[Analytical Perspectives]
[Federal Receipts and Collections]
[17. Federal Receipts]
[From the U.S. Government Printing Office, www.gpo.gov]



[[Page 239]]

 
                          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 is 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 next Chapter.
  Total receipts in 2008 are estimated to be $2,662.5 billion, an 
increase of $122.4 billion or 4.8 percent relative to 2007. Receipts are 
projected to grow at an average annual rate of 5.6 percent between 2008 
and 2012, rising to $3,307.3 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 Gross Domestic Product (GDP), receipts are projected to 
decline from 18.5 percent in 2007 to 18.3 percent in 2008, and to rise 
to 18.6 percent in 2012.

                                     

                                                        Table 17-1.  RECEIPTS BY SOURCE--SUMMARY
                                                                (In billions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Estimate
                                                  2006 Actual  -----------------------------------------------------------------------------------------
                                                                     2007           2008           2009           2010           2011           2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
Individual income taxes........................     1,043.9        1,168.8        1,246.6        1,331.1        1,428.3        1,517.3        1,636.6
Corporation income taxes.......................       353.9          342.1          314.9          319.8          325.5          340.6          366.6
Social insurance and retirement receipts.......       837.8          873.4          927.2          974.2        1,029.3        1,085.7        1,138.8
  (On-budget)..................................      (229.4)        (239.2)        (253.1)        (262.8)        (276.0)        (289.9)        (303.4)
  (Off-budget).................................      (608.4)        (634.1)        (674.1)        (711.4)        (753.3)        (795.8)        (835.3)
Excise taxes...................................        74.0           57.1           68.1           63.1           63.6           68.6           71.3
Estate and gift taxes..........................        27.9           25.3           25.7           27.4           21.7            1.7            0.5
Customs duties.................................        24.8           26.8           29.2           30.7           32.7           34.3           35.7
Miscellaneous receipts.........................        45.0           46.7           50.7           52.0           53.6           55.5           57.8
                                                --------------------------------------------------------------------------------------------------------
  Total receipts...............................     2,407.3        2,540.1        2,662.5        2,798.3        2,954.7        3,103.6        3,307.3
    (On-budget)................................    (1,798.9)      (1,906.0)      (1,988.4)      (2,086.9)      (2,201.4)      (2,307.8)      (2,472.0)
    (Off-budget)...............................      (608.4)        (634.1)        (674.1)        (711.4)        (753.3)        (795.8)        (835.3)
 
  Total receipts as a percentage of GDP........        18.4           18.5           18.3           18.3           18.3           18.3           18.6
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                     

             Table 17-2.  EFFECT ON RECEIPTS OF CHANGES IN THE SOCIAL SECURITY TAXABLE EARNINGS BASE
                                            (In billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                  Estimate
                                                          ------------------------------------------------------
                                                              2008       2009       2010       2011       2012
----------------------------------------------------------------------------------------------------------------
Social security (OASDI) taxable earnings base increases:
  $97,500 to $102,600 on Jan. 1, 2008....................        2.7        7.0        7.9        8.8        9.7
  $102,600 to $107,700 on Jan. 1, 2009...................  .........        2.7        7.0        7.9        8.8
  $107,700 to $113,100 on Jan. 1, 2010...................  .........  .........        2.8        7.4        8.3
  $113,100 to $118,500 on Jan. 1, 2011...................  .........  .........  .........        2.8        7.5
  $118,500 to $123,600 on Jan. 1, 2012...................  .........  .........  .........  .........        2.7
----------------------------------------------------------------------------------------------------------------


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                                              Chart 17-1. Major Provisions of the Tax Code Under the 2001, 2003, 2004, and 2006 Enacted Tax Relief
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
          Provision                   2003               2004              2005                2006               2007              2008             2009             2010             2011
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  Individual Income Tax       Rates reduced to     ................  ................  ...................  ................  ...............  ...............  ...............  Rates revert to
   Rates                       35, 33, 28, and 25                                                                                                                                 39.6, 36, 31,
                               percent                                                                                                                                            and 28 percent
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  10 Percent Bracket          Top of bracket       ................  ................  ...................  ................  ...............  ...............  ...............  Bracket
                               increased to                                                                                                                                       eliminated,
                               $7,000/$14,000 for                                                                                                                                 lowest bracket
                               single/joint                                                                                                                                       reverts to 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 reverts
                               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                                                                                                                                         reverts 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 and                                                                                                                                         age 17 reverts
                               refundability                                                                                                                                      to $500 and
                               extended to                                                                                                                                        refundability
                               families with 1 or                                                                                                                                 restricted to
                               2 children                                                                                                                                         taxpayers with
                                                                                                                                                                                  3 or more
                                                                                                                                                                                  children
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  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         reverts to 60
                                                   Exempt amount                       Exempt amount                                            $3.5 million                      percent
                                                    increased to                        increased to $2                                                                          Exempt amount
                                                    $1.5 million                        million                                                                                   reverts to $1
                                                                                                                                                                                  million
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  Small Business Expensing    Deduction increased  ................  ................  ...................  ................  ...............  ...............  Deduction        ...............
                               to $100,000,                                                                                                                      reverts 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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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  Capital Gains               Tax rate on capital  ................  ................  ...................  ................  Tax on capital   ...............  ...............  Tax rate on
                               gains reduced to 5/                                                                             gains                                              capital gains
                               15 percent                                                                                      eliminated for                                     reverts to 10/
                                                                                                                               taxpayers in                                       20 percent (8/
                                                                                                                               10/15 percent                                      18 percent on
                                                                                                                               tax brackets                                       assets held
                                                                                                                                                                                  over 5 years)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  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        AMT exemption     ...............  ...............  ...............  ...............
                               amount increased                                         amount increased     amount reverts
                               to $40,250/$58,000                                       to $42,500/$62,550   to $33,750/
                               for single/joint                                         for single /joint    $45,000 for
                               filers                                                   filers               single /joint
                                                                                                             filers
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                     

                           ENACTED LEGISLATION

  Several laws were enacted in 2006 that have an effect on governmental 
receipts. The major legislative changes affecting receipts are described 
below.

         TAX INCREASE PREVENTION AND RECONCILIATION ACT OF 2005

  The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), 
which was signed by President Bush on May 17, 2006, extended previously 
enacted tax cuts that helped spur investment and economic expansion, 
resulting in more jobs and higher wages for American workers. The 
provisions of this Act increased the Alternative Minimum Tax (AMT) 
exemption amount for 2006; temporarily extended increased expensing 
limits for small businesses; reduced tax rates on capital gains and 
dividends; and made other miscellaneous changes to tax law. The major 
provisions of this Act are described below.

                           Expiring Provisions

  Extend increased expensing for small business.--Under prior law, 
business taxpayers were 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 
beginning in 2003 through 2007. The maximum amount that could be 
expensed was reduced by the amount by which the taxpayer's cost of 
qualifying property exceeded $400,000. Both the deduction and annual 
investment limits were 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 were 
permitted to make or revoke expensing elections on amended returns 
without the consent of the Internal Revenue Service (IRS) Commissioner. 
This Act extended each of these temporary provisions, applicable for 
qualifying property (including off-the-shelf computer software) placed 
in service in taxable years beginning in 2008 and 2009.
  Extend reductions in individual income taxes on capital gains and 
dividends.--Under prior law, the maximum individual income tax rate on 
net capital gains and dividends was 15 percent for taxpayers in 
individual income tax rate brackets above 15 percent and 5 percent (zero 
in 2008) for lower income taxpayers. This Act extended these reduced 
rates (15 percent and zero), which were scheduled to expire on December 
31, 2008, through December 31, 2010.
  Extend and modify exceptions provided under Subpart F.--Under the 
Subpart F rules, certain U.S. shareholders of a controlled foreign 
corporation (CFC) are subject to U.S. tax currently on certain income 
earned by the CFC, whether or not such income is distributed to the 
shareholders. The income subject to current inclusion under the Subpart 
F rules includes, among other things, ``foreign personal holding company

[[Page 242]]

income'' and insurance income. Foreign personal holding company income 
generally includes many types of income derived by a financial service 
company, such as dividends; interest; royalties; rents; annuities; net 
gains from the sale of certain property, including securities, 
commodities and foreign currency; and income from notional principal 
contracts and securities lending activities. Under prior law, for 
taxable years beginning before January 1, 2007, certain income derived 
in the active conduct of a banking, financing, insurance, or similar 
business was provided an exception from Subpart F. This Act extended the 
exception for two years, to apply to taxable years beginning before 
January 1, 2009. This Act also provided an exception from Subpart F for 
dividends, interest, rents, and royalties received by one CFC from a 
related CFC to the extent attributable or properly allocable to non-
Subpart F income of the payor, effective for taxable years beginning 
after December 31, 2005 and before January 1, 2009.

                 Estimated Tax Payments by Corporations

  Modify the timing of estimated tax payments by corporations.--
Corporations generally are required to pay their income tax liability in 
quarterly estimated payments. For corporations that keep their accounts 
on a calendar year basis, these payments are due on or before April 15, 
June 15, September 15, and December 15 (if these dates fall on a holiday 
or weekend, payment is due on the next business day). This Act increased 
the estimated tax payments due in July through September by corporations 
with assets of at least $1 billion to: 105 percent of the amount 
otherwise due in 2006, 106.25 percent of the amount otherwise due in 
2012, and 100.75 percent of the amount otherwise due in 2013. For 
corporations affected by this provision, the next required estimated tax 
payment is reduced accordingly. This Act also allowed corporations to 
delay 20.5 percent of the estimated tax payment otherwise due on 
September 15, 2010 until October 1, 2010, and 27.5 percent of the 
estimated tax payment otherwise due on September 15, 2011 until October 
1, 2011.

          Alternative Minimum Tax (AMT) Relief for Individuals

  Increase and extend AMT relief for individuals.--A temporary provision 
of prior law increased the 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. These temporary increases were effective 
for taxable years beginning after December 31, 2002 and before January 
1, 2006. This Act increased the AMT exemption amounts, effective for 
taxable years beginning after December 31, 2005 and before January 1, 
2007, to $42,500 for single taxpayers, $62,550 for married taxpayers 
filing a joint return and surviving spouses, and $31,275 for married 
taxpayers filing a separate return and estates and trusts.
  Under a temporary provision of prior law, taxpayers were permitted to 
offset both the regular tax and the AMT with nonrefundable personal tax 
credits, effective for taxable years beginning before January 1, 2006. 
This Act extended minimum tax relief for nonrefundable personal tax 
credits for one year, to apply to taxable year 2006. The extension does 
not apply to the child credit, the new saver's credit, the earned income 
credit (EITC) 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.

                                 Offsets

  Repeal income limitations on Roth Individual Retirement Account (IRA) 
conversions.--Under prior law, taxpayers with adjusted gross income 
(AGI) of less than $100,000 were eligible to roll over or convert all or 
a portion of a traditional IRA to a Roth IRA. Amounts converted were 
treated as distributions for income tax purposes, but the 10-percent tax 
on early withdrawals did not apply. This Act repealed the income 
limitation on conversions from traditional IRAs to Roth IRAs, effective 
for conversions occurring after December 31, 2009. Unless a taxpayer 
elects otherwise (or converted amounts are distributed before 2012), 
none of the amount converted in 2010 will be included in gross income 
for that year; instead, half of the amount converted will be included in 
gross income in each year, 2011 and 2012. If converted amounts are 
distributed before 2012, the amount included in income in the year of 
the distribution is increased by the amount distributed, and the amount 
included in income in 2012 (or 2011 and 2012 if the distribution was 
made in 2010) is the lesser of: (1) half of the amount includible in 
income as a result of the conversion, and (2) the remaining portion of 
such amount not already included in income.
  Repeal foreign sales corporation (FSC)/extraterritorial income (ETI) 
binding contract relief.--The FSC Repeal and ETI Exclusion Act of 2000 
replaced the FSC tax provisions of prior law, which the World Trade 
Organization (WTO) had found to be a prohibited export subsidy in 
violation of international tax standards, with an exclusion from U.S. 
tax for extraterritorial income. Transition rules delayed the repeal of 
the FSC rules and the effective date of ETI for transactions in the 
ordinary course of a trade or business if such transactions were 
pursuant to a binding contract between the taxpayer and an unrelated 
person and the contract was in effect on September 30, 2000 and at all 
other times thereafter. The ETI provisions also were declared a 
prohibited export subsidy by the WTO and were repealed by the American 
Jobs Creation Act of 2004, effective for transactions after December 31, 
2004. Certain transitional tax rules applied to transactions occurring 
in 2005 and 2006, providing taxpayers with 80 percent and 60 percent, re

