade or business.
A special provision would allow taxpayers with a zero or low basis in
the qualified food donation (e.g., taxpayers that use the cash method of
accounting for purchases and sales, and taxpayers that are not required
to capitalize indirect costs) to assume a basis equal to 25 percent of
fair market value. The enhanced deduction would be available only for
donations of ``apparently wholesome food'' (food intended for human
consumption that meets all quality and labeling standards imposed by
Federal, State, and local laws and regulations, even though the food may
not be readily marketable due to appearance, age, freshness, grade,
size, surplus, or other conditions). The fair market value of
``apparently wholesome food'' that cannot or will not be sold solely due
to internal standards of the taxpayer or lack of market, would be
determined by taking into account the price at which the same or
substantially the same food items (as to both type and quality) are sold
by the taxpayer at the time of the contribution or, if not sold at such
time, in the recent past. These proposed changes in the enhanced
deduction for donations of food inventory would be effective for taxable
years beginning after December 31, 2005.
Reform excise tax based on investment income of private foundations.--
Under current law, private foundations that are exempt from Federal
income tax are subject to a two-percent excise tax on their net
investment income (one-percent if certain requirements are met). The
excise tax on private foundations that are not exempt from Federal
income tax, such as certain charitable trusts, is equal to the excess of
the sum of the excise tax that would have been imposed if the foundation
were tax exempt and the amount of the unrelated business income tax that
would have been imposed if the foundation were tax exempt, over the
income tax imposed on the foundation. To encourage increased charitable
activity and simplify the tax laws, the Administration proposes to
replace the two rates of tax on the net investment income of private
foundations that are exempt from Federal income tax with a single tax
rate of one percent. The excise tax on private foundations not exempt
from Federal income tax would be equal to the excess of the sum of the
one-percent excise tax that would have been imposed if the foundation
were tax exempt and the amount of the unrelated business income tax what
would have been imposed if the foundation were tax exempt, over the
income tax imposed on the foundation. The proposed change would be
effective for taxable years beginning after December 31, 2005.
Modify tax on unrelated business taxable income of charitable
remainder trusts.--A charitable remainder annuity trust is a trust that
is required to pay, at least annually, a fixed dollar amount of at least
five percent of the initial value of the trust to a noncharity for the
life of an individual or for a period of 20 years or less, with the
remainder passing to charity. A charitable remainder unitrust is a trust
that generally is required to pay, at least annually, a fixed percentage
of at least five percent of the fair market value of the trust's assets
determined at least annually to a non-charity for the life of an
individual or for a period of 20 years or less, with the remainder
passing to charity. A trust does not qualify as a charitable remainder
annuity trust if the annuity for a year is greater than 50 percent of
the initial fair market value of the trust's assets. A trust does not
qualify as a charitable remainder unitrust if the percentage of assets
that are required to be distributed at least annually is greater than 50
percent. A trust does not qualify as a charitable remainder annuity
trust or a charitable remainder unitrust unless the value of the
remainder interest in the trust is at least 10 percent of the value of
the assets contributed to the trust. Distributions from a charitable
remainder annuity trust or charitable remainder unitrust, which are
included in the income of the beneficiary for the year that the amount
is required to be distributed, are treated in the following
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order as: (1) ordinary income to the extent of the trust's undistributed
ordinary income for that year and all prior years; (2) capital gains to
the extent of the trust's undistributed capital gain for that year and
all prior years; (3) other income to the extent of the trust's
undistributed other income for that year and all prior years; and (4)
corpus (trust principal).
Charitable remainder annuity trusts and charitable remainder unitrusts
are exempt from Federal income tax; however, such trusts lose their
income tax exemption for any year in which they have unrelated business
taxable income. Any taxes imposed on the trust are required to be
allocated to trust corpus. The Administration proposes to levy a 100-
percent excise tax on the unrelated business taxable income of
charitable remainder trusts, in lieu of removing the Federal income tax
exemption for any year in which unrelated business taxable income is
incurred. This change, which is a more appropriate remedy than loss of
tax exemption, is proposed to become effective for taxable years
beginning after December 31, 2005, regardless of when the trust was
created.
Modify basis adjustment to stock of S corporations contributing
appreciated property.--Under current law, each shareholder in an S
corporation separately accounts for his or her pro rata share of the S
corporation's charitable contributions in determining his or her income
tax liability. A shareholder's basis in the stock of the S corporation
must be reduced by the amount of his or her pro rata share of the S
corporation's charitable contribution. In order to preserve the benefit
of providing a charitable contribution deduction for contributions of
appreciated property and to prevent the recognition of gain in the
contributed property on the disposition of the S corporation stock, the
Administration proposes to allow a shareholder in an S corporation to
increase his or her basis in the stock of an S corporation by an amount
equal to the excess of the shareholder's pro rata share of the S
corporation's charitable contribution over the stockholder's pro rata
share of the adjusted basis of the contributed property. The proposal
would be effective for taxable years beginning after December 31, 2005.
Repeal the $150 million limitation on qualified 501(c)(3) bonds.--
Current law contains a $150 million limitation on the volume of
outstanding, non-hospital, tax-exempt bonds for the benefit of any one
501(c)(3) organization. The limitation was repealed in 1997 for bonds
issued after August 5, 1997, at least 95 percent of the net proceeds of
which are used to finance capital expenditures incurred after that date.
However, the limitation continues to apply to bonds more than five
percent of the net proceeds of which finance or refinance working
capital expenditures, or capital expenditures incurred on or before
August 5, 1997. In order to simplify the tax laws and provide consistent
treatment of bonds for 501(c)(3) organizations, the Administration
proposes to repeal the $150 million limitation in its entirety.
Repeal certain restrictions on the use of qualified 501(c)(3) bonds
for residential rental property.--Tax-exempt, 501(c)(3) organizations
generally may utilize tax-exempt financing for charitable purposes.
However, existing law contains a special limitation under which
501(c)(3) organizations may not use tax-exempt financing to acquire
existing residential rental property for charitable purposes unless the
property is rented to low-income tenants or is substantially
rehabilitated. In order to simplify the tax laws and provide consistent
treatment of bonds for 501(c)(3) organizations, the Administration
proposes to repeal the residential rental property limitation.
Strengthen Education
Extend the above-the-line deduction for qualified out-of-pocket
classroom expenses.--Under current law, teachers who itemize deductions
(do not use the standard deduction) and incur unreimbursed, job-related
expenses are allowed to deduct those expenses to the extent that when
combined with other miscellaneous itemized deductions they exceeded two
percent of AGI. Current law also allows certain teachers and other
elementary and secondary school professionals to treat up to $250 in
annual qualified out-of-pocket classroom expenses as a non-itemized
deduction (above-the-line deduction). This additional deduction is
effective for expenses incurred in taxable years beginning after
December 31, 2001 and before January 1, 2006. Unreimbursed expenditures
for certain books, supplies, and equipment related to classroom
instruction qualify for the above-the-line deduction. Expenses claimed
as an above-the-line deduction may not be claimed as an itemized
deduction. The Administration proposes to extend the above-the-line
deduction to apply to qualified out-of-pocket expenditures incurred in
taxable years beginning after December 31, 2005.
Provide Assistance to Distressed Areas
Establish Opportunity Zones.--The Administration proposes to establish
authority to designate 20 opportunity zones (14 in urban areas and 6 in
rural areas). The zone designation and corresponding incentives would be
in effect from January 1, 2007 through December 31, 2016. To qualify to
apply for zone status, a community must either have suffered from a
significant decline in its economic base over the past decade as
measured by the loss of manufacturing and retail establishments and
manufacturing jobs, or be a previously designated empowerment zone,
renewal community or enterprise community. The Secretary of Commerce
would select opportunity zones through a competitive process based on
the applicant's ``community transition plan'' and ``statement of
economic transition.'' The community transition plan would have to set
concrete, measurable goals for reducing local regulatory and tax
barriers to construction, residential development and business creation.
