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

    [[Page 243]]

      ======================================================================

                        FEDERAL RECEIPTS AND COLLECTIONS

    ========================================================================

    [[Page 245]]

                              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 2009 are estimated to be $2,699.9 billion, an
    increase of $178.8 billion or 7.1 percent relative to 2008. Receipts are
    projected to grow at an average annual rate of 6.2 percent between 2009
    and 2013, rising to $3,428.2 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
    increase from 17.6 percent in 2008 to 18.0 percent in 2009, and to rise
    to 18.8 percent in 2013.

                                                            Table 17-1.  RECEIPTS BY SOURCE--SUMMARY
                                                                    (In billions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Estimate
                                                      2007 Actual  -----------------------------------------------------------------------------------------
                                                                         2008           2009           2010           2011           2012           2013
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Individual income taxes........................     1,163.5        1,219.7        1,259.0        1,417.3        1,499.0        1,599.9        1,709.1
    Corporation income taxes.......................       370.2          345.3          339.2          338.9          356.8          391.3          379.8
    Social insurance and retirement receipts.......       869.6          910.1          949.4        1,004.0        1,059.7        1,111.4        1,168.5
      (On-budget)..................................      (234.5)        (247.9)        (253.8)        (263.9)        (278.3)        (292.9)        (309.4)
      (Off-budget).................................      (635.1)        (662.2)        (695.6)        (740.2)        (781.4)        (818.6)        (859.1)
    Excise taxes...................................        65.1           68.8           68.9           60.7           65.9           68.5           69.7
    Estate and gift taxes..........................        26.0           26.8           26.3           19.5            1.5            0.4            0.5
    Customs duties.................................        26.0           29.2           29.1           30.8           32.5           35.0           37.0
    Miscellaneous receipts.........................        47.8           46.3           47.9           50.0           53.2           57.4           59.5
    Economic growth package........................  .............      -125.0          -20.0           10.0            8.0            6.0            4.0
                                                    --------------------------------------------------------------------------------------------------------
      Total receipts...............................     2,568.2        2,521.2        2,699.9        2,931.3        3,076.4        3,269.9        3,428.2
        (On-budget)................................    (1,933.2)      (1,859.0)      (2,004.4)      (2,191.2)      (2,295.1)      (2,451.3)      (2,569.1)
        (Off-budget)...............................      (635.1)        (662.2)        (695.6)        (740.2)        (781.4)        (818.6)        (859.1)

      Total receipts as a percentage of GDP........        18.8           17.6           18.0           18.6           18.6           18.8           18.8
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                 Table 17-2.  EFFECT ON RECEIPTS OF CHANGES IN THE SOCIAL SECURITY TAXABLE EARNINGS BASE
                                                (In billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                      Estimate
                                                              ------------------------------------------------------
                                                                  2009       2010       2011       2012       2013
    ----------------------------------------------------------------------------------------------------------------
    Social security (OASDI) taxable earnings base increases:
      $102,000 to $106,800 on Jan. 1, 2009...................        2.4        6.4        7.2        8.0        8.8
      $106,800 to $111,600 on Jan. 1, 2010...................  .........        2.4        6.5        7.2        8.0
      $111,600 to $116,100 on Jan. 1, 2011...................  .........  .........        2.3        6.2        6.8
      $116,100 to $121,500 on Jan. 1, 2012...................  .........  .........  .........        2.8        7.4
      $121,500 to $126,900 on Jan. 1, 2013...................  .........  .........  .........  .........        2.9
    ----------------------------------------------------------------------------------------------------------------

    [[Page 246]]

                                                  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              Deduction increased  ................  ................  ...................  Deduction         ...............  ...............  ...............  Deduction
        Expensing                  to $100,000,                                                                  increased to                                                         reverts to
                                   reduced by amount                                                             $125,000,                                                            $25,000,
                                   qualifying                                                                    reduced by                                                           reduced by
                                   property exceeds                                                              amount                                                               amount
                                   $400,000, and both                                                            qualifying                                                           qualifying
                                   amounts inflation-                                                            property                                                             property
                                   indexed                                                                       exceeds                                                              exceeds
                                  Includes software                                                              $500,000, and                                                        $200,000 and
                                                                                                                 both amounts                                                         amounts not
                                                                                                                 inflation-                                                           inflation-
                                                                                                                 indexed                                                              indexed
                                                                                                                Includes                                                             Does not apply
                                                                                                                 software                                                             to software
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    [[Page 247]]

      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     AMT exemption    ...............  ...............  ...............
                                   amount increased                                         amount increased     amount            amount reverts
                                   to $40,250/$58,000                                       to $42,500/$62,550   increased to      to $33,750/
                                   for single/joint                                         for single /joint    $44,350/$66,250   $45,000 for
                                   filers                                                   filers               for single /      single /joint
                                                                                                                 joint filers      filers
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                               ENACTED LEGISLATION

      Several laws were enacted in 2007 that have an effect on governmental
    receipts. The major legislative changes affecting receipts are described
    below.

                      U.S. TROOP READINESS, VETERANS' CARE,

                       KATRINA RECOVERY, AND IRAQ ACCOUNT-

                        ABILITY APPROPRIATIONS ACT, 2007

      The U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq
    Accountability Appropriations Act, 2007 was signed by President Bush on
    May 25, 2007. In addition to increasing the minimum wage and providing
    funding for the Global War on Terror, hurricane disaster relief and
    other purposes, this Act provided tax relief to small businesses that
    was in large part offset by other tax changes. The major provisions of
    this Act that affected governmental receipts are described below.

                        Tax Incentives for Small Business

      Extend and increase expensing for small businesses.--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 after 2002 and before 2010. 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 limit were 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 were
    permitted to make or revoke expensing elections on amended returns
    without the consent of the Internal Revenue Service (IRS) Commissioner.
    This Act extended for one year, through 2010, the prior law rules
    applicable to small business expensing in taxable years beginning after
    2002 and before 2010. This Act also increased the deduction and annual
    investment limit to $125,000 and $500,000, respectively, effective for
    taxable years beginning after 2006 and before 2011. Both the deduction
    and annual investment limit were indexed annually for inflation,
    effective for taxable years beginning after 2007 and before 2011.
      Extend and modify the work opportunity tax credit (WOTC).--The WOTC
    provides incentives to employers for hiring individuals from certain
    targeted groups. Under prior law, the credit expired with respect to
    wages paid to qualified individuals who began work after December 31,
    2007. This Act extended the credit to apply to qualified wages paid to
    workers hired before September 1, 2011 and expanded the eligibility
    criteria for certain targeted groups.
      Modify tax credit for tips.--Businesses are allowed to pay a tip-
    earning employee wages that are below the minimum wage if the combined
    value of the employee's tips and reduced wage exceeds the minimum wage.

    [[Page 248]]

    Businesses are also required to pay social security and Medicare payroll
    taxes on both the wages and tip income of their employees; however, a
    ``tip credit'' may be claimed for the payroll taxes paid on tips in
    excess of the minimum wage. This Act increased the minimum wage in three
    stages over 24 months, from $5.15 per hour to $7.25 per hour. To prevent
    a reduction in the ``tip credit'' that would occur as a result of this
    increase in the minimum wage, this Act allowed employers to continue to
    calculate the tip credit using the minimum wage in effect on January 1,
    2007 ($5.15 per hour).
      Allow ``tip credit'' and WOTC against the alternative minimum tax
    (AMT).--Taxpayers generally are not allowed to offset AMT liability with
    business tax credits. Effective for taxable years beginning after
    December 31, 2006, this Act waived this limitation with respect to the
    WOTC and the ``tip credit,'' thereby allowing taxpayers (both
    individuals and corporations) to offset AMT liability with these two
    credits.
      Simplify the taxation of a family business owned by a husband and
    wife.--Under current law, each member of a partnership pays the taxes on
    his or her distributive share of the earnings of the partnership. A
    partnership includes a syndicate, group, pool, joint venture, or other
    unincorporated organization through or by means of which any business,
    financial operation or venture is carried on, and that is not a trust or
    estate or a corporation. Under this Act, effective for taxable years
    beginning after December 31, 2006, a qualified joint venture whose only
    members are a husband and wife filing a joint return is permitted to
    elect not to be treated as a partnership for Federal income and self-
    employment tax purposes if each spouse materially participates in the
    venture's trade or business. All items of income, gain, loss, deduction
    and credit from the trade or business must be divided between the
    spouses in accordance with their respective interest in the venture and
    each spouse must take into account his or her respective share of those
    items as if he or she were a sole proprietor.

