[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                     MEMBER PROPOSALS ON TAX ISSUES

                    INTRODUCED IN THE 109TH CONGRESS

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

                                HEARING

                               before the

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 26, 2006

                               __________

                           Serial No. 109-88

                               __________

         Printed for the use of the Committee on Ways and Means


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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
THOMAS M. REYNOLDS, New York         JOHN B. LARSON, Connecticut
PAUL RYAN, Wisconsin                 RAHM EMANUEL, Illinois
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                     DAVE CAMP, Michigan, Chairman

JERRY WELLER, Illinois               MICHAEL R. MCNULTY, New York
MARK FOLEY, Florida                  LLOYD DOGGETT, Texas
THOMAS M. REYNOLDS, New York         STEPHANIE TUBBS JONES, Ohio
ERIC CANTOR, Virginia                MIKE THOMPSON, California
JOHN LINDER, Georgia                 JOHN B. LARSON, Connecticut
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of September 14, 2006 announcing the hearing............     2

                               WITNESSES

The Honorable E. Clay Shaw, Jr., a Representative in Congress 
  from the State of Florida......................................     4
The Honorable Benjamin Cardin, a Representative in Congress from 
  the State of Maryland..........................................     6
The Honorable Ron Lewis, a Representative in Congress from the 
  State of Kentucky..............................................     9
The Honorable Stephanie Tubbs Jones, a Representative in Congress 
  from the State of Ohio.........................................    11
The Honorable Melissa Hart, a Representative in Congress from the 
  State of Pennsylvania..........................................    15
The Honorable Devin Nunes, a Representative in Congress from the 
  State of California............................................    18

                                 ______

The Honorable Donna Christensen, a Delegate in Congress from the 
  United States Virgin Islands...................................    23
The Honorable Vito Fossella, a Representative in Congress from 
  the State of New York..........................................    27
The Honorable Gary Miller, a Representative in Congress from the 
  State of California............................................    31
The Honorable Trent Franks, a Representative in Congress from the 
  State of Arizona...............................................    34
The Honorable Heather Wilson, a Representative in Congress from 
  the State of New Mexico........................................    37

                                 ______

The Honorable Steve Chabot, a Representative in Congress from the 
  State of Ohio..................................................    43
The Honorable Tom Udall, a Representative in Congress from the 
  State of New Mexico............................................    45
The Honorable Tim Murphy, a Representative in Congress from the 
  State of Pennsylvania..........................................    47
The Honorable Mike Turner, a Representative in Congress from the 
  State of Ohio..................................................    49
The Honorable Jeff Fortenberry, a Representative in Congress from 
  the State of Nebraska..........................................    52

                                 ______

The Honorable John McHugh, a Representative in Congress from the 
  State of New York..............................................    56
The Honorable Earl Blumenauer, a Representative in Congress from 
  the State of Oregon............................................    59
The Honorable Steve King, a Representative in Congress from the 
  State of Iowa..................................................    61
The Honorable K. Michael Conaway, a Representative in Congress 
  from the State of Texas........................................    65

                       SUBMISSIONS FOR THE RECORD

Dan Fedor, statement.............................................    69
John E. Shuey, statement.........................................    70
John Hassinger, statement........................................    72


                     MEMBER PROPOSALS ON TAX ISSUES



                    INTRODUCED IN THE 109TH CONGRESS

                              ----------                              


                      TUESDAY, SEPTEMBER 26, 2006

             U.S. House of Representatives,
                       Committee on Ways and Means,
                   Subcommittee on Select Revenue Measures,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:00 a.m., in 
Room B-318, Rayburn House Office Building, Hon. Dave Camp 
(Chairman of the Subcommittee), presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                                CONTACT: (202) 226-5591
FOR IMMEDIATE RELEASE
September 14, 2006
SRM-10

             Camp Announces Hearing on Member Proposals on

              Tax Issues Introduced in the 109th Congress

    Congressman Dave Camp (R-MI), Chairman, Subcommittee on Select 
Revenue Measures of the Committee on Ways and Means, today announced 
that the Subcommittee will hold a hearing on proposals to reform 
aspects of the Federal tax system which have been introduced in the 
109th Congress. The hearing will take place on Tuesday, September 26, 
2006 in B-318 Rayburn House Office Building, beginning at 10:00 a.m. 
Requests to testify must be received by 5:00 p.m. on Thursday, 
September 21, 2006.
      
    Oral testimony at this hearing will be from Members of the House of 
Representatives, other than those on the Committee on Ways and Means. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Subcommittee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    In announcing the hearing, Chairman Camp stated, ``Members of the 
Committee on Ways and Means regularly speak with their Committee 
colleagues about tax issues of importance to their congressional 
districts. This hearing will afford Members outside the Committee the 
opportunity to speak on behalf of tax bills they have introduced that 
are important to their constituents.''
      

FOCUS OF THE HEARING:

      
    This hearing provides Members the opportunity to speak on behalf of 
bills they have introduced containing tax provisions important to their 
constituents.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Matt Turkstra or Cooper Smith at (202) 225-1721 no later than 5:00 p.m. 
on Thursday, September 21, 2006. The telephone request should be 
followed by a formal written request faxed to Allison Giles, Chief of 
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515, at (202) 225-
0942. The staff of the Subcommittee will notify by telephone those 
scheduled to appear as soon as possible after the filing deadline. Any 
questions concerning a scheduled appearance should be directed to the 
Subcommittee staff at (202) 226-5911.
      
    Members scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies, along with 
an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, 
of their prepared statement for review by Members prior to the hearing. 
Testimony should arrive at the Subcommittee office, 1135 Longworth 
House Office Building, no later than 5:00 p.m., Friday, September 22, 
2006.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Tuesday, 
October 10, 2006. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. Those filing written 
statements who wish to have their statements distributed to the press 
and interested public at the hearing can follow the same procedure 
listed above for those who are testifying and making an oral 
presentation. For questions, or if you encounter technical problems, 
please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman CAMP. Good morning. The hearing will come to 
order. Today the Committee on Select Revenue Measures will hear 
testimony from our colleagues, some who sit on the Committee on 
Ways and Means and most of our colleagues do not sit on the 
Committee on Ways and Means. Their testimony will be useful to 
us in identifying ways to improve our tax system. Members of 
the House have useful insights because they can assess and 
evaluate what does and does not work for the people they 
represent. This is the sort of information this Committee can 
always use. I look forward to the testimony this morning, and I 
now recognize the Ranking Member from New York for his opening 
statement.
    Mr. MCNULTY. Thank you, Mr. Chairman. I just ask that my 
entire statement appear in the record, and I want to welcome 
our colleagues. They have put a lot of thought into these 
proposals. Some of them have been working on them literally for 
years. We look forward to giving them the consideration which 
they deserve.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Michael R. McNulty 
follows:]

    Thank you, Mr. Chairman.
    At today's hearing, the Subcommittee on Select Revenue Measures 
will consider specific tax proposals being offered by Members of the 
House of Representatives, including Members who serve on the Ways and 
Means Committee. Our focus will be on tax legislation introduced during 
the 109th Congress and referred to the Committee on Ways and Means for 
consideration. Last November, the Subcommittee held a similar hearing 
to discuss tax proposals of particular interest for Members and their 
constituents. We are continuing that hearing process today.
    I welcome each of you, and thank you for your efforts at improving 
the effectiveness and fairness of our tax laws. I look forward to the 
discussion of your specific tax proposal.
    Our witness list was compiled on a bipartisan basis. I believe that 
this is the appropriate way to discuss proposed tax legislation.
    As the Ranking Subcommittee Member, I want to thank Subcommittee 
Chairman Camp for holding today's hearing, and I applaud his efforts to 
provide a balanced discussion of the various tax issues of interest to 
Members.
    I yield back the balance of my time.

    Chairman CAMP. Thank you very much, and now we will go to 
our first panel, the Honorable E. Clay Shaw from the State of 
Florida and distinguished Member of the Committee on Ways and 
Means. You have 5 minutes, and you can make your full statement 
part of the record. Mr. Chairman, it is good to see you.
    Mr. SHAW. It's nice to be here. I've been in this room so 
many times, but this is the first time I have sat at this 
table--and I would like to thank and compliment both you 
gentlemen----
    Chairman CAMP. Mr. Chairman, I think that microphone is 
going in and out. You might want to try the other one. See if 
that one is better.
    Mr. SHAW. Is this better?
    Chairman CAMP. Yes, that is much better.
    Mr. SHAW. It's a little long in the tooth anyways, so I 
just thank you all for having this hearing. It gives a lot of 
the Members a chance to speak before the Committee on Ways and 
Means, having their stuff heard, and it is important that you 
do so. I think my problem, I didn't have it close enough.
    I think it will be all right, and I will not take my entire 
5 minutes.

   STATEMENT OF HON. E. CLAY SHAW, JR., A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. SHAW. This is a very important bill that I think will 
enjoy much bipartisan support. It is entitled ``The 401 Kids 
Family Savings Act of 2006.'' It is H.R. 5314. It would help 
increase not only the national savings for this country, but it 
will better equip American families to deal with important 
matters such as paying for college tuition, which we all know 
is on the rise. It helps buy a first home or savings for 
retirement.
    If enacted, it would enable accounts to be established at a 
child's birth. You could actually put $2,000 a year into the 
account. This is after-tax money, but the build-up in the 
account itself would be tax-free, and when it comes time for 
the child to attend college, distribution for these expenses 
would also be tax-free. Remember, this money has already had 
the taxes paid on it, but the build-up itself would pass tax-
free to the recipient to pay for the expense.
    If the child chooses not to attend college or that child is 
able to pay for college through scholarship grants or other 
means, the money could be then used to purchase a first home or 
he could finally choose, he or she could finally choose to roll 
the money into a Roth IRA or another family member's 401 Kids 
account.
    To accomplish these goals, it works with an existing 
savings vehicle currently available through Section 530 of the 
Tax Code, and by expanding upon the existing savings account, 
we resist the urge that we, as Members of Congress, often have, 
to make the Tax Code even more complicated.
    Finally, it would rename these accounts to ``401 Kids 
Accounts.'' In doing so, we associate them with the 401(k), a 
method of savings with which the Americans have been very 
familiar and very comfortable throughout the years. Because of 
that it will increase the likelihood of participation to start 
more people along the path of savings.
    Prior to the 109th Congress, I served for 6 years as the 
Chairman of the Social Security. Members, both you gentlemen 
know that one of the things that we kept talking about was 
trying to increase personal savings and make that part of the 
retirement that the seniors look forward to.
    When I introduced this legislation, the Federal tax 
preferences by ``Section 529 Accounts,'' which have become a 
very popular method of saving for college in states across the 
country, and that was set to expire in 2011. However, it was 
made permanent, included in the pension protection plan that 
was signed into law this last May. I want to recognize also and 
give credit to Melissa Hart for her leadership in that area. 
Many of us were cosponsors of her legislation to permanently 
extend the benefits, and we are pleased that users of this 
program will now have the long-term stability and permanency 
that it brings.
    I would also like to recognize the leadership of 
Representative Mark Kirk, who chairs the Suburban Caucus and 
the caucus itself for their strong support of the 401 Kids 
Account. Again, I appreciate the opportunity to testify before 
you. I only wish you were in the main room. That is where you 
should be. These are important matters that are going to be 
talked about by the Members of the Congress.
    Thank you very much. I yield back and ask that my full 
statement be made a part of the record.
    Chairman CAMP. Without objection. Thank you very much, Mr. 
Shaw.
    [The prepared statement of Hon. E. Clay Shaw, Jr., 
follows:]
Prepared Statement of The Honorable E. Clay Shaw, Jr., a Representative 
                 in Congress from the State of Florida
    Chairman Camp, Ranking Member McNulty, Members of the Subcommittee, 
thank you for allowing me to come before all of you today to discuss 
the 401 Kids Family Savings Act of 2006 (H.R. 5314). This is an 
important piece of legislation that I believe provides Congress with an 
opportunity to help increase the national savings rate in this country 
and to better equip American families to deal with important life 
experiences such as paying for college, buying a first home, or saving 
for retirement.
    If enacted, H.R. 5314 would enable accounts to be established at a 
child's birth. Each year up to $2000 could be contributed to each 
beneficiary under the age of 18. The contributions would be after 
taxes, but money would be allowed to grow tax free, enabling each child 
to truly take advantage of the tremendous benefits of compounding 
interest.
    When it comes time for the child to attend college, distributions 
for these expenses would also be tax free. If the child chooses not to 
attend college, or if that child is able to pay for college through 
scholarships, grants or other means, the money could be used to 
purchase a first home. Finally, the child could choose to roll the 
money into a Roth IRA or another family member's 401 Kids account.
    To accomplish these goals H.R. 5314 works with an existing savings 
vehicle currently available through Section 530 of the Tax Code. By 
expanding upon an existing savings vehicle, we resist the urge that we, 
as Members of Congress, often have to further complicate the Tax Code.
    Finally, H.R 5314 would rename these accounts to ``401 Kids 
Accounts.'' In doing so, we associate them with the 401(k), a method of 
savings with which Americans have become very familiar and comfortable. 
Because of this, we will increase the likelihood of participation, and 
start more people along the path of long term savings.
    Prior to the 109th Congress, I served for 6 years as the Chairman 
of the Ways and Means Subcommittee on Social Security. In that time, 
the Subcommittee heard time and again of the need for Americans to save 
for their own retirement. Because of this, I am particularly pleased 
with the prospect of people being encouraged to utilize money from 
these accounts for their retirement.
    When I introduced this legislation the Federal tax preferences 
enjoyed by ``Section 529 Accounts,'' which have become a very popular 
method of saving for college in states across the country, were set to 
expire in 2011. Because of that, I also included an extension of this 
program in H.R. 5314. As you all know, since that time a permanent 
extension was included in the Pension Protection Act that was signed 
into law by President Bush in May of this year. I would also like to 
especially recognize Representative Melissa Hart for her leadership in 
this area. Many of us were cosponsors of her legislation to permanently 
extend this benefit and we are all pleased that users of this program 
will now have the long-term stability that permanency brings. I'd also 
like to recognize the leadership of Representative Mark Kirk who chairs 
the Suburban Caucus and the caucus itself for their strong support of 
the 401 Kids Family Savings Act.
    Again, thank you for the opportunity to testify today and I'd be 
happy to respond to any questions that Members may have for me. I am 
hopeful that the examination of this legislation today will help to 
move these remaining pieces towards enactment and soon make 401 Kids 
accounts a reality for American families planning for their kid's 
future.
                                 