The statement of economic transition would have to demonstrate that the
local community's economic base is in transition, as indicated
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by a declining job base and labor force, and other measures, during the
past decade. In evaluating applications, the Secretary of Commerce could
consider other factors, including: (1) changes in unemployment rates,
poverty rates, household income, homeownership and labor force
participation; (2) the educational attainment and average age of the
population; and (3) for urban areas, the number of mass layoffs
occurring in the area's vicinity over the previous decade. Empowerment
zones and renewal communities designated as opportunity zones would not
count against the limitation of 20 new opportunity zones. Such
communities would be required to relinquish their current status and
benefits once selected. Opportunity zone benefits for converted
empowerment zones and renewal communities would expire on December 31,
2010. Tax benefits for enterprise communities expired at the end of
2004. Enterprise communities designated as opportunity zones would count
against the limitation of 20 new zones and opportunity zone benefits
would be in effect through 2016.
A number of tax incentives would be applicable to opportunity zones.
First, a business would be allowed to exclude 25 percent of its taxable
income if it qualified as an ``opportunity zone business'' and it
satisfied a $5 million gross receipts test. The definition of an
opportunity zone business would be based on the definition of a
``qualified active low-income community business'' for purposes of the
new markets tax credit, treating opportunity zones as low-income
communities. Second, an opportunity zone business would be allowed to
expense the cost of section 179 property that is qualified zone
property, up to an additional $100,000 above the amounts generally
available under current law. Third, a commercial revitalization
deduction would be available for opportunity zones in a manner similar
to the deduction for renewal communities. A $12 million annual cap on
these deductions would apply to each opportunity zone. Finally,
individuals who live and work in an opportunity zone would constitute a
new target group with respect to wages earned within the zone under the
proposed combined work opportunity tax credit and welfare-to-work tax
credit (see discussion later in this Chapter).
Protect the Environment
Extend permanently expensing of brownfields remediation costs.--
Taxpayers may elect, with respect to expenditures paid or incurred
before January 1, 2006, to treat certain environmental remediation
expenditures that would otherwise be chargeable to a capital account as
deductible in the year paid or incurred. The Administration proposes to
extend this provision permanently making it available for expenditures
paid or incurred after December 31, 2005, and facilitating its use by
businesses to undertake projects that may be uncertain in overall
duration.
Restructure Assistance to New York City
Provide tax incentives for transportation infrastructure.--The
Administration proposes to restructure the tax benefits for New York
recovery that were enacted in 2002. Some of the tax benefits that were
provided to New York following the attacks of September 11, 2001, likely
will not be usable in the form in which they were originally provided.
As such, the Administration proposed in the Mid-Session Review of the
2005 Budget to sunset certain existing New York Liberty Zone tax
benefits and in their place provide tax credits to New York State and
New York City for expenditures incurred in building or improving
transportation infrastructure in or connecting with the New York Liberty
Zone. The tax credit would be available as of the date of enactment,
subject to an annual limit of $200 million ($2 billion in total over 10
years), evenly divided between the State and the City. Any unused credit
limit in a given year would be added to the $200 million allowable in
the following year, including years beyond the 10-year period of the
credit. Similarly, expenditures that could not be credited in a given
year because of the credit limit would be carried forward and used
against the next year's limitation. The credit would be allowed against
any payments (e.g., income tax withholding) made by the City and State
under any provision of the Internal Revenue Code, other than Social
Security and Medicare payroll taxes and excise taxes. The Secretary of
the Treasury may prescribe such rules as are necessary to ensure that
the expenditures are made for the intended purpose.
Repeal certain New York City Liberty Zone incentives.--The
Administration proposes to terminate the following tax incentives
provided to qualified property within the New York Liberty Zone under
the 2002 economic stimulus act: (1) the additional first-year
depreciation deduction; (2) the five-year recovery period for leasehold
improvement property; (3) increased expensing for small businesses; and
(4) the extended replacement period for the nonrecognition of gain on
involuntarily converted property. These terminations are proposed to be
effective on the date of enactment. Property placed in service after the
date of enactment would not be eligible for the first three incentives
listed above unless a binding written contract was in effect on the date
of enactment, in which case the property would need to be placed in
service by the original termination dates provided in the 2002 economic
stimulus act. Other related changes to the Internal Revenue Code would
be made as appropriate.
SIMPLIFY THE TAX LAWS FOR FAMILIES
Clarify uniform definition of a child.--The 2004 tax relief act
created a uniform definition of a child, allowing, in many
circumstances, a taxpayer to claim the same child for five different
child-related tax benefits. Under the new rules, a qualifying child must
meet relationship, residency, and age tests. While the new
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rules simplify the determination of eligibility for many child-related
tax benefits, the elimination of certain complicated factual tests to
determine if siblings and certain other family members are eligible to
claim a qualifying child may have some unintended consequences. The new
rules effectively deny the EITC to some young taxpayers who are the sole
guardians of their younger siblings. Yet some taxpayers are able to
avoid income limitations on child-related tax benefits by allowing other
family members, who have lower incomes, to claim the taxpayers' sons or
daughters as qualifying children. The 2004 tax relief act had other
unintended consequences, which made some of the eligibility rules less
uniform. For example, it allowed dependent filers to claim the child tax
credit, even though they are generally ineligible for most other child-
related tax benefits. It also allowed taxpayers to claim the child tax
credit on behalf of a married child who files a joint return with his or
her spouse, even though the taxpayer generally cannot claim other
benefits for the married child. These exceptions create confusion and
add complexity.
To ensure that deserving taxpayers receive child-related tax benefits,
the Administration proposes to clarify the uniform definition of a
child. First, the definition of a qualifying child would be further
simplified. A taxpayer would not be a qualifying child of another
individual if the taxpayer is older than that individual. However, an
individual could be a qualifying child of a younger sibling if the
individual is permanently and totally disabled. Also, under the
proposal, an individual who is married and filing jointly (for any
reason other than to obtain a refund of overwithheld taxes) would not be
considered a qualifying child for the child-related tax benefits,
including the child tax credit. Second, the proposal clarifies when a
taxpayer is eligible to claim child-related tax benefits. If a parent
resides with his or her child for over half the year, the parent would
be the only individual eligible to claim the child as a qualifying
child. The parent could waive the child-related tax benefits to another
member of the household who has higher adjusted gross income and is
otherwise eligible for the tax benefits. In addition, dependent filers
would not be allowed to claim qualifying children. The proposal is
effective for taxable years beginning after December 31, 2006.
Simplify EITC eligibility requirement regarding filing status,
presence of children, and work and immigrant status.--To qualify for the
EITC, taxpayers must satisfy requirements regarding filing status, the
presence of children in their households, and their work and immigration
status in the United States. These rules are confusing, require
significant record-keeping, and are costly to administer. Under the
proposal, married taxpayers who reside with children could claim the
EITC without satisfying a complicated household maintenance test if they
live apart from their spouse for the last six months of the year. In
addition, certain taxpayers who live with children but do not qualify
for the larger child-related EITC could claim the smaller EITC for very
low-income childless workers. The proposal would also improve the
administration of the EITC with respect to eligibility requirements for
undocumented workers. The proposal is effective for taxable years
beginning after December 31, 2006.