                           Taxation of S Corporations

      Modify taxation of S corporations.--In general, S corporations do not
    pay Federal income tax. Instead, an S corporation passes through its
    items of income and loss to its shareholders. Each shareholder
    separately accounts for his or her share of these items on his or her
    individual income tax return. This Act included provisions that modified
    the taxation of S corporations, with the following major changes that:
    (1) excluded gains from the sale of stock or securities from treatment
    as an item of passive investment income; (2) excluded restricted stock
    in a bank held by bank directors from treatment as S corporation stock;
    (3) modified the treatment of banks that become S corporations and
    change from the reserve method of accounting for bad debts; (4) modified
    the treatment of sales of stock of qualified subsidiaries of S
    corporations; (5) modified the treatment of pre-1983 accumulated
    earnings and profits of certain S corporations; and (6) permitted
    electing small business trusts to deduct interest expenses incurred on
    funds borrowed to purchase S corporation stock.

                          Hurricane-Related Tax Relief

      Extend and modify certain tax relief provided to individuals and
    businesses affected by hurricanes along the Gulf coast in 2005.--Several
    laws were enacted in 2005 that provided tax relief to individuals and
    businesses affected by hurricanes Katrina, Rita and Wilma. This Act
    extended and/or modified several of the tax incentives enacted in 2005;
    the specific changes included the following: (1) a one-year extension of
    the enhanced small business expensing provided to qualified Gulf
    Opportunity Zone (GO Zone) property; (2) a two-year extension of the
    enhanced low-income housing tax credit for property in the GO Zone, the
    Rita GO Zone and the Wilma GO Zone, and expansion of the credit; and (3)
    the expansion of special tax-exempt bond financing rules to apply to the
    repair and reconstruction of residential property in the GO Zone, the
    Rita GO Zone and the Wilma GO Zone.

                           Pension-Related Provisions

      Modify several provisions of the Pension Protection Act of 2006.--This
    Act modified several provisions of the Pension Protection Act of 2006,
    which was the most sweeping reform of America's pension system enacted
    in 30 years. Major changes included the following: (1) modification of
    the ability to revoke the election relating to treatment as a
    multiemployer plan; (2) modification of the requirements for qualified
    transfers under section 420; (3) extension of alternative deficit
    reduction contribution rules for commercial passenger airlines; and (4)
    modification of the interest rate used by plans maintained by commercial
    passenger airlines and airline catering companies to calculate pension
    liability.

                                     Offsets

      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 114.25 percent of the amount
    otherwise due in 2012. For corporations affected by this provision, the
    next required estimated tax payment is reduced accordingly.
      Modify taxation of unearned income of minors.--An unmarried individual
    eligible to be claimed as a

    [[Page 249]]

    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 $5,350 (for 2007); (2) unearned income only over the
    minimum standard deduction amount for dependents ($850 in 2007); or (3)
    both earned income and unearned income totaling more than the smaller of
    (a) $5,350 (for 2007) or (b) the larger of (i) $850 (for 2007) 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
    18 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 2007), 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 2007) 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 May
    25, 2007, this Act increased the age to which the kiddie tax applies
    from under 18 years of age to under 19 years of age (under 24 years of
    age for full-time students, provided their earned income does not exceed
    one-half of the amount of their support).
      Modify period of suspension of penalties and interest on unpaid
    taxes.--In general, interest and penalties accrue during periods for
    which taxes are unpaid, without regard to whether the taxpayer was aware
    that there was tax due. However, under prior law, if an individual
    taxpayer filed a timely return and the IRS did not send the taxpayer a
    notice of the unpaid liability and the basis for that liability,
    interest and penalties generally were suspended starting 18 months after
    the filing of the return. The suspension did not apply to underpayments
    attributable to fraud, listed transactions, and undisclosed reportable
    transactions, or to criminal or failure-to-pay penalties. Interest and
    penalties resumed 21 days after the IRS sent the required notice. This
    Act extended the period before which accrual of interest and certain
    penalties are suspended to 36 months after the filing of the return,
    effective for IRS notices issued after November 25, 2007.
      Modify collection due process procedures for employment tax
    liabilities.--Employers are required to withhold and pay Federal
    Insurance Contribution Act (FICA) taxes and income taxes, and are
    required to pay Federal Unemployment Tax Act (FUTA) taxes (collectively
    ``Federal employment taxes'') with respect to wages paid to their
    employees. In order to ensure the payment and collection of Federal
    employment taxes, the IRS is authorized to take various collection
    actions, including the issuance of a levy. A levy is the IRS's
    administrative authority to seize a taxpayer's property to pay the
    taxpayer's liability if a Federal tax lien has been attached to such
    property. Before a tax levy could be issued under prior law, the IRS
    generally was required to provide the taxpayer with notice and an
    opportunity for an administrative collection due process (CDP) hearing,
    and for judicial review. This pre-levy CDP hearing requirement did not
    apply to levies issued to collect Federal tax liability from a State tax
    refund; instead, such taxpayers were provided a CDP hearing within a
    reasonable period of time after the levy. This Act expanded the
    exception to the requirement for a pre-levy CDP hearing to include
    levies issued on or after September 27, 2007 to collect Federal
    employment taxes for any taxable period if the taxpayer subject to the
    levy requested a CDP hearing with respect to unpaid employment taxes
    arising in the two-year period before the beginning of the taxable
    period with respect to which the employment tax levy was served.
      Permanently extend IRS user fees.--The IRS has authority to charge
    fees for written responses to questions from individuals, corporations,
    and organizations related to their tax status or the effects of
    particular transactions for tax purposes. This Act permanently extended
    authority for these fees, which had been scheduled to expire effective
    with requests made after September 30, 2014.
      Increase penalty for bad checks and money orders.--The IRS has
    authority to impose a penalty on taxpayers who issue a bad check or
    money order. Under prior law, the penalty was two percent of the amount
    of the bad check or money order, with a minimum penalty of $15 or, if
    less, the amount of the check or money order, on checks and money orders
    less than $750. Effective with respect to checks or money orders issued
    after May 25, 2007, this Act increased the minimum penalty to $25 or if
    less, the amount of the check or money order, on checks and money orders
    less than $1,250.
      Expand penalties on tax return preparers.--Under prior law, an income
    tax return preparer who prepared a return with respect to which there
    was an understatement of tax due to an undisclosed position for which
    there was not a realistic possibility of being sustained on its merits,
    or a frivolous position, was liable for a first-tier penalty of $250,
    provided the preparer knew or reasonably should have known of the
    position. An income tax return preparer who engaged in specified willful
    or reckless conduct with respect to preparing a return was liable for a
    second-tier penalty of $1,000. Effective for tax returns prepared after
    May 25, 2007, this Act: (1) broadened the scope of tax return preparer
    penalties to include preparers of estate and gift, employment, and
    excise tax returns, and returns of exempt organizations; (2) increased
    the first-tier penalty to the greater of $1,000 or 50 percent of the
    income

    [[Page 250]]

    derived (or to be derived) by the tax return preparer from the
    preparation of the return or claim with respect to which the penalty was
    imposed; (3) increased the second-tier penalty to the greater of $5,000
    or 50 percent of the income derived (or to be derived) by the tax return
    preparer; and (4) altered the standards of conduct that must be met to
    avoid imposition of the penalties for preparing a return with respect to
    which there is an understatement of tax.
      Levy a penalty on erroneous refund claims.--Effective for returns
    filed on or after May 25, 2007, this Act imposed a penalty of 20 percent
    on the disallowed portion of a claim for refund or credit for which
    there was no reasonable basis for the claimed tax treatment or for which
    the taxpayer did not have reasonable cause. The penalty does not apply
    to any portion of the disallowed portion of the claim for refund or
    credit: (1) relating to the earned income credit, or (2) subject to
    accuracy-related or fraud penalties.

         AN ACT TO EXTEND THE AUTHORITIES OF THE ANDEAN TRADE PREFERENCE

                       ACT (ATPA) UNTIL FEBRUARY 29, 2008

      The ATPA, which was scheduled to expire after June 30, 2007, was
    designed to provide economic alternatives for Bolivia, Columbia,
    Ecuador, and Peru in their fight against narcotics production and
    trafficking. This Act, which was signed by President Bush on June 30,
    2007, extended the provisions of the ATPA for eight months, through
    February 29, 2008. This Act also increased the estimated tax payments
    due in July through September by corporations with assets of at least $1
    billion to 114.5 percent of the amount otherwise due in 2012. For
    corporations affected by this provision, the next required estimated tax
    payment is reduced accordingly.

                         APPROVING THE RENEWAL OF IMPORT

                          RESTRICTIONS CONTAINED IN THE

                          BURMESE FREEDOM AND DEMOCRACY

                                   ACT OF 2003

      The Act, which was signed by President Bush on August 1, 2007,
    extended for one year, through July 28, 2008, the ban on all imports
    from Burma. This Act also increased the estimated tax payments due in
    July through September by corporations with assets of at least $1
    billion to 114.75 percent of the amount otherwise due in 2012. For
    corporations affected by this provision, the next required estimated tax
    payment is reduced accordingly.