    Chairman CAMP. Now we will go to another distinguished 
Member of the Committee on Ways and Means, the gentleman from 
Maryland, Mr. Cardin. Welcome. You have 5 minutes also.

   STATEMENT OF HON. BENJAMIN L. CARDIN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MARYLAND

    Mr. CARDIN. Thank you very much, Mr. Chairman. Along with 
Mr. Shaw, I wish we were in the main room also, because I think 
the microphone system would probably work a little better 
there, but let me thank you for this opportunity of being able 
to present two bills.
    One is the ``Renewing the Dream Tax Credit Act.'' That is a 
bipartisan bill introduced by myself and Congressman Reynolds. 
It has 197 cosponsors, including, I am proud to say, Mr. Camp 
and Mr. McNulty are cosponsors of that legislation, so I think 
I have a friendly audience here.
    Let me explain the reason why I think it is very important 
that this bill moves forward. What the ``Renewing the Dream'' 
tax credit does for homeownership is what we have currently for 
rental property, with the low income housing tax credit. It 
uses the same philosophy to generate homeownership affordable 
housing here in our country.
    We know the advantages of homeownership. We all want to 
encourage homeownership. The problem is that there is a 
disconnect between the ability to construct affordable housing 
and an individual's ability to afford that housing.
    This credit law would allow us to fill that gap. It would 
spur homeownership. It would generated an estimated $2 billion 
of private equity investment, $6 billion of development 
activity and 122,000 jobs would be created each year by this 
legislation.
    We know that because we know the experiences of the low 
income housing tax credit, so we understand what impact this 
legislation could have. It is supported by the National 
Association of Home Builders, the National Conference of State 
Housing Agencies, the National Association of Realtors, Fannie 
Mae and Freddie Mac, and a number of nonprofit organizations 
including the Enterprise Foundation, the Local Initiative 
Support Corporation, and Habitat for Humanity International.
    By the way, it would affect an estimated--create an 
estimated 50,000 low and moderate income families would benefit 
from this legislation.
    The second bill is ``The Investment in America Act,'' H.R. 
1736, which I know this Committee is very familiar with, 
because it deals with the research and development tax credit, 
modernizes it. It improves it. It makes it permanent. I join 
with Nancy Johnson in coauthoring this bill. We have 127 
cosponsors and, Mr. Chairman, I am proud to have you as one of 
our cosponsors on that legislation.
    This would make permanent the research and development tax 
credit, raises the percentage levels of the alternative 
research and development credit, and creates a third level of 
alternative simplified credit for qualified research expenses 
that will allow more companies to take advantage of their R&D 
work.
    Innovation is the life's blood of a healthy economy. We 
need to do a better job in encouraging companies to invest in 
research and development. When you compare the incentives that 
we offer versus what our international competitors offer for 
research and development, we are not as competitive as we need 
to be. The average credit is around 6 percent today, using the 
traditional credit. That just doesn't get the job done.
    Secondly, we have too many times in recent history allowed 
these credits to lapse, and when they lapse it causes 
uncertainty among the business community. We need to make it 
permanent. It has expired. Rather than just extending it for a 
year or two, let's make it permanent and really give the signal 
to American businesses that we do want them to invest in our 
future.
    I would put my entire statement in the record, and I thank 
you very much for your time.
    Chairman CAMP. Without objection. I thank the gentleman.
    [The prepared statement of Hon. Benjamin Cardin follows:]
 Prepared Statement of The Honorable Benjamin Cardin, a Representative 
                 in Congress from the State of Maryland
I. The Renewing the Dream Tax Credit Act (H.R. 1549)
    This bipartisan legislation, which I introduced with Representative 
Reynolds, enjoys the support of 197 cosponsors. H.R. 1549 will 
encourage the construction and rehabilitation of homes for low- and 
middle-income families in economically distressed areas.
    Similar to the Low Income Housing Tax Credit, our bill would 
provide states with an annual tax credit allocation of $1.80 per capita 
(with a floor of slightly more than $2 million for states with small 
populations). State housing finance agencies would then allocate the 
credits to developers who construct or rehabilitate owner-occupied 
homes in census tracts with median incomes of 80% or less of the area 
or state median. Prospective homebuyers generally must be at or below 
80% of median income as well in order to qualify.
    Studies have shown that homeownership encourages personal 
responsibility, promotes economic security, and gives families a 
greater stake in their communities. In addition to spurring home 
ownership, our legislation would generate an estimated $2 billion of 
private equity investment, $6 billion of development activity, and 
122,000 jobs each year.
    H.R. 1549 has the support of a broad coalition of groups with 
substantial expertise in the housing industry, including the National 
Association of Home Builders, the National Conference of State Housing 
Agencies, the National Association of Realtors, Fannie Mae and Freddie 
Mac, and a number of non-profit organizations, including the Enterprise 
Foundation, the Local Initiative Support Corporation and Habitat for 
Humanity International.
    Although national homeownership levels have reached historic highs, 
the dream of homeownership remains out of reach for many families 
living in economically distressed areas.
    Our homeownership tax credit would bridge the gap between the cost 
of developing homes in these areas and the price at which such homes 
can be sold to low- and moderate-income buyers. The homeownership tax 
credit will help an estimated 50,000 low- and moderate-income families 
in our Nation's urban and rural communities achieve the American dream 
of homeownership each year.
II. The Investment in America Act (H.R. 1736)
    The bipartisan bill, which I introduced with Representative Nancy 
Johnson, enjoys the support of 127 cosponsors. H.R. 1736 includes 
permanence for the research & development tax credit, raises the 
percentage levels of the alternative research and development credit, 
and creates a third level of alternative simplified credit for 
qualified research expenses that will allow more companies to take 
advantage that their R&D work deserves.
    Adding an additional level of R&D credit will allow companies that 
do substantial amounts of research and development to receive the same 
level of credit. Under present law, many companies performing 
significant amounts of R&D in the United States are unable to claim the 
regular research credit because of changing economic circumstances 
relative to the mechanics of the calculation of the regular credit.
    The legislation we are introducing would provide an opportunity for 
all taxpayers to elect to calculate the R&D credit under new 
computational rules that will eliminate the present-law distortions 
that can be caused by linking the credit to gross receipts. The 
alternative credit is intended to ensure that all companies will have a 
substantial incentive to perform and increase R&D activities in the 
United States. The bill would preserve the current two levels of 
credit--companies that benefit from either level of R&D credit 
currently available would simply not elect to use the new, third level 
of credit.
    Innovation is the life's blood of a healthy twenty-first century 
economy. America is the undisputed leader in technological innovation 
because we have created an economic environment that rewards risk 
taking and creativity.
    These breakthroughs do not happen overnight. They are usually the 
result of years, sometimes decades, of expensive, labor-intensive work. 
We believe that Congress can strengthen our position by making the 
research and development tax permanent.
    Research-driven economic activity produces high paying jobs. It is 
important to remember that most of the dollars spent on R&D are spent 
on salaries for engineers, researchers and technicians. Moreover, when 
taken to market as new products, incentives that support R&D translate 
into new jobs for employees in manufacturing and sales.
    Consumers reap the benefits of new and improved products. Advances 
in polymers, for example, make cars lighter and therefore more fuel 
efficient without compromising strength and passenger safety.
    Unfortunately, the United States continues to send a mixed signal 
to American businesses. In 2004, the credit expired for over 6 months 
and while it was restored retroactively, other nations have permanent 
credits in place thus providing a more attractive and stable place to 
conduct research. We cannot afford to lose our technological edge to 
Europe or Japan.
    The R&D credit expired, again, at the end of 2005. This is the 
third time in a decade we have allowed the R&D credit to elapse. Our 
Tax Code should work with the companies who are planning R&D projects 
that bring good jobs to the U.S., not against them. It's time we made 
this important credit permanent.

                                 

    Chairman CAMP. Now another distinguished Member of the 
Committee on Ways and Means, the gentleman from Kentucky, Mr. 
Lewis. You have 5 minutes.

STATEMENT OF HON. RON LEWIS, A REPRESENTATIVE IN CONGRESS FROM 
                     THE STATE OF KENTUCKY

    Mr. LEWIS OF KENTUCKY. Thank you, Chairman Camp and Ranking 
Member McNulty.
    I have two measures that I would like to discuss that would 
help rural America. Kentucky's second district is comprised 
mostly of rural areas, and like other rural communities in the 
country, benefit greatly from economic development incentives.
    One bill I have introduced, along with Congressman Tom 
Osborne, is intended to provide an economic incentive that will 
help spur growth and stability in small towns.
    H.R. 4854, the ``Rural Communities Investment Act,'' would 
extend an existing tax incentive to make interest earned on 
farm real estate and certain rural housing loans exempt from 
Federal taxation. H.R. 4854 would increase the availability of 
low cost financing for farm and rural housing loans, thereby 
creating savings for the consumer and strengthening the 
economies of rural America.
    In addition, it will trigger more low cost financing 
opportunities for farmers, ranchers, and homeowners.
    The bill also has safeguard provisions to ensure that the 
tax benefit goes only to rural residents and farmers. The 
language stipulates that the tax credit expires if the farm 
land is converted for some other purpose. These savings would 
put resources back into the rural economy and encourage 
investment in rural communities, making rural America a more 
affordable and attractive place to live and do business.
    It is important for Congress to do what we can to protect 
farm land and preserve rural communities. I believe we must 
also ensure that the necessary infrastructure exists to make 
these rural communities a viable and appealing place to live.
    I have sponsored another piece of legislation that would 
significantly improve the quality of life of rural Americans. 
H.R. 2378 would allow USDA guaranteed loans to be tax exempt 
when used to finance water, waste water, and essential 
community facilities. This advantage would spur necessary 
infrastructure development in some of our Nation's most 
underserved communities.
    As many of my colleagues know, rural communities throughout 
American continue to face challenges in accessing basic needs. 
We can improve this situation by supporting the development of 
necessary infrastructures such as dependable water, waste water 
systems and essential community facilities like schools, 
hospitals, and police and fire stations.
    In order for rural communities to build needed 
infrastructure, there must be added financial incentives for 
development. The availability of tax exempt bonds has 
encouraged economic activity throughout the country. By 
providing bond holders an exemption from taxes on these 
interest earnings we are able to loan out money at lower rates. 
Federal guarantee of these loans, along with an exemption on 
the taxable interest, is a winning combination that will help 
many rural communities.
    These two bills, along with the New Market Tax Credit 
Reauthorization Act, which I introduced last fall and 
Congressman Chabot will be discussing today, would provide 
much-needed tax incentives to help rural communities.
    Again, thank you, Chairman Camp, for holding this hearing 
and for affording me the opportunity to speak on behalf of our 
rural constituents.
    [The prepared statement of Hon. Ron Lewis follows:]
  Prepared Statement of The Honorable Ron Lewis, a Representative in 
                  Congress from the State of Kentucky
    Thank you, Chairman Camp, for holding this hearing today and for 
giving me time to discuss two measures I am working on to help rural 
America. Kentucky's Second District is comprised mostly of rural areas 
that, like other rural communities in the country, benefit greatly from 
economic development incentives.
    One bill I have introduced, along with Congressman Tom Osborne, is 
intended to provide an economic incentive that will help spur growth 
and stability in small towns. H.R. 4854, the Rural Communities 
Investment Act, would extend an existing tax incentive to make interest 
earned on farm real estate and certain rural housing loans exempt from 
Federal taxation.
    H.R. 4854 would increase the availability of low cost financing for 
farm and rural housing loans, thereby creating a savings for the 
consumer and strengthening the economies of rural America. In addition, 
it will trigger more low cost financing opportunities for farmers, 
ranchers, and rural homeowners.
    The bill also has safeguard provisions to ensure that the tax 
benefit goes only to rural residents and farmers. The language 
stipulates that the tax credit expires if the farm land is converted 
for some other purpose.
    These savings would put resources back into the rural economy and 
encourage investment in rural communities, making rural America a more 
affordable and attractive place to live and do business.
    It is important that Congress do what we can to protect farm land 
and preserve rural communities. I believe we must also ensure that the 
necessary infrastructure exists to make these rural communities a 
viable and appealing place to live.
    I have sponsored another piece of legislation that would 
significantly improve the quality of life of rural Americans. H.R. 2378 
would allow USDA guaranteed loans to be tax exempted when used to 
finance water, wastewater, and essential community facilities. This 
advantage would spur necessary infrastructure development in some of 
our nation's most underserved communities.
    As many of my colleagues know, rural communities throughout America 
continue to face challenges in accessing basic needs. We can improve 
this situation by supporting the development of necessary 
infrastructure such as dependable water and wastewater systems, and 
essential community facilities like schools, hospitals, and police and 
fire stations.
    In order for rural communities to build needed infrastructure, 
there must be added financial incentives for development. The 
availability of tax exempt bonds has encouraged economic activity 
throughout the country. By providing bond holders an exemption from 
taxes on their interest earnings, they are able to loan out money at 
lower rates. Federal guarantee of these loans, along with an exemption 
on the taxable interest, is a winning combination that will help many 
rural communities.
    These two bills, along with the New Markets Tax Credit 
Reauthorization Act which I introduced last fall and Congressman Chabot 
will be discussing today, would provide much-needed tax incentives to 
help rural communities.
    Again, thank you, Chairman Camp, for holding this hearing and for 
affording me the opportunity to speak on behalf a number of my rural 
constituents who would benefit from the advancement of these two pieces 
of legislation.

                                 

    Chairman CAMP. Thank you very much, and also a 
distinguished Member of the Committee on Ways and Means from 
the Ohio, Mrs. Tubbs Jones. You have 5 minutes as well.