Reduce computational complexity of refundable child tax credit.--
Taxpayers with earned income in excess of $11,300 may qualify for a
refundable (or ``additional'') child tax credit even if they do not have
any income tax liability. About 70 percent of additional child tax
credit claimants also claim the EITC. However, the two credits have a
different definition of earned income and different U.S. residency
requirements. In addition, some taxpayers have to perform multiple
computations to determine the amount of the additional child tax credit
they can claim. First, they must compute the additional child tax credit
using a formula based on earned income. Then, if they have three or more
children, they may recalculate the credit using a formula based on
social security taxes and claim the higher of the two amounts.
Under the proposal, the additional child tax credit would use the same
definition of earned income as is used for the EITC. Taxpayers (other
than members of the Armed Forces stationed overseas) would be required
to reside with a child in the United States to claim the additional
child tax credit (as they are currently required to do for the EITC).
Taxpayers with three or more children would do only one computation
based on earned income to determine the credit amount. The proposal
would be effective for taxable years beginning after December 31, 2006.
STRENGTHEN THE EMPLOYER-BASED PENSION SYSTEM
Ensure fair treatment of older workers in cash balance conversions and
protect defined benefit plans.--Qualified retirement plans consist of
defined benefit plans and defined contribution plans. In recent years,
many plan sponsors have adopted cash balance and other ``hybrid'' plans
that combine features of defined benefit and defined contribution plans.
A cash balance plan is a defined benefit plan that provides for annual
``pay credits'' to a participant's ``hypothetical account'' and
``interest credits'' on the balance in the hypothetical account.
Questions have been raised about whether such plans satisfy the rules
relating to age discrimination and the calculation of lump sum
distributions. The Administration proposes to: (1) ensure fairness for
older workers in cash balance conversions; (2) protect the defined
benefit system by clarifying the status of cash balance plans; and (3)
remove the effective ceiling on interest credits in cash balance plans.
All changes would be effective prospectively.
Strengthen funding for single-employer pension plans.--Under current
law, defined benefit pension plans are subject to minimum funding
requirements imposed under both the Internal Revenue Code and
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the Employee Retirement Income Security Act of 1974 (ERISA). In the case
of a qualified plan, the Internal Revenue Code excludes such
contributions from gross income and allows a deduction for the
contributions, subject to certain limits on the maximum deductible
amount. The calculation of the minimum funding requirements and the
limits on deductible contributions are determined under a series of
complex rules and measures of assets and liability, many of which are
manipulable and none of which entail the use of an accurate measure of
the plan's assets and its true liabilities.
The Administration proposes rationalizing the multiple sets of funding
rules applicable to single-employer defined benefit plans and replacing
them with a single set of rules that provide for: (1) funding targets
that are based on meaningful, accurate measures of liabilities that
reflect the financial health of the employer; (2) the use of market
value of assets; (3) a seven-year amortization period for funding
shortfalls; (4) the opportunity for an employer to make additional
deductible contributions in good years, even when the plan's assets are
above the funding target; and (5) meaningful consequences for employers
and plans whose funded status does not improve.
These funding rules changes and the addition of meaningful
consequences for employers and plans whose funded status does not
improve and improved disclosure to plan participants, investors and
regulators are part of an overall package of reforms that will improve
the health of defined benefit pensions and the PBGC guarantee system. As
described in Chapter 7 of Analytical Perspectives and the Department of
Labor Chapter of the Budget volume, this overall package includes reform
of the premium structure for the PBGC, revision in the application of
the PBGC guarantee rates and changes to the bankruptcy law.
Reflect market interest rates in lump sum payments.--Current law
generally requires that a lump sum paid from a pension plan be
calculated using the rate of interest on 30-year Treasury securities (or
a close proxy) for the month preceding the distribution. The
Administration proposes that the value of the lump sum reflect market
interest rates and the timing of the expected benefit payments for which
the lump sum is calculated. This would ensure that the value of the lump
sum is equivalent to the value of the annuity. Lump sums would be
calculated using interest rates that are drawn from a zero-coupon
corporate bond yield curve. The yield curve would be issued monthly by
the Secretary of the Treasury and would be based on the interest rates
(averaged over 90 business days) for high quality corporate bonds with
varying maturities. In order to avoid disruptions, the proposal would be
phased in for plan years beginning in 2008 and 2009 and would not be
fully effective until the plan year beginning in 2010.
CLOSE LOOPHOLES AND IMPROVE TAX COMPLIANCE
Combat abusive foreign tax credit transactions.--Current law allows
taxpayers a credit against U.S. taxes for foreign taxes incurred with
respect to foreign income, subject to specified limits. The
Administration proposes to provide the Department of Treasury with
supplemental regulatory authority, in addition to its broad existing
authority, to ensure that the foreign tax credit rules cannot be used to
achieve inappropriate results that are not consistent with the
underlying economics of the transactions in which the foreign tax
credits arise. The regulatory authority would enhance the ability of the
Department of Treasury to prevent the inappropriate separation of
foreign taxes from the related foreign income. Regulations could provide
for the disallowance of a credit for all or a portion of the foreign
taxes or the reallocation of the foreign taxes among the participants to
the transaction.
Modify the active trade or business test.--Current law allows
corporations to avoid recognizing gain in certain spin-off and split-off
transactions provided that, among other things, the active trade or
business test is satisfied. The active trade or business test requires
that immediately after the distribution, the distributing corporation
and the corporation the stock of which is distributed (the controlled
corporation) be engaged in a trade or business that has been actively
conducted throughout the five-year period ending on the date of the
distribution. There is no statutory requirement that a certain
percentage of the distributing corporation's or controlled corporation's
assets be used in that active trade or business in order for the active
trade or business test to be satisfied. Because certain non-pro rata
distributions resemble redemptions for cash, the Administration proposes
to require that in the case of a non-pro rata distribution, in order for
a corporation to satisfy the active trade or business test, as of the
date of the distribution, at least 50 percent of its assets, by value,
must be used or held for use in a trade or business that satisfies the
active trade or business test.
Impose penalties on charities that fail to enforce conservation
easements.--Although gifts of partial interests in property generally
are not deductible as charitable contributions, current law allows a
deduction for certain restrictions granted in perpetuity on the use that
may be made of real property (such as an easement). A deduction is
allowed only if the contribution is made to a qualified organization
exclusively for conservation purposes. To qualify to receive such
qualified conservation contributions, a charity must have a commitment
to protect the conservation purposes of the donation and have the
resources to enforce the restrictions. The Department of Treasury is
concerned that in some cases charities are failing to monitor and
enforce the conservation restrictions for which charitable
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contribution deductions were claimed. The proposal would impose
significant penalties on any charity that removes or fails to enforce
such a conservation restriction, or transfers the easement without
ensuring that the conservation purposes will be protected in perpetuity.
The amount of the penalty would be determined based on the value of the
easement shown on the appraisal summary provided to the charity by the
donor. The Secretary of the Treasury would be authorized to waive the
penalty in certain circumstances. The Secretary of the Treasury also
would be authorized to require such additional reporting as may be
necessary or appropriate to ensure that the conservation purposes are
protected in perpetuity.
Eliminate the special exclusion from unrelated business taxable income
for gain or loss on the sale or exchange of certain brownfields.--In
general, an organization that is otherwise exempt from Federal income
tax is taxed on income from any trade or business regularly carried on
by the organization that is not substantially related to the
organization's exempt purposes. In addition, income derived from
property that is debt-financed generally is subject to unrelated
business income tax. The 2004 job creation act created a special
exclusion from unrelated business taxable income of gain or loss from
the sale or exchange of certain qualifying brownfield properties. The
exclusion applies regardless of whether the property is debt-financed.