                           AN ACT TO EXTEND THE TRADE

                          ADJUSTMENT ASSISTANCE PROGRAM

                           UNDER THE TRADE ACT OF 1974

                                  FOR 3 MONTHS

      This Act extended the trade adjustment assistance program for farmers,
    which was scheduled to expire September 31, 2007, for three months
    through December 31, 2007. This Act, which was signed by President Bush
    on September 28, 2007, also affected governmental receipts by increasing
    the estimated tax payments due in July through September by corporations
    with assets of at least $1 billion to 115 percent of the amount
    otherwise due in 2012. For corporations affected by this provision, the
    next required estimated tax payment is reduced accordingly.

                       UNITED STATES-PERU TRADE PROMOTION

                          AGREEMENT IMPLEMENTATION ACT

      This Act, which was signed by President Bush on December 14, 2007,
    approved and provided for tariff reductions and other changes in law
    related to U.S. implementation of the United States-Peru Free Trade
    Agreement, as signed by the United States and Peru on April 12, 2006 and
    amended through a Protocol signed in Washington, D.C. on June 24, 2007
    and in Lima on June 25, 2007. When this Agreement enters into force, it
    will level the playing field for American exporters and investors,
    expand an important market in this hemisphere for U.S. goods and
    services, allow Peru to lock in access to the largest market in the
    world, and signal America's firm support for those who share the
    Nation's values of freedom and democracy and expanding opportunity for
    all.
      This Act also affected governmental receipts by increasing the
    estimated tax payments due in July through September by corporations
    with assets of at least $1 billion to 115.75 percent of the amount
    otherwise due in 2012. For corporations affected by this provision, the
    next required estimated tax payment is reduced accordingly.

                        ENERGY INDEPENDENCE AND SECURITY

                                   ACT OF 2007

      This Act, which was signed by President Bush on December 19, 2007,
    represented a major step forward in expanding the production of
    renewable fuels, reducing the Nation's dependence on oil, and making
    America stronger, safer, and cleaner for future generations. The major
    provisions of this Act that affected governmental receipts are described
    below:

      Modify Corporate Average Fuel Economy (CAFE) standards.--Under prior
    law, passenger cars and non-passenger cars (light trucks and SUVs) were
    required to meet CAFE standards of 27.5 miles per gallon and 22.2 miles
    per gallon, respectively. These standards were written into law in 1975.
    Beginning with model year 2011, this Act required the Department of
    Transportation (DOT) to prescribe separate, attribute-based CAFE
    standards for passenger cars and non-passenger cars that would reach a
    combined fleet average of at least 35 miles per gallon by model year
    2020. This Act also required DOT, after consultation with the Department
    of Energy and the Environmental Protection Agency, to prescribe separate
    CAFE standards for work trucks (vehicles weighing between 8,500 and
    10,000 pounds) and commercial medium- and heavy-duty vehicles (weighing
    over 10,000 pounds).

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      Modify Renewable Fuel Standard (RFS).--Under prior law, 7.5 billion
    gallons of renewable fuels were required to be blended with conventional
    fuel sold in the United States by 2012. Beginning in 2008, this Act
    required the blending of specified minimum volumes of renewable fuels
    each year, rising from 9 billion gallons in 2008 to 36 billion gallons
    by 2022.
      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 applied only to integrated oil companies that had
    an average daily worldwide production of crude oil of at least 500,000
    barrels for the taxable year, had gross receipts in excess of $1 billion
    in the last taxable year ending during calendar year 2005, and were
    either a crude oil refiner or related to a crude oil refiner. This Act
    increased the amortization period for G&G costs paid or incurred by
    these major integrated oil companies from five to seven years, effective
    for amounts paid or incurred in taxable years beginning after December
    19, 2007.
      Extend unemployment insurance surtax.--Under prior law the Federal
    unemployment tax on employers was scheduled to drop from 0.8 percent to
    0.6 percent with respect to wages paid after December 31, 2007. This Act
    extended the 0.8 percent rate for one year, through December 31, 2008.

                          TAX RELIEF FOR RECIPIENTS OF

                             DISBURSEMENTS FROM THE

                           HOKIE SPIRIT MEMORIAL FUND

      The Virginia Tech Foundation was established in 1948 to receive,
    manage, and disburse private gifts in support of programs of Virginia
    Polytechnic Institute and State University (Virginia Tech). The Hokie
    Spirit Memorial Fund was established by the Virginia Tech Foundation as
    a vehicle to receive financial donations from donors to assist families
    and victims of the April 16, 2007 shootings at Virginia Tech. This Act,
    which was signed by President Bush on December 19, 2007, excluded from
    gross income amounts received from this fund as payments in connection
    with the April 16, 2007 shootings at Virginia Tech. In addition,
    effective for taxable years beginning in 2008, this Act increased the
    penalty for failure to file a partnership return from $50 to $51 per
    partner for each month that the failure continues, up to a maximum of
    five months.

                        MORTGAGE FORGIVENESS DEBT RELIEF

                                   ACT OF 2007

      This Act, which was signed by President Bush on December 20, 2007,
    provided housing-related tax relief to financially-troubled homeowners,
    provided tax relief for volunteer firefighters and emergency medical
    responders, modified several tax penalties, and modified the timing of
    estimated tax payments by corporations. The major provisions of this Act
    that affected governmental receipts are described below.

                           Housing-Related Tax Relief

      Exclude discharges of indebtedness on principal residences from gross
    income--Gross income generally includes income realized by a debtor from
    the discharge of indebtedness, subject to certain exceptions (debtors in
    Title 11 bankruptcy cases, insolvent debtors, certain student loan
    indebtedness, certain farm indebtedness, and certain real property
    business indebtedness). In cases involving discharges of indebtedness
    excluded from gross income under the exceptions to the general rule,
    taxpayers generally must reduce certain tax attributes, including basis
    in the property, by the amount of the discharge of indebtedness.
    However, the amount of discharge of indebtedness excluded from gross
    income by an insolvent debtor not in a Title 11 bankruptcy case cannot
    exceed the amount by which the debtor is insolvent. The amount of
    discharge of indebtedness generally is equal to the difference between
    the amount of debt being cancelled and the amount used to satisfy the
    debt. This Act expanded the types of discharges of indebtedness excluded
    from gross income to include up to $2 million (or up to $1 million per
    spouse, if a married couple files separately) of qualified principal
    residence indebtedness discharged on or after January 1, 2007 and before
    January 1, 2010. The exclusion does not apply to discharges on account
    of services performed for the lender or any other factor not directly
    related to a decline in the value of the residence or to the financial
    condition of the taxpayer; in addition, the basis in the principal
    residence must be reduced by the amount of discharge of indebtedness
    excluded from gross income.
      Extend the deduction for qualified mortgage insurance premiums.--This
    Act extended the deduction for certain premiums paid or accrued for
    qualified mortgage insurance for three years, to apply to amounts paid
    or accrued after December 31, 2007 and before January 1, 2011.
      Increase maximum capital gains exclusion on certain sales of principal
    residences by surviving spouses.--Under current law, an individual
    taxpayer may exclude from tax up to $250,000 ($500,000 if married and
    filing a joint return) of gain realized on the sale or exchange of a
    principal residence, provided the taxpayer owned and used the residence
    as a principal residence for at least two of the five years ending on
    the date of the sale or exchange. Effective for sales

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    or exchanges after December 31, 2007, this Act increased the maximum
    amount of gain a surviving spouse can exclude from tax on the sale or
    exchange of a principal residence to $500,000, provided the sale or
    exchange occurs within two years of death of the spouse.
      Provide other housing-related tax relief.--Other housing-related tax
    relief provided in this Act: (1) amended the requirements for
    qualification as a cooperative housing corporation, and (2) modified the
    requirements for qualification as low-income housing units for purposes
    of the low-income housing tax credit.

     Tax Relief for Volunteer Firefighters and Emergency Medical Responders

      Provide exclusion from gross income for benefits provided to volunteer
    firefighters and emergency medical responders.--This Act provided an
    exclusion from gross income to any member of a qualified volunteer
    emergency response organization for: (1) any reduction or rebate of tax
    provided by a State or political division thereof on account of services
    performed as a member of a qualified volunteer emergency response
    organization, and (2) any payment, up to an annual maximum of $30 times
    the number of months during the year in which services were performed,
    provided by a State or political division thereof on account of the
    performance of services as a member of a qualified volunteer emergency
    response organization. Under this Act, a qualified emergency response
    organization is any volunteer organization: (1) organized and operated
    to provide firefighting or emergency medical services for persons in the
    State or political subdivision, and (2) required (by written agreement)
    by the State or political subdivision to furnish firefighting or
    emergency medical services in such State or political subdivision. The
    exclusion applies to payments, tax rebates and tax reductions provide on
    account of services performed in taxable years beginning after December
    31, 2007 and before January 1, 2011.

