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



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                    FEDERAL RECEIPTS AND COLLECTIONS

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

   

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


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                                              Chart 17-1. Major Provisions of the Tax Code Under the 2001, 2003, 2004, and 2006 Enacted Tax Relief
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
          Provision                   2003               2004              2005                2006               2007              2008             2009             2010             2011
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  Individual Income Tax       Rates reduced to     ................  ................  ...................  ................  ...............  ...............  ...............  Rates revert to
   Rates                       35, 33, 28, and 25                                                                                                                                 39.6, 36, 31,
                               percent                                                                                                                                            and 28 percent
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  10 Percent Bracket          Top of bracket       ................  ................  ...................  ................  ...............  ...............  ...............  Bracket
                               increased to                                                                                                                                       eliminated,
                               $7,000/$14,000 for                                                                                                                                 lowest bracket
                               single/joint                                                                                                                                       reverts to 15
                               filers and                                                                                                                                         percent
                               inflation-indexed
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  15 Percent Bracket for      Top of bracket for   ................  ................  ...................  ................  ...............  ...............  ...............  Top of bracket
   Joint Filers                joint filers                                                                                                                                       for joint
                               increased to 200                                                                                                                                   filers reverts
                               percent of top of                                                                                                                                  to 167 percent
                               bracket for single                                                                                                                                 of top of
                               filers                                                                                                                                             bracket for
                                                                                                                                                                                  single filers
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  Standard Deduction for      Standard deduction   ................  ................  ...................  ................  ...............  ...............  ...............  Standard
   Joint Filers                for joint filers                                                                                                                                   deduction for
                               increased to 200                                                                                                                                   joint filers
                               percent of                                                                                                                                         reverts to 167
                               standard deduction                                                                                                                                 percent of
                               for single filers                                                                                                                                  standard
                                                                                                                                                                                  deduction for
                                                                                                                                                                                  single filers
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  Child Credit                Tax credit for each  ................  ................  ...................  ................  ...............  ...............  ...............  Tax credit for
                               qualifying child                                                                                                                                   each
                               under age 17                                                                                                                                       qualifying
                               increased to                                                                                                                                       child under
                               $1,000 and                                                                                                                                         age 17 reverts
                               refundability                                                                                                                                      to $500 and
                               extended to                                                                                                                                        refundability
                               families with 1 or                                                                                                                                 restricted to
                               2 children                                                                                                                                         taxpayers with
                                                                                                                                                                                  3 or more
                                                                                                                                                                                  children
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Estate Taxes              Top rate reduced to  Top rate reduced  Top Rate reduced  Top rate reduced to  Top rate reduced  ...............  Exempt amount    Estate tax       Top rate
                               49 percent           to 48 percent     to 47 percent     46 percent           to 45 percent                      increased to     repealed         reverts to 60
                                                   Exempt amount                       Exempt amount                                            $3.5 million                      percent
                                                    increased to                        increased to $2                                                                          Exempt amount
                                                    $1.5 million                        million                                                                                   reverts to $1
                                                                                                                                                                                  million
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  Small Business              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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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  Capital Gains               Tax rate on capital  ................  ................  ...................  ................  Tax on capital   ...............  ...............  Tax rate on
                               gains reduced to 5/                                                                             gains                                              capital gains
                               15 percent                                                                                      eliminated for                                     reverts to 10/
                                                                                                                               taxpayers in                                       20 percent (8/
                                                                                                                               10/15 percent                                      18 percent on
                                                                                                                               tax brackets                                       assets held
                                                                                                                                                                                  over 5 years)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  Dividends                   Tax rate on          ................  ................  ...................  ................  Tax on           ...............  ...............  Dividends taxed
                               dividends reduced                                                                               dividends                                          at standard
                               to 5/15 percent                                                                                 eliminated for                                     income tax
                                                                                                                               taxpayers in                                       rates
                                                                                                                               10/15 percent
                                                                                                                               tax brackets
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  Bonus Depreciation          Bonus depreciation   ................  Bonus             ...................  ................  ...............  ...............  ...............  ...............
                               increased to 50                        depreciation
                               percent of                             expires
                               qualified property
                               aquired after
                               5/5/03
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  Alternative Minimum Tax     AMT exemption        ................  ................  AMT exemption        AMT exemption     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).

[[Page 251]]

  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

[[Page 260]]

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.