The new provision adds considerable complexity to the Internal Revenue
Code and, because there is no limit on the amount of tax-free gain,
could exempt from tax real estate development considerably beyond mere
environmental remediation. The proposal would eliminate this special
exclusion effective for taxable years beginning after December 31, 2006.
Limit related party interest deductions.--Current law (section 163(j)
of the Internal Revenue Code) denies U.S. tax deductions for certain
interest expenses paid to a related party where: (1) the corporation's
debt-to-equity ratio exceeds 1.5 to 1, and (2) net interest expenses
exceed 50 percent of the corporation's adjusted taxable income (computed
by adding back net interest expense, depreciation, amortization,
depletion, and any net operating loss deduction). If these thresholds
are exceeded, no deduction is allowed for interest in excess of the 50-
percent limit that is paid to a related party or paid to an unrelated
party but guaranteed by a related party, and that is not subject to U.S.
tax. Any interest that is disallowed in a given year is carried forward
indefinitely and may be deductible in a subsequent taxable year. A
three-year carryforward for any excess limitation (the amount by which
interest expense for a given year falls short of the 50-percent limit)
is also allowed. Because of the opportunities available under current
law to reduce inappropriately U.S. tax on income earned on U.S.
operations through the use of foreign related-party debt, the
Administration proposes to tighten the interest disallowance rules of
section 163(j) as follows: (1) the current law 1.5 to 1 debt-to-equity
safe harbor would be eliminated; (2) the adjusted taxable income
threshold for the limitation would be reduced from 50 percent to 25
percent of adjusted taxable income with respect to disqualified interest
other than interest paid to unrelated parties on debt that is subject to
a related-party guarantee, which generally would remain subject to the
current law 50 percent threshold; and (3) the indefinite carryforward
for disallowed interest would be limited to ten years and the three-year
carryforward of excess limitation would be eliminated. The Department of
Treasury also is conducting a study of these rules and the potential for
further modifications to ensure the prevention of inappropriate income-
reduction opportunities.
Clarify and simplify qualified tuition programs.--Current law provides
special tax treatment for contributions to and distributions from
qualified tuition programs under Section 529. The purpose of these
programs is to encourage saving for the higher education expenses of
designated beneficiaries. However, current law is unclear in certain
situations with regard to the transfer tax consequences of changing the
designated beneficiary of a qualified tuition program account. In
addition, current law creates opportunities for inappropriate use of
these accounts. The proposal would simplify the tax consequences under
these programs and promote use of these accounts to save for higher
education. The most significant change made by this proposal is the
elimination of substantially all post-contribution transfer taxes, thus
permitting tax-free changes of the designated beneficiary of an account,
without limitation as to the relationship or number of generations
between the current and former beneficiaries. Any distribution used to
pay the beneficiary's qualified higher education expenses would continue
to be tax-free. However, to eliminate the potential transfer tax benefit
of using an account for purposes not intended by the statute, any
distribution that is not used for higher education expenses generally
would be subject to a new excise tax (payable from the account) once the
cumulative amount of these distributions exceeds a stated amount per
beneficiary. Distributions from an account would be permitted to be made
only to or for the benefit of the designated beneficiary. However, a
contributor who sets up an account would be permitted to withdraw funds
from the account during the contributor's life, subject to income tax on
the income portion of the withdrawal. The income portion of a withdrawal
by the account's contributor generally also would be subject to an
additional tax to discourage individuals from using these accounts to
save for retirement. The proposal would be effective for Section 529
accounts established after the date of enactment, and no additional
contributions would be permitted to preexisting Section 529 savings
accounts unless those accounts elect to be governed by the new rules.
[[Page 262]]
TAX ADMINISTRATION, UNEMPLOYMENT INSURANCE, AND OTHER
Improve Tax Administration
Implement IRS administrative reforms.--The proposed modification to
the IRS Restructuring and Reform Act of 1998 is comprised of five parts.
The first part modifies employee infractions subject to mandatory
termination and permits a broader range of available penalties. It
strengthens taxpayer privacy while reducing employee anxiety resulting
from unduly harsh discipline or unfounded allegations. The second part
adopts measures to curb frivolous submissions and filings that are
intended to impede or delay tax administration. The third part allows
the IRS to terminate installment agreements when taxpayers fail to make
timely tax deposits and file tax returns on current liabilities. The
fourth part streamlines jurisdiction over collection due process cases
in the Tax Court, thereby simplifying procedures and reducing the cycle
time for certain collection due process cases. The fifth part eliminates
the requirement that the IRS Chief Counsel provide an opinion for any
accepted offer-in-compromise of unpaid tax (including interest and
penalties) equal to or exceeding $50,000. This proposal requires that
the Secretary of the Treasury establish standards to determine when an
opinion is appropriate.
Initiate IRS cost saving measures.--The Administration has two
proposals to improve IRS efficiency and performance from current
resources. The first proposal modifies the way that Financial Management
Services (FMS) recovers its transaction fees for processing IRS levies
by permitting FMS to retain a portion of the amount collected before
transmitting the balance to the IRS, thereby reducing Government
transaction costs. The offset amount would be included as part of the
15-percent limit on continuous levies against income and would also be
credited against the taxpayer's liability. The second proposal would
provide the IRS additional authority to require electronic filing. This
proposal would allow the IRS to process more returns and payments
efficiently.
Allow IRS to access information in the National Directory of New Hires
for tax administration purposes.--The National Directory of New Hires
(NDNH), an electronic database maintained by the Department of Health
and Human Services, contains timely, uniformly compiled employment data
from State agencies across the country. Currently, the IRS may obtain
data from the NDNH, but only for limited purposes. Access to NDNH data
for tax administration purposes generally would make the IRS more
productive by reducing the amount of resources it must dedicate to
obtaining and processing data. The Administration proposes to amend the
Social Security Act to allow the IRS access to NDNH data for general tax
administration purposes, including data matching, verification of
taxpayer claims during return processing, preparation of substitute
returns for non-compliant taxpayers, and identification of levy sources.
Data obtained by the IRS from the NDNH would be protected by existing
taxpayer privacy law, including civil and criminal sanctions. The
proposal would be effective on the date of enactment.
Extend IRS authority to fund undercover operations.--Current law
places the IRS on equal footing with other Federal law enforcement
agencies by permitting the IRS to fund certain necessary and reasonable
expenses of undercover operations. These undercover operations include
international and domestic money laundering and narcotics operations.
The Administration proposes to extend this funding authority, which
expires on December 31, 2006, through December 31, 2010.
Reduce the tax gap.--While the vast majority of American taxpayers pay
their taxes timely and accurately, the nation still has a significant
tax gap, which is the difference between what taxpayers should pay and
what they actually pay on a timely basis. The IRS has taken a number of
steps to bolster enforcement; however, it is unlikely that IRS will be
able to narrow the tax gap to an acceptable level through enforcement
alone. In an effort to reduce the tax gap with minimum taxpayer burden,
the Administration proposes to: (1) Clarify the circumstances in which
employee leasing companies and their clients can be held jointly liable
for Federal employment taxes. (2) Require debit and credit card issuers
to report to the IRS gross reimbursements paid to certain businesses.
(3) Require increased information reporting for certain non-wage
payments made by Federal, State and local governments to procure
property and services. (4) Amend collections due process procedures
applicable to Federal employment taxes. (5) Expand return preparer
identification and penalty provisions. In addition, the Department of
Treasury will study the standards used to distinguish between employees
and independent contractors for purposes of withholding and paying
Federal employment taxes.