                                     Offsets

      Increase the penalty for failure to file a partnership return.--This
    Act increased the penalty imposed on partnerships for failure to file a
    partnership return to $85 per partner for each month that the failure
    continues, up to a maximum of twelve months, effective for returns
    required to be filed after December 20, 2007.
      Impose a penalty on S corporations for failure to file a return.--This
    Act imposed a penalty on S corporations that fail to file a return or
    that fail to file required information. The penalty of $85 per
    shareholder for each month that the failure continues, up to a maximum
    of twelve months, is effective for returns required to be filed after
    December 20, 2007.
      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 117.25 percent of the amount
    otherwise due in 2012. For corporations affected by this provision, the
    next required estimated tax payment is reduced accordingly.

                       TAX INCREASE PREVENTION ACT OF 2007

      This Act, which was signed by President Bush on December 26, 2007,
    provided Alternative Minimum Tax (AMT) relief for 2007, thereby
    protecting millions of Americans from an unexpected tax increase. The
    major provisions of this Act that affected governmental receipts are
    described below.

      Increase and extend AMT exemption amounts.--A temporary provision of
    prior 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. These temporary increases were effective
    for taxable years beginning after December 31, 2005 and before January
    1, 2007. This Act increased the AMT exemption amounts, effective for
    taxable years beginning after December 31, 2006 and before January 1,
    2008, to $44,350 for single taxpayers, $66,250 for married taxpayers
    filing a joint return and surviving spouses, and $33,125 for married
    taxpayers filing a separate return and estates and trusts.
      Extend AMT relief for nonrefundable personal credits.--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, 2007.
    This Act extended minimum tax relief for nonrefundable personal tax
    credits for one year, to apply to taxable year 2007. The extension does
    not apply to the child credit, the 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.

          TERRORISM RISK INSURANCE PROGRAM REAUTHORIZATION ACT OF 2007

      This Act, which was signed by President Bush on December 26, 2007,
    extended for seven years the Federal terrorism risk insurance program
    that had been established under the Terrorism Risk Insurance Act of 2002
    and was scheduled to expire on December 31, 2007. This Act also expanded
    coverage to include acts of domestic terrorism, required the issuance of
    regula

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    tions for determining the pro rata share of insured losses to be paid by
    each insurer that incurs losses when such losses exceed $100 billion in
    any program year, and set up a mechanism for the Federal government to
    recoup 133 percent of Federal payments under the program, up to a
    maximum of $27.5 billion, through a surcharge imposed on insurance
    premiums. These payments, which would be governmental receipts, would be
    collected as follows: (1) for any act of terrorism that occurred on or
    before December 31, 2010, all required payments would be due by
    September 30, 2012; (2) for any act of terrorism that occurred in
    calendar year 2011, 35 percent of required payments would be due by
    September 30, 2012 and the remainder would be due by September 30, 2017;
    and (3) for any act of terrorism that occurred on or after January 1,
    2012, all required payments would be due by September 30, 2017.

                      TAX TECHNICAL CORRECTIONS ACT OF 2007

      This Act, which was signed by President Bush on December 29, 2007,
    provided technical corrections to tax laws enacted between 1998 and
    2006. The amendments provided in this Act clarified or adjusted
    previously enacted provisions in a manner consistent with the underlying
    legislative intent and generally took effect as if included in the
    original legislation.

                            ADMINISTRATION PROPOSALS

                        STIMULATE ECONOMIC GROWTH AND JOB

                        CREATION IN 2008 AND IMPROVE THE

                  TAX SYSTEM TO MAKE THE U.S. MORE COMPETITIVE

      The President believes that it is critical for Congress to quickly
    pass an economic growth package that will keep our economy expanding and
    creating jobs and that puts more money in the hands of American workers
    and businesses, who are the engines of the Nation's economic growth. The
    Administration will work with Congress in a bipartisan manner to enact
    initiatives that provide temporary, immediate, and effective support to
    the Nation's economy.
      As a longer-term consideration, Americans deserve a tax system that is
    simple, fair and pro-growth--in tune with the Nation's dynamic, 21st
    century economy. The tax system also should promote the competitiveness
    of American workers and businesses in the global economy. The report,
    Approaches to Improve the Competitiveness of the U.S. Business Tax
    System for the 21st Century, released by the Treasury Department in
    December, outlines several broad approaches to business tax reform to
    lay the groundwork for discussion of ways to ensure that the Nation's
    business tax system better meets the needs of American workers and
    businesses in today's global economy.
      The President's tax relief enacted in 2001 and 2003 made the tax code
    simpler, fairer, and more pro-growth. The President has proposed changes
    that would move the tax code 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.

           MAKE PERMANENT CERTAIN TAX RELIEF ENACTED IN 2001 AND 2003

      Permanently extend 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 permanently extend these reduced rates (15 percent and zero), which
    are scheduled to expire on December 31, 2010.
      Permanently extend increased expensing for small businesses.--Under
    temporary provisions of current law, small business taxpayers are
    allowed to expense up to $125,000 in annual investment expenditures for
    qualifying property (expanded to include off-the-shelf computer
    software) placed in service in taxable years beginning after 2006 and
    before 2011. The maximum amount that may be expensed is reduced by the
    amount by which the taxpayer's cost of qualifying property exceeds
    $500,000. Both the deduction and annual investment limits are indexed
    annually for inflation effective for taxable years beginning after 2007
    and before 2011. Also, with respect to taxable years beginning after
    2002 and before 2011, taxpayers are permitted to make or revoke
    expensing elections on amended returns without the consent of the IRS
    Commissioner. The Administration proposes to permanently extend each of
    these temporary provisions, applicable for qualifying property
    (including off-the-shelf computer software) placed in service in taxable
    years beginning after 2010.
      Permanently extend provisions expiring in 2010.--Most of the
    provisions of the 2001 tax relief 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

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    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, 2008 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, 2010 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
    rollovers from employer plans, but they could not accept new individual
    contributions. Individuals wishing to roll an amount directly from an
    employer plan to an RSA could do so by including the rollover amount
    (excluding basis) in gross income (i.e., ``converting'' the rollover,
    similar to a current law Roth conversion).

      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, 2008.

                    Encourage Entrepreneurship and Investment

      Increase expensing for small businesses.--Business taxpayers are
    currently allowed to expense up to $125,000 in annual investment
    expenditures for qualifying property (expanded to include off-the-shelf
    computer software) placed in service in taxable years beginning after
    2006 and before 2011. The maximum amount that may be expensed is reduced
    by the amount by which the taxpayer's cost of qualifying property
    exceeds $500,000. Both the deduction and annual investment limits are
    indexed annually for inflation, effective for taxable years beginning
    after 2007 and before 2011. Also, with respect to a taxable year
    beginning after 2002 and before 2011, 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 2008. These higher amounts
    would be indexed for inflation, effective for taxable years beginning
    after 2009.

                              Invest in Health Care

      Provide a new standard deduction for health insurance ($15,000 for
    family coverage and $7,500 for individual coverage).--The Administration
    proposes to provide a standardized deduction for health insurance (SDHI)
    of $15,000 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

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    self-employed premium deduction, and the medical itemized deduction.
    Coverage under Medicare or Medicaid would not entitle an individual for
    the SDHI. As a result of the proposal, 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. However, itemized medical
    deductions would still be available for some taxpayers such as
    individuals enrolled in Medicare who are not otherwise eligible for the
    SDHI.
      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 deductible 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, 2008.

      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, 2007.

                    Provide Incentives for Charitable Giving

      Permanently extend 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 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.

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      Permanently extend 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 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. The Administration proposes to permanently extend the enhanced
    charitable deduction for contributions of food inventory to apply to
    contributions made after December 31, 2007.

      Permanently extend the deduction for corporate donations of computer
    equipment for educational purposes.--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 expired 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 extend increased limits on contributions of partial
    interests in real property 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 Protection
    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.
      Permanently extend 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 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

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    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.

                              Strengthen Education

      Permanently extend the above-the-line deduction for qualified out-of-
    pocket classroom expenses.--Under current law, teachers who itemize
    deductions (do not use the standard deduction) and incur unreimbursed,
    job-related expenses are allowed to deduct those expenses to the extent
    that, when combined with other miscellaneous itemized deductions, they
    exceeded two percent of AGI. Current law also allows certain teachers
    and other elementary and secondary school professionals to treat up to
    $250 in annual qualified out-of-pocket classroom expenses as a non-
    itemized deduction (deductible above-the-line). Unreimbursed
    expenditures for certain books, supplies, and equipment related to
    classroom instruction qualify for the above-the-line deduction. Expenses
    claimed as an above-the-line deduction may not be claimed as an itemized
    deduction. This additional deduction is effective for expenses incurred
    in taxable years beginning after December 31, 2001 and before January 1,
    2008. The Administration proposes to permanently extend 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 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, 2008.