[[Page 243]]

spectively, of the tax benefits that would have been otherwise allowed 
under the prior law ETI provisions. Moreover, the ETI provisions of 
prior law remained in effect for transactions in the ordinary course of 
a trade or business if such transactions were pursuant to a binding 
contract between the taxpayer and an unrelated person and the contract 
was in effect on September 17, 2003 and at all times thereafter. Both 
the FSC and ETI binding contract relief of prior law were repealed under 
this Act, effective for taxable years beginning after May 17, 2006.
  Impose withholding on certain payments made by government entities.--
This Act imposed withholding on certain payments made by government 
entities (the Government of the United States, every State, and every 
political subdivision or instrumentality thereof, including multi-State 
agencies) to persons providing property or services. The requirement 
applies regardless of whether the government entity making the payment 
is the recipient of the property or service. The rate of withholding is 
three percent and applies to payments made after December 31, 2010. 
Political subdivisions of States (or any instrumentality thereof) with 
less than $100 million of annual expenditures for property or services 
are exempt from the withholding requirement. In addition, the provision 
does not apply to: (1) payments made through a public assistance or 
public welfare program for which eligibility is determined by a needs or 
income test; (2) payments, such as wages, that were subject to mandatory 
or voluntary withholding under prior law; (3) payments of interest; (4) 
payments for real property; (5) payments to tax-exempt entities or 
foreign governments; (6) intra-governmental payments; (7) payments made 
pursuant to a classified or confidential contract; and (8) payments to 
government employees that are not otherwise excludable from the new 
withholding provision with respect to the employees' services as an 
employee.
  Modify taxation of citizens living abroad.--U.S. citizens who earn 
income in a foreign country may be taxed on that income by the foreign 
country. Such individuals are allowed a credit against the U.S. income 
tax imposed on foreign-source income for foreign taxes paid on that 
income; the amount of the credit generally is limited to the amount of 
U.S. tax otherwise owed on that income.
  A U.S. citizen or resident living abroad may be eligible to exclude 
from U.S. taxable income certain foreign earned income and foreign 
housing costs, regardless of whether any foreign tax is paid on the 
foreign earned income or housing costs. To qualify for these exclusions, 
the taxpayer must have his or her tax home in a foreign country and must 
be either: (1) a U.S. citizen who is a bona fide resident of a foreign 
country or countries for an uninterrupted period that includes an entire 
taxable year, or (2) a U.S. citizen or resident present in a foreign 
country or countries for at least 330 full days in any 12-consecutive-
month period.
  The foreign earned income exclusion generally is available for a 
qualified individual's non-U.S. source earned income attributable to 
personal services performed by that individual during the period of 
foreign residence or presence. Under prior law, the maximum amount of 
the foreign earned income exclusion was $80,000 in taxable years 2002 
through 2007 and was indexed annually for inflation beginning in taxable 
year 2008. This Act accelerated the annual indexation of the maximum 
amount of the foreign earned income exclusion by two years, increasing 
the limitation for taxable year 2006 to $82,400.
  The housing cost exclusion (or deduction for purposes of computing 
AGI, if the otherwise excludable housing costs are not paid or 
reimbursed by a taxpayer's employer) is equal to the excess of a 
taxpayer's ``housing expenses'' over a base housing amount. ``Housing 
expenses'' are the reasonable expenses paid or incurred during the 
taxable year for housing in a foreign country for the taxpayer, and, if 
they live with the taxpayer, the taxpayer's spouse and dependents. 
Housing expenses include costs attributable to housing, such as 
utilities and insurance, but do not include items that are separately 
deductible, such as mortgage interest and real estate taxes. If the 
taxpayer maintains a second household outside the United States for a 
spouse or dependents who do not reside with the taxpayer because of 
dangerous, unhealthful, or otherwise adverse living conditions, the 
housing expenses of the second household also are eligible for 
exclusion. Under prior law, the base housing amount above which costs 
were eligible for exclusion in a taxable year was 16 percent of the 
annual salary (computed on a daily basis) of a GS-14 step 1 Federal 
employee, multiplied by the number of days of foreign residence or 
presence in the taxable year. This Act modified the base housing amount 
used in calculating the foreign housing cost exclusion, effective for 
taxable years beginning after December 31, 2005, changing it to 16 
percent of the maximum amount (computed on a daily basis) of the foreign 
earned income exclusion, multiplied by the number of days of foreign 
residence or presence in the taxable year. Reasonable housing expenses 
in excess of the base housing amount may still be excluded from gross 
income (or, if paid by the taxpayer, deductible in computing AGI), but 
the amount of the exclusion is limited to 30 percent of the taxpayer's 
foreign earned income exclusion. Under this Act, the Secretary of the 
Treasury has authority to adjust this 30-percent limitation upwards or 
downwards, based on geographic differences in housing costs relative to 
housing costs in the United States.
  As provided under prior law, the combined foreign earned income 
exclusion and housing cost exclusion (including the amount deductible in 
computing AGI) may not exceed the taxpayer's total foreign earned income 
for the taxable year. Similarly, the taxpayer's foreign tax credit must 
be reduced by the amount of the credit attributable to excluded income.

[[Page 244]]

  Under prior law, a taxpayer eligible for the foreign earned income and 
housing cost exclusions was subject to tax on income in excess of the 
exclusion amounts (after deductions), starting in the lowest tax rate 
bracket. Under this Act, effective for taxable years beginning after 
December 31, 2005, a taxpayer eligible for the foreign earned income and 
housing exclusions is subject to tax on income in excess of the 
exclusion amounts at the income tax rates that would have been 
applicable had the individual not elected to take the exclusions.

  Require partial payment with submission of offers-in-compromise.--
Offers-in-compromise are offers to the IRS by a taxpayer to settle 
outstanding tax liability for less than the full amount due, generally 
based on doubt as to liability for, or collectibility of, the tax. There 
are two general categories of offers-in-compromise: (1) lump-sum offers, 
in which the taxpayer proposes to make one lump-sum payment of a 
specified dollar amount in settlement of the outstanding tax liability, 
and (2) periodic-payment offers, in which the taxpayer proposes to make 
a series of payments over time in settlement of the outstanding tax 
liability. The IRS imposes a user fee of $150 on most offers-in-
compromise, payable upon submission of the offer to the IRS. Enforcement 
action generally is suspended during the period that the IRS evaluates 
an offer. Under prior law, taxpayers were permitted (but not required) 
to make a deposit with their offer; if the offer was rejected, the 
deposit generally was returned to the taxpayer. This Act made the 
following changes, effective with respect to offers-in-compromise 
submitted to the IRS on and after July 16, 2006: (1) Taxpayers making 
lump-sum offers (offers to pay in five or fewer installments) are 
required to make a down payment of 20 percent of the amount of the offer 
upon submission of the offer to the IRS. (2) Taxpayers making periodic-
payment offers are required to comply with the payment schedule proposed 
in the offer while the offer is being considered. (3) Offers submitted 
to the IRS that do not comply with these payment requirements are 
returned to the taxpayer as unprocessable and immediate enforcement 
action is permitted. (4) The $150 user fee is applied to the taxpayer's 
outstanding tax liability. (5) An offer-in-compromise is deemed accepted 
if the IRS does not make a decision with respect to the offer within two 
years from the date the offer was submitted. (6) The Secretary of the 
Treasury is authorized to issue regulations providing exceptions to the 
partial payment requirements in the case of offers from certain low-
income taxpayers and offers based on doubt as to liability.
  Modify 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 acquisition and 
retention of mineral properties by taxpayers exploring for minerals. 
Under prior law, 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, could be amortized over two years. This Act increased the 
amortization period to five years for G&G costs paid or incurred by 
certain major integrated oil companies after May 17, 2006. This five-
year amortization rule applies only to integrated oil companies that 
have an average daily worldwide production of crude oil of at least 
500,000 barrels for the taxable year, have gross receipts in excess of 
$1 billion in the last taxable year ending during calendar year 2005, 
and either are a crude oil refiner or have an ownership interest in a 
crude oil refiner of 15 percent or more.
  Modify taxation of unearned income of minors.--An unmarried individual 
eligible to be claimed as a dependent on another taxpayer's individual 
income tax return generally must file an individual income tax return if 
he or she has: (1) earned income only over $5,150 (for 2006); (2) 
unearned income only over the minimum standard deduction amount for 
dependents ($850 in 2006); or (3) both earned income and unearned income 
totaling more than the smaller of (a) $5,150 (for 2006) or (b) the 
larger of (i) $850 (for 2006) or (ii) earned income plus $300. Under 
prior law, unearned income of a child was taxed under special rules if: 
(1) the child had not reached the age of 14 by the close of the taxable 
year, (2) the child's unearned income (income other than wages, 
salaries, professional fees, or other amounts received as compensation 
for personal services actually rendered) was more than $1,700 (for 
2006), and (3) the child was required to file a return for the year. 
These special rules (referred to as the ``kiddie tax'') applied if the 
child could have been claimed as a dependent on the parent's return, 
regardless of whether the parent actually claimed the child as a 
dependent. Under the kiddie tax, the child's net unearned income over 
$1,700 (for 2006) was taxed at the parent's tax rate if that rate was 
higher than the child's rate. The remainder of a child's taxable income 
was taxed at the child's tax rate, regardless of whether the kiddie tax 
applied. Effective for taxable years beginning after December 31, 2005, 
this Act increased the age to which the kiddie tax applies from under 14 
years of age to under 18 years of age.
  Provide other offsets.--Other offsets provided in this Act included: 
(1) application of earnings stripping rules to partners that are C 
corporations, (2) amendment of information reporting requirements to 
include interest paid on tax-exempt bonds, (3) modification of the scope 
of the application of the Foreign Investment in Real Property Tax Act of 
1980 regime, (4) denial of tax-free treatment to certain corporate spin-
off transactions, (5) imposition of new requirements on pooled financing 
bonds, (6) clarification of the domestic manufacturing deduction wage 
limitation, and (7) imposition of penalties on certain exempt entities 
for participation in prohibited tax shelter transactions as 
accommodation parties.

[[Page 245]]

                            Other Provisions

  Provide other changes.--Other changes provided in this Act included: 
(1) modification of the tax treatment of income earned by certain 
environmental cleanup funds, (2) modification of the rules relating to 
taxation of distributions of stock and securities of a controlled 
corporation, (3) expansion of eligibility for the qualified veterans' 
mortgage bond program, (4) treatment of the sale or exchange of certain 
self-created musical works as capital gains, (5) modification of the 
vessel tonnage tax, (6) extension of the exemption for a portion of the 
Permanent University Fund from the tax-exempt bond arbitrage rules, (7) 
election of five-year amortization for the costs of creating or 
acquiring a musical composition, (8) acceleration of the increased 
capital expenditure limitation on the issuance of qualified small issue 
tax-exempt bonds to apply to bonds issued after December 31, 2006, and 
(9) modification of the tax treatment of loans to qualified continuing 
care facilities.

                     PENSION PROTECTION ACT OF 2006

  The Pension Protection Act of 2006, which was signed by President Bush 
on August 17, 2006, was the most sweeping reform of America's pension 
system enacted in 30 years. The provisions of this Act strengthened the 
private retirement system by making it more difficult for employers to 
underfund their pension plans and by preventing employers with 
underfunded plans from making promises to their employees that they 
cannot keep. Provisions of this Act also provided more incentives to 
individuals to save for retirement, modified tax provisions related to 
spending for health care, temporarily suspended certain customs duties, 
provided incentives for certain charitable contributions, and modified 
certain rules relating to activities of tax-exempt organizations. The 
major provisions of this Act that affect receipts are described below.

                          Pension Funding Rules

  Reform funding rules for single-employer defined-benefit pension 
plans.--Under prior law, defined-benefit pension plans were subject to 
minimum funding requirements imposed under both the Internal Revenue 
Code and the Employee Retirement Income Security Act of 1974 (ERISA). In 
the case of a qualified plan, the Internal Revenue Code excluded such 
contributions from gross income and allowed 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 were determined under a series of 
complex rules and measures of assets and liability, many of which were 
manipulable and none of which entailed the use of an accurate measure of 
the plan's assets and its true liabilities. This Act replaced the 
funding rules of prior law, effective for plan years beginning after 
December 31, 2007, with a minimum funding requirement of 100 percent of 
plan liabilities, phased in over four years, as follows: 92 percent in 
2008, 94 percent in 2009, 96 percent in 2010, and 100 percent in 2011 
and subsequent years. Other funding rules provided in this Act: (1) 
changed the calculation of the value of credit balances and restricted 
the use of credit balances in lieu of cash to fund required 
contributions; (2) changed the method of calculating liabilities for 
plans considered to be at risk; (3) reduced the time period over which 
asset values can be averaged to two years, and limited averaged asset 
values to no less than 90 percent and to no more than 110 percent of 
current fair market value; (4) required amortization of unfunded 
liabilities over seven years, in most cases; (5) updated the mortality 
table used to project future benefits; (6) allowed plan sponsors to 
deduct from taxable income contributions of up to 150 percent of plan 
liability; and (7) modified the interest rate used to calculate pension 
liability, requiring the use of a yield curve based on 24-month averages 
of the rates on corporate bonds of relevant maturities in the top three 
rating categories (AAA, AA and A), phased in at 33\1/3\ percent in 2008, 
66\2/3\ percent in 2009 and 100 percent beginning in 2010.
  Reform funding rules for multiemployer defined-benefit plans.--
Multiemployer plans are subject to the same general funding rules as the 
pre-2006 rules for single-employer plans, except that different rules 
apply in some cases. This Act modified the funding of multiemployer 
plans by: (1) providing additional funding rules for certain plans that 
are in endangered or critical status; and (2) allowing plan sponsors to 
deduct from taxable income contributions of up to 140 percent of plan 
liability. These changes were effective for plan years beginning after 
2007; however, the additional funding rules for plans in endangered or 
critical status do no apply to plan years beginning after December 31, 
2014.

                        Other Pension Provisions

  Encourage automatic enrollment in pension plans.--Under current law, 
most defined-contribution plans may include a qualified cash or deferred 
arrangement under which employees may elect to receive cash or to have 
contributions made to the plan by the employer on behalf of the employee 
in lieu of receiving cash. Contributions made to the plan at the 
election of the employee are referred to as ``elective deferrals.'' Such 
a plan may be designed so that the employee will receive cash unless an 
affirmative election to make contributions is made. Alternatively, a 
plan may provide that elective contributions are made at a specified 
rate unless the employee elects otherwise; such a plan is sometimes 
referred to as an ``automatic enrollment'' plan. In either case, the 
employee must have an opportunity to elect to receive cash in lieu of 
contributions.
  This Act made changes to address employers' concerns about 
implementing automatic enrollment plans and to provide incentives for 
automatic enrollment, generally effective for plan years beginning after 
2007. The

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changes provided in the Act: (1) exempted such plans from State payroll 
withholding laws; (2) provided fiduciary relief for investment of 
participant account balances in certain default investments; (3) 
provided a 90-day period from the initial payroll reduction during which 
participants are allowed to opt out of automatic enrollment and receive 
a penalty-free return of their automatic elective contributions; and (4) 
provided that plans with ``a qualified automatic enrollment feature'' 
satisfy the nondiscrimination rules regarding elective deferrals and 
employer matching contributions, and are not subject to the top-heavy 
rules.

  Allow certain small employers to establish combined defined-benefit 
plans and qualified cash or deferred arrangements.--Under prior law, a 
defined-benefit plan could not be combined with a qualified cash or 
deferred arrangement (Section 401(k) plan); they had to be structured as 
two separate plans. This Act allowed small employers to establish 
combined defined-benefit and 401(k) plans, effective for plan years 
beginning after December 31, 2009. A small employer is an employer with 
an average of at least two and no more than 500 employees on business 
days during the preceding calendar year and at least two employees on 
the first day of the plan year. The assets of the combined plan must be 
held in a single trust and they must be clearly identified and allocated 
to the defined-benefit plan and the 401(k) plan to the extent necessary 
for the separate application of the Internal Revenue Code and ERISA; in 
addition, the combined plan must meet certain benefit, contribution, 
vesting, and nondiscrimination requirements.
  Make other miscellaneous changes affecting pension plans.--Other 
changes in pension plans that affect receipts: (1) permitted workers in 
publicly held companies to divest themselves of company stock 
attributable to employer contributions after three years of service and 
prohibited employers from requiring workers to invest their own 
retirement savings in company stock; (2) improved portability of 
retirement savings, such as allowing direct rollovers from retirement 
plans to Roth IRAs and faster vesting of employer non-elective 
contributions; (3) gave taxpayers the option to deposit part of their 
individual income tax refund directly into an IRA; and (4) allowed 
members of the National Guard and reservists called to active duty to 
withdraw money from their IRA or pension without penalty and to repay 
the money within two years.