Strengthen Financial Integrity of Unemployment Insurance
Strengthen the financial integrity of the unemployment insurance
system by reducing improper benefit payments and tax avoidance.--The
Administration has a multi-part proposal to strengthen the financial
integrity of the unemployment insurance (UI) system and to encourage the
early reemployment of UI beneficiaries. The Administration's proposal
will boost States' ability to recover benefit overpayments and deter tax
evasion schemes by permitting them to use a portion of recovered funds
to expand enforcement efforts in these areas. In addition, the proposal
would require States to impose a monetary penalty on UI benefit fraud,
which would be used to reduce overpayments; make it easier for States to
use private collection agencies in the recovery of hard-to-collect
overpayments and delinquent employer taxes; require States
[[Page 263]]
to charge employers found to be at fault when their actions lead to
overpayments; permit collection of delinquent UI overpayments and
employer taxes through garnishment of Federal tax refunds; and improve
the accuracy of hiring data in the National Directory of New Hires,
which would reduce benefit overpayments. The Administration's proposal
would also permit States to request waivers of certain Federal
requirements in order to carry out demonstration projects that speed
reemployment of individuals eligible for UI. These efforts to strengthen
the financial integrity of the UI system and encourage early
reemployment of UI beneficiaries will keep State UI taxes down and
improve the solvency of the State trust funds.
Extend unemployment insurance surtax.--The unemployment insurance
surtax of 0.2 percent imposed on employers is scheduled to expire with
respect to wages paid after December 31, 2007. This tax is proposed to
be extended for five years, through December 31, 2012.
Other Proposals
Increase Indian gaming activity fees.--The National Indian Gaming
Commission regulates and monitors gaming operations conducted on Indian
lands. Since 1998, the Commission has had a fixed ceiling on what it may
collect in annual fees from gaming operations to cover the costs of its
oversight responsibilities. The Administration proposes to amend the
current fee structure so that the Commission can adjust its activities
to the growth in the Indian gaming industry.
MODIFY ENERGY POLICY ACT OF 2005
Repeal reduced recovery period for natural gas distribution lines.--
The Energy Policy Act of 2005 reduced the recovery period for certain
natural gas distribution lines from 20 years to 15 years (see the
discussion of the Energy Policy Act of 2005 in this Chapter). The
Administration proposes to repeal this provision for natural gas
distribution lines placed in service after December 31, 2006.
Modify amortization for certain geological and geophysical
expenditures.--Under the Energy Policy Act of 2005, geological and
geophysical expenditures paid or incurred in taxable years beginning
after August 8, 2005, in connection with oil and gas exploration in the
United States, may be amortized over two years. The Administration
proposes to increase the amortization period to five years for amounts
paid or incurred in taxable years beginning after December 31, 2006.
PROMOTE TRADE
Implement free trade agreements.--Free trade agreements continue to be
negotiated with Thailand, Colombia, Ecuador, Panama, and the United Arab
Emirates (UAE), with an expectation--once completed--that the 10-year
implementation will begin as early as FY 2007. The recently completed
agreements with Oman and Peru could also begin implementation in 2007. A
free trade agreement is expected to be completed with the Southern
African Customs Union (SACU), with 10-year implementation to begin in FY
2008. These agreements will continue the Administration's effort to use
free trade agreements to benefit U.S. consumers and producers as well as
strengthen the economies of our partner countries.
Extend Generalized System of Preferences (GSP).--Under GSP, duty-free
access is provided to approximately 3,400 products from eligible
beneficiary developing countries that meet certain worker rights,
intellectual property protection, and other statutory criteria. The
Administration proposes to extend this program, which is scheduled to
expire after December 31, 2006, through December 31, 2011.
EXTEND EXPIRING PROVISIONS
Extend minimum tax relief for individuals.--A temporary provision of
current law increased the alternative minimum tax (AMT) exemption
amounts to $40,250 for single taxpayers, $58,000 for married taxpayers
filing a joint return and surviving spouses, and $29,000 for married
taxpayers filing a separate return and estates and trusts. Effective for
taxable years beginning after December 31, 2005, the AMT exemption
amounts decline to $33,750 for single taxpayers, $45,000 for married
taxpayers filing a joint return and surviving spouses, and $22,500 for
married taxpayers filing a separate return and estates and trusts. The
Administration proposes to extend the temporary, higher exemption
amounts through taxable year 2006.
A temporary provision of current law permits nonrefundable personal
tax credits to offset both the regular tax and the alternative minimum
tax for taxable years beginning before January 1, 2006. The
Administration proposes to extend minimum tax relief for nonrefundable
personal credits for one year, to apply to taxable year 2006. The
proposed extension does not apply to the child credit, the new saver
credit, the earned income credit or the adoption credit, which were
provided AMT relief through December 31, 2010 under the 2001 tax cut.
The refundable portion of the child credit and the earned income tax
credit are also allowed against the AMT through December 31, 2010.
Extend permanently the research and experimentation (R&E) tax
credit.--The Administration proposes to extend permanently the 20-
percent tax credit for qualified research and experimentation
expenditures above a base amount and the alternative incremental credit,
which expired on December 31, 2005.
In addition, the Administration is concerned that features of the R&E
tax credit may limit its effectiveness in encouraging taxpayers to
invest in R&E. The Administration will work closely with the Congress to
develop
[[Page 264]]
and enact reforms to modernize the R&E tax credit and improve its
incentive effect.
Extend and modify the work opportunity tax credit and the welfare-to-
work tax credit.--Under present law, the work opportunity tax credit
provides incentives for hiring 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 credit is available for a qualified individual
who begins work before January 1, 2006.
Under present law, the welfare-to-work tax credit provides an
incentive for hiring certain recipients of long-term family assistance.
The credit is 35 percent of up to $10,000 of eligible wages in the first
year of employment and 50 percent of wages up to $10,000 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. This credit is
available for qualified individuals who begin work before January 1,
2006.
The Administration proposes to simplify employment incentives by
combining the credits into one credit and making the rules for computing
the combined credit simpler. The credits would be combined by creating a
new welfare-to-work targeted group under the work opportunity tax
credit. The minimum employment periods and credit rates for the first
year of employment under the present work opportunity tax credit would
apply to welfare-to-work employees. The maximum amount of eligible wages
would continue to be $10,000 for welfare-to-work employees and $6,000
for other targeted groups. In addition, the second year 50-percent
credit currently available under the welfare-to-work credit would
continue to be available for welfare-to-work employees under the
modified work opportunity tax credit. Qualified wages would be limited
to cash wages. The work opportunity tax credit would also be simplified
by eliminating the need to determine family income for qualifying ex-
felons (one of the present targeted groups). The modified work
opportunity tax credit would apply to individuals who begin work after
December 31, 2005 and before January 1, 2007.
Extend the first-time homebuyer credit for the District of Columbia.--
A one-time nonrefundable $5,000 credit is available to purchasers of a
principal residence in the District of Columbia who have not owned a
residence in the District during the year preceding the purchase. The
credit phases out for taxpayers with modified adjusted gross income
between $70,000 and $90,000 ($110,000 and $130,000 for joint returns).
The credit does not apply to purchases after December 31, 2005. The
Administration proposes to extend the credit for one year, making the
credit available with respect to purchases after December 31, 2005 and
before January 1, 2007.
Extend authority to issue Qualified Zone Academy Bonds.--Current 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 have to be used for teacher training, purchases of equipment,
curriculum development, or rehabilitation and repairs at certain public
school facilities. A nationwide total of $400 million of qualified zone
academy bonds were authorized to be issued in each of calendar years
1998 through 2005. In addition, unused authority arising in 1998 and
1999 can be carried forward for up to three years and unused authority
arising in 2000 through 2005 can 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 2006;
unused authority could be carried forward for up to two years. Reporting
of issuance would be required.