                               Strengthen Housing

      Expand tax-exempt qualified mortgage bond program to assist subprime
    borrowers.--Under current law, State and local governments may issue
    tax-exempt private activity bonds, called ``qualified mortgage bonds,''
    to provide low-interest rate new mortgage loans (as contrasted with
    refinancing loans) to qualified first-time homebuyers for the purchase,
    improvement, or rehabilitation of owner-occupied single-family housing.
    Several restrictions, including purchase price and mortgagor income
    limitations, apply. In addition, such bonds are subject to the annual
    private activity bond volume cap and various general eligibility
    requirements for tax-exempt private activity bonds. The Administration
    proposes to expand the mortgage bond program temporarily to allow State
    and local governments to use such bonds to refinance existing loans to
    eligible subprime borrowers during the three years, 2008 through 2010.
    The proposal would increase the private activity bond volume cap by a
    total amount of $15 billion to be dedicated to use for subprime
    refinancings during the three years from 2008 through 2010.

                             Protect the Environment

      Permanently extend expensing of brownfields remediation costs.--
    Taxpayers may elect, with respect to expenditures paid or incurred
    before January 1,

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    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. These bonds are intended to complement local efforts
    to move towards full cost pricing for wastewater and drinking water
    services, helping municipalities become self-financing and minimizing
    the need for future Federal expenditures. The volume cap would be
    removed for obligations issued after December 31, 2008.

                   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 incomes, to claim the taxpayers' sons or
    daughters as qualifying children. The 2004 tax relief act had other
    unintended consequences, which made some of the eligibility rules less
    uniform. For example, it allowed dependent filers to claim the child tax
    credit, even though they are generally ineligible for most other child-
    related tax benefits. It also allowed taxpayers to claim the child tax
    credit on behalf of a married child who files a joint return with his or
    her spouse, even though the taxpayer generally cannot claim other
    benefits for the married child. These exceptions create confusion and
    add complexity to 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-

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    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,
    2008.

      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, 2008. Effective January 1, 2009, 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 $12,050 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, 2008.

                             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 this 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.
      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. \3\ To
    enhance the IRS's 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.
    ---------------------------------------------------------------------------
      \3\ See Reducing the Federal Tax Gap: A Report on Improving Voluntary
    Compliance, IRS, August 2, 2007.
    ---------------------------------------------------------------------------

      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) require information reporting on broker and merchant payment
    card reimbursements; (4) require a certified tax identification number
    (TIN) from non-employee service providers; (5) require increased
    information reporting for certain gov

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    ernment payments for property and services; (6) increase information
    return penalties; and (7) improve the foreign trust reporting penalty.
      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; and (2) implement standards clarifying when employee leasing
    companies can be held liable for their clients' Federal employment
    taxes.
      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; (3) make repeated failure to file a
    tax return a felony; (4) facilitate information sharing with local
    jurisdictions for purposes of tax compliance; (5) extend the statutory
    period for assessing additional Federal tax liability on State/local
    adjustments or amended returns; and (6) improve the investigative
    disclosure statute.
      Expand penalties.--Penalties play an important role in discouraging
    intentional non-compliance. The Administration proposes to impose a
    penalty on failure to comply with electronic filing requirements.

          IMPROVE TAX ADMINISTRATION AND OTHER MISCELLANEOUS PROPOSALS

      Implement IRS administrative reforms.--The Administration has three
    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.
      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
    expired on December 31, 2007, through December 31, 2012.
      Increase transparency of the cost of employer-provided health
    insurance.--Employers providing health coverage to employees and their
    families would be required to report on the Form W-2 provided to
    employees and the IRS the value of the health coverage provided to the
    employee. For this purpose, employers would generally use the same value
    for all similarly situated employees receiving the same category (such
    as self-only or family) of coverage. It is expected that the amount
    reported as the value of coverage would be determined using the same
    methodology as the applicable premiums for purposes of COBRA
    continuation coverage under section 4980B. This provision would be
    effective for years beginning after December 31, 2008.
      Equalize penalty standards between preparers and taxpayers.--The
    increase in applicable standards in order for a tax return preparer to
    take an undisclosed position on a return and avoid penalties may result
    in conflicts of interest between tax return preparers and their taxpayer
    clients. The proposal would make the standard applicable to preparers in
    order to take an undisclosed position on a return generally consistent
    with the taxpayer standard. The proposal would maintain the existing law
    requirement that the preparer have a reasonable belief that the position
    would more likely than not be sustained on the merits with respect to
    certain reportable transactions with a significant purpose of tax
    avoidance. The proposal would make the standard applicable to tax return
    preparers for disclosed positions (including positions described in
    section 6662(d)(2)(C)) reasonable basis. No penalty would be asserted
    against a tax return preparer if the preparer has reasonable cause and
    good faith.
      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 American Jobs 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, 2008.
      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-

    [[Page 261]]

    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. Consistent with the findings of the Treasury
    Department's recent study of earnings stripping, section 163(j) would be
    revised to tighten the limitation on the deductibility of interest paid
    by ``expatriated entities'' to related persons. The current law 1.5 to 1
    debt-to-equity safe harbor would be eliminated. 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 (``guaranteed debt''). Interest on
    guaranteed debt generally would be subject to the current-law 50 percent
    of adjusted taxable income threshold. The indefinite carryforward for
    disallowed interest under the adjusted taxable income limitation of
    current law would be limited to ten years. The three-year carryforward
    of excess limitation would be eliminated.
      Repeal excise tax on local telephone service.--A three-percent Federal
    excise tax is 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 all taxes on communication services, including 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 transmitted a reauthorization proposal in February 2007
    to reform the Federal Aviation Administration's (FAA's) financing system
    by adopting new cost-based user fees. The FAA's current financing
    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. The Administration will
    resubmit the proposal for the FAA to collect user fees from commercial
    aviation operators for air traffic control services starting in fiscal
    year 2010. 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 the
    FAA's Airport Improvement Program.
      Improve financing of the Inland Waterways Trust Fund.--Commercial
    barges that use the inland waterways now pay an excise tax of 20 cents
    per gallon on diesel fuel, which is deposited in the Inland Waterways
    Trust Fund. The tax does not raise enough revenue to cover the required
    50 percent non-Federal share of the costs that the Army Corps of
    Engineers is spending to construct, replace, expand, and rehabilitate
    the locks and dams and other features that make barge transportation
    possible on the inland waterways. To address this imbalance between
    receipts and expenditures, the Administration proposes to phase out the
    current excise tax for inland waterways users and replace it with a more
    efficient user fee tied to the level of spending for inland waterways
    construction, replacement, expansion, and rehabilitation work.
      Anticipated receipt of donations to the National Park Service through
    the National Park Centennial Challenge Fund.--The President's National
    Park 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 America's national parks.
      Increase fees for Migratory Bird Hunting and Conservation Stamps.--
    Federal Migratory Bird Hunting and Conservation Stamps, commonly known
    as ``Duck Stamps,'' were originally created in 1934 as the Federal
    licenses required for hunting migratory waterfowl. Today, ninety-eight
    percent of the receipts generated from the sale of these stamps ($15 per
    stamp per year) are used to acquire important migratory bird breeding
    areas, migration resting places, and wintering areas. The land and water
    interests located and acquired with the Duck Stamp funds establish or
    add to existing migratory bird refuges and waterfowl production areas.
    The price of the Duck Stamp has not increased since 1991; however, the
    cost of land and water has increased significantly over the past 16
    years. The Administration proposes to increase these fees to $25 per
    stamp per year, effective beginning in 2009.
      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
    U.S. territories presently receive a COLA, which is an untaxed annual
    pay adjustment that is not cred

    [[Page 262]]

    itable 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 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 will drop from 0.8 percent to 0.6 percent with respect to
    wages paid after December 31, 2008. The 0.8 percent rate is proposed to
    be extended for one year, through December 31, 2009.

                            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, 2008.
      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 applied only to integrated oil companies that had
    an average daily worldwide production of crude oil of at least 500,000
    barrels for the taxable year, had gross receipts in excess of $1 billion
    in the last taxable year ending during calendar year 2005, and were
    either a crude oil refiner or related to a crude oil refiner. The Energy
    Independence and Security Act of 2007 increased the amortization period
    for such integrated oil companies to seven years for costs paid or
    incurred after December 19, 2007. The Administration proposes to
    increase the amortization period to seven years for all companies,
    effective for amounts paid or incurred in taxable years beginning after
    December 31, 2008.