                           Expiring Provisions

  Extend permanently IRA maximum contribution limits and index income 
limitations on IRA contributions.--The maximum annual contribution that 
can be made to a traditional or Roth IRA by or on behalf of an 
individual varies depending on the particular circumstances, including 
the individual's income. However, under prior law, the maximum annual 
contribution that could be made to all of an Individual's IRAs was the 
lesser of: (1) the individual's compensation or (2) $4,000 for taxable 
years 2005 through 2007, and $5,000 for taxable year 2008, indexed 
thereafter in increments of $500. In the case of a married couple, 
contributions could be made up to the dollar limit for each spouse if 
the combined compensation of the spouses was at least equal to the 
contributed amount. Individuals who attained age 50 before the end of a 
taxable year were allowed to make additional ``catch-up'' contributions. 
For those individuals, the otherwise maximum contribution limit was 
increased by $1,000 for taxable years 2006 through 2010. These 
contribution limits, which had been scheduled to expire after December 
31, 2010, were extended permanently under this Act.
  An individual may make nondeductible contributions to a traditional 
IRA up to the IRA contribution limits specified above (to the extent the 
taxpayer cannot or does not make deductible contributions). An 
individual may make deductible contributions to a traditional IRA up to 
the IRA contribution limits specified above, if neither the individual 
nor the individual's spouse is an active participant in an employer-
sponsored retirement plan. If an individual (or the individual's spouse) 
is an active participant in an employer-sponsored retirement plan, the 
deduction is phased out for taxpayers with AGI above certain levels. 
Under prior law, the AGI phase-out ranges were: (1) $50,000 to $60,000 
for single taxpayers; (2) $80,000 to $100,000 for married taxpayers 
filing a joint return for 2007 and subsequent years; and (3) $0 to 
$10,000 for married taxpayers filing a separate return. If an individual 
was not an active participant in an employer-sponsored retirement plan, 
but the individual's spouse was an active participant in such a plan, 
the deduction was phased out for taxpayers with AGI between $150,000 and 
$160,000. An individual may make nondeductible contributions to a Roth 
IRA subject to the IRA contribution limits specified above. However, the 
maximum annual contribution is phased out for taxpayers with AGI over 
certain levels. Under prior law, the AGI phase-out ranges were: (1) 
$95,000 to $110,000 for single taxpayers; (2) $150,000 to $160,000 for 
married taxpayers filing a joint return; and (3) $0 to $10,000 for 
married taxpayers filing a separate return. Under this Act, the income 
thresholds that determine eligibility to make IRA contributions are 
indexed for inflation in increments of $1,000 beginning in 2007.

  Extend permanently maximum contribution and benefit limits under 
qualified pension plans.--Limits on contributions and benefits under 
qualified pension plans are based on the type of plan. Under prior law, 
annual contributions to a defined-contribution plan with respect to each 
plan participant were limited to the lesser of 100 percent of 
compensation or $40,000 (adjusted annually for inflation in $1,000 
increments after 2002). The maximum annual benefit payable under a 
defined-benefit plan was generally the lesser of 100 percent of average 
compensation or $160,000 (adjusted annually for inflation for plans 
ending after

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December 31, 2002, in increments of $1,000). The annual compensation of 
each participant that could be taken into account for purposes of 
determining contributions and benefits under a plan generally was 
limited to $200,000 in 2002 (indexed annually thereafter in $5,000 
increments). The dollar limit on annual elective deferrals under section 
401(k) plans, section 403(b) annuities and salary reduction SEPs was 
$15,000 in 2006, indexed annually thereafter in $500 increments. The 
dollar limit on annual elective deferrals to a SIMPLE plan was $10,000 
in 2005 (adjusted for inflation in increments of $500 after 2006). The 
dollar limit on contributions to an eligible section 457 plan was the 
lesser of 100 percent of includable compensation or $15,000 in 2006, 
indexed annually thereafter in increments of $500. Individuals who 
attained age 50 before the end of a taxable year were allowed to make 
``catch-up'' contributions to a 401(k) plan, section 403(b) annuity, SEP 
or SIMPLE plan, or section 457 plan. The amount of catch-up 
contributions permitted was the lesser of: (1) the applicable dollar 
amount or (2) the participant's compensation for the year after 
reduction by any other elective deferrals of the participant for the 
year. The applicable dollar amount under a 401(k) plan, section 403(b) 
annuity, SEP or section 457 plan was $5,000 for 2006, indexed annually 
thereafter in increments of $500. The applicable dollar amount under a 
SIMPLE plan was $2,500 in 2006, indexed annually thereafter in 
increments of $500. These contribution and benefit limits, which were 
scheduled to expire after December 31, 2010, were extended permanently 
under this Act.
  Extend permanently the ability to make tax-free distributions from 
qualified tuition programs (section 529 of the Internal Revenue Code).--
Qualified State tuition programs generally take two forms--prepaid 
tuition plans and savings plans. Under a prepaid tuition plan, an 
individual may purchase tuition credits or certificates on behalf of a 
designated beneficiary, which entitle the beneficiary to the waiver or 
payment of qualified higher education expenses at participating 
educational institutions. Under a savings plan, an individual may make 
contributions to an account established for the purpose of meeting the 
qualified higher education expenses of a designated beneficiary. Private 
educational institutions are also allowed to establish qualified prepaid 
tuition plans (but not savings plans), provided the institution is 
eligible to participate in Federal financial aid programs under Title IV 
of the Higher Education Act of 1965. Earnings in a qualified savings 
program accumulate tax free. Under current law, if a distribution is 
used to pay qualified higher education expenses, the distribution is tax 
free. Qualified expenses include: tuition and fees; certain expenses for 
room and board; certain expenses for books, supplies and equipment; and 
expenses for a special needs beneficiary that are necessary in 
connection with enrollment or attendance at an eligible education 
institution. This Act permanently extended the preferred tax treatment 
of the distributions, which was scheduled to expire with respect to 
withdrawals after December 31, 2010. This Act also granted broad 
authority to the Secretary of the Treasury to issue regulations to carry 
out the purposes of section 529 and to prevent abuse of those purposes.
  Extend permanently the nonrefundable tax credit (saver's credit) for 
certain elective deferrals and IRA contributions.--Under prior law, 
effective for taxable years beginning after December 31, 2001 and before 
January 1, 2007, a nonrefundable tax credit was provided for up to 
$2,000 in contributions made by eligible taxpayers to a qualified plan 
or to a traditional or Roth IRA. The credit, which was in addition to 
any deduction or exclusion that would otherwise apply with respect to 
the contribution, was available to single taxpayers with AGI less than 
or equal to $25,000 ($37,500 for heads of household and $50,000 for 
married taxpayers filing a joint return). The credit was available to 
individuals who were 18 years of age or older (other than individuals 
who were full-time students or claimed as a dependent on another 
taxpayer's return) and was offset against both the regular and 
alternative minimum tax. The credit rate was 50 percent for single 
taxpayers with AGI less than or equal to $15,000 ($30,000 for married 
taxpayers filing a joint return and $22,500 for heads of household), 20 
percent for single taxpayers with AGI between $15,000 and $16,250 
(between $30,000 and $32,500 for married taxpayers filing a joint return 
and between $22,500 and $24,375 for heads of household), and 10 percent 
for single taxpayers with AGI between $16,250 and $25,000 (between 
$32,500 and $50,000 for married taxpayers filing a joint return and 
between $24,375 and $37,500 for heads of household). The saver's credit 
was extended permanently under this Act. In addition, this Act provided 
for annual indexing of the income limits applicable to the credit in 
increments of $500 beginning in 2007.

                       Health and Medical Benefits

  Modify tax treatment of annuity and life insurance contracts with a 
long-term care insurance feature.--Under prior law, annuity contracts 
were not allowed to have a qualified long-term care insurance feature; 
however, long-term care insurance could be provided by a rider on or as 
a part of a life insurance contract. This Act allowed qualified long-
term care insurance to be provided by a rider on or as a part of an 
annuity contract and provided special tax treatment for the long-term 
care component of a life insurance or annuity contract. Under this Act: 
(1) payments for a qualified long-term care insurance contract, which is 
a rider on or is part of a life insurance contract or annuity contract, 
that are charged against the cash value of the annuity contract or the 
cash surrender value of the life insurance contract are not includable 
in income and the investment in the contract is reduced (but not below 
zero) by the charge; (2) the rules for tax-free exchanges of certain 
insurance contracts are expanded to include exchanges of a life 
insurance con

[[Page 248]]

tract, an endowment contract, an annuity contract, or a qualified long-
term care insurance contract for a qualified long-term care insurance 
contract; and (3) except as otherwise provided in regulations, the 
portion of an annuity or life insurance contract providing long-term 
care insurance coverage is treated as a separate contract for Federal 
tax purposes. These, and other rules concerning the taxation of long-
term care insurance provided as a rider on or as part of an annuity or 
life insurance contract generally will be effective for taxable years 
beginning after December 31, 2009 for contracts issued after December 
31, 1996.
  Permit tax-free distributions from governmental retirement plans for 
premiums for health and long-term care insurance for public safety 
officers.--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 IRA generally is included in the 
taxpayer's gross income in the year of distribution, except to the 
extent the amount received constitutes a return of after-tax 
contributions or a qualified distribution from a Roth IRA. This Act 
provided an annual exclusion from gross income for up to $3,000 in 
otherwise taxable distributions from an eligible retirement plan of a 
qualified public safety officer for the payment of qualified health 
insurance premiums made directly to the insurer. Eligible retired public 
safety officers are individuals who, by reason of disability or 
attainment of normal retirement age, are separated from service with the 
employer who maintains the eligible retirement plan from which pension 
benefits are received. Qualified health insurance premiums include 
premiums for accident or health insurance or qualified long-term care 
insurance contracts covering the taxpayer and the taxpayer's spouse and 
dependents. Amounts excluded from income are not taken into account in 
determining the itemized deduction for medical expenses or the deduction 
for health insurance of self-employed individuals. The provision is 
effective for distributions in taxable years beginning after December 
31, 2006.

          Charitable Contributions and Tax-Exempt Organizations

  Permit tax-free withdrawals from IRAs for charitable contributions.--
Eligible individuals may make deductible or non-deductible contributions 
to a traditional IRA and nondeductible contributions to a Roth IRA. Pre-
tax contributions and earnings in a traditional IRA are included in 
income when withdrawn. Qualified withdrawals from a Roth IRA are 
excluded from gross income; withdrawals that are not qualified are 
included in gross income to the extent attributable to earnings. This 
Act provided an exclusion from gross income for otherwise taxable 
distributions from a traditional or a Roth IRA made directly to a 
qualified charitable organization. The exclusion may not exceed $100,000 
per taxpayer per taxable year, is applicable only to distributions made 
on or after the date the IRA owner attains age 70\1/2\, and is effective 
for distributions made in taxable years beginning after December 31, 
2005 and before January 1, 2008. The exclusion applies only if a 
charitable contribution deduction for the entire distribution would 
otherwise be allowable under current law, determined without regard to 
the percentage-of-AGI limitation. No charitable deduction is allowed 
with respect to any amount excludable from income under this provision.
  Expand 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, or, if less, the fair market value of 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.
  The Katrina Emergency Tax Relief Act of 2005 expanded the enhanced 
deduction to apply to qualified contributions of food inventory made 
after August 27, 2005 and before January 1, 2006 by all taxpayers (not 
just C corporations) engaged in a trade or business. This Act extended 
the enhanced charitable deduction for contributions of food inventory 
provided under the Katrina Emergency Tax Relief Act of 2005 to apply to 
contributions made after December 31, 2005 and before January 1, 2008. 
The donated food must meet certain quality and labeling standards, and, 
for taxpayers other than C corporations, the total deduction for donated 
food inventory may not exceed 10 percent of the taxpayer's net income 
from the related trade or business.

  Modify basis adjustment to stock of S corporations contributing 
appreciated property.--Each shareholder of an S corporation must take 
into account his or her pro rata share of a charitable contribution by 
the S corporation in determining his or her income tax liability. For 
donations of property, this generally is the pro rata share of the 
property's fair market value. Under prior law, the shareholder's basis 
in the stock of the company was reduced by the amount of the charitable 
contribution that flowed through to the shareholder. Under this Act, 
effective for charitable contributions made by an S corporation in 
taxable years beginning after December 31, 2005 and before January 1,

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2008, shareholders are allowed to adjust their basis in the stock of the 
company by their pro rata share of the adjusted basis of the contributed 
property instead of by their pro rata share of the market value of the 
contributed property.
  Make other changes affecting charitable contributions and tax-exempt 
organizations.--Other incentives for charitable contributions or 
modifications in the tax treatment of tax-exempt organizations provided 
in this Act included: (1) extension of the enhanced deduction for 
contributions of books to public schools for two years; (2) modification 
of the tax treatment of certain payments to controlling exempt 
organizations; (3) modification of the deduction for qualified 
conservation contributions; (4) modification of the deduction for 
charitable contributions of clothing and household items that are not in 
good condition and for items of minimal monetary value; (5) expansion of 
the definition of gross investment income of private foundations; (6) 
increases in penalty excise taxes applicable to certain activities of 
charities, social welfare organizations, and private foundations; (7) 
modification of recordkeeping and substantiation requirements; and (8) 
provision of new rules governing donor advised funds and supporting 
organizations.

                 TAX RELIEF AND HEALTH CARE ACT OF 2006

  The Tax Relief and Health Care Act of 2006, which was signed by 
President Bush on December 20, 2006, extended a number of expired or 
expiring tax provisions, modified health savings accounts, modified 
various trade measures, and made a number of other changes to tax law. 
This Act also authorized drilling for oil in the Gulf of Mexico, rolled 
back a cut in Medicare physician payments, and amended the Surface 
Mining Control and Reclamation Act. The major provisions of this Act 
that affect receipts are described below.