Extend provisions permitting disclosure of tax return information
relating to terrorist activity.--Current law permits disclosure of tax
return information relating to terrorism in two situations. The first is
when an executive of a Federal law enforcement or intelligence agency
has reason to believe that the return information is relevant to a
terrorist incident, threat or activity and submits a written request.
The second is when the IRS wishes to apprise a Federal law enforcement
agency of a terrorist incident, threat or activity. The Administration
proposes to extend this disclosure authority, which expires on December
31, 2006, through December 31, 2007.
Extend excise tax on coal at current rates.--Excise taxes levied on
coal mined and sold for use in the United States are deposited in the
Black Lung Disability Trust Fund. Amounts deposited in the Fund are used
to cover the cost of program administration and compensation, medical,
and survivor benefits to eligible miners and their survivors, when mine
employment terminated prior to 1970 or when no mine operator can be
assigned liability. Current tax rates on coal sold by a producer are
$1.10 per ton of coal from underground mines and $0.55 per ton of coal
from surface mines; however, these rates may not exceed 4.4 percent of
the price at which the coal is sold. Effective for coal sold after
December 31, 2013, the tax rates on coal from underground mines and
surface mines will decline to $0.50 per ton and $0.25 per ton,
respectively, and will be capped at 2 percent of the price at which the
coal is sold. The Administration proposes to repeal the reduction in
these tax rates effective for sales after December 31, 2013, and keep
current rates in effect until the Black Lung Disability Trust Fund debt
is repaid.
[[Page 265]]
Table 17-3. EFFECT OF PROPOSALS ON RECEIPTS
(in millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2006 2007 2008 2009 2010 2011 2007-11 2007-16
--------------------------------------------------------------------------------------------------------------------------------------------------------
Make Permanent Certain Tax Cuts Enacted in 2001 and 2003
(assumed in the baseline):
Dividends tax rate structure............................... 288 571 -1,329 -14,161 -537 -6,545 -22,001 -128,050
Capital gains tax rate structure........................... ......... ......... ......... -14,183 -5,519 -6,606 -26,308 -74,931
Expensing for small business............................... ......... ......... -4,679 -6,498 -4,872 -3,853 -19,902 -32,620
Marginal individual income tax rate reductions............. ......... ......... ......... ......... ......... -66,918 -66,918 -605,961
Child tax credit \1\....................................... ......... ......... ......... ......... ......... -5,452 -5,452 -116,691
Marriage penalty relief \2\................................ ......... ......... ......... ......... ......... -4,968 -4,968 -37,578
Education incentives....................................... ......... ......... ......... ......... 3 -1,098 -1,095 -10,960
Repeal of estate and generation-skipping transfer taxes,
and
modification of gift taxes............................... -205 -1,102 -1,728 -2,181 -2,676 -23,758 -31,445 -339,022
Modifications of pension plans............................. ......... ......... ......... ......... ......... -346 -346 -2,858
Other incentives for families and children................. ......... ......... ......... ......... 5 -170 -165 -4,362
----------------------------------------------------------------------------------------
Total make permanent certain tax cuts enacted in
2001 and 2003........................................ 83 -531 -7,736 -37,023 -13,596 -119,714 -178,600 -1,353,033
Tax Incentives:
Simplify and encourage saving:
Expand tax-free savings opportunities...................... ......... 4,796 10,407 7,507 3,970 -383 26,297 -122
Consolidate employer-based savings accounts................ ......... ......... -542 -579 -618 -1,826 -3,565 -20,063
Establish Individual Development Accounts (IDAs)........... ......... ......... -134 -286 -326 -300 -1,046 -1,763
----------------------------------------------------------------------------------------
Total simplify and encourage saving.................... ......... 4,796 9,731 6,642 3,026 -2,509 21,686 -21,948
Encourage entrepreneurship and investment:
Increase expensing for small business...................... ......... -2,522 -3,527 -2,625 -2,037 -1,645 -12,356 -18,713
Invest in health care:
Expand health savings accounts (HSAs) \3\.................. ......... -1,978 -4,321 -6,201 -7,720 -8,826 -29,046 -87,212
Provide an above-the-line deduction for high-deductible
insurance premiums \4\................................... ......... -2,519 -3,815 -3,840 -3,691 -3,668 -17,533 -38,127
Provide refundable tax credit for the purchase of health
insurance \5\............................................ ......... -254 -861 -1,194 -1,404 -1,362 -5,075 -11,154
Improve the Health Coverage Tax Credit \6\................. ......... -1 -3 -4 -5 -5 -18 -51
Allow the orphan drug tax credit for certain pre-
designation
expenses \7\............................................. ......... ......... ......... ......... ......... ......... ......... ..........
----------------------------------------------------------------------------------------
Total invest in health care............................ ......... -4,752 -9,000 -11,239 -12,820 -13,861 -51,672 -136,544
Provide incentives for charitable giving:
Permit tax-free withdrawals from IRAs for charitable
contributions............................................ ......... -102 -510 -512 -501 -497 -2,122 -4,706
Expand and increase the enhanced charitable deduction
for contributions of food inventory...................... ......... -44 -96 -106 -116 -127 -489 -1,345
Reform excise tax based on investment income of private
foundations.............................................. ......... -56 -85 -90 -96 -102 -429 -1,074
Modify tax on unrelated business taxable income of
charitable remainder trusts.............................. ......... -1 -6 -6 -6 -6 -25 -62
Modify basis adjustment to stock of S corporations
contributing appreciated property........................ ......... -3 -15 -21 -25 -28 -92 -301
Repeal the $150 million limitation on qualified
501(c)(3) bonds.......................................... ......... -2 -3 -6 -10 -11 -32 -81
Repeal certain restrictions on the use of qualified
501(c)(3) bonds for residential rental property.......... ......... -2 -5 -9 -16 -24 -56 -278
----------------------------------------------------------------------------------------
Total provide incentives for charitable giving......... ......... -210 -720 -750 -770 -795 -3,245 -7,847
Strengthen education:
Extend the above-the-line deduction for qualified out-of- -17 -171 -178 -180 -183 -185 -897 -1,867
pocket classroom expenses.................................
Provide assistance to distressed areas:
Establish Opportunity Zones................................ ......... -221 -411 -439 -451 -482 -2,004 -4,960
Protect the environment:
Extend permanently expensing of brownfields remediation
costs.................................................... -98 -146 -163 -177 -168 -157 -811 -1,503
Restructure assistance to New York City:
Provide tax incentives for transportation infrastructure... ......... -200 -200 -200 -200 -200 -1,000 -2,000
Repeal certain New York City Liberty Zone incentives....... ......... 200 200 200 200 200 1,000 2,000
----------------------------------------------------------------------------------------
Total restructure assistance to New York City.......... ......... ......... ......... ......... ......... ......... ......... ..........
----------------------------------------------------------------------------------------
Total tax incentives............................... -115 -3,226 -4,268 -8,768 -13,403 -19,634 -49,299 -193,382
[[Page 266]]
Simplify the Tax Laws for Families:
Clarify uniform definition of a child \8\.................... ......... 17 66 50 32 48 213 395
Simplify EITC eligibility requirement regarding filing ......... 27 -24 -21 -26 -28 -72 -207
status, presence of children, and work and immigration
status \9\..................................................
Reduce computational complexity of refundable child tax ......... ......... ......... ......... ......... ......... ......... ..........
credit \10\.................................................