 STATEMENT OF HON. STEPHANIE TUBBS JONES, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF OHIO

    Ms. TUBBS JONES. Thank you, Chairman Camp, and thank you 
Member McNulty and my colleagues, for the opportunity to 
testify today on an issue of significance to the Great Lakes 
region and those communities that have ports. My district and 
the Great Lakes region are directly impacted by the Harbor 
Maintenance Tax. The HMT presents a disincentive to businesses 
interested in moving their cargo via waterway, forcing them 
instead to move their cargo by road. Congested highways hinder 
the flow of commerce and create a drag on the economy, 
constraining growth.
    Furthermore, the trade relationship between the U.S. and 
Canada is impacted greatly by the HMT. The State of Ohio earns 
$15.5 billion annually through trade with Canada. Because 
Canada is Ohio's most important trading partner, it is 
important to address transportation challenges in this trade 
relationship. As a result of these problems, I introduced H.R. 
5889, The Great Lakes Short Sea Shipping Enhancement Act of 
2006, with my colleague, Congressman Phil English, who 
represents Erie, Pennsylvania and its port. This bipartisan 
legislation is designed to improve the efficiency of commerce 
in the Great Lakes region and ports. In response to the 
transportation challenges in the U.S.-Canada trade 
relationship, Great Lakes communities have proposed great 
utilization of waterways for freight movement as a solution. 
Erie, Pennsylvania, Oswego, New York and Cleveland, Ohio, have 
proposed new shipping services between the U.S. and Canada with 
the goal of moving cargo from roads to freight ferries. The 
initiative being proposed in my district would transport 
250,000 passengers, 42,000 vehicles, and 40,000 trucks annually 
between Cleveland and Port Stanley, Ohio.
    A major impediment to the establishment of freight ferries 
is the HMT. It is a tax on .125 percent of the value of cargo 
paid by the owner of the cargo in each ship. The tax is 
assessed on cargo transported between U.S. ports and cargo 
imported to U.S. ports from other countries, but not on 
exports. Because the HMT is only assessed on cargo if it moves 
by ship, the tax serves as a disincentive to move trucks and 
their freight by water. As such, the tax contributes to greater 
highway congestion that can result in choked border crossings, 
increase fuel consumption, and increase the air pollution.
    The legislation I am discussing, H.R. 5889, would provide a 
narrow exemption to the HMT for the movement of non-bulk 
commercial cargo between U.S. ports on the Great Lakes and 
between Canadian and U.S. ports on the Great Lakes and between 
Canadian and U.S. ports on the Great Lakes. This will encourage 
the development or new shipping services on the Great Lakes, 
boosting the economic vitality of the region. A ferry service 
with just three crossings a day has a potential to remove 
40,500 truck movements per year off the highway system, 
reducing wear and tear on our roads.
    Mr. Chairman, as a Representative from Michigan, you will 
understand the critical importance of free-flowing trade 
between Canada and the Great Lakes. The Department of Homeland 
Security has worked to reduce wait times at U.S.-Canadian 
border crossings. Specific focus was paid to the crossings in 
southeastern Michigan, where the average wait time for trucks 
and cars had increased to over 35 minutes and often exceeded 2 
hours. These delays have caused an estimated $5 billion in lost 
productivity. This is why business are seeking more efficient 
ways of moving cargo. Eliminate the HMT as a disincentive would 
further improve wait times at crossings by reducing the volume 
of cargo and transferring some of it to our waterways.
    Moreover, eliminating the HMT and encouraging travel by 
waterways, commerce would be more economically efficient, 
because travel distances and duration would be shortened. 
Riding in from London, Ontario, region, one of Canada's 
manufacturing and still-producing hubs, to Cleveland takes 
about 5.5 hours. As trucks must travel approximately 290 miles 
completed around Lake Erie. The ferry would travel only 65 
miles, directly across the lake, cutting travel time by at 
least 2 hours.
    Finally, let me highlight one example of how cost of the 
HMT is a burden on commerce. The Cleveland port was recently 
approached by a Canadian steel producer that would like to ship 
steel coils to a Cleveland area steel processing company by 
water. This could have led to 360,000 tons of new waterborne 
transportation, thereby eliminating approximately 18,000 truck 
movements from the highway system. However, the HMT on this 
ship would have cost $270,000 annually for just that one 
Cleveland customer, and the cost multiplies with each 
additional customer.
    In closing, Mr. Chairman, thank you for the opportunity to 
testify. H.R. 5889 would expand commerce in the Great Lakes, 
and I know that my colleague, Mr. McNulty, has a port in his 
congressional district as well, and I would hope that this 
would be something that we could all work to help.
    [The prepared statement of Hon. Stephanie Tubbs Jones 
follows:]
     Prepared Statement of The Honorable Stephanie Tubbs Jones, a 
           Representative in Congress from the State of Ohio
    Chairman Camp, Ranking Member McNulty, and Members of the 
Subcommittee, thank you for the opportunity to testify today on an 
issue of significance to my congressional district and the Great Lakes 
region.
    My district, which includes the City of Cleveland and the Cleveland 
Port, is directly impacted by the Harbor Maintenance Tax (HMT). The 
impact is two-fold. On the one hand, the revenue collected through the 
HMT goes into a trust fund that is used to pay for necessary 
navigational dredging and upkeep of the Port. On the other hand, the 
HMT presents a disincentive to businesses interested in moving their 
cargo via waterway, forcing them to, instead, move their cargo by road. 
Clearly, the positive and negative impacts of the HMT must be balanced.
    As a result, I introduced H.R. 5889, the Great Lakes Short Sea 
Shipping Enhancement Act of 2006, with my colleague Congressman Phil 
English, who represents Erie, Pennsylvania, and its port. I am grateful 
for the chance to explain this legislation's importance to the economic 
vitality of my district. This bipartisan legislation is designed to 
improve the efficiency of commerce in Cleveland and the surrounding 
Great Lakes region and ports.
    In recent years, transportation planners have struggled to identify 
ways to move people and goods more efficiently. Congested highways--
particularly in urban areas like Cleveland--hinder the flow of commerce 
and create a drag on the economy. The expansion of highway and rail 
infrastructure is expensive, difficult, and time consuming. Today, 
there is a real concern that our nation's transportation system is 
constraining economic growth.
    Canada is Ohio's most important trading partner. Trade between Ohio 
and Canada generated over $28 billion in annual revenue in recent 
years, yielding $15.5 billion for Ohio. Ohio trades six times more 
goods with Canada than with its next largest trading partner. As such, 
transportation challenges to this relationship must be addressed in a 
serious and effective way. As Ohio communities have grappled with 
transportation challenges, some have identified the greater utilization 
of waterways for freight movement to be the solution.
    In the Great Lakes region, new shipping services have been proposed 
with the goal of moving cargo from roads to ``freight ferries.'' Today, 
three cities have proposed specific freight ferries connecting the 
Great Lakes region with Canada: Erie, Pennsylvania, Oswego, New York, 
and Cleveland, Ohio. The promising initiative being proposed in my 
district would connect Cleveland to Port Stanley, Ontario. This 
proposal would employ two vessels, one based in Cleveland and one in 
Canada. The proposed ferry service could transport 250,000 passengers, 
42,000 vehicles, and 40,000 trucks annually between Cleveland and Port 
Stanley, Ontario.
    Unfortunately, a major impediment to the establishment of this and 
other freight ferries is the Harbor Maintenance Tax. Because the HMT is 
only assessed on cargo if it moves by ship, the tax serves as a 
disincentive to move trucks and their freight by water. As such, the 
tax actually contributes to greater highway congestion, which can 
result in choked border crossings, increased fuel consumption, and 
increased air pollution.
    The Harbor Maintenance Tax is an ``ad valorem'' tax, meaning a tax 
on the value of cargo. Originally, the HMT was set by Congress at 0.04 
percent of the value of cargo. In 1990, the tax was increased to 0.125 
percent of the value of cargo. The tax is not paid by the vessel owner, 
or the port, but rather, by the owner of the cargo in each ship. Today, 
the Harbor Maintenance Tax is assessed on cargo transported between 
U.S. ports, and cargo imported to U.S. ports from other countries, but 
not on exports.
    The legislation I am discussing today, H.R. 5889, would provide a 
narrow exemption to the HMT for the movement of non-bulk commercial 
cargo by water in the Great Lakes region. This includes the movement of 
freight between U.S. ports on the Great Lakes, and between Canadian and 
U.S. ports on the Great Lakes. By removing the HMT as a disincentive, 
this legislation will encourage the development of new shipping 
services on the Great Lakes. By enhancing the utilization of our 
waterways, we will boost the economic vitality of the Port of 
Cleveland, Northeast Ohio, and the Great Lakes region. This will 
translate into an increase of commerce flowing in and out of the 
region. There are over 6,000 manufacturing firms in Northeast Ohio, 
many related to the steel or automotive industries. Motor vehicle parts 
(excluding engines) are the state's second largest import commodity 
($1.8 billion). The metals sector between Ohio and Canada is also 
vibrant with $3.3 billion in bilateral trade in 2004. This huge trade 
volume is currently being conducted only on our roadways. H.R. 5889 
would make it possible to move some of this trade to the Great Lakes. A 
ferry service with just three crossings a day (which is part of 
Cleveland's proposal) has the potential to remove 40,500 truck 
movements per year off the highway system. Moving this trade volume to 
our waterways would play a significant role in energizing our ports and 
reducing wear and tear on our roads.
    Mr. Chairman, as a Representative from Michigan, you understand 
Canada's significance as a trading partner and the critical importance 
of free flowing trade between Canada and the Great Lakes region. The 
Department of Homeland Security has worked to reduce wait times at 
U.S.-Canadian border crossings. Specific focus was paid to the 
crossings in southeastern Michigan where the average wait time for 
trucks and cars had increased to over 35 minutes, and often exceeded 2 
hours during peak traffic periods. With nearly $1 billion in trade 
crossing across the U.S.-Canadian border each day, these delays were 
causing an estimated $5 billion in lost productivity per year. 
Considering the cost of an idling truck is estimated at $150 per hour, 
it is easy to see why businesses moving cargo would be interested in 
more efficient forms of transportation. While border crossings have 
improved in recent years, eliminating the HMT as a disincentive would 
further improve wait times at crossings by reducing the volume of cargo 
and transferring some of it to our waterways.
    Moreover, by eliminating the HMT and encouraging travel by 
waterway, commerce would be more economically efficient because travel 
distance and duration would be shortened. Driving from the London, 
Ontario, region, one of Canada's manufacturing and steel producing 
hubs, to Cleveland takes about 5.5 hours driving or longer, as trucks 
must travel approximately 290 miles completely around Lake Erie. A 
ferry would travel only about 65 miles, directly across the lake, and 
could cut travel time by at least 2 hours.
    Let me highlight one example of how the cost of the HMT is a burden 
on commerce. The Port of Cleveland was recently approached by a 
Canadian steel producer that would like to ship steel coils to a 
Cleveland-area steel processing company by water, instead of by road. 
This could have led to 360,000 tons of new waterborne transportation, 
thereby eliminating approximately 18,000 truck movements from the 
highway system. However, the Harbor Maintenance Tax on this shipment 
would have cost $270,000 annually for just that one Cleveland customer, 
and the cost multiplies with each additional customer. Therefore, water 
transportation and the use of the Port of Cleveland was not a viable 
option in this example, as the cost of the HMT would not be in incurred 
if the coils were moved by truck. The HMT is a disincentive to 
efficient transportation in the Great Lakes and it must be eliminated.
    As I mentioned previously, the original purpose of the HMT was to 
generate revenue for port maintenance. Specifically, Harbor Maintenance 
Tax receipts are placed in a trust fund, which provides revenue for the 
Army Corps of Engineers' dredging budget--the Corps maintains Federal 
shipping channels by conducting periodic dredging. The Harbor 
Maintenance Trust Fund currently has accumulated an excess balance of 
more than $3 billion (as of Fiscal Year 2006). As a result, we 
anticipate the legislation's limited HMT exemption would have no impact 
on the Corps' ability to perform necessary dredging. Furthermore, since 
trucks currently use roads rather than ferries to move around the Great 
Lakes region, the Federal Government does not collect the Harbor 
Maintenance Tax on their cargo. Under the proposed legislation, if a 
truck boarded a ferry, the Federal Government would still not collect a 
tax. Consequently, there should be no change in the collection of the 
Harbor Maintenance Tax. Speaking from Cleveland's perspective, there 
have been only THREE non-bulk cargo shipments arriving from Canada in 
the last 10 years. These three HMT payments would have been forgone 
under my proposed legislation, but surely that would be inconsequential 
when one considers the vast benefits to efficient commerce that would 
be gained in exchange.
    Approximately 212,000 Ohio jobs are already supported by Canada-
U.S. trade. The proposed Cleveland ferry alone anticipates a minimum of 
75 new full-time, well-paying jobs, and this does not include the 
construction related jobs connected to the building of the ferry 
terminal. In addition, Canada currently generates nearly $90 million in 
tourism for Ohio, making approximately 495,300 visits to the state in 
2004. As cargo and passengers move from ground to waterborne 
transportation, the economic development possibilities for the 
Cleveland area will be significant.
    In closing, Mr. Chairman, thank you for the opportunity to testify 
today. H.R. 5889 would expand commerce in the Great Lakes region and 
improve its efficiency by reducing highway congestion and relieving 
choked border crossings. I look forward to working together on this 
important bipartisan legislation. I would be pleased to answer any 
questions you may have. Thank you.

                                 

    Chairman CAMP. Thank you very much for your testimony. The 
full statement will be part of the record. Now I will recognize 
the distinguished Member of the full Committee, the gentlewoman 
from Pennsylvania, who is also a Member of the Subcommittee on 
Select Revenue Measures. You have 5 minutes.