                           Expiring Provisions

  Extend deduction for qualified tuition and related expenses.--An 
above-the-line deduction of up to $4,000 is provided for qualified 
higher education expenses paid by a qualified taxpayer during the 
taxable year. For a given taxable year, the deduction may not be claimed 
if an education tax credit is claimed for the same student. In addition, 
the deduction may not be claimed for amounts taken into account in 
determining the amount excludable from income due to a distribution from 
a Coverdell education IRA or the amount of interest excludable from 
income with respect to education savings bonds. A taxpayer may not claim 
a deduction for the amount of a distribution from a qualified tuition 
plan that is excludable from income; however, the deduction may be 
claimed for the amount of a distribution from a qualified tuition plan 
that is not attributable to earnings. This Act extended the deduction, 
which had expired with respect to expenses incurred in taxable years 
beginning after December 31, 2005, to apply to expenses incurred in 
taxable years beginning before January 1, 2008. 
  Extend and modify the new markets tax credit.--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 extended the new markets tax credit through 2008 
and permitted up to $3.5 billion in qualified equity investment for that 
calendar year. This Act also required the Secretary of the Treasury to 
prescribe regulations to ensure that non-metropolitan counties receive a 
proportional allocation of qualified equity investments.
  Extend optional deduction for State and local general sales taxes.--
Under prior law, effective for taxable years beginning after December 
31, 2003 and before January 1, 2006, a taxpayer was allowed to elect to 
take an itemized deduction for State and local general sales taxes in 
lieu of the itemized deduction for State and local income taxes. This 
Act extended this deduction for two years, effective for taxable years 
beginning before January 1, 2008.
  Extend and modify the research and experimentation (R&E) tax credit.--
The 20-percent tax credit for qualified research and experimentation 
expenditures above a base amount and the alternative incremental credit 
expired with respect to expenditures incurred after December 31, 2005. 
This Act: (1) extended the research credit for two years, to apply to 
expenditures incurred before January 1, 2008; (2) extended the 
alternative incremental credit for one year, without modification, to 
apply to expenditures incurred before January 1, 2007; and (3) modified 
the alternative incremental credit and established an alternative 
simplified credit, to apply to expenditures incurred after December 31, 
2006 and before January 1, 2008.
  Extend and modify the work opportunity tax credit and the welfare-to-
work tax credit.--The work opportunity tax credit (WOTC) 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 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 per

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cent 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 Act extended both the WOTC and the welfare-to-work tax credit for 
one year without modification, effective for wages paid to qualified 
individuals who began work for the employer after December 31, 2005 and 
before January 1, 2007. For wages paid to individuals who begin work for 
the employer after December 31, 2006 and before January 1, 2008, this 
Act combined and modified the two credits. Modifications included: (1) 
use of the WOTC definition of wages; (2) repeal of the requirement that 
a qualified ex-felon be certified as a member of an economically 
disadvantaged family; (3) expansion of eligibility by increasing the age 
ceiling for the food stamp recipient category; and (4) extension of the 
paperwork filing deadline from 21 days to 28 days.

  Extend treatment of combat pay for purposes of computing the EITC.--
This Act extended for one year, through December 31, 2007, 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.
  Extend and modify authority to issue Qualified Zone Academy Bonds.--
State and local governments are allowed to issue ``qualified zone 
academy bonds,'' the interest on which is effectively paid by the 
Federal government in the form of an annual income tax credit. The 
proceeds of the bonds must be used for teacher training, purchases of 
equipment, curriculum development, or rehabilitation and repairs at 
certain public school facilities. Under prior law, a nationwide total of 
$400 million of qualified zone academy bonds were authorized to be 
issued in each of calendar years 1998 through 2005 and unused authority 
could be carried forward for up to two years. This Act authorized the 
issuance of an additional $400 million of qualified zone academy bonds 
in each of calendar years 2006 and 2007. This Act also: (1) extended the 
arbitrage requirements that apply to interest-bearing tax-exempt bonds 
to qualified zone academy bonds, (2) imposed new spending requirements 
on the issuers of these bonds, and (3) imposed new reporting 
requirements on the issuers of these bonds.
  Extend the above-the-line deduction for qualified out-of-pocket 
classroom expenses.--Taxpayers who itemize deductions (do not use the 
standard deduction) and incur unreimbursed, job-related expenses may 
deduct those expenses to the extent that when combined with other 
miscellaneous itemized deductions they exceed two percent of AGI. 
Through 2005, certain teachers and other elementary and secondary school 
professionals could deduct up to $250 in annual qualified out-of-pocket 
classroom expenses above-the-line. Expenses claimed as an above-the-line 
deduction could not be claimed as an itemized deduction. This Act 
extended this above-the-line deduction to apply to expenses incurred 
before January 1, 2008.
  Extend and expand expensing of brownfields remediation costs.--
Taxpayers may elect to treat certain environmental remediation 
expenditures that would otherwise be chargeable to a capital account as 
deductible in the year paid or incurred. This Act extended this 
provision, making it available for environmental remediation 
expenditures paid or incurred after December 31, 2005 and before January 
1, 2008. In addition, this Act expanded the provision to apply to 
expenditures paid or incurred to abate contamination at sites 
contaminated by petroleum products, which include crude oil, crude oil 
condensates and natural gasoline.
  Extend tax incentives for the District of Columbia (DC).--A one-time, 
nonrefundable $5,000 tax credit is available to purchasers of a 
principal residence in DC who have not owned a residence in DC during 
the year preceding the purchase. The credit phases out for taxpayers 
with modified AGI between $70,000 and $90,000 ($110,000 and $130,000 for 
joint returns). This Act extended the credit for two years, making it 
available with respect to purchases after December 31, 2005 and before 
January 1, 2008.
   The DC Enterprise Zone includes the DC Enterprise Community and DC 
census tracts with a poverty rate of at least 20 percent. Businesses in 
the zone are eligible for: (1) A wage credit equal to 20 percent of the 
first $15,000 in annual wages paid to qualified employees who reside 
within DC; (2) $35,000 in increased section 179 expensing; and (3) in 
certain circumstances, tax-exempt bond financing. In addition, a capital 
gains exclusion is allowed for certain investments held more than five 
years and made within the DC Enterprise Zone, or within any DC census 
tract with a poverty rate of at least 10 percent. This Act extended the 
DC Enterprise Zone incentives for two years, through December 31, 2007.

  Extend tax incentives for employment and investment on Indian 
reservations.--This Act extended for two years, through December 31, 
2007, the employment tax credit for qualified workers employed on an 
Indian reservation and the accelerated depreciation rules for qualified 
property used in the active conduct of a trade or business within an 
Indian reservation. The employment tax credit is not available for 
employees involved in certain gaming activities or who work in a 
building that houses certain gaming activities. Similarly, property used 
to conduct or house certain gaming activities is not eligible for the 
accelerated depreciation recovery periods. 
  Extend modified recovery period for qualified leasehold improvements 
and qualified restaurant property.--A taxpayer generally must capitalize 
the cost of property used in a trade or business and recover

[[Page 251]]

such cost over time through annual deductions for depreciation or 
amortization. Tangible property generally is depreciated under the 
modified accelerated cost recovery system (MACRS). Under this system, 
depreciation is determined by applying specified recovery periods, 
placed-in-service conventions, and depreciation methods to the cost of 
various types of depreciable property. Depreciation allowances for 
improvements made on leased property are determined under MACRS, even if 
the recovery period assigned to the property is longer than the term of 
the lease. Under prior law, the recovery period for qualified leasehold 
improvement property and qualified restaurant property was temporarily 
reduced from 39 years to 15 years, effective for such property placed in 
service after October 22, 2004 and before January 1, 2006. This Act 
extended the 15-year recovery period applicable to qualified leasehold 
improvement property and qualified restaurant property, effective for 
such property placed in service before January 1, 2008.
  Extend tax on failure to comply with mental health parity requirements 
applicable to group health plans.--Group health plans that provide both 
mental health benefits and medical and surgical benefits cannot impose 
aggregate lifetime or annual dollar limits on mental health benefits 
that are not imposed on substantially all medical and surgical benefits. 
An excise tax of $100 per day for each individual affected (during the 
period of noncompliance) is imposed on an employer sponsoring a group 
plan that fails to meet these requirements. For a given taxable year, 
the tax is limited to the lesser of 10 percent of the employer's group 
health insurance expenses for the prior taxable year or $500,000. This 
Act extended the mental health parity requirements and excise tax for 
failure to comply with these requirements, which had been scheduled to 
expire with respect to benefits furnished after December 31, 2006, 
through December 31, 2007. 
  Extend deduction for corporate donations of computer technology.--The 
charitable contribution deduction that may be claimed by corporations 
for donations of inventory property generally is limited to the lesser 
of fair market value or the corporation's basis in the property. 
However, corporations are provided enhanced deductions, not subject to 
this limitation, for: (1) a ``qualified research contribution'', or (2) 
a ``qualified computer contribution.'' The enhanced deduction is equal 
to the lesser of: (1) basis plus one-half of the item's fair market 
value in excess of basis, or (2) two times basis. This Act extended the 
enhanced deduction for a qualified computer contribution, which expired 
with respect to donations made after December 31, 2005, to apply to 
donations made before January 1, 2008. (The enhanced deduction for 
``qualified research contributions'' does not expire.) In addition, this 
Act expanded the definition of property eligible for either the enhanced 
deduction relating to research equipment or computers to property 
assembled by the taxpayer; under prior law the deduction was restricted 
to property constructed by the taxpayer.
  Extend Archer Medical Savings Accounts (Archer MSAs).--Self-employed 
individuals and employees of small firms are allowed to establish Archer 
MSAs; the number of accounts is capped at 750,000. In addition to other 
requirements: (1) individuals who establish Archer MSAs must be covered 
by a high-deductible health plan (and no other plan) with a deductible 
of at least $1,750 but not greater than $2,650 for policies covering a 
single person and a deductible of at least $3,500 but not greater than 
$5,250 in all other cases (these amounts are indexed annually for 
inflation); (2) tax-preferred contributions are limited to 65 percent of 
the deductible for single policies and 75 percent of the deductible for 
other policies; and (3) either an individual or an employer, but not 
both, may make a tax-preferred contribution to an Archer MSA for a 
particular year. Under prior law, no new contributions could be made to 
an Archer MSA after December 31, 2005, except for the following: (1) 
those made by or on behalf of individuals who previously had Archer MSA 
contributions and (2) those made by individuals employed by a 
participating employer. This Act extended the Archer MSA program for two 
years, through December 31, 2007.
  Extend suspension of net income limitation on percentage depletion for 
marginal oil and gas wells.--Taxpayers are allowed to recover their 
investment in oil and gas wells through depletion deductions. For 
certain properties, deductions may be determined using the percentage of 
depletion method; however, in any year, the amount deducted generally 
may not exceed 100 percent of the net income from the property. Under 
prior law, for taxable years beginning after December 31, 1997 and 
before January 1, 2006, domestic oil and gas production from 
``marginal'' properties was exempt from the 100-percent-of-net-income 
limitation. This Act extended the exemption to apply to taxable years 
beginning after December 31, 2005 and before January 1, 2008.
  Extend economic development credit for American Samoa.--Certain 
domestic corporations with business operations in the U.S. possessions 
are eligible for the possession tax credit, which offsets the U.S. tax 
imposed on certain income related to operations in the U.S. possessions 
(including, among other places, American Samoa). The possession tax 
credit is available only to a corporation that qualifies as an existing 
credit claimant; the determination of whether a corporation is an 
existing credit claimant is made separately for each possession. The 
credit is computed separately for each possession with respect to which 
the corporation is an existing claimant and the credit is subject to 
either an economic activity-based limitation or an income-based limit. 
Under prior law, the possession tax credit was repealed for new 
claimants for taxable years beginning after December 31, 1995, and was 
phased

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out for existing credit claimants for taxable years beginning after 
December 31, 1995 and before December 31, 2006. This Act extended and 
modified the credit with respect to American Samoa. Under the provision, 
a domestic corporation that was an existing credit claimant with respect 
to American Samoa and that elected the application of the possession tax 
credit for its last taxable year beginning before January 1, 2006 is 
allowed to claim a possession tax credit based on the economic activity-
based limitation rules for the first two taxable years beginning after 
December 31, 2005 and before January 1, 2008.
  Extend placed-in-service deadline for certain Gulf Opportunity Zone 
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 the Gulf Opportunity Zone Act of 
2005, qualifying Gulf Opportunity Zone (GO Zone) property was provided 
an additional first-year depreciation deduction equal to 50 percent of 
the adjusted basis of the property. In order to qualify, property 
generally had to be tangible property with a recovery period of 20 years 
or less and included: (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 had to 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 had to 
commence with the taxpayer on or after August 28, 2005; and (3) the 
property had to 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). This Act extended the placed-in-service 
deadline to December 31, 2010 for nonresidential real property and 
residential rental property located in those portions of the GO Zone in 
a county or parish in which hurricanes occurring in 2005 damaged more 
than 60 percent of the housing units. However, only the adjusted basis 
of such property attributable to manufacture, construction, or 
production before January 1, 2010 (``progress expenditures'') is 
eligible for the additional first-year depreciation.
  Extend IRS authority to fund undercover operations.--The IRS is 
permitted to fund certain necessary and reasonable expenses of 
undercover operations, which places it on equal footing with other 
Federal law enforcement agencies. These undercover operations include 
international and domestic money laundering and narcotics operations. 
This Act extended this funding authority, which expired on December 31, 
2006, through December 31, 2007.
  Extend provisions permitting disclosure of tax return information 
relating to terrorist activity.--The disclosure of tax return 
information relating to terrorism is permitted 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. This Act extended 
this disclosure authority, which expired on December 31, 2006, through 
December 31, 2007.
  Extend provisions permitting disclosure of certain other tax return 
information.--Certain law permits disclosure of taxpayer identity 
information and signatures to any agency, body, or commission of any 
State for the purpose of carrying out with such agency, body or 
commission a combined Federal and State employment tax reporting program 
approved by the Secretary of the Treasury. This Act extended this 
disclosure authority, which expired on December 31, 2006, through 
December 31, 2007.

                            Energy Provisions

  Extend placed-in-service date for tax credit for energy produced from 
certain renewable sources.--Taxpayers are allowed a tax credit for 
electricity produced from wind, closed-loop biomass, open-loop biomass, 
geothermal energy, solar energy, small irrigation power, municipal solid 
waste, and qualified hydropower. The credit rate is 1.5 cents per 
kilowatt hour for electricity produced from wind, closed-loop biomass, 
geothermal, and solar power, and 0.75 cent per kilowatt hour for 
electricity produced from open-loop biomass, small irrigation power, 
municipal solid waste, and qualified hydropower (both rates are adjusted 
for inflation since 1992). A credit is also provided for the production 
of refined coal and Indian coal at qualified facilities. The credit for 
refined coal is $4.375 per ton (adjusted for inflation since 1992) and 
the credit for Indian coal is $1.50 per ton for coal produced after 
December 31, 2005 and before January 1, 2010 and $2.00 per ton for coal 
produced after December 31, 2009 and before January 1, 2013. To qualify 
for the credit under prior law, electricity generally had to be produced 
at a facility placed in service before January 1, 2008 (January 1, 2006, 
in the case of solar facilities) and coal had to be produced at a 
facility placed in service before January 1, 2009. This Act extended the 
placed-in-service date by one year, through December 31, 2008, for all 
facilities except solar energy, refined coal, and Indian coal 
facilities. For these facilities the placed-in-service termination dates 
of prior law were not changed.
  Extend and modify other energy tax provisions.--Other energy tax 
provisions provided in this Act: (1) authorized the issuance of an 
additional $400 million

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of clean renewable energy bonds and extended the authority to issue such 
bonds through December 31, 2008; (2) modified the advanced coal credit 
with respect to sub-bituminous coal; (3) extended the deduction for 
expenditures associated with the installation of energy-efficient 
property in a commercial building; (4) extended the tax credit for the 
construction of qualified new energy-efficient homes to apply to homes 
the construction of which is substantially completed after December 31, 
2005 and that are purchased after December 31, 2005 and before January 
1, 2009; (5) extended the tax credit for the purchase of certain 
residential solar energy property to apply to property placed in service 
after December 31, 2005 and before January 1, 2009; and (6) extended the 
business energy tax credit for the cost of certain solar energy, 
microturbine, and fuel cell property to apply to property purchased 
before January 1, 2009.