----------------------------------------------------------------------------------------
Total simplify the tax laws for families................... ......... 44 42 29 6 20 141 188
Strengthen the Employer-Based Pension System:
Ensure fair treatment of older workers in cash balance
conversions and protect defined benefit plans.............. 3 53 62 77 89 100 381 1,039
Strengthen funding for single-employer pension plans......... ......... 536 2,290 -153 -2,336 -1,611 -1,274 -9,180
Reflect market interest rates in lump sum payments........... ......... ......... -3 -9 -17 -24 -53 -274
----------------------------------------------------------------------------------------
Total strengthen the employer-based pension system....... 3 589 2,349 -85 -2,264 -1,535 -946 -8,415
Close Loopholes and Improve Tax Compliance:
Combat abusive foreign tax credit transactions............... ......... 1 2 2 3 3 11 26
Modify the active trade or business test..................... ......... 6 8 8 8 8 38 89
Impose penalties on charities that fail to enforce
conservation
easements.................................................. ......... 3 8 8 9 9 37 91
Eliminate the special exclusion from unrelated business
taxable
income for gain or loss on the sale or exchange of certain
brownfields................................................ ......... 2 14 30 43 41 130 201
Limit related party interest deductions...................... ......... 82 141 148 155 163 689 1,635
Clarify and simplify qualified tuition programs.............. ......... 4 12 13 14 20 63 222
----------------------------------------------------------------------------------------
Total close loopholes and improve tax compliance......... ......... 98 185 209 232 244 968 2,264
Tax Administration, Unemployment Insurance, and Other:
Improve tax administration:
Implement IRS administrative reforms and initiate cost
saving measures \11\..................................... ......... ......... ......... ......... ......... ......... ......... ..........
Reduce the tax gap......................................... ......... 259 351 311 296 308 1,525 3,560
----------------------------------------------------------------------------------------
Total improve tax administration......................... ......... 259 351 311 296 308 1,525 3,560
Strengthen financial integrity of unemployment
insurance:
Strengthen the financial integrity of the unemployment
insurance system by reducing improper benefit payments
and tax avoidance \12\................................... ......... ......... 31 30 -106 -143 -188 -2,246
Extend unemployment insurance surtax \12\.................. ......... ......... 1,085 1,490 1,526 1,564 5,665 710
----------------------------------------------------------------------------------------
Total strengthen integrity of unemployment insurance \12\ ......... ......... 1,116 1,520 1,420 1,421 5,477 -1,536
Other proposals:
Increase Indian gaming activity fees....................... ......... ......... 5 5 5 5 20 45
----------------------------------------------------------------------------------------
Total tax administration, unemployment insurance, and ......... 259 1,472 1,836 1,721 1,734 7,022 2,069
other \12\..............................................
Modify Energy Policy Act of 2005:
Repeal reduced recovery period for natural gas distribution ......... 12 44 80 112 125 373 833
lines.......................................................
Modify amortization for certain geological and geophysical ......... 38 140 206 169 88 641 730
expenditures................................................
----------------------------------------------------------------------------------------
Total modify Energy Policy Act of 2005................... ......... 50 184 286 281 213 1,014 1,563
Promote Trade:
Implement free trade agreements \12\......................... ......... -236 -456 -593 -741 -832 -2,858 -8,200
Extend GSP \12\.............................................. ......... -412 -617 -666 -723 -786 -3,204 -3,445
----------------------------------------------------------------------------------------
Total promote trade \12\................................... ......... -648 -1,073 -1,259 -1,464 -1,618 -6,062 -11,645
Extend Expiring Provisions:
Minimum tax relief for individuals......................... -13,664 -20,495 ......... ......... ......... ......... -20,495 -20,495
Research & Experimentation (R&E) tax credit................ -2,097 -4,601 -5,944 -6,889 -7,669 -8,340 -33,443 -86,440
Combined work opportunity/welfare-to-work tax credit....... -80 -144 -86 -25 -7 -3 -265 -266
First-time homebuyer credit for DC......................... -1 -18 ......... ......... ......... ......... -18 -18
Authority to issue Qualified Zone Academy Bonds............ -3 -8 -13 -18 -20 -20 -79 -179
Disclosure of tax return information related to terrorist
activity \7\............................................. ......... ......... ......... ......... ......... ......... ......... ..........
Excise tax on coal \12\.................................... ......... ......... ......... ......... ......... ......... ......... 750
----------------------------------------------------------------------------------------
Total extend expiring provisions \12\.................. -15,845 -25,266 -6,043 -6,932 -7,696 -8,363 -54,300 -106,648
[[Page 267]]
Total budget proposals, including proposals assumed in the -15,874 -28,631 -14,888 -51,707 -36,183 -148,653 -280,062 -1,667,039
baseline \12\...............................................
Total budget proposals, excluding proposals assumed in the -15,957 -28,100 -7,152 -14,684 -22,587 -28,939 -101,462 -314,006
baseline \12\...............................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $45 million for 2011 and $51,809 million for 2007-
2016.
\2\ Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is -$371 million for 2011 and $7,346 million for 2007-
2016.
\3\ Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $91 million for 2007, $178 million for 2008, $253
million for 2009, $310 million for 2010, $352 million for 2011, $1,184 million for 2007-2011 and $3,500 million for 2007-2016.
\4\ Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $244 million for 2007, $315 million for 2008, $319
million for 2009, $303 million for 2010, $305 million for 2011, $1,486 million for 2007-2011 and $3,200 million for 2007-2016.
\5\ Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $381 million for 2007, $747 million for 2008, $1,095
million for 2009, $1,249 million for 2010, $1,343 million for 2011, $4,815 million for 2007-2011 and $12,939 million for 2007-2016.
\6\ Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $4 million for 2007, $10 million for 2008, $12
million for 2009, $14 million for 2010, $15 million for 2011, $55 million for 2007-2011 and $139 million for 2007-2016.
\7\ No net budgetary impact.
\8\ Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is -$170 million for 2008, -$196 million for 2009, -$250
million for 2010, -$234 million for 2011, -$850 million for 2007-2011 and -$2,224 million for 2007-2016.
\9\ Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is -$188 million for 2007, $123 million for 2008, $102
million for 2009, $96 million for 2010, $95 million for 2011, $228 million for 2007-2011 and $687 million for 2007-2016.
\10\ Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is -$332 million for 2008, -$342 million for 2009, -
$347 million for 2010, -$357 million for 2011, -$1,378 million for 2007-2011 and -$3,263 million for 2007-2016.
\11\ Outlays from this proposal will be reflected in the Financial Management Service's budget.
\12\ Net of income offsets.
[[Page 268]]
Table 17-4. RECEIPTS BY SOURCE
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Source 2005 -----------------------------------------------------------------------
Actual 2006 2007 2008 2009 2010 2011
----------------------------------------------------------------------------------------------------------------
Individual income taxes
(federal funds):
Existing law.............. 927,222 1,011,324 1,118,314 1,215,823 1,309,725 1,393,917 1,587,316
Proposed Legislation.... .......... -13,725 -21,948 -7,339 -41,279 -23,785 -120,447
-----------------------------------------------------------------------------------
Total individual income 927,222 997,599 1,096,366 1,208,484 1,268,446 1,370,132 1,466,869
taxes......................
===================================================================================
Corporation income taxes:
Federal funds:
Existing law............ 278,278 279,273 265,124 274,333 286,170 292,789 302,649
Proposed Legislation.. .......... -2,151 -4,557 -5,835 -9,034 -10,829 -10,637
-----------------------------------------------------------------------------------
Total Federal funds 278,278 277,122 260,567 268,498 277,136 281,960 292,012
corporation income taxes.
-----------------------------------------------------------------------------------
Trust funds:
Hazardous substance 4 .......... .......... .......... .......... .......... ..........
superfund..............