 STATEMENT OF HON. MELISSA HART, A REPRESENTATIVE IN CONGRESS 
                 FROM THE STATE OF PENNSYLVANIA

    Ms. HART. Thank you, Mr. Chairman. I am honored to be 
before the Subcommittee--on both sides today. I also want to 
thank Congressman Shaw for his 401 Kids legislation that he 
referred to, and also for his work in helping us secure 
permanency for the college savings plans known as 529s, which 
now allows anyone to save for college tax free, and now that is 
permanent. We were worried that that might end for a lot of 
folks who have been saving for college.
    But, Mr. Chairman and Ranking Member McNulty and Members of 
the Committee, I am here today to testify about H.R. 4961, the 
Self-Employed Health Care Affordability Act.
    As we have been meeting with our constituents at home we 
have been hearing a significant amount of concerns about the 
rising cost of health coverage. Whether it is the cost facing 
individuals or families attempting to purchase insurance 
coverage or an employer who may be trying to provide health 
care for his or her employees, the cost of health care has 
become a priority issue in this country.
    For businessowners, the rising cost of health care leads to 
a number of challenges. Offering good benefits can help attract 
and retain employees. In addition, the increased costs 
associated with providing health coverage means that there is 
less capital that an employer has to reinvest into improving or 
expanding his or her business.
    The rising cost of health insurance is an especially acute 
problem for the smallest employers, the self-employed. Don't 
let the size of these businesses fool you. The self-employed 
play a critical role in our economy with more than 18 million 
businessowners, and according to the last U.S. census, they 
employ an additional 12.3 million people, with a total payroll 
of over $309 billion.
    In addition, we know these businesses often play an 
especially important role in our local economies and in many 
cases these small companies with big ideas expand into some of 
the larger employers in our towns and cities.
    The key impediment to the growth of these small and 
microbusinesses has been the rising cost of health care. A 2002 
survey released by the National Association for the Self-
Employed found that seven in ten self-employed businessowners 
provide no health coverage to their employees, and also do not 
provide coverage for themselves or their families. They said 
that cost is the primary reason.
    Despite the complexity of this problem, there is a fairly 
simple solution that can help. Currently the self-employed pay 
an additional 15.3 percent tax on the cost of their health 
insurance that other companies are not required to pay on the 
insurance they provide to themselves and their employees, 
larger companies that are not sole proprietorships.
    As you know, all compensation is taxed at 15.3 percent to 
meet the requirements of the Self-Employed Contribution Act, 
which is the FICA tax for the self-employed. For all businesses 
except self-employed, health care is considered an ordinary 
business expense and so they are not subject to that 15.3 
percent on the cost of their health insurance. The self-
employed Schedule C filers, the sole proprietors, and the 
Schedule E filers, partners in partnerships with earned income 
and 2-percent owners in S Corps, they pay both the income tax 
and the self-employment tax. This includes the tax on the 
amount they pay to provide health insurance for themselves and 
their dependents.
    In 1986 the self-employed were permitted to claim a 
deduction for the cost of health insurance as it relates to 
income tax. This deduction, however, is not available for the 
self-employment tax.
    H.R. 4961, the Self-Employed Affordability Act, would 
inject equity into the Tax Code for all employers by allowing 
the self-employed to deduct the cost of health insurance when 
determining their self-employment tax, thus reducing the cost 
to them of providing health care.
    I introduced this bill together with Chairman Don Manzullo 
of the Small Business Committee and we currently have 28 
cosponsors on both sides of the aisle.
    First, H.R. 4961 would reduce the cost of health insurance 
for the self-employed. A recent Kaiser Family Foundation survey 
found the typical self-employed individual pays on the average 
of $10,880 a year for family coverage. Permitting the full 
deduction of health insurance costs would save these families 
well over $1600 on their annual taxes.
    Additionally, because these individuals are typically 
purchasing insurance in the individual market, premiums are 
about 18 percent higher than a larger corporation that can 
negotiate lower prices or spread the risk among their 
employees. Second, eliminating this tax inequity provides 
additional capital that can be reinvested in the business or it 
can simply allow a current small businessowner who doesn't buy 
insurance because of the affordability issue allows that person 
to buy insurance.
    I have a neighbor, Mark Edelman. He is an architect and a 
construction manager. He pays $1285 for self-employment tax on 
the cost of the health insurance he buys. He said, and I quote, 
``As a small Pennsylvania business, the additional tax burden 
on already overpriced business health care premiums takes away 
resources that we could use to grow our business. We certainly 
could use this money to reinvest in our business and grow. By 
growing we can add employees and expand our market base.''
    Mr. Edelman's statement and the hundreds of similar 
statements made by the self-employed all over the country are 
echoed in the recent Small Business Administration's Office of 
Advocacy report titled, ``Health Insurance Deductibility and 
Entrepreneurial Survival.'' Specifically the report finds that 
the deductibility of health insurance costs when determining 
the self-employment tax decreases the probability that both 
single and married filers would exit the entrepreneurial 
sector. H.R. 4961 is a common sense change to the Tax Code 
which can lower the cost of health insurance coverage and 
preserve and increase the entrepreneurial activity of the self-
employed. I think that this is extremely important, because 
many of us have spoken with people who have great ideas, who 
have a job that provides health coverage, but they make the 
decision not to leave their current job, not to go out and 
pursue that dream because they need that health coverage for 
their families.
    This is why this bill and its Senate companion, S. 663, 
introduced by Senators Thomas and Bingaman, is endorsed by a 
broad coalition including the National Association of the Self-
Employed, the U.S. Chamber of Commerce, the American Farm 
Bureau, and others.
    I thank you, Mr. Chairman and Ranking McNulty, for allowing 
me the opportunity to explain this legislation, and I look 
forward to any question.
    [The prepared statement of Hon. Melissa Hart follows:]
 Prepared Statement of The Honorable Melissa Hart, a Representative in 
                Congress from the State of Pennsylvania
    Chairman Camp, Ranking Member McNulty, Members of the Select 
Revenue Committee; I want to thank you for the opportunity to testify 
today about H.R. 4961, the Self-Employed Health Care Affordability Act.
    As we meet with constituents, we all hear concerns about the rising 
cost of health care. Whether it is the costs facing individuals and 
families attempting to purchase insurance coverage or an employer 
trying to provide health care for their employees, the cost of health 
care is clearly a priority issue.
    For business owners the rising cost of health care leads to a 
number of challenges. Offering a good benefits package can help to 
attract and retain employees. In addition, the increased price of 
health insurance that employers must pay means that they cannot 
reinvest that capital into expanding or improving their business.
    The rising cost of health insurance is an especially acute problem 
for the smallest employers--the self-employed. Despite being small, the 
self-employed play a critical role in the economy with more than 18 
million business owners and, according to the last U.S. Census, employ 
more than 12.3 million workers with a total payroll of more than $309 
billion. In addition, we know that these businesses often play an 
especially important role in our local economies and, in some cases, 
these small companies with big ideas expand into large employers.
    A chief impediment to the growth of these small and micro 
businesses is the rising cost of health care. A 2002 survey released by 
the National Association for the Self-Employed (NASE) found that seven 
in 10 self-employed business owners provide no insurance for their 
employees and did not cover themselves. They cited cost as the primary 
reason.
    Despite the complexity of this problem, there is a fairly simple 
solution that can help. Currently, the self-employed pay an additional 
15.3 percent tax on the cost of their health insurance that other 
companies are not required to pay.
    As you know, all compensation is taxed at 15.3 percent to meet the 
requirements of the FICA tax. For all businesses, except the self-
employed, health care is considered an ordinary business expense 
meaning they are not subject to the 15.3 percent tax on the cost of 
health care.
    The Self-employed--Schedule C filers (solo proprietors) and 
Schedule E filers (partners in partnership with earned income and 2-
percent owners in S Corps)--pay both an income and a self-employment 
tax. In 1986, the self-employed were permitted to claim a deduction for 
the cost of health insurance as it relates to the income tax. The 
deduction is not available for the self-employment tax.
    H.R. 4961, the Self-Employed Health Care Affordability Act, would 
create equity in the Tax Code amongst all employers by allowing the 
self-employed to deduct the cost of health insurance when determining 
their self-employment tax, thus reducing the cost of health care. I 
introduced this bill with Chairman of the Small Business Committee, 
Donald Manzullo and we currently have 28 bipartisan cosponsors.
    First, H.R. 4961 will reduce the cost of health insurance for the 
self-employed. A recent Kaiser Family Foundation Survey found that the 
typical self-employed individual pays, on average, $10,880 annually for 
family coverage. Permitting the full deduction of health insurance 
costs would save these families about $1,665 on their annual taxes. 
Additionally, because these individuals are typically purchasing 
insurance in an individual market, premiums are approximately 18 
percent higher than a larger corporation that can negotiate lower 
prices.
    Second, eliminating this tax inequity provides additional capital 
that can be invested back into the business. For example, Mark 
Edelmann, an architect and construction manager from Bradfordwoods, 
Pennsylvania, must pay $1,285 each year in self-employment tax on the 
cost of his health insurance. Mr. Edelmann said:
    ``As a small, Pennsylvania business the additional tax burden on 
already overpriced small business healthcare premiums--takes away 
resources that we could use to grow our business. We would use this 
money to reinvest in our business and grow. By growing we can add 
employees and expand our market base.''
    Mr. Edelmann's statement and the hundreds of similar statements 
made by the self-employed from all around the country are echoed in the 
recent Small Business Administration Office of Advocacy report ``Health 
Insurance Deductibility and Entrepreneurial Survival.'' Specifically, 
the report finds that the deductibility of health insurance costs when 
determining the self employment tax decreases the probability that both 
single and married filers would exit the entrepreneurial sector.
    H.R. 4961 is a commonsense change to the Tax Code, which can lower 
the cost of health care coverage and preserve and increase the 
entrepreneurial activity of the self-employed. That is why this bill 
and its Senate companion, S. 663, introduced by Senators Thomas and 
Bingaman is endorsed by a broad coalition including the National 
Association for the Self-Employed, the U.S. Chamber of Commerce, the 
American Farm Bureau, and others.
    Again, thank you for providing me with the opportunity to explain 
this important legislation and I look forward to any questions.

                                 

    Chairman CAMP. Thank you very much. Also we have the 
Honorable Devin Nunes, who is a distinguished Member of the 
Committee on Ways and Means from the State of California. You 
have 5 minutes.

  STATEMENT OF HON. DEVIN NUNES, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mr. NUNES. Thank you Chairman Camp and Ranking Member 
McNulty.
    I want to thank you for this opportunity to testify on our 
Nation's energy future, specifically to discuss H.R. 5890.
    While gas prices are declining, we must not be lulled into 
a false sense of security. We are still in the midst of an 
energy crisis that is not going away. All we need is a hiccup 
in the oil supply chain and the price at the pump can quickly 
return to historic levels or even higher.
    Today we import 65 percent of our petroleum needs and by 
2025 we will import 71 percent of our petroleum needs. This 
situation has stifled economic development, put our Nation's 
security at risk, and placed an unnecessary burden on the 
family budget. We need to come to grips with the onerous 
policies of the past that are strangling us now. What we need 
is a comprehensive market-based strategy that will reduce our 
dependence on foreign sources of oil while bridging the gap to 
the next generation of energy.
    For these reasons I and a number of my colleagues on a 
bipartisan basis introduced the American-Made Energy Freedom 
Act. Thanks to Senator Burr, we now have a companion bill in 
the United States Senate. This bill will provide short-term 
relief while funding a long-term solution for energy freedom. 
We would accomplish this by opening 2,000 acres of the Arctic 
National Wildlife Refuge to exploration and investing the 
Federal share of the lease and royalty revenue into an energy 
trust fund. This fund would be used to pay for numerous 
renewable alternative and advanced energy programs.
    At an estimated $40 billion over 30 years, this fund would 
be the largest investment in renewable and alternative fuel in 
our nation's history, all at no cost to the taxpayer.
    In the first 2 years of enactment, this legislation would 
provide an infusion of investment into numerous renewal and 
alternative energy programs, including the next generation of 
ethanol, coal-to-liquid technology, solar and fuel technology, 
and biofuel energy production.
    A number of these investments would come in the form of 
market-based tax credits. In the case of the cellulosic and CTL 
credits, we have crafted a solution not yet seen in Congress. 
Both tax credits are tied to the price per barrel of oil and 
adapt to market conditions. We simply don't believe in 
government handouts, and the structure of these credits 
provides an insurance policy against a crash in the price of 
oil.
    Certainly there are no quick fixes to our energy 
challenges. However, a few things are clear. We must recognize 
the possibility of global shortages or disruptions as demand 
continues to grow. We are also in the midst of a global war on 
terrorism, fighting radicals whose stated objective is to 
destroy western civilization. At the same time, we rely on 
certified state sponsors of terrorism for our petroleum needs.
    Therefore, we must also contemplate the real possibility 
that oil will be used as an economic weapon. Consequently, in 
my view it is irresponsible for the United States to buy oil 
from fanatical regimes that are determined to determined to 
destroy our way of life. It is time for energy freedom, it is 
time for energy security, and it is time for action on 
American-made solution.
    For that I appreciate the opportunity to testify and I have 
submitted my statement for the record.
    [The prepared statement of Hon. Devin Nunes follows:]
 Prepared Statement of The Honorable Devin Nunes, a Representative in 
                 Congress from the State of California
    Chairman Camp and Ranking Member McNulty;
    I appreciate the opportunity to testify today on legislation that I 
and a number of my colleagues, including Senator Burr, introduced to 
address our nation's energy future. While gas prices are declining, we 
must not be lulled into a false sense of security. We are still in the 
midst of an energy crisis that is not going away. All we need is a 
hiccup in the supply chain of crude oil, and the prices at the pump can 
quickly return to the historic levels we have seen in past months or 
even higher.
    Indeed, in the past, we have attempted to address our nation's 
energy security by looking at renewables and alternatives--only to see 
crude oil poured into the international market driving down the price 
per barrel of oil. In this case, basic economics take over and the 
cheaper energy source prevails. Because of this, crude oil has been the 
fuel of choice for more than a century. This economic addiction to 
cheap energy has led to the crisis we are now experiencing.
    As everyone on this Committee knows, we import 65% of our petroleum 
needs, and the Energy Information Administration (EIA) projects that by 
2025 we will import 71% of our petroleum. While this is a tenuous 
situation, it is exacerbated by the fact that two-thirds of the world's 
proven oil reserves are located in the volatile Middle East. The nexus 
of instability with the Middle East, as well as the threat of lost 
production from Nigeria and Venezuela, and a virtual halt to new energy 
exploration in the United States have resulted in the price of oil 
reaching all-time highs. With this in mind, it does not surprise me 
that year after year we pay higher and higher prices for energy--
whether at the pumps or in our home energy bills. This situation has 
stifled economic development, put our nation's security at risk, and 
placed an unnecessary burden on the family budget. We need to come to 
grips with the onerous policies of the past that are strangling us now; 
this is an American-Made problem that requires an American-Made 
solution.
    Unfortunately, we, as legislators, have tried time and again to 
enact solutions to expand our energy resources only to be thwarted by a 
vocal minority. The opposition's only solution is social engineering by 
mandating that the American people change their lifestyle. This has not 
worked in the past and will not work today. What we need is a 
comprehensive market based strategy that will reduce our dependence on 
foreign sources of oil while bridging the gap to the next generation of 
energy. Congress has a responsibility to deal with our nation's energy 
demands in a bi-partisan manner that benefits all Americans. For these 
reasons, 13 Republicans and 9 Democrats introduced H.R. 5890, the 
American-Made Energy Freedom Act. [Current Cosponsors: 38] Thanks to 
Senator Burr, we also have a companion bill in the Senate.
    This bipartisan, bicameral, bill would provide short-term relief 
while funding a long-term solution for energy freedom. We would 
accomplish this by opening just 2,000 acres of the Arctic National 
Wildlife Refuge (ANWR) to exploration and investing the Federal share 
of the lease and royalty revenue into an energy trust fund. This trust 
fund would be used to pay for numerous renewable, alternative, and 
advanced energy programs. At an estimated $40 billion over 30 years, 
this trust fund would be the largest investment in renewable, 
alternative, and advanced energy in our nation's history--all at no 
cost to the taxpayer.
    Within the first 2 years of enactment of H.R. 5890, numerous 
renewable and alternative energy programs would receive billions of 
dollars in much needed investment. This would include an infusion of 
investment into the next generation of ethanol (cellulosic), a 
deployment of Coal-to-Liquid (CTL) technology, an expansion of the use 
of solar and fuel cell technology, and significant growth in the 
biofuel energy production industry. A number of these investments would 
come in the form of market based production tax credits. In the case of 
the cellulosic and CTL credits, we have crafted a solution yet to be 
seen in Congress. Both tax credits are tied to the price per barrel of 
oil and adapt to market conditions. We simply don't believe in 
government handouts and the structure of these tax credits merely 
provides an insurance policy against a crash in the price of crude oil.
    Moreover, the bill funds numerous renewable energy provisions that 
were originally authorized in the Energy Policy Act of 2005 and have 
yet to receive significant funding. These Federal investments are 
needed to ensure breakthroughs in biotechnology, new feedstocks, 
harvesting, storage, transportation, and processing to produce a 
sustainable transportation fuel at a price competitive with fuel from 
the mature petroleum industry. Furthermore, enhancing Federal consumer 
tax credits is necessary to ensure that every home owner or small 
business has the opportunity to participate in our energy freedom by 
installing alternative energy systems that are economically viable and 
environmentally sensitive.
    Indeed, the proposals put forth in H.R. 5890 will have numerous 
benefits. First, it will bridge the gap in our efforts to transition to 
homegrown energy and reduce our dependence on foreign oil. Second, it 
will assist us in meeting Renewable Portfolio Standards which have been 
set by many states. Third, it will significantly reduce greenhouse gas 
emissions. Finally, all of this is accomplished by incubating 
technology rather than subsidize an industry.
    Certainly, there are no quick fixes to our energy challenges. 
However, one thing is clear. Americans cannot continue to rely on cheap 
imports for our energy future. It is important for us to recognize the 
possibility of global shortages or disruptions as demand for fossil 
fuel continues to grow. We must also contemplate the real possibility 
that oil will be used as an economic weapon against us. We are in the 
midst of a Global War on Terrorism, fighting radicals whose stated 
objective is to destroy western civilization and install religious 
theocracies. At the same time, we rely on certified state-sponsors of 
terrorism for our petroleum needs. In my view, it is irresponsible for 
the United States to buy oil from fanatical regimes that are determined 
to destroy our way of life. It is time for energy freedom, it is time 
for energy security, and it is time for action on an American-Made 
solution.
    I appreciate the opportunity to testify today and I look forward to 
working with my colleagues on the Committee to address the tax 
provisions in our proposed legislation.