                         Health Savings Accounts

  Modify health savings accounts.--Individuals with a high-deductible 
health plan (and no other health plan other than a plan that provides 
certain permitted coverage) may establish a health savings account 
(HSA). Individuals who may be claimed as a dependent on another person's 
tax return cannot establish HSAs and individuals who enroll in Medicare 
cannot make contributions to an HSA. In general, HSAs provide tax-
favored treatment for current medical expenses as well as the ability to 
save on a tax-favored basis for future medical expenses. Contributions 
to an HSA may be made by both an individual and the individual's 
employer, all contributions are aggregated for purposes of the maximum 
annual contribution limit, and contributions to Archer MSAs reduce the 
annual contribution limit for HSAs. Contributions to an HSA made by an 
employer are excluded from income and employment taxes and, within 
limits, contributions to an HSA made by or on behalf of an eligible 
individual are deductible by the individual in determining AGI (whether 
or not the individual itemizes deductions). Earnings on amounts in an 
HSA are not taxable and distributions for qualified medical expenses are 
not included in gross income; however, distributions from an HSA that 
are not used for qualified medical expenses are included in gross income 
and except in the case of death, disability or the attainment of age 65, 
are subject to an additional tax of 10 percent. Under prior law, the 
maximum aggregate annual contribution that could be made to an HSA was 
the lesser of: (1) 100 percent of the annual deductible under the high 
deductible health plan or (2) for 2007, $2,850 in the case of self-only 
coverage and $5,650 in the case of family coverage. In the case of 
policy holders and covered spouses who were age 55 or older, the HSA 
annual contribution limit was greater than the otherwise applicable 
limit by $700 in 2006, $800 in 2007, $900 in 2008, and $1,000 in 2009 
and subsequent years. This Act modified HSAs by: (1) allowing one-time 
rollovers of certain amounts (not greater than the balance on September 
21, 2006) from flexible spending arrangements (FSAs) and health 
reimbursement arrangements (HRAs) directly to HSAs, effective for 
distributions on or after December 20, 2006 and before January 1, 2012; 
(2) treating certain FSA coverage as disregarded coverage for purposes 
of determining if tax deductible contributions can be made to an HSA, 
effective for taxable years beginning after December 31, 2006; (3) 
repealing the provision that limited the maximum deductible contribution 
to the annual deductible under the high-deductible health plan, 
effective for taxable years beginning after December 31, 2006; (4) 
modifying the 12-month period over which the Consumer Price Index (CPI) 
for a calendar year is determined for purposes of making cost-of-living 
adjustments to HSA contribution limits and high-deductible health plan 
requirements, effective for adjustments for taxable years beginning 
after 2007; (5) allowing individuals who become eligible individuals in 
a month other than January to make the full deductible HSA contribution 
for the year, effective for taxable years beginning after December 31, 
2006; (6) modifying employer comparable contribution requirements for 
contributions made to non-highly compensated employees; and (7) allowing 
one-time rollovers from IRAs directly to HSAs up to the annual HSA 
maximum contribution, effective for taxable years beginning after 
December 31 2006.

                             Trade Measures

  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. This Act 
extended this program, which was scheduled to expire after December 31, 
2006, through December 31, 2008. This Act also provided that the 
President should revoke any existing competitive need limitation (CNL) 
waiver that has been in effect for at least five years, if a GSP-
eligible product from a specific country has an annual trade level in 
the previous calendar year that exceeds 150 percent of the annual trade 
cap or 75 percent of all U.S. imports of that product.
  Extend Andean Trade Preference Act (ATPA).--The ATPA, which was 
scheduled to expire after December 31, 2006, was designed to provide 
economic alternatives for Bolivia, Columbia, Ecuador, and Peru in their 
fight against narcotics production and trafficking. This Act extended 
the ATPA for six-months through June 30, 2007. An additional six-month 
extension, through December 31, 2007, was granted to any ATPA 
beneficiary country that concludes a trade promotion agreement with the 
United States, provided the Congress and that country's legislature both 
approve the agreement by June 30, 2007.
  Modify African Growth and Opportunity Act (AGOA) and AGOA Acceleration 
Act.--The African Growth and Opportunity Act (AGOA) and the AGOA

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Acceleration Act, enacted in 2000 and 2004, respectively, reduced 
barriers to trade, thereby increasing U.S.-Africa trade, creating jobs, 
and increasing opportunities for Africans and Americans alike. This Act 
modified previous AGOA legislation by: (1) extending the deadline for 
use of third country fabric benefits, which was scheduled to expire 
after September 30, 2007, through September 30, 2012, with a 3.5 percent 
cap; (2) providing an exception to the third country fabric benefit for 
apparel goods made from fabric or yarn components that are in ``abundant 
supply'' in Africa; and (3) providing duty-free treatment to certain 
textiles and textile articles (non-apparel) of wholly made African 
fabric imported from lesser-developed AGOA beneficiaries.
  Other trade measures.--This Act also: (1) authorized the President to 
grant permanent normal trade relations status to Vietnam; (2) provided 
new rules of origin for duty-free apparel imports from Haiti, subject to 
meeting statutory criteria; (3) offered temporary duty reductions on a 
variety of items not manufactured in the United States; and (5) extended 
the period from 15 to 30 days before changes made in the Harmonized 
Tariff Schedule of the United States to implement certain international 
tariff nomenclature obligations become effective.

                            Other Provisions

  Expand qualified mortgage bond program.--Under current law, State and 
local governments may issue mortgage revenue bond (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 bonds issued after December 20, 2006 
and before January 1, 2008, this Act waived the first-time homebuyer 
requirement with respect to financing for veterans who served in the 
active military. The exception applies without regard to the date the 
veteran last served on active duty or the date on which the veteran 
applied for the loan after leaving active duty; however, each veteran 
may use the exception only one time.
  Allow prepayment of premium liability for coal industry health 
benefits.--The United Mine Workers of America (UMWA) Combined Benefit 
Fund was established by the Coal Industry Retiree Health Benefit Act of 
1992 to assume responsibility of payments for medical care expenses of 
certain retired miners and their dependents. The Combined Benefit Fund 
is financed by assessments on current and former signatories to labor 
agreements with the UMWA, past transfers from an overfunded United Mine 
Workers pension fund, and transfers from the Abandoned Mine Reclamation 
Fund. The Social Security Administration is responsible for assigning 
eligible retired miners and their dependents to current and former 
signatories to labor agreements with the UMWA and calculating annual 
contributions to be paid by each such signatory for each beneficiary 
assigned to the signatory. The term ``assigned operator'' is used to 
refer to the signatory to whom liability for a particular beneficiary of 
the Combined Benefit Fund has been assigned. Effective December 20, 
2006, this Act allowed certain assigned operators to prepay their 
premium liability to the Combined Benefit Fund. Under this Act: (1) the 
payment by the assigned operator (or any related person on behalf of the 
assigned operator) must be no less than the present value of the total 
premium liability of the assigned operator, as determined by the 
operator's enrolled actuary, using actuarial methods and assumptions 
each of which is reasonable and which are reasonable in the aggregate; 
and (2) the enrolled actuary must file with the Department of Labor an 
actuarial report regarding the valuation made by the actuary.
  Provide other changes.--Other provisions in this Act: (1) allowed U.S. 
businesses operating as branches in Puerto Rico to claim the domestic 
manufacturing deduction for two years; (2) allowed individuals to take 
advantage of a refundable credit with respect to certain long-term 
unused AMT credits existing prior to January 1, 2013; (3) allowed 
individuals to treat premiums paid or accrued before December 31, 2007 
on qualified mortgage insurance contracts issued after January 1, 2007 
as qualified mortgage interest (subject to income limits); (4) modified 
the excise tax on unrelated business taxable income of charitable 
remainder trusts; and (5) reformed the reward program for individuals 
who provide information regarding violations of the tax laws. 

       UNITED STATES-OMAN FREE TRADE AGREEMENT IMPLEMENTATION ACT

  This Act, which was signed by President Bush on September 26, 2006, 
approved and provided for U.S implementation of the United States-Oman 
Free Trade Agreement, as signed by the United States and Oman on January 
19, 2006. When this Agreement enters into force, it will level the 
playing field for U.S. workers and businesses, provide additional market 
access for U.S. goods, help Oman's leaders develop long-term 
opportunities for their people, and advance our shared goal of building 
a Middle East Free Trade Area. By strengthening our relations with a 
strategic friend and ally in the Middle East, this Agreement will also 
help protect America's national security interests.

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                        ADMINISTRATION PROPOSALS

        IMPROVE THE TAX SYSTEM TO MAKE THE U.S. MORE COMPETITIVE

  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 tax system should promote the competitiveness 
of American workers and businesses in the global economy. The Report of 
the President's Advisory Panel on Federal Tax Reform has helped lay 
groundwork on ways to ensure that our tax system better meets the needs 
of today's economy.
   The President's tax relief enacted in 2001 and 2003 helped move the 
tax code in this direction. The President has proposed changes that 
would move the tax code yet further in this direction. The Budget 
includes proposals to make health care more affordable and consumer-
driven, to promote savings for all Americans, and to encourage 
investment by entrepreneurs. The Budget also recognizes that tax policy 
analysis needs to account fully for the economic benefits of policy 
changes on our economy. In the coming months, the Treasury Department 
will engage in a public dialogue on how our tax system can be improved 
to make the U.S. more competitive in the global economy.

       MAKE PERMANENT CERTAIN TAX RELIEF 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, 
2009 and 2010) 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, 2010.
  Extend permanently increased expensing for small business.--Under 
current law, beginning in 2010, taxpayers may expense up to $25,000 in 
annual investment expenditures for qualifying property, and the maximum 
amount that may be expensed is reduced by the amount by which the 
taxpayer's cost of qualifying property exceeds $200,000. Neither of 
these dollar amounts is indexed for inflation. However, under temporary 
provisions first enacted in 2003, 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 beginning in 2003 through 2009. The maximum 
amount that may be expensed is reduced by the amount by which the 
taxpayer's cost of qualifying property exceeds $400,000. Both the 
temporary deduction and annual investment limits are indexed annually 
for inflation, effective for taxable years beginning after 2003 and 
before 2010. Also, with respect to a taxable year beginning after 2002 
and before 2010, 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 2009.
  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 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 withdrawal 
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 $2,000 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 any time 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, 2007 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 before January 1, 2009 could spread 
the included conversion amount over four 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 roll

[[Page 256]]

overs 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, 2007.

                Encourage Entrepreneurship and Investment

  Increase expensing for small business.--Business taxpayers are 
currently 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 beginning in 2003 
through 2009. The maximum 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 2010. Also, with respect to a taxable year beginning after 
2002 and before 2010, 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 2007. These higher amounts 
would be indexed for inflation, effective for taxable years beginning 
after 2008.

                          Invest in Health Care

  Provide a flat $15,000 deduction for family coverage ($7,500 for 
individual coverage) for those with and who purchase health insurance.--
The Administration proposes to provide a flat $15,000 deduction to all 
families who purchase health insurance ($7,500 for those purchasing 
individual coverage), whether directly or through an employer, that 
meets minimum requirements. The full deduction would apply regardless of 
how much a family or individual spends on health insurance; that is, a 
family or individual that spends less than the full deduction on health 
insurance would still receive the full deduction. The deduction would 
apply for purposes of both the income and payroll tax.
  The new, flat deduction would replace the existing exclusion for 
employer-provided health insurance, the self-employed premium deduction, 
and the medical itemized deduction for those under 65 years of age. The 
current exclusion or deduction from income of health care spending, 
whether for insurance premiums or out-of-pocket expenses, except under a 
Health Savings Account (HSA), would also be repealed. Employers would be 
required to report the value of health insurance coverage to their 
employees on their annual Form W-2 and such amounts would be subject to 
withholding and employment taxes. Businesses would continue to deduct 
employer-provided health insurance as a business expense. In addition, 
the phase-out rate for the EITC for taxpayers with qualifying children 
would be reduced to 15 percent. These provisions would be effective for 
tax years beginning after December 31, 2008.

  Expand and make health savings accounts (HSAs) more flexible.--Current 
law allows individuals to accumulate funds in an 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, individual 
contributions to HSAs are deductible for income tax purposes, while 
employer contributions to HSAs are excluded from both the income and 
payroll tax. The higher de

[[Page 257]]

ductible under HSA-qualified health plans increases the cost 
consciousness of health care consumers by increasing their exposure to 
the cost of health care.
  In addition to higher deductibles, the Administration also recognizes 
that higher coinsurance levels encourage cost consciousness among health 
care consumers. Therefore, the Administration proposes to allow health 
plans to be considered HSA-eligible if they meet all the existing 
requirements of an HDHP except that, in lieu of satisfying the minimum 
deductible requirement, they have at least a 50 percent coinsurance 
requirement and a minimum out-of-pocket exposure that would result in 
the same (or lower) premium as coverage under a high-deductible health 
plan under the current requirements for the same family or individual.
  The Administration also proposes that additional changes be made to 
HSAs to encourage the use of HSAs and coverage under the HSA-eligible 
high-deductible health plans including: (1) allowing family coverage to 
include coverage where each individual in the family can receive 
benefits once they have reached the minimum deductible for an individual 
HDHP; (2) allowing both spouses to contribute the catch-up contribution 
to a single HSA owned by one spouse if both spouses are eligible 
individuals; (3) allowing an individual to be covered by a flexible 
spending arrangement (FSA) or health reimbursement arrangement (HRA) 
with first dollar coverage and still contribute to an HSA, but offset 
the maximum allowable HSA contribution by the level of FSA or HRA 
coverage; (4) 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; and (5) 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, 2007.

  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 Trade Adjustment 
Assistance (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, 2007. 
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, 2007.
  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, 2006.