-----------------------------------------------------------------------------------
Total corporation income 278,282 277,122 260,567 268,498 277,136 281,960 292,012
taxes......................
===================================================================================
Social insurance and
retirement receipts (trust
funds):
Employment and general
retirement:
Old-age and survivors 493,646 521,440 549,083 580,545 612,254 648,363 685,218
insurance (Off-budget).
Disability insurance 83,830 88,525 93,236 98,584 103,968 110,099 116,357
(Off-budget)...........
Hospital insurance...... 166,068 177,592 187,940 198,380 209,455 221,926 234,675
Railroad retirement:
Social Security 1,836 1,866 1,937 1,986 2,032 2,066 2,105
equivalent account...
Rail pension and 2,284 2,360 2,322 2,365 2,421 2,471 2,520
supplemental annuity.
-----------------------------------------------------------------------------------
Total employment and 747,664 791,783 834,518 881,860 930,130 984,925 1,040,875
general retirement.......
-----------------------------------------------------------------------------------
On-budget............... 170,188 181,818 192,199 202,731 213,908 226,463 239,300
Off-budget.............. 577,476 609,965 642,319 679,129 716,222 758,462 801,575
-----------------------------------------------------------------------------------
Unemployment insurance:
Deposits by States \1\ . 35,076 37,477 38,100 38,644 38,814 40,574 43,294
Proposed Legislation.. .......... .......... .......... 39 38 -132 -178
Federal unemployment 6,829 7,269 7,084 5,911 5,585 5,946 6,689
receipts \1\ ..........
Proposed Legislation.. .......... .......... .......... 1,356 1,862 1,907 1,955
Railroad unemployment 97 86 90 104 119 122 122
receipts \1\ ..........
-----------------------------------------------------------------------------------
Total unemployment 42,002 44,832 45,274 46,054 46,418 48,417 51,882
insurance................
-----------------------------------------------------------------------------------
Other retirement:
Federal employees' 4,409 4,423 4,285 4,186 4,083 3,989 3,895
retirement--employee
share..................
Non-Federal employees 50 49 49 49 48 48 46
retirement \2\ ........
-----------------------------------------------------------------------------------
Total other retirement.... 4,459 4,472 4,334 4,235 4,131 4,037 3,941
-----------------------------------------------------------------------------------
Total social insurance and 794,125 841,087 884,126 932,149 980,679 1,037,379 1,096,698
retirement receipts........
===================================================================================
On-budget................. 216,649 231,122 241,807 253,020 264,457 278,917 295,123
Off-budget................ 577,476 609,965 642,319 679,129 716,222 758,462 801,575
===================================================================================
Excise taxes:
Federal funds:
Alcohol taxes........... 8,111 8,179 8,299 8,454 8,617 8,768 8,967
Proposed Legislation.. .......... -69 -95 -24 .......... .......... ..........
Tobacco taxes........... 7,920 7,710 7,570 7,437 7,312 7,197 7,081
Transportation fuels tax -770 -1,948 -2,451 -2,814 -2,921 -3,226 -780
Telephone and teletype 6,047 6,069 6,106 6,143 6,182 6,222 6,261
services...............
Other Federal fund 1,239 1,080 1,300 1,373 1,423 1,477 1,534
excise taxes...........
Proposed Legislation.. .......... 69 58 -3 -29 -42 -60
-----------------------------------------------------------------------------------
Total Federal fund excise 22,547 21,090 20,787 20,566 20,584 20,396 23,003
taxes....................
-----------------------------------------------------------------------------------
Trust funds:
Highway................. 37,892 39,066 39,727 40,576 41,415 42,190 42,974
Airport and airway...... 10,314 10,651 11,341 11,995 12,694 13,436 14,222
[[Page 269]]
Sport fish restoration 429 524 539 554 571 587 603
and boating............
Tobacco................. 899 1,033 955 955 955 955 955
Black lung disability 610 602 617 634 646 653 660
insurance..............
Inland waterway......... 91 81 77 76 77 78 80
Oil spill liability..... .......... 88 183 192 203 212 223
Vaccine injury 123 182 186 188 190 192 194
compensation...........
Leaking underground 189 194 196 201 206 207 210
storage tank...........
-----------------------------------------------------------------------------------
Total trust funds excise 50,547 52,421 53,821 55,371 56,957 58,510 60,121
taxes....................
-----------------------------------------------------------------------------------
Total excise taxes.......... 73,094 73,511 74,608 75,937 77,541 78,906 83,124
===================================================================================
Estate and gift taxes:
Federal funds............. 24,764 27,521 24,925 26,041 27,603 21,504 18,688
Proposed Legislation.... .......... 2 -1,225 -1,655 -1,591 -1,356 -17,133
-----------------------------------------------------------------------------------
Total estate and gift taxes. 24,764 27,523 23,700 24,386 26,012 20,148 1,555
===================================================================================
Customs duties:
Federal funds............. 22,260 24,693 27,643 31,437 31,863 34,246 36,559
Proposed Legislation.... .......... .......... -864 -1,432 -1,679 -1,951 -2,158
Trust funds............... 1,119 1,194 1,290 1,392 1,515 1,655 1,809
-----------------------------------------------------------------------------------
Total customs duties........ 23,379 25,887 28,069 31,397 31,699 33,950 36,210
===================================================================================
MISCELLANEOUS RECEIPTS: \3\
Miscellaneous taxes....... 342 342 443 438 438 438 438
Proposed Legislation.... .......... .......... .......... 5 5 5 5
Exercise of warrants...... 1 .......... .......... .......... .......... .......... ..........
United Mine Workers of 125 119 128 125 122 119 117
America combined benefit
fund.....................
Deposit of earnings, 19,297 27,455 32,679 35,431 38,454 41,282 43,686
Federal Reserve System...
Defense cooperation....... 46 8 8 8 8 8 8
Fees for permits and 9,825 10,110 10,442 10,609 10,860 11,018 11,304
regulatory and judicial
services.................
Fines, penalties, and 3,149 4,583 4,572 2,643 2,657 2,670 2,682
forfeitures..............
Gifts and contributions... 234 201 200 204 206 208 209
Refunds and recoveries.... -26 -56 -56 -56 -56 -56 -56
-----------------------------------------------------------------------------------
Total miscellaneous receipts 32,993 42,762 48,416 49,407 52,694 55,692 58,393
===================================================================================
Total budget receipts....... 2,153,859 2,285,491 2,415,852 2,590,258 2,714,207 2,878,167 3,034,861
On-budget................. 1,576,383 1,675,526 1,773,533 1,911,129 1,997,985 2,119,705 2,233,286
Off-budget................ 577,476 609,965 642,319 679,129 716,222 758,462 801,575
-----------------------------------------------------------------------------------
MEMORANDUM
Federal funds............. 1,310,401 1,391,759 1,481,180 1,603,674 1,677,442 1,783,065 1,878,730
Trust funds............... 546,513 620,753 672,520 699,346 727,925 761,693 805,257
Interfund transactions.... -280,531 -336,986 -380,167 -391,891 -407,382 -425,053 -450,701
-----------------------------------------------------------------------------------
Total on-budget............. 1,576,383 1,675,526 1,773,533 1,911,129 1,997,985 2,119,705 2,233,286
-----------------------------------------------------------------------------------
Off-budget (trust funds).... 577,476 609,965 642,319 679,129 716,222 758,462 801,575
===================================================================================
Total....................... 2,153,859 2,285,491 2,415,852 2,590,258 2,714,207 2,878,167 3,034,861
----------------------------------------------------------------------------------------------------------------
\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
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.