                                 

    Chairman CAMP. Thank you very much, and thank you all very 
much for your good testimony. Now we will just go to the 
question time.
    Mr. Shaw, your 401 Kids legislation obviously gives us more 
options in tax-preferred savings. Do you have any information 
on what that will do to the national savings rate?
    Mr. SHAW. Well, it would greatly increase it. The revenue 
loss on it has been--and I should have included this in my 
statement--is I think $69 million over the 5-year period. It 
jumps up to a billion over a 10-year period, and that is 
anticipating that people are going to put more and more money 
into these accounts, and as they grow, that will mean there is 
more deferred. It is an investment. All of us are concerned 
about the rising cost of the first home, the rising cost of a 
college education, and I can tell you, Mr. Chairman, having 15 
grandkids myself, I am not sure I can afford to send them all 
to college, and I think other parents with a little bit of help 
from the grandparents should be able to. We should be devising 
as many ways as possible in order to equip the families with 
the ability to pay for this important expenditure.
    Chairman CAMP. Well, thank you very much. Ms. Hart, if 
self-employed folks can deduct the self-employment tax, will 
that increase health coverage for the uninsured?
    Ms. HART. That is a good point to make, since the 
significance of people who are self-employed, according to some 
studies that I cited, just opt not to provide it for themselves 
or their families because they can't afford it, if they are 
infused with an additional $1600, that certainly makes health 
coverage more affordable for them. I think it is likely to do 
that.
    Chairman CAMP. Okay, thank you, and Mr. Nunes, your 
proposal creates a trust fund to help subsidize alternative 
energy uses, and how long would you expect that would continue?
    Mr. NUNES. Well, essentially it would continue the entire 
life of--it depends on how much money is put in and then the 
life of the oil fields in Alaska. Essentially what we are 
doing, we are opening up the North Slope to drilling, putting 
all that money in a trust fund, and the money--the rate that 
the money is spent basically depends on the price of oil. If 
the price of oil is high, we would not use any money in the 
trust fund. If the price of oil drops down like it did in the 
seventies, just when alternative are starting to take shape, it 
protects against a drop and it continues the investment into 
this type of technology which I think gets us to the new 
generation of fuel and weans us off of our dependence on 
foreign oil.
    Chairman CAMP. All right, thank you very much.
    Mr. McMulty may inquire.
    Mr. MCNULTY. Thank you, Mr. Chairman.
    Congresswoman Hart, if we should be doing anything, we 
should be trying to reduce the number of uninsured in this 
country as far as health care coverage is concerned, because 
the number of uninsured has increased over the past 5 or 6 
years from 39 million to 46 million, and it is going up. So, I 
certainly share your goal.
    My question would be you seem to have zoomed in on the 
self-employed and their employees. Is there a provision in your 
bill which would provide a benefit to an employee who is not 
employed by a self-employed individual?
    In other words, an employee of a corporation which does not 
provide health care coverage, if that employee opted to buy 
health care coverage for his or her family, would they derive a 
benefit from this bill?
    Ms. HART. Actually, no. This is very incisive. It focuses 
on the Self-Employed Contribution Act only, so it would not--in 
fact, anyone who does not pay that tax, so anybody who is 
employed by someone else, their Social Security and Medicare 
taxes are through the FICA tax and they are paid, you know, by 
the employer out of their check, so this would not affect them.
    Chairman CAMP. Have you looked at John McHugh's bill at 
all? Because his bill does what your bill would do, but it is 
more expansive and would cover the employees as well as the 
employers.
    Ms. HART. I certainly will do that.
    Chairman CAMP. Thank you.
    Mr. Foley may inquire.
    Mr. FOLEY. Thank you. Further on Mr. Nunes's suggestion, 
because I think it is a very, very sensible approach. I am a 
cosponsor, but I really want to emphasize the fact that you do 
transfer additional investments to alternative fuels, further 
explain.
    Mr. NUNES. Essentially what we do is we take all the 
revenue generated, Federal share of revenue generated by ANWR, 
put it into a trust fund that can be used at the beginning on 
three major technologies--cellulosic ethanol, which is the next 
generation of ethanol, coal-to-liquid technology, which as of 
last week as just ran in a B-52. They ran Mr. Trope's process. 
It is a very clean form of diesel fuel created from coal or jet 
fuel, and it was actually used first by the Nazis in World War 
Two to fund their war machine. The third thing it funds is 
solar technology--and actually, Mr. Camp, I believe we took 
parts of your bill and put it into this bill to make it 
possible--you know, we have broad support from the solar 
industry, the biofuels folks, and without an investment like 
this it is going to be hard really to get the next future 
generation of energy off the group because people--or companies 
do not want to invest billions of dollars into building a coal-
to-liquid plant if the price of oil could very possibly drop 
back to $35-40, and it would not be profitable.
    So, this basically provides an insurance policy against a 
drop in oil.
    Chairman CAMP. Thank you. Mr. Shaw, on your 401(k) kids' 
savings account, you mentioned in there grandparents helping to 
pay. Are grandparents eligible to take a deduction?
    Mr. SHAW. Yes, I believe they are--the limitation of $2,000 
a year. But it is important to realize where the tax break is 
is on the buildup within the account. No deduction for the 
contribution. Those are put into it with after-tax dollars.
    Chairman CAMP. Mr. Cardin, the Renewing the Dream Tax 
Credit Act, that seems very, very well-poised to help inner 
cities particularly, and take some of the sprawl, particularly 
in Florida we have a lot of people moving to the suburbs, 
leaving the inner city areas. Does this bill keep people 
inside, where transportation is evident, where infrastructure 
is already existent?
    Mr. CARDIN. It does. The concern we have today and the 
reason why it is so important for the inner cities is that if 
you try to develop properties, renovate properties for 
homeownership, the cost of renovation of inner city property is 
beyond the means of the individuals who live in those 
communities.
    What the credit does, it fills the gap between the cost of 
providing affordable homeownership and the ability of an 
individual to be able to pay for that, so the credit fills that 
gap, as it does in the low income housing tax credit. So, yes, 
it would allow us to replenish the housing stock in our inner 
cities today, make it available for homeownership. Thank you.
    Chairman CAMP. All right, thank you. I guess we have no 
further questions of this panel. I want to thank you all very 
much for your testimony. It is very, very helpful. Thank you 
very much.
    Now we will move to panel two.
    We have the Honorable Donna Christensen, a Delegate in 
Congress from the United States Virgin Islands, the Honorable 
Vito Fossella, a Representative in Congress from the State of 
New York, Hon. Heather Wilson, a Representative in Congress 
from the State of New Mexico, the Honorable Gary Miller, a 
Representative in Congress from the State of California, the 
Honorable Trent Franks, a Representative in Congress from the 
State of Arizona.
    I want to welcome our panel. We have been having a little 
bit of difficulty with the microphones.
    If you speak directly into the microphone and don't move 
your head away from it at all, they pick up sound. They don't 
have a button. They just pick up sound, so if you speak 
directly into it, that will be very helpful.
    Why don't we begin with the Honorable Donna Christensen, a 
Member of Congress from the United States Virgin Islands.