                                  PROMOTE TRADE

      Implement free trade agreements.--Free trade agreement negotiations
    with Columbia, Panama and Korea were completed, with the expectation
    that implementation could begin as early as 2009. A free trade agreement
    is expected to be completed with Malaysia, with implementation to begin
    in 2010. 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 America's 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. The Administration will work closely with
    Congress and private sector stakeholders to implement this important
    initiative.

    [[Page 263]]

      Extend Generalized System of Preferences (GSP).--Under GSP, duty-free
    access is provided to approximately 3,400 products from eligible
    beneficiary developing countries that meet certain worker rights,
    intellectual property protection, and other statutory criteria. The
    Administration proposes to extend this program, which is scheduled to
    expire after December 31, 2008, through December 31, 2013.
      Extend Andean Trade Preference Act (ATPA).--The ATPA was designed to
    provide economic alternatives for Bolivia, Columbia, Ecuador, and Peru
    in their fight against narcotics production and trafficking. The
    Administration proposes to extend the ATPA, which is scheduled to expire
    on February 29, 2008, through December 31, 2008.
      Extend Caribbean Basin Initiative (CBI).--The trade programs known
    collectively as the CBI remain a vital element in the United States'
    economic relations with its neighbors in Central America and the
    Caribbean. The CBI, which is intended to facilitate the economic
    development and export diversification of the Caribbean Basin economies,
    currently provides 19 beneficiary countries with duty-free access to the
    U.S. market for most goods. The Administration proposes to extend the
    CBI, which is scheduled to expire on September 30, 2008, through
    December 31, 2011.

                           EXTEND EXPIRING PROVISIONS

      Extend minimum tax relief for individuals.--A temporary provision of
    current law increased the alternative minimum tax (AMT) exemption
    amounts to $44,350 for single taxpayers, $66,250 for married taxpayers
    filing a joint return and surviving spouses, and $33,125 for married
    taxpayers filing a separate return and estates and trusts. Effective for
    taxable years beginning after December 31, 2007, 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, 2008.
      The Administration proposes to increase the AMT exemption amounts to
    $46,250 for single taxpayers, $70,050 for married taxpayers filing a
    joint return, and $35,025 for married taxpayers filing a separate return
    and estates and trusts through taxable year 2008 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 2008.

      Permanently extend the research and experimentation (R&E) tax
    credit.--The Administration proposes to permanently extend the tax
    credits for research and experimentation expenditures, which expired
    with respect to expenditures incurred after December 31, 2007.
      Extend the first-time homebuyer credit for the District of Columbia
    (DC).--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 two years, making the
    credit available with respect to purchases after December 31, 2007 and
    before January 1, 2010.
      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 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
    through 2008. The Administration proposes to extend the New Markets tax
    credit

    [[Page 264]]

    through 2009 and to permit up to $3.5 billion in qualified equity
    investment for that calendar year.
      Extend Subpart F ``active financing'' and ``look-through''
    exceptions.--Under 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. The income subject to current inclusion under Subpart F
    includes, among other things, ``foreign personal holding company
    income'' and insurance income. Foreign personal holding company income
    generally includes 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 current law, for
    taxable years beginning before January 1, 2009, exceptions from Subpart
    F are provided for: (1) certain income derived in the active conduct of
    a banking, financing, insurance, or similar business (active financing),
    and (2) dividends, interest, rents and royalties received by one CFC
    from a related CFC to the extent attributable or properly allocable to
    income of the related CFC that is neither Subpart F income nor income
    treated as effectively connected with the conduct of a trade or business
    in the United States (look-through). The Administration proposes to
    extend both the Subpart F active financing and look-through exceptions
    to apply to taxable years beginning before January 1, 2010.
       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.
      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 expired on December
    31, 2007, through December 31, 2008.
      Extend authority permitting disclosure of tax return information to
    the Department of Veterans Affairs (VA).--Current law permits disclosure
    of certain tax information to the VA. This information assists the VA in
    determining eligibility and establishing correct benefit amounts for
    certain of its needs-based programs. The Administration proposes to
    extend and update this disclosure authority, which is scheduled to
    expire after September 30, 2008, through September 30, 2009.
      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 to pay compensation,
    medical, and survivor benefits to eligible miners and their survivors,
    when mine employment terminated prior to 1970 or when no mine operator
    can be assigned liability. Current tax rates on coal sold by a producer
    are $1.10 per ton of coal from underground mines and $0.55 per ton of
    coal from surface mines; however, these rates may not exceed 4.4 percent
    of the price at which the coal is sold. Effective for coal sold after
    December 31, 2013, the tax rates on coal from underground mines and
    surface mines will decline to $0.50 per ton and $0.25 per ton,
    respectively, and will be capped at 2 percent of the price at which the
    coal is sold. The Administration proposes to repeal the reduction in
    these tax rates effective for sales after December 31, 2013, and keep
    current rates in effect until the Black Lung Disability Trust Fund debt
    is repaid.

    [[Page 265]]

                                                          Table 17-3.  EFFECT OF PROPOSALS ON RECEIPTS
                                                                    (In millions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        2008       2009       2010       2011       2012       2013     2009-13     2009-18
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Economic growth package........................................   -125,000    -20,000     10,000      8,000      6,000      4,000      8,000       8,000

    Make Permanent Certain Tax Relief Enacted in 2001 and 2003
     (assumed in the baseline):
      Dividends tax rate structure.................................  .........        425     -5,554    -24,361     -4,616    -13,873    -47,979    -196,413
      Capital gains tax rate structure.............................  .........  .........     -4,094    -17,416     -3,683     -8,461    -33,654    -104,804
      Expensing for small businesses...............................  .........  .........  .........     -4,160     -5,810     -4,288    -14,258     -26,537
      Marginal individual income tax rate reductions...............  .........  .........  .........    -75,160   -119,341   -123,794   -318,295  -1,007,667
      Child tax credit \1\.........................................  .........  .........  .........     -5,062    -20,357    -20,777    -46,196    -155,731
      Marriage penalty relief \1\..................................  .........  .........  .........     -5,117     -7,715     -7,001    -19,833     -46,939
      Education incentives.........................................  .........  .........  .........       -738     -1,339     -1,413     -3,490     -11,540
      Repeal of estate and generation-skipping transfer taxes, and        -422     -2,502     -3,453    -26,409    -57,639    -59,670   -149,673    -521,982
       modification of gift taxes..................................
      Other incentives for families and children...................  .........  .........          6       -364       -678       -678     -1,714      -5,157
                                                                    ----------------------------------------------------------------------------------------
        Total, make permanent certain tax relief enacted in 2001          -422     -2,077    -13,095   -158,787   -221,178   -239,955   -635,092  -2,076,770
         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 businesses....................  .........     -1,086     -1,495     -1,083       -851       -688     -5,203      -7,578

      Invest in health care:
        Provide a new standard deduction for health insurance        .........    -23,002    -28,412    -22,680    -15,360     -4,692    -94,146      41,051
         ($15,000 for family coverage and $7,500 for individual
         coverage) \1\.............................................
        Expand and make health savings accounts (HSAs) more          .........       -420       -779       -931     -1,031     -1,123     -4,284     -11,511
         flexible..................................................
        Allow the orphan drug tax credit for certain pre-            .........  .........  .........  .........  .........  .........  .........  ..........
         designation expenses \2\..................................
                                                                    ----------------------------------------------------------------------------------------
          Total, invest in health care.............................  .........    -23,422    -29,191    -23,611    -16,391     -5,815    -98,430      29,540

      Provide incentives for charitable giving:
        Permanently extend tax-free withdrawals from IRAs for        .........       -300       -551       -434       -284       -211     -1,780      -3,321
         charitable contributions..................................
        Permanently extend the enhanced charitable deduction for           -44        -96       -106       -116       -127       -140       -585      -1,524
         contributions of food inventory...........................
        Permanently extend the deduction for corporate donations of        -50       -118       -147       -154       -162       -170       -751      -1,838
         computer equipment for educational purposes...............
        Permanently extend increased limits on contributions of            -48        -35        -22        -18        -21        -22       -118        -245
         partial interests in real property for conservation
         purposes..................................................
        Permanently extend basis adjustment to stock of S                   -3        -15        -21        -25        -28        -32       -121        -354
         corporations contributing appreciated property............
        Reform excise tax based on investment income of private           -105       -152       -152       -153       -154       -155       -766      -1,578
         foundations...............................................
                                                                    ----------------------------------------------------------------------------------------
          Total, provide incentives for charitable giving..........       -250       -716       -999       -900       -776       -730     -4,121      -8,860

      Strengthen education:
        Permanently extend the above-the-line deduction for                -18       -180       -183       -185       -188       -191       -927      -1,927
         qualified out-of-pocket classroom expenses................
        Allow the saver's credit for contributions to qualified      .........        -88       -183       -198       -213       -227       -909      -2,259
         tuition programs..........................................
                                                                    ----------------------------------------------------------------------------------------
          Total, strengthen education..............................        -18       -268       -366       -383       -401       -418     -1,836      -4,186

      Strengthen housing:
        Expand tax-exempt qualified mortgage bond program to assist        -27       -116       -230       -305       -329       -331     -1,311      -2,687
         subprime borrowers........................................