                Provide Incentives for Charitable Giving

  Extend permanently tax-free withdrawals from IRAs for charitable 
contributions.--Under current law, eligible individuals may make 
deductible or non-deductible contributions to a traditional IRA and 
nondeductible contributions to a Roth IRA. Pre-tax contributions and 
earnings in a traditional IRA are included in income when withdrawn. 
Qualified withdrawals from a Roth IRA are excluded from gross income; 
withdrawals that are not qualified are included

[[Page 258]]

in gross income to the extent attributable to earnings. The Pension 
Protection Act of 2006 provided an exclusion from gross income for 
otherwise taxable distributions from a traditional or a Roth IRA made 
directly to a qualified charitable organization. The exclusion may not 
exceed $100,000 per taxpayer per taxable year, is applicable only to 
distributions made on or after the date the IRA owner attains age 70\1/
2\, and is effective for distributions made in taxable years beginning 
after December 31, 2005 and before January 1, 2008. The exclusion 
applies only if a charitable contribution deduction for the entire 
distribution would otherwise be allowable under current law, determined 
without regard to the percentage-of-AGI limitation. No charitable 
deduction is allowed with respect to any amount excludable from income 
under this provision.
  The Administration proposes to permanently extend this exclusion, 
effective for distributions made in taxable years beginning after 
December 31, 2007.

  Extend permanently 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, or, if less, the fair market value of 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.
  The Katrina Emergency Tax Relief Act of 2005 expanded the enhanced 
deduction to apply to qualified contributions of food inventory made 
after August 27, 2005 and before January 1, 2006 by all taxpayers (not 
just C corporations) engaged in a trade or business. The Pension 
Protection Act of 2006 extended the enhanced charitable deduction for 
contributions of food inventory provided under the Katrina Emergency Tax 
Relief Act of 2005 to apply to contributions made after December 31, 
2005 and before January 1, 2008. The donated food must meet certain 
quality and labeling standards, and, for taxpayer's other than C 
corporations, the total deduction for donated food inventory may not 
exceed 10 percent of the taxpayer's net income from the related trade or 
business. The Administration proposes to permanently extend the enhanced 
charitable deduction for contributions of food inventory to apply to 
contributions made after December 31, 2007.

  Extend permanently the deduction for corporate donations of computer 
technology.--The charitable contribution deduction that may be claimed 
by corporations for donations of inventory property generally is limited 
to the lesser of fair market value or the corporation's basis in the 
property. However, corporations are provided enhanced deductions, not 
subject to this limitation, for contributions of computer technology and 
equipment for education purposes. The enhanced deduction is equal to the 
lesser of: (1) basis plus one-half of the item's fair market value in 
excess of basis, or (2) two times basis. To qualify for the enhanced 
deduction, equipment contributed must have been constructed or assembled 
by the taxpayer and be donated no later than three years after 
completion. This provision expires with respect to donations made after 
December 31, 2007. The Administration proposes to permanently extend 
this deduction, effective for distributions made in taxable years 
beginning after December 31, 2007. 
  Permanently increase limits on contributions of property interests 
made for conservation purposes.--In general, a deduction is permitted 
for charitable contributions, subject to certain limitations that depend 
on the type of taxpayer, the property contributed, and the donee 
organization. Exceptions to these general rules are provided for certain 
types of contributions, including qualified conservation contributions. 
The special rules for qualified conservation contributions were enhanced 
under the Pension Reform Act of 2006, applicable for qualified 
conservation contributions made in taxable years beginning after 
December 31, 2005 and before January 1, 2008. These special rules: (1) 
increased the cap on deductions for qualified conservation contributions 
from 30 percent to 50 percent of the excess of the donor's contribution 
base over the amount of all other allowable charitable contributions, 
(2) increased the cap on deductions for qualified conservation 
contributions applicable to qualified ranchers and farmers to 100 
percent of the excess of the donor's contribution base over the amount 
of all other allowable charitable contributions in the case of 
individuals and to 100 percent of the excess of taxable income over the 
amount of all other allowable charitable contributions in the case of 
corporations, and (3) increased the number of years qualified 
conservation contributions in excess of the 50- and 100-percent caps may 
be carried forward from five to 15 years. The Administration proposes to 
permanently extend these special rules, applicable for qualified 
conservation contributions made in taxable years beginning after 
December 31, 2007.
  Extend permanently basis adjustment to stock of S corporations 
contributing appreciated property.--Each shareholder of an S corporation 
must take into account his or her pro rata share of a charitable 
contribution by the S corporation in determining his or her income tax 
liability. For donations of property, this generally is the pro rata 
share of the property's fair market value. Under prior law, the 
shareholder's

[[Page 259]]

basis in the stock of the company was reduced by the amount of the 
charitable contribution that flowed through to the shareholder. Under 
the Pension Protection Act of 2006, effective for charitable 
contributions made by an S corporation in taxable years beginning after 
December 31, 2005 and before January 1, 2008, shareholders are allowed 
to adjust their basis in the stock of the company by their pro rata 
share of the adjusted basis of the contributed property instead of by 
their pro rata share of the market value of the contributed property. 
The Administration proposes to permanently extend this provision, 
effective for charitable contributions made by an S corporation in 
taxable years beginning after December 31, 2007.
  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 that 
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, 2007.
  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 permanently 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 (deductible above-the-line). Unreimbrsed 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. This additional deduction is effective for expenses incurred 
in table years beginning after December 31, 2001 and before January 1, 
2008. The Administration proposes to extend permanently the above-the-
line deduction to apply to qualified out-of-pocket expenditures incurred 
in taxable years beginning after December 31, 2007.
  Allow the saver's credit for contributions to qualified tuition 
programs (section 529 of the Internal Revenue Code).--Under current law, 
taxpayers age 18 or older who are not dependents or full-time students 
may receive a nonrefundable credit (the saver's credit) on up to $2,000 
of their compensation contributed to employer-sponsored qualified 
retirement plans and IRAs. The credit ranges between 10 and 50 percent 
of the amount contributed, depending on the taxpayer's filing status and 
AGI (adjusted for inflation). In determining the credit, qualified 
contributions are reduced by distributions from qualified plans and IRAs 
during the current tax year, the two preceding tax years, and the 
following year, up to the due date of the return, including extensions.
  Under current law, taxpayers may contribute to a section 529 qualified 
tuition program (QTP) to save for higher education expenses of a 
designated beneficiary. Contributions to a QTP are not deductible from 
income for Federal tax purposes, but earnings on contributions 
accumulate tax-free. Taxpayers may exclude from gross

[[Page 260]]

income amounts distributed from a QTP and used for qualified higher 
education expenses, provided the distribution is not used for the same 
educational expenses for which another tax benefit is claimed. 
Nonqualified distributions are subject to an additional tax.
  The Administration proposes to allow the saver's credit for qualified 
contributions to QTPs controlled by the taxpayer. AGI would be modified 
to include the excludable portion of the taxpayer's Social Security 
benefits in determining the applicable rate for the saver's credit. The 
credit would apply to an annual aggregate contribution of up to $2,000 
(or earnings includible in gross income, if less) to the taxpayer's 
elective deferral plans, IRAs, and QTPs. For an individual who is 
married filing a joint return, the earnings limitation would be binding 
only if the combined includible compensation of the spouses was less 
than $4,000. Qualified contributions would be reduced by distributions 
from elective deferral plans, IRAs, and QTPs during the current tax 
year, the two preceding tax years, and the following tax year up to the 
due date of the return, including extensions. The credit would be 
effective for years beginning after December 31, 2007.


                         Protect the Environment

  Extend permanently expensing of brownfields remediation costs.--
Taxpayers may elect, with respect to expenditures paid or incurred 
before January 1, 2008, 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, 2007, and facilitating its use by 
businesses to undertake projects that may be uncertain in overall 
duration.
  Eliminate the volume cap for private activity bonds for water 
infrastructure.--Bonds are classified as private activity bonds if they 
meet a private business use test and a private payments test. Private 
activity bonds may be issued on a tax-exempt basis only if they meet 
specified requirements, including targeting requirements that limit such 
bond financing to specifically defined facilities and programs. For 
example, qualified private activity bonds can be used to finance 
facilities for the furnishing of water and for sewer facilities. 
Qualified private activity bonds are subject to the same general rules 
applicable to governmental bonds. Most qualified private activity bonds 
are also subject to a number of additional rules and limitations, in 
particular an annual State volume cap limitation.
  The Administration proposes to remove from the annual State volume cap 
limitation qualified private activity bonds issued to finance water and 
sewage facilities. Municipalities that use these bonds for wastewater 
and drinking water systems must implement (if they have not already) 
full-cost pricing for services, to help their systems become self-
financing like the electric and gas utilities and minimize the need for 
future Federal financing. The volume cap would be removed for 
obligations issued after December 31, 2007.

Restructure Assistance to New York City for Continued Recovery from the 
                               Attacks of

                        September 11th

  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. The Administration 
also proposes to terminate the additional first-year depreciation 
deduction for certain real property, which was provided to eligible 
property within the New York Liberty Zone under the 2002 economic 
stimulus act.

                   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 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 in

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comes, 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 the tax code.
  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 AGI 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, 2007.

  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 simplification of the filing status 
and residency requirements would be effective for taxable years 
beginning after December 31, 2007. Effective January 1, 2008, the 
proposal would also improve the administration of the EITC with respect 
to eligibility requirements for undocumented workers.
  Reduce computational complexity of refundable child tax credit.--
Taxpayers with earned income in excess of $11,750 may qualify for a 
refundable (or ``additional'') child tax credit even if they do not have 
any income tax liability. Over 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, 2007.

                         IMPROVE TAX COMPLIANCE

  The Federal tax system is based on voluntary compliance with the tax 
laws. Under this system, taxpayers report and pay their taxes 
voluntarily with minimal interaction with the IRS. While the vast 
majority of American taxpayers pay their taxes timely and accurately, 
there remains in aggregate a difference between what taxpayers should 
pay and what they actually pay on a timely basis. In 2001, the overall 
compliance rate was 86 percent, after including late payments and 
recoveries from IRS enforcement activities. While this rate of 
compliance is high, a large amount of the tax that should be paid is 
not, resulting in the so-called ``tax gap''. \1\
---------------------------------------------------------------------------
  \1\ See Chapter 13, Stewardship, in the Analytical Perspectives 
volume.
---------------------------------------------------------------------------
  In September 2006, the Treasury Department released a comprehensive 
strategy to improve tax compliance. \2\ The strategy builds upon the 
demonstrated experience and current efforts of the Treasury Department 
and IRS to improve compliance.
---------------------------------------------------------------------------
  \2\ Comprehensive Strategy for Reducing the Tax Gap, U.S. Treasury 
Department, September 26, 2006.
---------------------------------------------------------------------------
  Four key principles guided development of the strategy:
    Unintentional taxpayer errors and intentional taxpayer 
          evasion should both be addressed.
    Sources of non-compliance should be targeted with 
          specificity.
    Enforcement activities should be combined with a commitment 
          to taxpayer service.
    Tax policy and compliance proposals should be sensitive to 
          taxpayer rights and maintain an appropriate balance between 
          enforcement activity and imposition of taxpayer burden.

[[Page 262]]

  These principles point to the need for a comprehensive, integrated, 
multi-year strategy to improve tax compliance. Components of this 
strategy must include: (1) legislative proposals to reduce opportunities 
for evasion; (2) a multi-year commitment to compliance research; (3) 
continued improvements in information technology; (4) improvements in 
IRS compliance activities; (5) enhancements of taxpayer service; (6) 
simplification of the tax law; and (7) coordination between the 
government and its partners and stakeholders.
  The IRS has taken a number of steps to improve compliance. To enhance 
the IRS' efforts, the Administration's Budget includes a number of 
legislative proposals intended to improve tax compliance with minimum 
taxpayer burden. The Administration proposes to expand information 
reporting, improve compliance by businesses, strengthen tax 
administration, and expand penalties.

  Expand information reporting.--Compliance with the tax laws is highest 
when payments are subject to information reporting to the IRS. Specific 
information reporting proposals would: (1) require information reporting 
on payments to corporations; (2) require basis reporting on security 
sales; (3) expand broker information reporting; (4) require information 
reporting on merchant payment card reimbursements; (5) require a 
certified tax identification number (TIN) from non-employee service 
providers; (6) require increased information reporting for certain 
government payments for property and services; and (7) increase 
information return penalties.
  Improve compliance by businesses.--Improving compliance by businesses 
of all sizes is important. Specific proposals to improve compliance by 
businesses would: (1) require electronic filing by certain large 
businesses; (2) implement standards clarifying when employee leasing 
companies can be held liable for their clients' Federal employment 
taxes; and (3) amend collection due process procedures applicable to 
employment tax liabilities.
  Strengthen tax administration.--The IRS has taken a number of steps 
under existing law to improve compliance. These efforts would be 
enhanced by specific tax administration proposals that would: (1) expand 
IRS access to information in the National Directory of New Hires 
database; (2) permit the IRS to disclose to prison officials return 
information about tax violations; and (3) make repeated failure to file 
a tax return a felony.
  Expand penalties.--Penalties play an important role in discouraging 
intentional non-compliance. Specific proposals to expand penalties 
would: (1) expand preparer penalties; (2) impose a penalty on failure to 
comply with electronic filing requirements; and (3) create an erroneous 
refund claim penalty.

      IMPROVE TAX ADMINISTRATION AND OTHER MISCELLANEOUS PROPOSALS

  Implement IRS administrative reforms.--The Administration has four 
proposals relating to administrative reforms. The first proposal 
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 proposal allows the IRS 
to terminate installment agreements when taxpayers fail to make timely 
tax deposits and file tax returns on current liabilities. The third 
proposal 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. The fourth proposal modifies 
the way that Financial Management Services (FMS) recovers its 
transaction fees for processing IRS levies by permitting FMS to add the 
fee to the liability being recovered thereby shifting the cost of 
collection to the delinquent taxpayer. The offset amount would be 
included as part of the 15-percent limit on continuous levies against 
income.
  Extend IRS authority to fund undercover operations.--The IRS is 
permitted to fund certain necessary and reasonable expenses of 
undercover operations, placing it on equal footing with other Federal 
law enforcement agencies. 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, 2007, through December 31, 2010.
  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, 2007.