  STATEMENT OF HON. DONNA CHRISTENSEN, A DELEGATE IN CONGRESS 
             FROM THE UNITED STATES VIRGIN ISLANDS

    Ms. CHRISTENSEN. Thank you, Mr. Chairman, good morning, 
Chairman and distinguished Members of the Subcommittee. I am 
pleased to have this opportunity to appear before you in 
support of H.R. 273, legislation I introduced last year to 
repeal the cap under Section 7652(f) of the Internal Revenue 
Code on the rate of excise tax on Virgin Islands and Puerto 
Rico rum shipped to the United States and returned, or 
``covered over,'' to the treasuries of the Virgin Islands and 
Puerto Rico, respectively. The legislation would eliminate the 
need for Congress to periodically extend the current cover-over 
rate as is now the case. I am not aware of any policy 
objections to this legislation and I respectfully ask that the 
Committee act to lift the cap and cover over the full amount at 
the earliest practicable time.
    At the same time, I would like to take this opportunity to 
bring an issue to the attention of the Subcommittee that is 
having an extremely damaging impact on the Virgin Island 
economy. Virgin Islands residents are required to pay Federal 
income tax like any other citizen living outside the 
continental United States. However, Section 932 of the Internal 
Revenue Code states that the bona fide residents of the Virgin 
Islands are not required to file an income tax return with IRS 
but to file and pay taxes to the Virgin Islands' government.
    As determined under the ``mirror code'' section, the amount 
of liability to the Virgin Islands is generally equal to what 
would have been paid to IRS. The only exception is a provision 
under Section 934 of the Code which permits the Virgin Islands 
to provide economic development incentives to tax credits or 
tax rate reductions for income sourced in or effectively 
connected to the Virgin Islands.
    Pursuant to this authority, almost 50 years ago the Virgin 
Islands government established an economic development program 
which would provide tax incentives to qualified businesses 
located in the Virgin Islands owned by residents of the Virgin 
Islands in order to diversify our economy, create jobs, and to 
lessen our dependence on the Federal Government.
    In response to concerns that U.S. citizens claim those tax 
benefits who neither live nor work in the Territory, Congress 2 
years ago tightened the income and residency rules as part of 
the American Jobs Creation Act of 2004. The Jobs Act replaced 
the ``facts and circumstances test'' similar to that previously 
used for determining the tax residency of foreigners was an 
onerous physical presence test, a closer connection test, and a 
tax home test.
    At around the same time the U.S. Internal Revenue Service 
initiated a very invasive series of audits of individuals who 
participated in the Territory's Economic Development Commission 
program, as well as on many taxpayers not in the EDC program 
who had moved to the Virgin Islands and Virgin Islanders who 
were born in the Virgin Islands but who for lack of opportunity 
were forced to periodically work outside of the Virgin Islands.
    Neither the Virgin Islands government or our EDC community 
had any objection, of course, to properly conducted IRS audits 
with clear audit guidelines in place at the outset. However, it 
appears that the IRS has used the subjective nature of the pre-
Jobs Act legal standard for determining bona fide V.I. 
residency as a ``hunting license'' for challenging anyone who 
claimed EDC benefits as a potential participant in an abusive 
tax shelter, rather than as a participant in a lawful economic 
development program duly authorized by Congress.
    In fact, some IRS agents have taken the position that 
anyone who moved to the Virgin Islands for the principal 
purpose of taking advantage of the EDC benefits by definition 
cannot be a bona fide V.I. resident, even if the individual 
meets all generally-accepted tests of residency under pre-Jobs 
Act law.
    Such a position not only stands the law on which the EDC 
program is based on its head, but has served unfairly and 
improperly to influence and distort IRS' entire approach to the 
ongoing audits of V.I. taxpayers. Rather than facilitating and 
ensuring tax compliance, and if the fact warrant, ferreting out 
the wrongdoers, the IRS audits have instead become a vehicle 
for undermining a Congressionally sanctioned and authorized 
development program to punitive and heavy-handed techniques 
including repetitive, intrusive, and burdensome data an 
document requests. Unfortunately and unfairly the audit 
presumptions seem to be that the taxpayer is engaged in tax 
fraud unless he or she can prove otherwise.
    But there is more. The IRS has also reversed its 
longstanding policy, and now removes the statute of limitations 
for V.I. taxpayers who reasonably and in good faith file their 
tax returns and pay their tax to the Virgin Islands Bureau of 
Internal Revenue, as the law requires them to do. In a recent 
General Counsel Advisory Memorandum, the IRS announced that it 
has the right to audit the returns of a V.I. taxpayer as far 
back as they like and if they determine under the subjective 
pre-Jobs Act tests that the taxpayer was not a bona fide V.I. 
resident that it can assess full tax and penalties even if the 
V.I. taxpayers pay the correct amount to the Virgin Islands.
    Because the Virgin Islands statue of limitations will have 
run in many of these circumstances, the taxpayer will be 
precluded from seeking a refund of tax paid to the Virgin 
Islands and thus be subjected to double taxation. Similarly, at 
least some IRS agents may now be taking the position that even 
a bona fide V.I. resident who underpays his tax to the Virgin 
Islands by even one dollar, even if it was the result of a good 
faith error, may not be subject to full taxation by the United 
States without regard to or credit for any payments made to the 
Virgin Islands.
    Such a position is without legal support but it operates 
perversely as a disincentive for our BIR to audit and seek any 
underpayments of tax from its own V.I. taxpayers.
    These heavy-handed practices have been damaging to the 
Territory's EDC program and clearly is not what Congress had in 
mind when it enacted the Virgin Islands tax incentive at issue 
as part of the 1986 Tax Reform Act or when Congress acted to 
include more objective factors in the determination of 
residency and sourcing of income as part of the Jobs Act in 
2004.
    The IRS needs to state up front that the EDC program is a 
legitimate, Congressionally-sanctioned economic development 
program and that participation in the program does not create a 
rebuttable presumption that the taxpayer investor is not a bond 
fide resident, engaged in tax fraud or unlawfully participating 
in a tax shelter.
    Most importantly, if not soon reversed by IRS or Treasury 
administrative action, I respectfully request that Congress 
needs to clarify, consistent with the language and legislative 
intent of the 1986 Tax Reform Act, the filing of a tax return 
by a bona fide resident of the Virgin Islands with the BIR 
starts the running of the statute of limitations both in the 
Virgin Islands and in the United States and a person who files 
his return within the Virgin Islands is a bona fide resident of 
the United States in good faith for years that are now closed 
for Virgin Islands purposes should be credited for any tax paid 
to the BIR, even though the person is subsequently determined 
not to have been a Virgin Islands resident by the current IRS 
regulation.
    Finally, to the extent that a bona fide resident of the 
Virgin Islands pays his tax liability to the Virgin Islands 
that any residual tax liability should be payable to the Virgin 
Islands.
    Mr. Chairman, I look forward to working with you and 
Members of the Subcommittee to resolve these very important 
issues which are so critical to the economic development and 
well-being of the United States Virgin Islands. Thank you.
    [The prepared statement of Hon. Donna Christensen follows:]
 Prepared Statement of The Honorable Donna Christensen, a Delegate in 
             Congress from the United States Virgin Islands
    Mr. Chairman and Distinguished Members of the Subcommittee, I am 
pleased to have this opportunity to appear before you in support of 
H.R. 273, legislation I introduced last year to repeal the cap, under 
Section 7652(f) of the Internal Revenue Code (``Code''), on the rate of 
excise tax on Virgin Islands and Puerto Rico rum shipped to the United 
States and returned, or ``covered-over,'' to the treasuries of the 
Virgin Islands and Puerto Rico, respectively. This legislation would 
eliminate the need for Congress to periodically extend the current 
cover-over rate as is now the case. I am not aware of any policy 
objections to this legislation, and I respectfully ask that this 
Committee act on it at the earliest practicable time.
    At the same time, I would like to take this opportunity to bring an 
issue to the attention of the Subcommittee that is having an extremely 
damaging impact on the Virgin Islands economy.
    As you know, residents of the Virgin Islands, as citizens of the 
United States, are required to pay Federal income tax like any other 
citizen living outside the United States. However, Section 932 of the 
Internal Revenue Code (``Code'') states that bona fide residents of the 
Virgin Islands are not required to file an income tax return with the 
IRS. They are required instead, to file their income tax return and pay 
the applicable tax to, the Government of the Virgin Islands.
    The amount of the liability to the Virgin Islands, determined under 
the ``mirror code'' system, in most cases is exactly the same amount 
that they would otherwise have been required to pay to the Federal 
Government. The only exception is a provision under Section 934 of the 
Code which permits the Virgin Islands to provide economic development 
incentives through tax credits or tax rate reductions for income from 
sources in the Virgin Islands or income effectively connected with the 
conduct of a trade or business in the Virgin Islands.
    Pursuant to this authority, the government of the Virgin Islands 
established, almost 50 years ago, an economic development program that 
was intended to diversify the local economy, create jobs for its 
citizens, and to lessen its dependence on the Federal Government.
    Under this program, the VI government provided tax incentives to 
qualified businesses that established operations and invested in the 
Virgin Islands, and that met the program's criteria for creating jobs 
and economic opportunity for Virgin Islanders.
    In response to concerns that some U.S. citizens claimed tax 
benefits who neither lived nor worked in the Territory, Congress 2 
years ago tightened the income and residency rules as part of the 
American Jobs Creation Act of 2004 (``Jobs Act''). With respect to the 
rules for determining residency in the Virgin Islands, the Jobs Act 
replaced a ``facts and circumstances test'' similar to that previously 
used for determining the tax residency for aliens with a physical 
presence test, a closer connection test, and a tax home test.
    At around the same time, the U.S. Internal Revenue Service 
(``IRS'') initiated a comprehensive series of audits not only of 
individuals who participated in the Territory's Economic Development 
Commission (``EDC'') program, but also of many taxpayers who had moved 
to the Virgin Islands years earlier and who did not participate in the 
EDC program as well as taxpayers who were born in the Virgin Islands 
but who had spent periods of their working life outside the Territory 
due to the lack of opportunities in the Virgin Islands.
    Neither the VI government nor most responsible members of our EDC 
community have any objection to properly conducted IRS audits with 
clear audit guidelines in place at the outset.
    However, it appears that the IRS has used the subjective nature of 
the pre-Jobs Act legal standard for determining bona fide V.I. 
residency as a ``hunting license'' for challenging anyone who claimed 
EDC benefits as a potential participant in an abusive tax shelter, 
rather than as a participant in a lawful economic development program 
duly authorized by the Congress.
    Indeed, I have been informed by many of my constituents who have 
been the subject of such audits that some IRS agents have taken the 
position that anyone who moved to the Virgin Islands for the principal 
purpose of taking advantage of EDC benefits, by definition, cannot be a 
bona fide V.I. resident, even if the individual meets all generally 
accepted tests of residency under pre-Jobs Act law.
    Such a position not only stands the law, on which the EDC program 
is based, on its head, but has served unfairly and improperly to 
influence and distort IRS's entire approach to the ongoing audits of 
V.I. taxpayers.
    Rather than facilitating and ensuring tax compliance and, if the 
facts warrant, ferreting out wrongdoers, the IRS audits have instead 
become a vehicle for undermining a Congressionally sanctioned and 
authorized economic development program through punitive and heavy-
handed techniques, including repetitive, intrusive, and burdensome data 
and document requests. Unfortunately and unfairly, the IRS audit 
presumption seems to be that the taxpayer engaged in tax fraud unless 
he or she can prove otherwise.
    The IRS tactics, however, go far beyond intrusive and burdensome 
data requests. In the course of these audits, the IRS has reversed its 
long-standing administrative practice and published position, and now 
claims that the statute of limitations never runs for V.I. taxpayers 
who reasonably and in good faith file their tax returns with, and pay 
their tax to, the Virgin Islands Bureau of Internal Revenue (``BIR''), 
as the law requires them to do.
    In a recent General Counsel Advisory Memorandum, the IRS announced 
its new position that it has the right to audit the returns of a V.I. 
taxpayer as far back as they like and, if they determine under the 
subjective pre-Jobs Act test that the taxpayer was not a bona fide V.I. 
resident, that it can assess full tax and penalties even if the 
taxpayer has paid the correct amount to the Virgin Islands.
    Because the Virgin Islands statute of limitations will have run in 
many of these circumstances, the taxpayer will be precluded from 
seeking a refund of tax paid to the Virgin Islands, and thus be subject 
to double taxation. Moreover, since the IRS position reverses a 
previously issued IRS advisory memorandum and also runs counter to the 
general rule that persons can be audited for up to 3 years after filing 
a return, many taxpayers who are being audited no longer have the 
records to defend themselves.
    Similarly, at least some IRS agents may now be taking the position 
that even a bona fide V.I. resident who underpays his tax to the Virgin 
Islands by even one dollar (even if this is a result of a good faith 
error) may now be subject to full taxation by the United States without 
regard to, or credit for, any payments made to the Virgin Islands.
    Such a position is not only not without legal support, but it 
operates perversely as a disincentive for the BIR to audit and seek any 
underpayments of tax from its own V.I. taxpayers.
    These heavy handed practices have been damaging to the Territory's 
EDC program, raising the specter of guaranteed and endless audits of 
virtually anyone who moves to, and invests in, the Virgin Islands.
    This is not, I would respectfully submit, what Congress had in mind 
when it enacted the Virgin Islands tax incentives at issue as part of 
the 1986 Tax Reform Act, or when Congress acted to include more 
objective factors in the determination of residency and sourcing of 
income as part of the Jobs Act in 2004.
    Representatives of the VI government, including the BIR, are 
working with Treasury and IRS officials in an effort to minimize the 
burdens and intrusiveness of the audit process. There needs to be 
published reasonable and precedent-based IRS audit guidelines for the 
determination of bona fide V.I. residency under pre-Jobs Act law in 
order to avoid IRS audit abuse. The IRS needs to state up front that 
the EDC program is a legitimate, congressionally sanctioned economic 
development program and that participation in the EDC program does not 
create a rebuttable presumption that the taxpayer/investor is not a 
bona fide V.I. resident, engaged in tax fraud, or unlawfully 
participating in a tax shelter.
    Most importantly, if not soon reversed by IRS or Treasury 
administrative action, Congress needs to clarify that, consistent with 
the language and legislative intent of the 1986 Tax Reform Act, the 
filing of a tax return by a bona fide resident of the Virgin Islands 
with the BIR starts the running of the statute of limitations in both 
the Virgin Islands and the United States and that a person who filed 
his return with the Virgin Islands as a bona fide resident of the 
Virgin Islands in good faith for years that are now closed for Virgin 
Islands purposes should be credited for any tax paid to the BIR, even 
if the person is subsequently determined not to have been a Virgin 
Islands resident by the IRS.
    And finally, to the extent that a bona fide Virgin Islands resident 
underpays his tax liability to the Virgin Islands, any residual tax 
liability should be payable to the Virgin Islands and not the United 
States.
    Mr. Chairman, I look forward to working with you and Members of 
this Subcommittee to resolve these important issues which are so 
critical to the economic development and well-being of the United 
States Virgin Islands. Thank you.

                                 

    Chairman CAMP. Thank you. Thank you very much for your 
testimony. Hon. Vito Fossella from the State of New York, you 
will have 5 minutes, and your full statement will be made part 
of the record.