      Protect the environment:
        Permanently extend expensing of brownfields remediation           -180       -501       -356       -343       -327       -284     -1,811      -2,870
         costs.....................................................
        Eliminate the volume cap for private activity bonds for      .........  .........         -3         -6        -10        -15        -34        -214
         water infrastructure......................................
                                                                    ----------------------------------------------------------------------------------------
          Total, protect the environment...........................       -180       -501       -359       -349       -337       -299     -1,845      -3,084

      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
                                                                    ----------------------------------------------------------------------------------------

    [[Page 266]]

          Total, tax incentives....................................       -475    -24,862    -29,415    -23,940    -18,351     -9,945   -106,513        -931

    Simplify the Tax Laws for Families:
      Clarify uniform definition of a child \1\....................  .........          6         30         38         17         23        114         275
      Simplify EITC eligibility requirement regarding filing         .........         35        -28        -26        -24        -23        -66        -181
       status, presence of children, and work and immigrant status
       \1\.........................................................
      Reduce computational complexity of refundable child tax        .........  .........  .........  .........  .........  .........  .........  ..........
       credit \1\..................................................
                                                                    ----------------------------------------------------------------------------------------
        Total, simplify the tax laws for families..................  .........         41          2         12         -7  .........         48          94

    Improve Tax Compliance: \3\
      Expand information reporting.................................  .........        302      1,333      2,227      2,960      3,653     10,475      35,756
      Improve compliance by businesses.............................  .........          3          5          5          5          6         24          57
      Strengthen tax administration................................  .........  .........  .........          3          6          8         17          72
      Expand penalties.............................................  .........  .........  .........  .........  .........          1          1           6
                                                                    ----------------------------------------------------------------------------------------
        Total, improve tax compliance..............................  .........        305      1,338      2,235      2,971      3,668     10,517      35,891

    Improve Tax Administration and Other Miscellaneous Proposals:
      Implement IRS administrative reforms and extend IRS authority  .........  .........  .........  .........  .........  .........  .........  ..........
       to fund undercover operations \2\...........................
      Increase transparancy of the cost of employer-provided health  .........  .........  .........  .........  .........  .........  .........  ..........
       insurance \2\...............................................
      Equalize penalty standards between preparers and taxpayers...  .........  .........         -1         -2         -2         -2         -7         -17
      Eliminate the special exclusion from unrelated business        .........          2         13         16         13         11         55          66
       taxable income for gain or loss on the sale or exchange of
       certain brownfields.........................................
      Limit related party interest deductions......................  .........         64        109        115        120        126        534       1,267
      Repeal excise tax on local telephone service \4\.............  .........       -248       -170       -118        -83        -79       -698      -1,076
      Modify financing of the Airport and Airway Trust Fund \4\....  .........  .........     -6,768     -7,106     -7,526     -7,909    -29,309     -75,594
      Improve financing of the Inland Waterways Trust Fund \4\.....  .........        109        119        127        159        126        640       1,015
      Anticipated receipt of donations to the National Park Service  .........        100        100        100        100        100        500       1,000
       through the National Park Centennial Challenge Fund.........
      Increase fees for Migratory Bird Hunting and Conservation      .........         14         14         14         14         14         70         140
       Stamps......................................................
      Transition from the non-foreign cost-of-living adjustment      .........          1          2          3          4          5         15          50
       (COLA) to locality pay for employees in non-foreign areas...
                                                                    ----------------------------------------------------------------------------------------
        Total, improve tax administration and other miscellaneous    .........         42     -6,582     -6,851     -7,201     -7,608    -28,200     -73,149
         proposals \4\.............................................

    Improve Unemployment Insurance:
      Strengthen the financial integrity of the unemployment         .........  .........         35         34       -107       -314       -352      -1,581
       insurance system by reducing improper benefit payments and
       tax avoidance \4\...........................................
      Extend unemployment insurance surtax \4\.....................  .........      1,079        465  .........  .........  .........      1,544         590
                                                                    ----------------------------------------------------------------------------------------
        Total, improve unemployment insurance \4\..................  .........      1,079        500         34       -107       -314      1,192        -991

    Modify Energy Provisions:
      Repeal reduced recovery period for natural gas distribution    .........         20         73        114        110         89        406         580
       lines.......................................................
      Modify amortization for certain geological and geophysical            16         61         91         76         43         19        290         353
       expenditures................................................
                                                                    ----------------------------------------------------------------------------------------
        Total, modify energy provisions............................         16         81        164        190        153        108        696         933

    Promote Trade:
      Implement free trade agreements and modify other trade-              -86     -1,653     -2,319     -2,674     -2,408     -2,426    -11,480     -20,380
       related provisions \4\......................................

    Extend Expiring Provisions:
      Minimum tax relief for individuals...........................    -11,673    -60,908     14,216  .........  .........  .........    -46,692     -46,692
      Research and experimentation (R&E) tax credit................     -3,221     -7,071     -9,145    -10,601    -11,809    -12,833    -51,459    -133,060
      First-time homebuyer credit for the District of Columbia.....         -1        -20        -19  .........  .........  .........        -39         -39
      Deferral of gains from sales of electric transmission                -31        -66        -61        -10         31         40        -66          30
       property....................................................
      New Markets tax credit.......................................  .........       -132       -194       -191       -217       -231       -965      -1,287
      Subpart F ``active financing'' exception.....................  .........     -1,598     -1,065  .........  .........  .........     -2,663      -2,663
      Subpart F ``look-through'' exception.........................  .........       -347       -231  .........  .........  .........       -578        -578
      Exception for retirement plan distributions provided           .........  .........  .........  .........  .........  .........  .........  ..........
       individuals called to active duty for at least 179 days \2\.
      Disclosure of tax return information related to terrorist      .........  .........  .........  .........  .........  .........  .........  ..........
       activity \2\................................................
      Disclosure of tax return information to the Department of      .........  .........  .........  .........  .........  .........  .........  ..........
       Veterans Affairs \2\........................................
      Excise tax on coal \4\.......................................  .........  .........  .........  .........  .........  .........  .........       1,387
                                                                    ----------------------------------------------------------------------------------------
        Total, extend expiring provisions \4\......................    -14,926    -70,142      3,501    -10,802    -11,995    -13,024   -102,462    -182,902

    [[Page 267]]

      Total budget proposals, including proposals assumed in the      -140,893   -117,186    -35,906   -192,583   -252,123   -265,496   -863,294  -2,310,205
       baseline \4\................................................
      Total budget proposals, excluding proposals assumed in the      -140,471   -115,109    -22,811    -33,796    -30,945    -25,541   -228,202    -233,435
       baseline \4\................................................
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Affects both receipts and outlays. Only the receipt effect is shown here. For the outlay effect, see summary Table S-6 of the Budget volume.
    \2\ No net budgetary impact.
    \3\ ``Tax gap``-related proposals.
    \4\ Net of income offsets.

    [[Page 268]]