[[Page 263]]

  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.
  Repeal telephone tax on local telephone service.--Under prior law, a 
three-percent Federal excise tax was imposed on amounts paid for local 
telephone service, toll telephone service (essentially long distance 
telephone service), and teletypewriter exchange service. In accordance 
with multiple court decisions that concluded that the tax did not apply 
to long distance services sold at flat per-minute rates for interstate, 
intrastate, and international calls, the IRS is no longer collecting tax 
on telephone service other than local-only telephone service. The 
Administration proposes to repeal the tax on local telephone service 
effective for amounts paid pursuant to bills first rendered more than 90 
days after enactment of legislation repealing the tax.
  Modify financing of the Airport and Airway trust fund.--The 
Administration supports a reauthorization proposal that would make the 
Federal Aviation Administration's (FAA's) financing system more cost-
based. The FAA's current excise tax system, largely based on taxes on 
the price of airline tickets, does not have a direct relationship 
between the taxes paid by users and the air traffic control services 
provided by the FAA. Under the reauthorization proposal, FAA would 
collect user fees from commercial aviation operators for air traffic 
control services starting in 2009. For non-commercial users, FAA would 
continue to recover its costs for air traffic control services via a 
fuel tax. Both commercial and non-commercial users would continue to pay 
fuel taxes to support FAA's Airport Improvement Program.
  Anticipated receipt of donations to the National Park Service through 
the National Park Centennial Challenge Fund.--The President's National 
Parks Centennial Challenge encourages the public to increase donations 
to national parks by proposing to match contributions for signature 
projects and programs on a dollar-for-dollar basis up to $100 million a 
year for ten years. As part of a broader initiative to prepare for the 
National Park Service Centennial in 2016, this Challenge continues the 
National Park Service's legacy of leveraging philanthropic investment 
for the benefit of our national parks.
  Transition from the non-foreign cost-of-living adjustment (COLA) to 
locality pay for employees in non-foreign areas.--Federal employees 
working outside the continental United States in Alaska, Hawaii or the 
US territories presently receive a COLA, which is an untaxed annual pay 
adjustment that is not creditable for retirement. By transitioning to 
locality pay, Federal employees in the non-foreign areas will contribute 
a larger percentage of their pay into the Federal retirement fund as 
locality pay is retirement-creditable. The proposal would establish a 
yearly reduction in the COLA, offset by a yearly increase in applicable 
locality pay, with the intent of eliminating the COLA over seven years.

                     IMPROVE 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 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

[[Page 264]]

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 improve the 
administration of the UI program, such as speeding reemployment of UI 
beneficiaries. 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 Federal unemployment tax on 
employers is scheduled to drop from 0.8 percent to 0.6 percent with 
respect to wages paid after December 31, 2007. The 0.8 percent rate is 
proposed to be extended for five years, through December 31, 2012.

                        MODIFY ENERGY PROVISIONS

  Repeal reduced recovery period for natural gas distribution lines.--
The Energy Policy Act of 2005 reduced the recovery period for new 
natural gas distribution lines that are placed in service before January 
1, 2011 from 20 years to 15 years. The Administration proposes to repeal 
this provision for natural gas distribution lines placed in service 
after December 31, 2007.
  Modify 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 acquisition and 
retention of mineral properties by taxpayers exploring for minerals. 
Under the Energy Policy Act of 2005, 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, could be amortized over two years. 
The Tax Increase Prevention and Reconciliation Act of 2006 increased the 
amortization period to five years for G&G costs paid or incurred by 
certain major integrated oil companies after May 17, 2006. This five-
year amortization rule applies only to integrated oil companies that 
have an average daily worldwide production of crude oil of at least 
500,000 barrels for the taxable year, have gross receipts in excess of 
$1 billion in the last taxable year ending during calendar year 2005, 
and either are a crude oil refiner or have an ownership interest in a 
crude oil refiner of 15 percent or more. The Administration proposes to 
increase the amortization period to five years for all companies, 
effective for amounts paid or incurred in taxable years beginning after 
December 31, 2007.

                              PROMOTE TRADE

  Implement free trade agreements.--Free trade agreement negotiations 
with Panama were completed, with the expectation that implementation 
could begin as early as FY 2008. The FTA signed with Peru and the 
recently completed agreement with Colombia could also begin 
implementation in FY 2008. Free trade agreements are expected to be 
completed with Korea, Malaysia, and the United Arab Emirates (UAE), with 
implementation to begin in FY 2009. 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.
  Establish Reconstruction Opportunity Zones (ROZs) in Pakistan and 
Afghanistan.--In March 2006, the President announced his intention to 
establish ROZs in Afghanistan and the border regions of Pakistan. ROZs 
are a critical part of the Administration's broader counterterrorism 
strategy in these areas, designed to connect isolated regions to the 
global economy and create vital employment opportunities in territories 
prone to extremism. The creation of ROZs will encourage investment and 
economic development in these areas by granting duty-free entry to the 
United States for certain goods produced in designated territories. By 
stimulating economic activity in remote and underdeveloped regions, ROZs 
can also serve as a powerful catalyst for peace, prosperity, stability, 
growth and good governance. In early 2007, the Administration will work 
closely with Congress and private sector stakeholders to implement this 
important initiative.

                       EXTEND EXPIRING PROVISIONS

  Extend AMT relief for individuals.--A temporary provision of current 
law increased the AMT exemption amounts to $42,500 for single taxpayers, 
$62,550 for married taxpayers filing a joint return and surviving 
spouses, and $31,275 for married taxpayers filing a separate return and 
estates and trusts. Effective for taxable years beginning after December 
31, 2006, 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. A temporary provision of current law 
permits nonrefundable personal tax credits to offset both the regular 
tax and the AMT for taxable years beginning before January 1, 2007.
  The Administration proposes to increase the AMT exemption amounts to 
$43,900 for single taxpayers, $65,350 for married taxpayers filing a 
joint return, and $32,675 for married taxpayers filing a separate return 
and estates and trusts through taxable year 2007 to prevent the number 
of AMT taxpayers from increasing. Non-refundable personal tax credits 
also would be allowed to offset both the regular tax and the AMT through 
taxable year 2007.

  Extend permanently the research and experimentation (R&E) tax 
credit.--The Administration proposes to extend permanently the tax 
credits for research and experimentation expenditures, which are

[[Page 265]]

scheduled to expire with respect to expenditures incurred after December 
31, 2007.
  Extend the work opportunity tax credit.--The work opportunity tax 
credit provides incentives for hiring individuals from certain targeted 
groups. The credit applies to wages paid to qualified individuals who 
begin work for the employer before January 1, 2008. The Administration 
proposes to extend the credit for one year, making it applicable to 
wages paid to qualified individuals who begin work after December 31, 
2007 and before January 1, 2009.
  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, 2007. The 
Administration proposes to extend the credit for one year, making the 
credit available with respect to purchases after December 31, 2007 and 
before January 1, 2009.
  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 2007. 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 2007 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 2008; 
unused authority could be carried forward for up to two years. Reporting 
of issuance would be required.
  Extend deferral of gains from sales of electric transmission 
property.--Generally, the gain on the sale of business assets is subject 
to current income tax unless a special rule provides for nonrecognition 
or deferral of the gain. One such special rule applies to qualifying 
electric transmission transactions. Under this rule, a taxpayer may 
elect to recognize the gain from a qualifying electric transmission 
transaction ratably over the eight-year period beginning with the year 
of the transaction. Deferral is allowed only with respect to proceeds 
that are used to purchase other gas or electric utility property during 
the four-year period beginning on the date of the transaction (the 
reinvestment period). A sale or other disposition of property is a 
qualifying electric transmission transaction if: (1) the property is 
used in the trade or business of providing electric transmission 
services or is an ownership interest in a entity whose principal trade 
or business is providing electric transmission services, and (2) the 
sale or other disposition is to an independent transmission company and 
occurs before January 1, 2008. In general, whether the purchaser 
qualifies as an independent transmission company depends on 
determinations by the Federal Energy Regulatory Commission (FERC) or, in 
the case of facilities subject to the jurisdiction of the Public Utility 
Commission of Texas, by that Commission. The special rule allowing the 
deferral of tax on the gain from the sale or disposition of electric 
transmission property would be extended for one year, allowing taxpayers 
to elect deferral with respect to sales or dispositions that occur 
before January 1, 2009.
  Extend provisions permitting disclosure of tax return information 
relating to terrorist activity.--The disclosure of tax return 
information relating to terrorism is permitted 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, 2007, through December 31, 2008.
  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 266]]

  Extend the exception for retirement plan distributions provided 
individuals called to active duty for at least 179 days.--Under current 
law, a taxpayer who receives a distribution from a qualified retirement 
plan prior to age 59\1/2\, death or disability is subject to a 10-
percent early withdrawal tax unless a specific exception to the tax 
applies. One of the exceptions to the tax applies to qualified reservist 
distributions. An individual who receives a qualified reservist 
distribution may, at any time during a two-year period beginning on the 
day after the end of the active duty period, make contributions to an 
IRA in an amount not exceeding the amount of the qualified reservist 
distribution. Such contributions are not subject to the dollar 
limitations otherwise applicable to contributions to IRAs. The exception 
to the tax for qualified reservist distributions applies to individuals 
ordered or called to active duty after September 11, 2001 and before 
December 31, 2007. The Administration proposes to extend the exception 
to individuals ordered or called to active duty before December 31, 
2008.

                                     

                                                      Table 17-3.  EFFECT OF PROPOSALS ON RECEIPTS
                                                                (In millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    2007       2008       2009       2010       2011       2012     2008-12     2008-17
--------------------------------------------------------------------------------------------------------------------------------------------------------
Make Permanent Certain Tax Relief Enacted in 2001 and 2003
 (assumed in the baseline):
    Dividends tax rate structure...............................        344        683        695     -3,595    -13,789      1,491    -14,515     -89,973
    Capital gains tax rate structure...........................  .........  .........  .........     -3,405    -17,477     -7,269    -28,151     -79,059
    Expensing for small business...............................  .........  .........  .........     -3,728     -4,947     -3,376    -12,051     -20,158
    Marginal individual income tax rate reductions.............  .........  .........  .........  .........    -71,892   -113,251   -185,143    -793,780
    Child tax credit \1\.......................................  .........  .........  .........  .........     -5,265    -21,128    -26,393    -135,380
    Marriage penalty relief \1\................................  .........  .........  .........  .........     -5,380     -7,971    -13,351     -41,317
    Education incentives.......................................  .........  .........  .........  .........       -739     -1,336     -2,075      -9,673
    Repeal of estate and generation-skipping transfer taxes,          -156     -1,373     -2,290     -3,067    -26,845    -57,652    -91,227    -442,490
     and modification of gift taxes............................
    Other incentives for families and children.................  .........  .........  .........          6       -179       -866     -1,039      -5,341
                                                                ----------------------------------------------------------------------------------------
      Total, make permanent certain tax relief enacted in 2001         188       -690     -1,595    -13,789   -146,513   -211,358   -373,945  -1,617,171
       and 2003................................................
 
Tax Incentives:
  Simplify and encourage saving:
    Expand tax-free savings opportunities......................  .........      1,527      3,545      3,023      1,075     -1,314      7,856        -592
    Consolidate employer-based savings accounts................  .........        -80       -120       -132       -141       -150       -623      -1,484
                                                                ----------------------------------------------------------------------------------------
      Total, simplify and encourage saving.....................  .........      1,447      3,425      2,891        934     -1,464      7,233      -2,076
  Encourage entrepreneurship and investment:
    Increase expensing for small business......................  .........     -1,597     -2,180     -1,541     -1,135       -847     -7,300     -10,095
  Invest in health care:
    Provide a flat $15,000 deduction for family coverage         .........  .........    -31,433    -38,892    -30,843    -20,033   -121,201       5,150
     ($7,500 for individual coverage) for those with and who
     purchase health insurance \1\.............................
    Expand and make health savings accounts (HSAs) more          .........       -318       -593       -784       -937     -1,037     -3,669     -10,366
     flexible..................................................
    Improve the Health Coverage Tax Credit \1\.................  .........         -1         -3         -4         -5         -5        -18         -51
    Allow the orphan drug tax credit for certain pre-            .........  .........  .........  .........  .........  .........  .........          -1
     designation expenses......................................
                                                                ----------------------------------------------------------------------------------------
      Total, invest in health care.............................  .........       -319    -32,029    -39,680    -31,785    -21,075   -124,888      -5,268
  Provide incentives for charitable giving:
    Extend permanently tax-free withdrawals from IRAs for        .........       -120       -255       -235       -171       -147       -928      -1,867
     charitable contributions..................................
    Extend permanently the enhanced charitable deduction for     .........        -44        -96       -106       -116       -127       -489      -1,345
     contributions of food inventory...........................
    Extend permanently the deduction for corporate donations of  .........        -50       -118       -147       -154       -162       -631      -1,570
     computer technology.......................................
    Permanently increase limits on contributions of property     .........        -48        -35        -22        -18        -21       -144        -265
     interests made for conservation purposes..................
    Extend permanently basis adjustment to stock of S            .........         -3        -15        -21        -25        -28        -92        -301
     corporations contributing appreciated property............
    Reform excise tax based on investment income of private      .........        -61        -91        -97       -103       -110       -462      -1,163
     foundations...............................................
    Repeal the $150 million limitation on qualified 501(c)(3)    .........         -2         -3         -9        -13        -14        -41        -104
     bonds.....................................................
    Repeal certain restrictions on the use of qualified          .........         -2         -5        -10        -17        -24        -58        -286
     501(c)(3) bonds for residential rental property...........
                                                                ----------------------------------------------------------------------------------------
      Total, provide incentives for charitable giving..........  .........       -330       -618       -647       -617       -633     -2,845      -6,901
  Strengthen education:
    Extend permanently the above-the-line deduction for          .........        -18       -180       -183       -185       -188       -754      -1,739
     qualified out-of-pocket classroom expenses................

