[House Document 105-116]
[From the U.S. Government Publishing Office]



105th Congress, 1st Session  - - - - - - - - - - House Document 105-116


 
                  CANCELLATION OF LIMITED TAX BENEFIT

                               __________

                                MESSAGE

                                  from

                   THE PRESIDENT OF THE UNITED STATES

                              transmitting

 A CANCELLATION OF TWO LIMITED TAX BENEFITS CONTAINED IN THE TAXPAYER 
     RELIEF ACT OF 1997, PURSUANT TO PUBLIC LAW 104-130, SEC. 2(a)





  September 3, 1997.--Message and accompanying papers referred to the 
 Committees on the Budget and Ways and Means, and ordered to be printed


                                           The White House,
                                       Washington, August 11, 1997.
Hon. Newt Gingrich,
Speaker of the House of Representatives,
Washington, DC.
    Dear Mr. Speaker: In accordance with the Line Item Veto 
Act, I hereby cancel two limited tax benefits, as specified in 
the attached reports, contained in the ``Taxpayer Relief Act of 
1997'' (Public Law 105-34; H.R. 2014). I have determined that 
each of these cancellations will reduce the Federal budget 
deficit, will not impair any essential Government functions, 
and will not harm the national interest. This letter, together 
with its attachments, constitutes a special message under 
section 1022 of the Congressional Budget and Impoundment 
Control Act of 1974, as amended.
            Sincerely,
                                                William J. Clinton.


                        [Cancellation No. 97-1]

                  Cancellation of Limited Tax Benefit

        report pursuant to the line item veto act, p.l. 104-130

Bill Citation: ``Taxpayer Relief Act of 1997'' (H.R. 2014)
    1(A). Limited Tax Benefit: Section 1175. This item is 
identified as a limited tax benefit at Section 1701(54) of the 
bill. Section 1175, ``Exemption for Active Financing Income'', 
is canceled in its entirety.
    1(B). Determinations: This cancellation will reduce the 
Federal budget deficit, will not impair any essential 
Government functions, and will not harm the national interest.
    1(C), (E). Reasons for Cancellation; Facts, Circumstances, 
and Considerations Relating to or Bearing upon the 
Cancellation; and Estimated Effect of Cancellation on Objects, 
Purposes, and Programs: Prior to 1987, income earned in 
connection with the active conduct of foreign financial 
services businesses, including interest, dividends and certain 
gains, generally was exempt from current U.S. tax. However, the 
Tax Reform Act of 1986 eliminated or curtailed this benefit 
based on serious concerns regarding the mobility of such income 
and the ease with which financial services entities could shift 
income to tax-haven jurisdictions. See P.L. 99-514, section 
1221(a)(1). The canceled item would have enacted a new 
exemption for such income for a single year (1998), and would 
not have addressed adequately the concerns that led to the 
repeal of the prior exemption in 1986. The one-year restoration 
of an exemption for this income would have decreased Federal 
receipts, would have allowed the tax-haven abuses that 
previously existed, and would have provided preferential tax 
treatment to a limited group of taxpayers. The legislative 
history and purposes of this provision were considered, but did 
not outweigh the foregoing reasons for cancellation.
    1(D). Estimated Fiscal, Budgetary, and Economic Effect of 
Cancellation: As a result of the cancellation, Federal receipts 
will not decrease by an estimated $317 million over 5 years. 
This will have a commensurate effect on the Federal budget 
deficit and, to that extent, will have a beneficial effect on 
the economy.
    1(F). Adjustments to Discretionary Spending Limits: Not 
applicable.
                        [Cancellation No. 97-2]

                  Cancellation of Limited Tax Benefit

        report pursuant to the line item veto act, p.l. 104-130

Bill Citation: ``Taxpayer Relief Act of 1997'' (H.R. 2014)

    1(A). Limited Tax Benefit: Section 968. This item is 
identified as a limited tax benefit at Section 1701(30) of the 
bill. Section 968, ``Nonrecognition of Gain on Sale of Stock to 
Certain Farmers' Cooperatives'', is canceled in its entirety.
    1(B). Determinations: This cancellation will reduce the 
Federal budget deficit, will not impair any essential 
Government functions, and will not harm the national interest.
    1(C), (E). Reasons for Cancellation; Facts, Circumstances, 
and Considerations Relating to or Bearing upon the 
Cancellation; and Estimated Effect of Cancellation on Objects, 
Purposes, and Programs: The canceled item would have allowed 
deferral of gain recognition on the sale of certain corporate 
stock of farm-product refiners and processors to an eligible 
farmers' cooperative, thereby providing an exception to the 
general rule that gain is recognized when stock is sold. Under 
current law, gain deferral is permitted on the sale of 
qualified securities of a corporation to an employee stock 
ownership plan (ESOP) or an eligible worker-owned cooperative; 
however, these provisions of current law contain appropriate 
restrictions that would not have applied to transactions 
covered by the canceled item, notably restrictions that the 
seller's stock must not be traded on a securities market and 
that the seller must not be a corporation. While the 
Administration wants to encourage value-added farming through 
the purchase by farmers' cooperatives of refiners or processors 
of agricultural goods, the cancellation of this provision is 
nonetheless compelled by two narrow but important 
considerations. First, the canceled item would have created 
opportunities for complete avoidance of tax on the gain from a 
sale of a refiner or processor because it lacks the safeguards 
that apply to sales of stock to ESOPs. Second, this provision 
failed to target its benefits to small-and-medium-size 
cooperatives. The canceled item would not have benefitted 
farmers generally, would have decreased Federal receipts, would 
have created opportunities for abusive tax planning, and would 
have provided preferential tax treatment to a limited group of 
taxpayers. The legislative history and purposes of this 
provision were considered, but did not outweigh the foregoing 
reasons for cancellation.
    1(D). Estimated Fiscal, Budgetary, and Economic Effect of 
Cancellation: As a result of the cancellation, Federal receipts 
will not decrease by an estimated $98 million over 5 years and 
$155 million over 10 years. This will have a commensurate 
effect on the Federal budget deficit and, to that extent, will 
have a beneficial effect on the economy.
    1(F). Adjustments to Discretionary Spending Limits: Not 
applicable.

                                
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