                                             Table 17-4. RECEIPTS BY SOURCE
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                             Estimate
               Source                2007    -----------------------------------------------------------------------
                                    Actual       2008        2009        2010        2011        2012        2013
    ----------------------------------------------------------------------------------------------------------------
    Individual income taxes
     (federal funds):
      Existing law..............   1,163,472   1,231,955   1,337,632   1,433,193   1,652,986   1,781,816   1,898,384
        Proposed legislation....  ..........     -12,294     -78,591     -15,850    -153,991    -181,941    -189,312
                                 -----------------------------------------------------------------------------------
    Total individual income        1,163,472   1,219,661   1,259,041   1,417,343   1,498,995   1,599,875   1,709,072
     taxes......................
                                 ===================================================================================
    Corporation income taxes:
      Federal funds:
        Existing law............     370,240     348,739     348,338     348,397     366,607     402,459     391,511
          Proposed legislation..  ..........      -3,403      -9,114      -9,463      -9,837     -11,150     -11,713
                                 -----------------------------------------------------------------------------------
      Total Federal funds            370,240     345,336     339,224     338,934     356,770     391,309     379,798
       corporation income taxes.
                                 -----------------------------------------------------------------------------------
      Trust funds:
        Hazardous substance                3  ..........  ..........  ..........  ..........  ..........  ..........
         superfund..............
                                 -----------------------------------------------------------------------------------
    Total corporation income         370,243     345,336     339,224     338,934     356,770     391,309     379,798
     taxes......................
                                 ===================================================================================
    Social insurance and
     retirement receipts (trust
     funds):
      Employment and general
       retirement:
        Old-age and survivors        542,901     566,104     595,659     632,980     667,995     699,735     734,126
         insurance (Off-budget).
          Proposed legislation..  ..........  ..........      -1,061        -239         -52          -6         290
        Disability insurance          92,188      96,111     101,146     107,487     113,433     118,823     124,663
         (Off-budget)...........
          Proposed legislation..  ..........  ..........        -180         -40          -9          -1          49
        Hospital insurance......     184,908     195,453     205,360     217,240     229,679     240,987     253,007
          Proposed legislation..  ..........  ..........      -5,644      -7,207      -5,668      -3,880        -539
        Railroad retirement:
          Social Security              1,952       1,996       2,058       2,111       2,163       2,215       2,267
           equivalent account...
          Rail pension and             2,309       2,359       2,308       2,344       2,403       2,462       2,518
           supplemental annuity.
                                 -----------------------------------------------------------------------------------
      Total employment and           824,258     862,023     899,646     954,676   1,009,944   1,060,335   1,116,381
       general retirement.......
                                 -----------------------------------------------------------------------------------
        On-budget...............     189,169     199,808     204,082     214,488     228,577     241,784     257,253
        Off-budget..............     635,089     662,215     695,564     740,188     781,367     818,551     859,128
                                 -----------------------------------------------------------------------------------
      Unemployment insurance:
        Deposits by States \1\ .      33,709      35,750      37,183      37,882      38,573      39,617      41,109
          Proposed legislation..  ..........  ..........  ..........          43          42        -134        -324
        Federal unemployment           7,292       7,541       6,326       5,999       6,243       6,490       6,389
         receipts \1\ ..........
          Proposed legislation..  ..........  ..........       1,348         581  ..........  ..........         -67
        Railroad unemployment             90          91          96         109         122         125         122
         receipts \1\ ..........
                                 -----------------------------------------------------------------------------------
      Total unemployment              41,091      43,382      44,953      44,614      44,980      46,098      47,229
       insurance................
                                 -----------------------------------------------------------------------------------
      Other retirement:
        Federal employees'             4,207       4,695       4,751       4,720       4,737       4,951       4,902
         retirement--employee
         share..................
          Proposed legislation..  ..........  ..........           1           2           3           4           5
        Non-Federal employees             51          25          26          27          26          23          20
         retirement \2\ ........
                                 -----------------------------------------------------------------------------------
      Total other retirement....       4,258       4,720       4,778       4,749       4,766       4,978       4,927
                                 -----------------------------------------------------------------------------------
    Total social insurance and       869,607     910,125     949,377   1,004,039   1,059,690   1,111,411   1,168,537
     retirement receipts........
                                 ===================================================================================
      On-budget.................     234,518     247,910     253,813     263,851     278,323     292,860     309,409
      Off-budget................     635,089     662,215     695,564     740,188     781,367     818,551     859,128
                                 ===================================================================================
    Excise taxes:
      Federal funds:
        Alcohol taxes...........       8,648       8,894       9,017       9,180       9,365       9,535       9,765
          Proposed legislation..  ..........         -75        -102         -25  ..........  ..........  ..........
        Tobacco taxes...........       7,556       7,622       7,526       7,436       7,353       7,274       7,200
        Transportation fuels tax      -3,291      -4,261      -4,941      -5,724      -1,500         228         227
        Telephone and teletype        -2,125         586         330         227         158         111         105
         services...............
          Proposed legislation..  ..........  ..........        -330        -227        -158        -111        -105
        Other Federal fund               288       2,089       2,083       2,107       2,130       2,166       2,211
         excise taxes...........
          Proposed legislation..  ..........         -30         -50        -181        -209        -212        -215
                                 -----------------------------------------------------------------------------------

    [[Page 269]]

      Total Federal fund excise       11,076      14,825      13,533      12,793      17,139      18,991      19,188
       taxes....................
                                 -----------------------------------------------------------------------------------
      Trust funds:
        Highway.................      39,361      39,203      39,928      40,674      41,148      41,702      42,334
        Airport and airway......      11,468      11,871      12,570      13,328      14,073      14,861      15,690
          Proposed legislation..  ..........  ..........  ..........      -8,969      -9,418      -9,975     -10,484
        Sport fish restoration           581         561         578         595         614         633         653
         and boating safety.....
        Tobacco assessments.....         934         960         960         960         960         960         960
        Black lung disability            639         638         648         666         686         699         711
         insurance..............
        Inland waterways........          91          89          90          90          92          92          93
          Proposed legislation..  ..........  ..........         -41         -65         -92         -92         -93
        Oil spill liability.....         452         273         261         252         245         245         249
        Vaccine injury                   241         218         219         220         222         224         226
         compensation...........
        Leaking underground              226         197         200         203         204         206         208
         storage tank...........
          Proposed legislation..  ..........  ..........  ..........          -1          -1          -1          -2
                                 -----------------------------------------------------------------------------------
      Total trust funds excise        53,993      54,010      55,413      47,953      48,733      49,554      50,545
       taxes....................
                                 -----------------------------------------------------------------------------------
    Total excise taxes..........      65,069      68,835      68,946      60,746      65,872      68,545      69,733
                                 ===================================================================================
    Estate and gift taxes:
      Federal funds.............      26,044      26,733      27,785      20,997      19,400      48,176      54,565
        Proposed legislation....  ..........          24      -1,472      -1,454     -17,936     -47,755     -54,060
                                 -----------------------------------------------------------------------------------
    Total estate and gift taxes.      26,044      26,757      26,313      19,543       1,464         421         505
                                 ===================================================================================
    Customs duties:
      Federal funds.............      24,671      27,906      29,815      32,245      34,286      36,272      38,240
        Proposed legislation....  ..........        -115      -2,204      -3,093      -3,567      -3,211      -3,236
      Trust funds...............       1,339       1,417       1,511       1,623       1,753       1,894       2,039
                                 -----------------------------------------------------------------------------------
    Total customs duties........      26,010      29,208      29,122      30,775      32,472      34,955      37,043
                                 ===================================================================================
    MISCELLANEOUS RECEIPTS: \3\
      Miscellaneous taxes.......         510         528         529         532         534         537         539
      United Mine Workers of              44          83          84          72          58          53          49
       America combined benefit
       fund.....................
      Deposit of earnings,            32,043      31,358      31,652      33,361      36,066      39,119      41,694
       Federal Reserve System...
      Defense cooperation.......          34          35          35          35          35          35          35
      Fees for permits and            10,395      10,657      11,758      12,453      12,896      13,994      13,618
       regulatory and judicial
       services.................
        Proposed legislation....  ..........  ..........         154         182         210         242         210
      Fines, penalties, and            4,542       3,417       3,435       3,057       3,078       3,099       3,120
       forfeitures..............
      Gifts and contributions...         238         197         199         198         205         205         204
        Proposed legislation....  ..........  ..........         100         100         100         100         100
      Refunds and recoveries....         -12         -22         -22         -22         -22         -22         -22
                                 -----------------------------------------------------------------------------------
    Total miscellaneous receipts      47,794      46,253      47,924      49,968      53,160      57,362      59,547
                                 ===================================================================================
    Economic growth package.....  ..........    -125,000     -20,000      10,000       8,000       6,000       4,000
                                 ===================================================================================
    Total budget receipts.......   2,568,239   2,521,175   2,699,947   2,931,348   3,076,423   3,269,878   3,428,235
      On-budget.................   1,933,150   1,858,960   2,004,383   2,191,160   2,295,056   2,451,327   2,569,107
      Off-budget................     635,089     662,215     695,564     740,188     781,367     818,551     859,128
                                 -----------------------------------------------------------------------------------
             MEMORANDUM
      Federal funds.............   1,661,420   1,556,704   1,696,812   1,878,246   1,966,799   2,107,609   2,207,794
      Trust funds...............     648,313     697,722     730,885     745,457     787,379     821,233     878,609
      Interfund transactions....    -376,583    -395,466    -423,314    -432,543    -459,122    -477,515    -517,296
                                 -----------------------------------------------------------------------------------
    Total on-budget.............   1,933,150   1,858,960   2,004,383   2,191,160   2,295,056   2,451,327   2,569,107
                                 -----------------------------------------------------------------------------------
    Off-budget (trust funds)....     635,089     662,215     695,564     740,188     781,367     818,551     859,128
                                 ===================================================================================
    Total.......................   2,568,239   2,521,175   2,699,947   2,931,348   3,076,423   3,269,878   3,428,235
    ----------------------------------------------------------------------------------------------------------------
    \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.