[[Page 267]]

 
    Allow the saver's credit for contributions to qualified      .........        -63       -163       -176       -189       -200       -791      -1,966
     tuition programs..........................................
                                                                ----------------------------------------------------------------------------------------
      Total, strengthen education..............................  .........        -81       -343       -359       -374       -388     -1,545      -3,705
  Protect the environment:
    Extend permanently expensing of brownfields remediation             61       -244       -400       -352       -342       -331     -1,669      -2,851
     costs.....................................................
    Eliminate the volume cap for private activity bonds for      .........         -1         -3         -5         -9        -13        -31        -184
     water infrastructure......................................
                                                                ----------------------------------------------------------------------------------------
      Total, protect the environment...........................         61       -245       -403       -357       -351       -344     -1,700      -3,035
  Restructure assistance to New York City for continued
   recovery from the attacks of September 11th:
    Provide tax incentives for transportation infrastructure...  .........       -200       -200       -200       -200       -200     -1,000      -2,000
                                                                ----------------------------------------------------------------------------------------
      Total, tax incentives....................................         61     -1,325    -32,348    -39,893    -33,528    -24,951   -132,045     -33,080
 
Simplify the Tax Laws for Families:
  Clarify uniform definition of a child \1\....................         17         64         48         31         40         15        198         350
  Simplify EITC eligibility requirement regarding filing         .........         31        -25        -22        -22        -21        -59        -164
   status, presence of children, and work and immigration
   status \1\..................................................
  Reduce computational complexity of refundable child tax        .........  .........  .........  .........  .........  .........  .........  ..........
   credit \1\..................................................
                                                                ----------------------------------------------------------------------------------------
    Total, simplify the tax laws for families..................         17         95         23          9         18         -6        139         186
 
Improve Tax Compliance: \5\
  Expand information reporting.................................  .........        232      1,075      1,848      2,488      2,903      8,546      28,849
  Improve compliance by businesses.............................  .........        143         91         38         21         20        313         421
  Strengthen tax administration................................  .........  .........  .........          1          1          1          3          17
  Expand penalties.............................................  .........          3          5         11         18         20         57         178
                                                                ----------------------------------------------------------------------------------------
    Total, improve tax compliance..............................  .........        378      1,171      1,898      2,528      2,944      8,919      29,465
 
Improve Tax Administration and Other Miscellaneous Proposals:
  Implement IRS administrative reforms and extend IRS authority  .........  .........  .........  .........  .........  .........  .........  ..........
   to fund undercover operations \4\...........................
  Eliminate the special exclusion from unrelated business        .........          2         14         28         28         23         95         126
   taxable income for gain or loss on the sale or exchange of
   certain brownfields.........................................
  Limit related party interest deductions......................         86        148        155        163        171        180        817       1,859
  Repeal excise tax on local telephone service \2\.............       -552       -463       -148        -74        -74        -74       -833      -1,211
  Modify financing of the Airport and Airway trust fund \2\....  .........  .........     -6,407     -6,705     -7,005     -7,326    -27,443     -69,732
  Anticipated receipt of donations to the National Park Service  .........        100        100        100        100        100        500       1,000
   through the National Park Centennial Challenge Fund.........
  Transition from the non-foreign COLA to locality pay for       .........          1          2          3          4          5         15          50
   employees in non-foreign areas..............................
                                                                ----------------------------------------------------------------------------------------
    Total, improve tax administration and other miscellaneous         -466       -212     -6,284     -6,485     -6,776     -7,092    -26,849     -67,908
     proposals \2\.............................................
 
Improve Unemployment Insurance:
  Strengthen the financial integrity of the unemployment         .........  .........         29         29        -16        -64        -22      -1,469
   insurance system by reducing improper benefit payments and
   tax avoidance \2\...........................................
  Extend unemployment insurance surtax \2\.....................  .........      1,073      1,542      1,580      1,617      1,633      7,445       1,526
                                                                ----------------------------------------------------------------------------------------
    Total, improve unemployment insurance \2\..................  .........      1,073      1,571      1,609      1,601      1,569      7,423          57
 
Modify Energy Provisions:
  Repeal reduced recovery period for natural gas distribution    .........         52         88        107        119        106        472         906
   lines.......................................................
  Modify amortization for certain geological and geophysical     .........         15         55         81         67         56        274         582
   expenditures................................................
  Indirect effect of energy proposals \3\......................  .........        -45        -93       -163        -92        -98       -491      -1,019
                                                                ----------------------------------------------------------------------------------------
    Total, modify energy provisions............................  .........         22         50         25         94         64        255         469
 
Promote Trade:
  Implement free trade agreements and modify other trade-        .........       -241       -502       -760       -994     -1,240     -3,737     -13,072
   related provisions \2\......................................
 
Extend Expiring Provisions:
  AMT relief for individuals...................................     -9,123    -47,922     11,431  .........  .........  .........    -36,491     -36,491
  Research & Experimentation (R&E) tax credit..................  .........     -3,221     -7,071     -9,145    -10,601    -11,799    -41,837    -117,309
  Work opportunity tax credit..................................  .........        -71       -192       -162        -80        -51       -556        -582
  First-time homebuyer credit for DC...........................  .........         -1        -19  .........  .........  .........        -20         -20
  Authority to issue Qualified Zone Academy Bonds..............  .........         -3         -8        -13        -18        -20        -62        -162
  Deferral of gains from sales of electric transmission                -63        -48        -52        -65        -39          5       -199          41
   property....................................................
  Disclosure of tax return information related to terrorist      .........  .........  .........  .........  .........  .........  .........  ..........
   activity \4\................................................
  Excise tax on coal \2\.......................................  .........  .........  .........  .........  .........  .........  .........       1,081

[[Page 268]]

 
  Exception for retirement plan distributions provided                  -*         -*         -*         -*         -*         -*         -*          -*
   individuals called to active duty for at least 179 days.....
                                                                ----------------------------------------------------------------------------------------
    Total, extend expiring provisions \2\......................     -9,186    -51,266      4,089     -9,385    -10,738    -11,865    -79,165    -153,442
 
  Total budget proposals, including proposals assumed in the        -9,386    -52,166    -33,825    -66,771   -194,308   -251,935   -599,005  -1,854,496
   baseline \2\................................................
  Total budget proposals, excluding proposals assumed in the        -9,574    -51,476    -32,230    -52,982    -47,795    -40,577   -225,060    -237,325
   baseline \2\................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* $500,000 or less.
\1\ Affects both receipts and outlays. Only the receipt effect is shown here. For the outlay effect, see summary Table S-5 of the Budget volume.
\2\ Net of income offsets.
\3\ Indirect effect on receipts of proposed alternative fuels and fuel efficiency standards. These proposals are discussed in the Energy chapter of the
  Budget volume.
\4\ No net budgetary impact.
\5\ ``Tax gap''-related proposals.


[[Page 269]]


                                         Table 17-4. RECEIPTS BY SOURCE
                                            (In millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                         Estimate
           Source                2006    -----------------------------------------------------------------------
                                Actual       2007        2008        2009        2010        2011        2012
----------------------------------------------------------------------------------------------------------------
Individual income taxes
 (federal funds):
  Existing law..............   1,043,908   1,177,703   1,294,636   1,349,248   1,476,448   1,673,666   1,819,724
    Proposed legislation....  ..........      -8,857     -48,022     -18,111     -48,131    -156,377    -183,157
                             -----------------------------------------------------------------------------------
Total individual income        1,043,908   1,168,846   1,246,614   1,331,137   1,428,317   1,517,289   1,636,567
 taxes......................
                             ===================================================================================
Corporation income taxes:
  Federal funds:
    Existing law............     353,914     341,867     318,385     326,647     334,665     350,891     377,546
      Proposed legislation..  ..........         190      -3,444      -6,837      -9,206     -10,314     -10,910
                             -----------------------------------------------------------------------------------
  Total Federal funds            353,914     342,057     314,941     319,810     325,459     340,577     366,636
   corporation income taxes.
                             -----------------------------------------------------------------------------------
  Trust funds:
    Hazardous substance                1  ..........  ..........  ..........  ..........  ..........  ..........
     superfund..............
                             -----------------------------------------------------------------------------------
Total corporation income         353,915     342,057     314,941     319,810     325,459     340,577     366,636
 taxes......................
                             ===================================================================================
Social insurance and
 retirement receipts (trust
 funds):
  Employment and general
   retirement:
    Old-age and survivors        520,069     542,098     576,237     608,106     643,935     680,272     714,061
     insurance (Off-budget).
    Disability insurance          88,313      92,032      97,848     103,264     109,347     115,518     121,256
     (Off-budget)...........
    Hospital insurance......     177,429     185,163     198,726     208,700     221,160     233,811     245,766
    Railroad retirement:
      Social Security              1,894       1,993       2,073       2,137       2,203       2,258       2,319
       equivalent account...
      Rail pension and             2,338       2,364       2,441       2,529       2,473       2,507       2,712
       supplemental annuity.
                             -----------------------------------------------------------------------------------
  Total employment and           790,043     823,650     877,325     924,736     979,118   1,034,366   1,086,114
   general retirement.......
                             -----------------------------------------------------------------------------------
    On-budget...............     181,661     189,520     203,240     213,366     225,836     238,576     250,797
    Off-budget..............     608,382     634,130     674,085     711,370     753,282     795,790     835,317
                             -----------------------------------------------------------------------------------
  Unemployment insurance:
    Deposits by States \1\ .      35,938      37,574      37,584      36,792      37,203      38,150      39,352
      Proposed legislation..  ..........  ..........  ..........          36          36         -20        -108
    Federal unemployment           7,394       7,323       6,183       5,785       5,925       6,065       6,207
     receipts \1\ ..........
      Proposed legislation..  ..........  ..........       1,341       1,928       1,975       2,022       2,069
    Railroad unemployment             88          88          95         106         112         114         122
     receipts \1\ ..........
                             -----------------------------------------------------------------------------------
  Total unemployment              43,420      44,985      45,203      44,647      45,251      46,331      47,642
   insurance................
                             -----------------------------------------------------------------------------------
  Other retirement:
    Federal employees'             4,308       4,704       4,633       4,798       4,909       4,964       4,972
     retirement--employee
     share..................
      Proposed legislation..  ..........  ..........           1           2           3           4           5
    Non-Federal employees             50          38          33          31          28          26          23
     retirement \2\ ........
                             -----------------------------------------------------------------------------------
  Total other retirement....       4,358       4,742       4,667       4,831       4,940       4,994       5,000
                             -----------------------------------------------------------------------------------
Total social insurance and       837,821     873,377     927,195     974,214   1,029,309   1,085,691   1,138,756
 retirement receipts........
                             ===================================================================================
  On-budget.................     229,439     239,247     253,110     262,844     276,027     289,901     303,439
  Off-budget................     608,382     634,130     674,085     711,370     753,282     795,790     835,317
                             ===================================================================================
Excise taxes:
  Federal funds:
    Alcohol taxes...........       8,484       8,614       8,798       8,953       9,109       9,318       9,524
      Proposed legislation..  ..........  ..........         -76         -26  ..........  ..........  ..........
    Tobacco taxes...........       7,710       7,605       7,496       7,393       7,298       7,208       7,123
    Transportation fuels tax      -2,386      -2,960      -3,459      -4,101      -4,798      -1,227         234
      Proposed legislation..  ..........  ..........         -74        -139        -190         -57  ..........
    Telephone and teletype         4,897     -10,892      -1,712         197         100         100         100
     services...............
      Proposed legislation..  ..........        -736        -616        -197        -100        -100        -100
    Other Federal fund             3,755       1,493       1,932       1,987       2,057       2,128       2,208
     excise taxes...........
      Proposed legislation..  ..........  ..........          15        -121        -155        -163        -172
                             -----------------------------------------------------------------------------------
  Total Federal fund excise       22,460       3,124      12,304      13,946      13,321      17,207      18,917
   taxes....................
                             -----------------------------------------------------------------------------------

[[Page 270]]

 
  Trust funds:
    Highway.................      38,378      39,707      40,858      41,911      42,696      43,402      44,045
      Proposed legislation..  ..........  ..........          12          14         -27         -65        -131
    Airport and airway......      10,590      11,426      12,094      12,808      13,556      14,341      15,162
      Proposed legislation..  ..........  ..........  ..........      -8,485      -8,882      -9,279      -9,706
    Sport fish restoration           519         547         564         581         600         619         638
     and boating safety.....
    Tobacco assessments.....         891         960         960         960         960         960         960
    Black lung disability            607         624         629         640         659         679         692
     insurance..............
    Inland waterway.........          81          84          85          86          87          88          89
    Oil spill liability.....          54         199         205         214         225         233         244
    Vaccine injury                   184         195         196         198         199         202         203
     compensation...........
    Leaking underground              197         196         199         204         206         210         212
     storage tank...........
                             -----------------------------------------------------------------------------------
  Total trust funds excise        51,501      53,938      55,802      49,131      50,279      51,390      52,408
   taxes....................
                             -----------------------------------------------------------------------------------
Total excise taxes..........      73,961      57,062      68,106      63,077      63,600      68,597      71,325
                             ===================================================================================
Estate and gift taxes:
  Federal funds.............      27,877      25,260      26,786      28,757      22,920      20,407      48,691
    Proposed legislation....  ..........          17      -1,081      -1,318      -1,179     -18,733     -48,170
                             -----------------------------------------------------------------------------------
Total estate and gift taxes.      27,877      25,277      25,705      27,439      21,741       1,674         521
                             ===================================================================================
Customs duties:
  Federal funds.............      23,533      25,430      28,105      29,786      32,066      33,837      35,501
    Proposed legislation....  ..........  ..........        -322        -671      -1,015      -1,326      -1,655
  Trust funds...............       1,277       1,336       1,440       1,536       1,637       1,740       1,849
                             -----------------------------------------------------------------------------------
Total customs duties........      24,810      26,766      29,223      30,651      32,688      34,251      35,695
                             ===================================================================================
MISCELLANEOUS RECEIPTS: \3\
  Miscellaneous taxes.......         423         534         542         549         558         567         577
  Exercise of warrants......         118  ..........  ..........  ..........  ..........  ..........  ..........
  United Mine Workers of             119          72          65          44          24           5           3
   America combined benefit
   fund.....................
  Deposit of earnings,            29,945      32,638      36,115      37,625      39,040      40,680      42,804
   Federal Reserve System...
  Defense cooperation.......          12           8           8           8           8           8           8
  Fees for permits and            10,226      10,083      10,468      10,600      10,806      11,020      11,213
   regulatory and judicial
   services.................
  Fines, penalties, and            3,796       3,243       3,254       2,910       2,929       2,948       2,969
   forfeitures..............
  Gifts and contributions...         378         189         194         199         201         203         206
    Proposed legislation....  ..........  ..........         100         100         100         100         100
  Refunds and recoveries....         -55         -56         -56         -56         -56         -56         -56
                             -----------------------------------------------------------------------------------
Total miscellaneous receipts      44,962      46,711      50,690      51,979      53,610      55,475      57,824
                             ===================================================================================
Total budget receipts.......   2,407,254   2,540,096   2,662,474   2,798,307   2,954,724   3,103,554   3,307,324
  On-budget.................   1,798,872   1,905,966   1,988,389   2,086,937   2,201,442   2,307,764   2,472,007
  Off-budget................     608,382     634,130     674,085     711,370     753,282     795,790     835,317
                             -----------------------------------------------------------------------------------
         MEMORANDUM
  Federal funds.............   1,517,453   1,635,493   1,681,337   1,774,042   1,874,190   1,965,503   2,115,280
  Trust funds...............     616,863     653,127     692,062     709,365     747,034     789,414     827,684
  Interfund transactions....    -335,444    -382,654    -385,010    -396,470    -419,782    -447,153    -470,957
                             -----------------------------------------------------------------------------------
Total on-budget.............   1,798,872   1,905,966   1,988,389   2,086,937   2,201,442   2,307,764   2,472,007
                             -----------------------------------------------------------------------------------
Off-budget (trust funds)....     608,382     634,130     674,085     711,370     753,282     795,790     835,317
                             ===================================================================================
Total.......................   2,407,254   2,540,096   2,662,474   2,798,307   2,954,724   3,103,554   3,307,324
----------------------------------------------------------------------------------------------------------------
\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.