 STATEMENT OF VITO FOSSELLA, A REPRESENTATIVE IN CONGRESS FROM 
                     THE STATE OF NEW YORK

    Mr. FOSSELLA. Thank you, Mr. Chairman, and thank you Mr. 
McNulty and Members for giving me the opportunity to testify. 
Like me and like you and like any parent, choosing a school to 
send your child is about the most important and fundamental 
decision that one parent can make, and indeed we are blessed in 
this country with amazing teachers, great education 
professionals, people who dedicate their lives to helping young 
people to improve their educational achievement and character 
and strength through academic excellence, and we are blessed in 
the public school system, not just in New York but across the 
country, and likewise religious and private schools have earned 
a reputation for academic excellence and character development 
in America's young people as well.
    However, many parents who send their children to religious 
or private schools do so at a tremendous financial cost. In my 
home district of Staten Island and Brooklyn, New York, tuition 
to these religious and private schools averages roughly $4,500 
per year per student. At these rates it is increasingly 
difficult for the typical family--let's say a police officer 
and a nurse--to afford to send their children to the schools 
they want or choose.
    In April, 2006 the Archdiocese of New York announced it 
would close eight schools, including St. Paul's in Staten 
Island and others across New York City.
    This action mirrors a nationwide trend. Indeed, from 1999 
to 2003 more than 1,200 private and parochial schools in urban 
areas like New York, Chicago and Detroit have shut their doors 
while enrollment has dropped by nearly 360,000. Many of these 
schools have worked hard to keep costs down, but as Edward 
Cardinal Egan, head of the archdiocese in New York, told me, 
quote, ``the cost to us--even though about a third of what it 
is to spend on competition--is rising above our financial 
capacities.'' End quote.
    As a proud graduate of PS 39 and IS 2 on Staten Island, I 
recognize that public schools are the right choice for the 
overwhelming majority of Americans. That's why I've 
consistently voted for higher levels of Federal funding, more 
than $57 billion this year alone, for public education, a rise 
of about 150 percent of the last decade.
    But many low-income students find themselves trapped in 
failing schools, public schools, where academic achievement and 
opportunity is all by nonexistent. These young Americans, the 
majority of them minorities, are being denied a basic education 
because the alternatives are simply outside their financial 
means, family's financial means.
    In my home State of New York between 65 and 80 percent of 
students in the archdiocese's 16 schools have family incomes 
below the poverty line. A recent New York University study 
found the performance of Catholic schools with high 
concentrations of poor African American and Hispanic students 
surpassed that of public schools, with student populations that 
are less poor and more white or Asian, despite large student-
to-teacher ratios and lower per-pupil spending in Catholic 
schools.
    The New York Post recently stated, quote, ``Of the nearly 
30,000 students attending Catholic schools in non-white and 
poor neighborhoods, the percentage of students of state tests 
was twice that of local public schools.'' End quote.
    While taxpayers save money for every child that attends a 
nonpublic school, the Tax Code offers these families no such 
benefit. This needs to change. That's why I've introduced H.R. 
5230, the TEACH Act--legislation creating a $4,500 Federal 
tuition tax credit for K through 12 parochial and private 
school education.
    Here's how it would work: Families would be permitted to 
take a dollar-for-dollar reduction in their tax liability for 
nonpublic school tuition expenses. For example, a taxpayer with 
a liability of $10,000 and a tax credit of $4,500 would be 
required to pay the Federal Government only $5,500 in taxes. 
Simply put, it allows families to keep more of their money to 
spend on their children's education.
    Some already have called this a voucher program, but it is 
clearly not. Arizona's Supreme Court recognized the difference 
in a ruling that the U.S. Constitution didn't bar the state's 
tuition tax credit. Others claim it will lead to an exodus of 
students and destroy public education, claims that suggest a 
lack of confidence in the existing system.
    The fact is, the school choice genie is out of the bottle, 
and it's working, in Wisconsin, Arizona, Florida, even the 
District of Columbia. Those who still embrace a cocoon 
mentality only stifle innovation and cultivate mediocrity in 
education.
    No less a respected educational leader than Albert Shanker, 
who was the former president of the American Federation of 
Teachers, agreed. He said, quote, ``It's time to admit that 
public education operates like a planned economy, and there are 
few incentives for innovation or productivity. It's no surprise 
our school system doesn't improve. It more resembles the 
communist economy than our own market economy.'' End quote. 
That's the former president of the American Federation of 
Teachers.
    Public school students would also benefit under this plan, 
because it would help reduce class size, improve teacher-to-
student ratios, and increase per capita spending. A nonpartisan 
economic analysis of a Utah tuition tax credit proposal found 
that taxpayers would save as much as $1.3 billion over 13 
years, and the Desert Morning News noted, quote, ``It dealt a 
blow to public education officials' stand that tuition tax 
credits would drain school dollars.'' End quote.
    The fact that both public and nonpublic schools would win 
with a Federal tuition tax credit is beside the point. What 
matters most is that America's students should have the 
opportunity to succeed regardless of what type of school they 
attend. Passage of this act would have a profound impact not 
only on our communities, but in every corner of America.
    Mr. Chairman, I come before you today asking the support of 
the TEACH Act. Together we can make education more affordable 
for all Americans and provide a quality education for all of 
our nation's children.
    Thank you for your time.
    [The prepared statement of Hon. Vito Fossella follows:]
Prepared Statement of The Honorable Vito Fossella, a Representative in 
                  Congress from the State of New York
    I would like to begin by thanking the Ways and Means Committee, 
including Chairman Thomas, Ranking Member Rangel, Sub-Committee 
Chairman Camp and Ranking Member McNulty for the opportunity to testify 
at today's hearing.
    Religious and private schools have rightfully earned a reputation 
for academic excellence and character development in America's young 
people. However, many parents who send their children to religious or 
private schools do so at a tremendous financial cost. In my home 
district of Staten Island and Brooklyn, New York, tuition to these 
religious and private schools averages roughly $4,500 per year, per 
student. At these rates, it is increasingly difficult for the typical 
family--let's say a police officer and a nurse--to afford to send their 
children to the schools they want.
    In April of 2006, the Archdiocese of New York announced it would 
close eight schools, including St. Paul's on Staten Island and others 
across the city. This action mirrors a nationwide trend. Indeed, from 
1999 to 2003, more than 1,200 private and parochial schools in urban 
areas like New York, Chicago, and Detroit have shut their doors while 
enrollment has dropped by nearly 360,000.
    Many of these schools worked hard to keep costs down, but as Edward 
Cardinal Egan told me, ``the cost to us--even though about a third of 
what is spent on the competition--is rising above our financial 
capacities.''
    As a proud graduate of PS 39 and IS 2 on Staten Island, I recognize 
that public schools are the right choice for the overwhelming majority 
of Americans. That is why I have consistently voted for higher levels 
of Federal funding (more than $57 billion this year alone) for public 
education, a rise of 150 percent over the last decade.
    But many low-income students find themselves trapped in failing 
public schools, where academic achievement--and opportunity--is all but 
non-existent. These young Americans, the majority of them minorities, 
are being denied a basic education because the alternatives are simply 
outside their family's financial means.
    In my home State of New York, between 65 and 80 percent of students 
in the archdiocese's 16 schools have family incomes below the poverty 
line. A recent New York University study found the performance of 
Catholic schools with high concentrations of poor black and Hispanic 
students surpassed that of public schools with student populations that 
are less poor and more white or Asian, despite larger student-to-
teacher ratios and lower per-pupil spending in Catholic schools. The 
New York Post recently stated, ``Of the nearly 30,000 students 
attending Catholic schools in non-white and poor neighborhoods, the 
percentage of students passing state tests was twice that of the local 
public schools.''
    While taxpayers save money for every child that attends a non-
public school, the Tax Code offers these families no such benefit. This 
needs to change. This is why I have introduced H.R. 5230, the TEACH 
Act--legislation creating a $4,500 Federal tuition-tax credit for K-12 
parochial and private school education.
    Here's how it would work: Families would be permitted to take a 
dollar-for-dollar reduction in their tax liability for non-public 
school tuition expenses. For example, a taxpayer with a liability of 
$10,000 and a tax credit of $4,500 would be required to pay Uncle Sam 
only $5,500 in taxes. Simply put, it allows families to keep more of 
their money to spend on their children's education.
    Some already have called this a voucher program, but it clearly is 
not. Arizona's Supreme Court recognized the difference in ruling that 
the U.S. Constitution didn't bar that state's tuition-tax credit. 
Others claim it will lead to an exodus of students and destroy public 
education--claims that suggest a lack of confidence in the existing 
system.
    Fact is, the school-choice genie is out of the bottle--and it's 
working, in Wisconsin, Arizona, Florida, and even the District of 
Columbia. Those who still embrace a cocoon mentality only stifle 
innovation and cultivate mediocrity in education.
    No less a respected educational leader than Albert Shanker, former 
president of the American Federation of Teachers, agreed, ``It's time 
to admit that public education operates like a planned economy and 
there are few incentives for innovation or productivity. It's no 
surprise our school system doesn't improve. It more resembles the 
communist economy than our own market economy.''
    Public-school students would also benefit under this plan because 
it would help reduce class sizes, improve teacher-to-student ratios and 
increase per-capita spending. A nonpartisan economic analysis of a Utah 
tuition-tax credit proposal found that taxpayers would save as much as 
$1.3 billion over 13 years. Plus, as the Desert Morning News noted, it 
``dealt a blow to public education officials' stand that tuition-tax 
credits would drain school dollars.''
    The fact that both public and non-public schools would win with a 
Federal tuition tax credit is beside the point.
    What matters most is that America's students should have every 
opportunity to succeed, regardless of what type of school they attend. 
Passage of the TEACH Act will have a profound impact not only on our 
communities, but in every corner of America.
    Mr. Chairman, I come before your Committee today asking support by 
cosponsoring the TEACH Act. Together, we can make education more 
affordable for all Americans and provide a quality education for our 
nation's children.
    Thank you.

                                 

    Chairman CAMP. Thank you. Thank you very much for your 
testimony. Now the Honorable Gary Miller from the State of 
California. You have 5 minutes. We will make your full 
statement part of the record as well.

  STATEMENT OF HON. GARY MILLER, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mr. MILLER. Thank you, Mr. Chairman. I want to thank you 
for inviting me to testify. I think I'm----
    Chairman CAMP. Yes. If you speak directly into the 
microphone and not move away from it, it'll sound much better.
    Mr. MILLER. To me this is an important tax issue that's 
been in place for far too long. In particular, I'm here to talk 
about H.R. 1898, the Telephone Excise Tax Repeal Act, which 
will repeal the antiquated 3 percent tax on telecommunications 
services. I'd like to thank the Members of this Committee for 
taking time today to listen and consider this bill. I 
especially want to thank you, Chairman Camp. You're one of the 
cosponsors of this, and I believe seven Members of your 
Subcommittee also cosponsor the bill.
    The tax on telecommunication services has a long history. 
In 1989, the United States engaged in a brief military conflict 
in Spain referred to as the Spanish-American War. To pay for 
this 3-month skirmish, lawmakers enacted a ``temporary'' tax on 
telephone use. The intention was to tap money from only those 
who could afford a telephone. The tax was repealed in 1916, but 
that only lasted for 1 year. Then it was reinstated, even 
becoming as high as 25 percent in 1943. Lawmakers designated 
the tax as permanent in 1990 when it was set at the current 3 
percent level. In 2000, the battle on American taxpayers' 
wallets almost came to a close when Congress sent legislation 
to the President to repeal this tax. I worked on this tax for 8 
years and was lucky in 2000 to get the language put into an 
appropriations bill that was sent to President Clinton at that 
point in time, but he decided to veto that bill so the tax 
that's been going on for 108 years is continuing.
    While a luxury tax on telecommunication services might have 
made sense in 1898, there's no question that telecommunication 
services today are a necessity, not a luxury. More than 107 
million American households are paying for a tax on their 
telecommunication services, a significantly larger population 
than the few who it was basically intended to impact in the 
original 1898 law. Today, instead of taxing only the rich, the 
Federal excise tax, referred to as FET, hits the pocketbooks of 
almost every American, both rich and poor.
    Other items subject to a luxury tax include airplane 
tickets, beer and liquor, firearms and cigarettes. Today a 
telephone is a necessity and does not fit in this list of 
others that are considered luxury items.
    I am pleased that the telephone tax has received some 
attention in recent months as the Treasury Department concluded 
that an outdated statute no longer enabled them to collect a 
large portion of the tax referred to as FET.
    Specifically, ion 1965, Congress codified excise tax 
collection rules and specified that collection of taxes on long 
distance telephone services shall be based on both time and 
distance. For the past 10 years, the modern long distance 
service charges vary only by time, not by time and distance.
    After losing eleven consecutive cases in five Federal 
circuit courts, on May 25, 2006, the Treasury Department 
announced that it would end collection of the excise tax on 
long distance telecommunication services. Collection of the 3 
percent excise tax on long distance services ended on July 
31st, 2006.
    In addition to ending the collection on long distance 
services, bundled services are also no longer subject to the 3 
percent tax. This means a majority of wireless telephone 
subscribers are exempt from paying the FET as well. Based on 
the IRS decision, land line telephones are the last remaining 
vestige in which a FET is applied. Typically, those who depend 
solely on land line telephones are seniors, low income and 
rural residents. This is not only regressive, it's 
discriminatory.
    While I was pleased with the Treasury action earlier this 
year, I believe there is a great potential for disparity in 
treatment of continued collection of the FET on local services, 
both of telecommunication companies and the average American 
consumer. Taxes should apply equally to comparable 
transactions.
    Today there are thousands of new providers of 
telecommunication services like cable companies, satellite 
companies and Internet providers. There is a potential that 
comparable services provided to customers using different 
technologies may not be subject to the same excise tax.
    As a conservative, I certainly believe it is important to 
consider the impact of this legislation on the Federal budget. 
According to the Joint Committee on Taxation, JCT, the 
estimated budget effect over 10 years beginning in 2007 is $4.5 
billion. This is $4.5 billion more that Americans can keep in 
their pocketbooks to spend and invest, which in turn will 
stimulate the economic growth of our country.
    Former Treasury Secretary John Snow is on the record 
supporting full repeal of the FET. On May 25, 2006, he stated, 
quote, ``In addition to ending the litigation, I would like to 
call on Congress to terminate the remainder of the antique tax 
by repealing the excise tax on local services as well.'' End 
quote. So, the Treasury at this point is behind what we're 
trying to do.
    Again, I want to thank you for hearing this today. We all 
have to acknowledge that the Spanish-American War has 
concluded, and there's no reason to punish people who still 
rely on a land line to make a phone call.
    Thank you.
    [The prepared statement of Hon. Gary G. Miller follows:]
 Prepared Statement of The Honorable Gary Miller, a Representative in 
                 Congress from the State of California
    Mr. Chairman, thank you for inviting me to testify today about an 
important tax issue that has remained in place for far too long and no 
longer serves its original purpose. In particular, I am here to talk 
about H.R. 1898, the ``Telephone Excise Tax Repeal Act of 2005,'' which 
will repeal the antiquated 3 percent tax on telecommunication services. 
I would like to thank Members of the Committee for taking time today to 
listen and consider the merits of H.R. 1898. I especially want to thank 
Chairman Camp and the seven Members of the Subcommittee who are 
cosponsors of this important legislation.
    The tax on telecommunication services has a long history. In 1898, 
the United States engaged in a brief military conflict with Spain, the 
Spanish American War. To pay for the 3-month skirmish, lawmakers 
enacted a ``temporary'' tax on telephone use. The intention was to tap 
money from only those who could afford a telephone. The tax was 
repealed in 1916, but only for 1 year, when it was reinstated, even 
becoming as high as 25 percent in 1943. Lawmakers designated the tax as 
``permanent'' in 1990, when it was set at the current 3 percent rate. 
In 2000, the battle on American taxpayers' wallets almost came to a 
close, when Congress sent legislation to the President to repeal the 
tax.\1\ However, President Clinton vetoed an appropriations bill which 
included the phone tax provision, and thus, taxpayers continue to pay 
for a ``temporary'' tax that was enacted 108 years ago.
---------------------------------------------------------------------------
    \1\ United States Cong. House. 106th Congress, 2nd Session. H.R. 
4516, the Legislative Appropriations Act for Fiscal Year 2001 
[introduced in the U.S. House, 23 May 2000].
---------------------------------------------------------------------------
    While a ``luxury'' tax on telecommunication services might have 
made sense in 1898, there is no question that telecommunications 
services today are necessities, not luxuries. More than 107 million 
American households are paying for a tax on their telecommunications 
services, a significantly larger population than the few it was 
initially intended to impact.\2\ Today, instead of taxing only the 
rich, the Federal excise tax (FET) hits the pocket books of almost all 
Americans, both rich and poor.
---------------------------------------------------------------------------
    \2\ United States. Federal Communications Commission, Wireline 
Competition Bureau, Industry Analysis and Technology Division. 
Telephone Subscribership in the United States. January 2004.
---------------------------------------------------------------------------
    Other items subject to a luxury tax include airplane tickets, beer 
and liquor, firearms and cigarettes. Today, a telephone is a necessity, 
and does not fit with this list of luxury items.
Internal Revenue Service (IRS) Action
    I am pleased that the telephone tax has received some attention in 
recent months, as the Treasury Department concluded that an outdated 
statute no longer enabled them to collect a large portion of the FET.
    Specifically, in 1965, Congress codified excise tax collection 
rules, and specified that collection of taxes on long distance 
telephone services shall be based on both time and distance.\3\ 
However, for the past 10 years, modern long distance service charges 
vary only by time, not both time and distance.
---------------------------------------------------------------------------
    \3\ 26 U.S.C. Sec. 4252(b)(1).
---------------------------------------------------------------------------
    The IRS acknowledged the change in long distance service offerings, 
and thus began settling cases brought about by companies who demanded 
refunds for payment of the FET on their long distance charges. In 
August 2004, the IRS issued a notice requiring telephone companies to 
continue to collect the FET on all long distance services, even those 
varying by time only.\4\
---------------------------------------------------------------------------
    \4\ United States. Department of the Treasury. Internal Revenue 
Bulletin: 2004-35. 30 August 2004.
---------------------------------------------------------------------------
    After losing eleven consecutive cases in five Federal circuit 
courts, on May 25, 2006, the Treasury Department announced that it 
would end collection of the excise tax on long distance 
telecommunications services.\5\ Collection of the 3 percent excise tax 
on long distance services ended on July 31, 2006.
---------------------------------------------------------------------------
    \5\ ``Treasury Announces End to Long-Distance Telephone Excise Tax: 
Press Release js-4287.'' Department of the Treasury Official Home Page. 
2006. United States Department of the Treasury. 25 May 2006. .
---------------------------------------------------------------------------
    In addition to ending the collection on long distance services, 
``bundled'' services are also no longer subject to the 3 percent 
tax.\6\ This means a majority of wireless telephone subscribers are 
exempt from paying the FET as well.
---------------------------------------------------------------------------
    \6\ United States. Department of the Treasury. Internal Revenue 
Bulletin: 2006-25. 19 June 2006. A bundled service is local and long 
distance service provided under a plan that does not separately state 
the charge for the local telephone service. Bundled service includes, 
for example, Voice over Internet Protocol service, prepaid telephone 
cards, and plans that provide both local and long distance service for 
either a flat monthly fee or a charge that varies with the elapsed 
transmission time for which the service is used. Telecommunications 
companies provide bundled service for both landline and wireless 
(cellular) service.
---------------------------------------------------------------------------
    Based on the IRS decision, land line telephones are the last 
remaining vestiges in which the FET is applied. Typically, those who 
depend solely on land line telephones are seniors, low-income and rural 
residents. This is not only regressive but discriminatory.
Full Repeal of the FET is Necessary
    While I was pleased with the Treasury's action earlier this year, I 
believe there is great potential for disparities in treatment of 
continued collection of the FET on local services, both for 
telecommunications companies and the average American consumer. Taxes 
should apply equally to comparable transactions.
    Today, there are thousands of new providers of telecommunications 
services, like cable companies, satellite companies and Internet 
providers. There is the potential that comparable services provided to 
customers using different technologies may not be subject to the excise 
tax.
    For example, traditional telecommunications providers may be forced 
to collect the tax from customers that competitors may not collect on 
comparable services. This puts traditional telephone companies at a 
competitive disadvantage, and may lead consumers to choose a particular 
service or company solely based on tax applicability. In addition, in 
rural areas where only basic services may be offered, consumers are 
forced to pay the FET with little or no recourse.
    Enhanced competition in the telecommunications industry will 
benefit the marketplace, consumers and our economy. Telephone service 
provides the basis for much of the growth of the digital economy. It is 
vital that Congress does not stifle this innovation by imposing 
burdensome taxes and fees. The continued tax on telephone service may 
inhibit growth of this new sector of the economy.
    As a fiscal conservative, I certainly believe it is important to 
consider the impact of this legislation on our Federal budget. 
According to the Joint Committee on Taxation (JCT), the estimated 
budget effect over 10 years, beginning in 2007, is $4.5 billion.\7\ 
This is $4.5 billion more that Americans can keep in their pocketbooks 
to spend and invest, which in turn will stimulate economic growth.
---------------------------------------------------------------------------
    \7\ United States. Joint Committee on Taxation. Estimated Budget 
Effects of the Telephone Excise Tax Repeal and Taxpayer Protection and 
Assistance Act of 2006, as Reported by the Senate Committee on Finance. 
Washington: Government Printing Office, 15 September 2006.
---------------------------------------------------------------------------
    Former Treasury Secretary John Snow is on record supporting full 
repeal of the FET. On May 25, 2006, he stated, ``In addition to ending 
the litigation, I would like to call on Congress to terminate the 
remainder of this antique tax by repealing the excise tax on local 
service as well.'' \8\
---------------------------------------------------------------------------
    \8\ ``Treasury Announces End to Long-Distance Telephone Excise Tax: 
Press Release js-4287.'' Department of the Treasury Official Home Page. 
2006. United States Department of the Treasury. 25 May 2006. .
---------------------------------------------------------------------------
Conclusion
    Again, I want to thank you for the opportunity to testify before 
this Committee regarding the telephone excise tax. With the support of 
over 200 of our colleagues, including over half of the distinguished 
Members of the Ways and Means Committee, I am hopeful that Congress can 
finally give closure to the Spanish American War by considering and 
passing H.R. 1898, the ``Telephone Excise Tax Repeal Act.''

                                 

    Chairman CAMP. Thank you very much, Mr. Miller, for your 
testimony. Now the Honorable Trent Franks from the State of 
Arizona, you have 5 minutes, and we'll make your full statement 
part of the record as well.

 STATEMENT OF HON. TRENT FRANKS, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF ARIZONA

    Mr. FRANKS. Thank you, Mr. Chairman. Mr. Chairman, I know 
that when the issue of education comes before any group, you 
know, sometimes it's good for us just to focus on what it's 
really all about. I think Thomas Jefferson said the purpose of 
education is to create young citizens with knowing heads and 
loving hearts. Aristotle said to the effect that the longer I 
study the art of governing mankind, the more I realize that the 
fate of empires depends upon the education of youth.
    I'm convinced that all of us understand here in this room 
the critical nature to the future of education. The challenge 
before us oftentimes is how to effect the very best possible 
system. Really at the core of that dynamic is who will decide 
the nature and the content of children's education in this 
country. Will it be bureaucrats who do not know the children, 
or will it be mom and dad?
    In Arizona, we enacted the Children's Hope Act, because we 
believe that mothers and fathers love their children more than 
any other group on Earth and would do the very best they could 
if given the opportunity. The Arizona Scholarship Tax Credit, 
which is a bill that I wrote that was passed in 1997, allows 
individuals on a voluntary basis if they choose to do so, to 
contribute to scholarship funds for children to go to school of 
their parents' choice, and the contributor then gets a dollar-
for-dollar reduction in their state income taxes. The results 
are twofold. First, thousands of children, in this case in 
Arizona, around 27,000 children to this point, are given the 
opportunity to get scholarships to go to a school of their 
parents' choice. It is incredibly effective in that it has 
increased the public school satisfaction among parents across 
the board. In fact, instead of hurting public schools, it has 
helped them.
    The scholarship tax credit reduces the revenue that goes to 
the state treasury, but in so doing, it reduces the burden on 
it twice as much, and oftentimes the private sector comes along 
and further helps the private school student. So, this is a 
major boon economically to Arizona.
    But the real advantage to the scholarship tax credit 
approach, in my opinion, is its constitutionality, because it 
gives a choice both to the donor and to the parent. 
Consequently, we've survived every constitutional challenge. 
This went to the Arizona Supreme Court and was upheld, then it 
went to the United States Supreme Court which let the ruling 
stand as written.
    That's not something that we're projecting, Mr. Chairman. 
That's what happened. In the process here, we've seen children, 
most of which are low income children, that are having their 
education funded by people who are in the upper income levels, 
and it's all done on a voluntary basis. It increases the 
competition among the school system, and it puts the focus 
where it belongs, that being upon the child rather than the 
system.
    I can only say to you, Mr. Chairman and Members, you know, 
probably more than any other factor in humanity's whole, the 
direction that our children go academically and spiritually and 
philosophically will affect the future of this country more 
than any other single factor.
    I think it's incredibly important that we afford parents 
the opportunity to choose the best road for their children. 
Because if children understand that they are miracles and that 
all those around them are miracles, not only will they have the 
motivation to learn and study history and math and philosophy 
and all of these things that are important to them 
academically, but they will find something else, and that is a 
purpose for living. At the end of the day, they will find their 
way home.
    I can tell you that the Children's Hope Act that we've 
introduced in Congress is merely to create a Federal matching 
credit for those states who do the same thing. The Joint Tax 
Committee has estimated over 3 years that the impact would be 
216 million--that's not billion--but million dollars in 3 
years. The idea is to catalyze these programs in many states. 
The effect, I believe, Mr. Chairman and Members, would be a 
tremendous boon to the children of that state.
    So with that, I'll just be here for questions. Thank you, 
Mr. Chairman.
    [The prepared statement of Hon. Trent Franks follows:]
 Prepared Statement of The Honorable Trent Franks, a Representative in 
                   Congress from the State of Arizona
    Mr. Chairman, Members of the Subcommittee, thank you very much for 
allowing me to speak to you today about the Children's Hope Act and 
education tax credits in general. I believe that tax credits, by 
providing choice to both the donor and the recipient, provide a unique 
way for the Federal Government, state governments and individuals to 
work together to ensure that everyone of our nation's students are 
getting the best possible education.
    Arizona has led the nation in providing tax credits for education, 
and the results have been truly amazing. Arizona's scholarship tax 
credit program was enacted in 1997. In the first year that the program 
was fully operational, 17 school tuition organizations distributed 
close to $2.2 million in scholarships to over 3,300 students. The 
average scholarship amount was 653 dollars. The program has grown 
significantly every year. In 2005, according to the Arizona Department 
of Revenue,:

      69,232 donations to private school tuition organizations 
totaling $42,191,748 were reported to the Arizona Department of 
Revenue. This is an increase of 32.4% over the $31,871,900 reported for 
2004.
      All of the 54 school tuition organizations operating in 
Arizona in 2005 submitted the statutorily-required report.
      The average donation in 2005 was $609. This is an 
increase from the $499 average in 2004, mostly due to the increase in 
the maximum credit for married filing joint filers.
      The average scholarship amount in 2005 was $1,370. Total 
Scholarships paid by school tuition organizations was $30.9 million, a 
9.4% increase over the amount of scholarships paid in 2004. The number 
of scholarships paid in 2005 was 22,522, a 6.5% increase over the 
21,146 scholarships paid in 2004.
      345 private schools in Arizona received scholarship money 
from school tuition organizations, 10 more than last year.

    This year, under a democratic Governor, Arizona's scholarship tax 
program was expanded to allow corporations to participate. Tax credits 
have truly bipartisan appeal. Democratic governors in Iowa and 
Pennsylvania have signed legislation this year expanding or creating 
scholarship tax credit programs. Rhode Island passed a tax credit 
program with broad, bipartisan support. And in Maryland and New Jersey, 
bipartisan coalitions are working to create scholarship tax credits.
    The Children's Hope Act would encourage even more states to enact 
tax credits similar to Arizona's innovative program by providing a 
small Federal credit as an incentive for states to enact their own 
scholarship tax credit. Tax credits truly empower parents and 
communities to directly make a difference in the needs of their local 
schools.
    Under the Children's Hope Act, if a state enacts a scholarship tax 
credit of $250 or more, based upon the minimal guidelines that are 
outlined in the text of the legislation, all residents of that state 
are eligible to take part in an additional Federal tax credit. The 
Federal tax credit is only $100 ($200 for joint returns) and only for 
those individuals contributing to education investment organizations 
that distribute at least half of their scholarships to low-income 
children. For those nine states that do not have an income tax, they 
can take a dollar-for-dollar credit against their property taxes.
    This program encourages a community commitment: The scholarship tax 
credit program provides individuals with a cost-free charitable 
opportunity to improve a child's life and make a difference in a 
community. Individuals can receive a dollar-for-dollar credit against 
their state income tax liability for contributions to non-profit 
organizations that give students scholarships to attend a school of 
their choice.
    This program builds on existing programs: An education investment 
organization is a nonprofit group that distributes at least 90 percent 
of their annual cash contributions in the form of grants or 
scholarships to elementary and secondary students. A donation for as 
little as $5 can help make the difference in the life of a child. And, 
families who do not utilize the credits can still see daily benefits as 
their public schools improve to keep up with the new competition.
    Mr. Chairman, Members of the Committee, I sincerely thank you for 
giving me the opportunity to speak with you today about this innovative 
program, and I would be happy to answer any questions that you might 
have.

                                 
    Chairman CAMP. Thank you very much for your testimony. Now 
the Honorable Heather Wilson from the State of New Mexico, your 
full statement will be made part of the record. You have 5 
minutes. We've been having a little trouble with these 
microphones, so just speak directly into it, please, and then 
we'll be able to hear everything. Thank you. Welcome to the 
Subcommittee.

STATEMENT OF HON. HEATHER WILSON, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF NEW MEXICO

    Ms. WILSON. Thank you, Mr. Chairman, and thank you for 
holding this hearing today. We know that we have a challenge in 
this country in hiring teachers over the next couple of 
decades. We're going to have to hire 2 million teachers over 
the next 10 years. There's a surge of retirements and a growth 
of enrollment of students.
    But the problem is not really an overall teacher shortage. 
We have a serious shortage and a maldistribution of teachers, 
and a shortage of well qualified teachers in the most 
disadvantaged schools.
    I introduced the Teacher Tax Credit Act that will help 
recruit and retain teachers in the most needed neighborhoods. 
The Tax Credit Act would provide a $2,000 tax credit to a 
kindergarten through grade 12 teacher, counselor, instructor, 
principal or aide in a Title I elementary or secondary school. 
Of course, Title I is the program for schools in neighborhoods 
where at least 40 percent of the students are coming from 
families living in poverty.
    In New Mexico, in the district that I represent, there are 
61 Title I schools who would benefit from H.R. 986, and 
nationally, Title I helps about 12.5 million students.
    All of us know that having a great teacher in the classroom 
is the key of getting a great education. If I have a choice 
between the best equipped school in the city of Albuquerque and 
a great teacher standing under a cottonwood tree, for my kids, 
I'd choose a great teacher standing under a cottonwood tree. 
The key is to get highly qualified teachers into the schools 
where disadvantaged children need the most, and the Teacher Tax 
Credit Act is intended to help in that direction.
    The bill that I've introduced has 83 bipartisan cosponsors. 
It is supported by the National Education Association on behalf 
of its 2.7 million members.
    I thank you for your consideration.
    [The prepared statement of Hon. Heather Wilson follows:]
Prepared Statement of The Honorable Heather Wilson, a Representative in 
                 Congress from the State of New Mexico
    Chairman Camp and Ranking Member McNulty,
    Thank you for allowing me the opportunity to testify on H.R. 986, 
the Teacher Tax Credit Act of 2005.
    The United States will need to hire 2 million teachers in the 
coming decade. A surge in teacher retirement and growth in enrollment 
of students are major contributing factors to the need for more 
teachers.
    The problem is not an overall teaching shortage in the country, but 
rather a problem with the distribution of teachers between affluent and 
disadvantaged schools. We need qualified, competent teachers to stay in 
the neighborhoods that need them

most. The Teacher Tax Credit Act will help recruit and retain teachers 
in the most needed areas.
    The Teacher Tax Credit Actwill provide a $2,000 credit to a 
kindergarten through grade 12 teacher, instructor, counselor, 
principal, or aide in a Title I elementary or secondary school.
    The Teacher Tax Credit Actprovides a $2,000 non-refundable tax 
credit for teachers, instructors, counselors, principals, or aides who 
teach or work full-time 
in a Title I elementary or secondary school. Title I is the Federal 
program for 
schools with at least 40 percent of their students coming from families 
living in poverty.
    In the New Mexico district I represent there are sixty-one Title I 
schools that would benefit from H.R. 986. Nationally, Title I helps 
about 12.5 million students. 12.5 million students would potentially 
benefit from H.R. 986.
    Ensuring a highly qualified teacher in every classroom is critical 
to closing achievement gaps and maximizing students' academic success. 
The Teacher Tax Credit Act will help to retain talented teachers and 
close the achievement gap.
    I have introduced the Teacher Tax Credit Act in the 107th, 108th 
and 109th Congresses. In the 109th Congress, H.R. 986 enjoys the 
support of 83 bi-partisan cosponsors. In addition, H.R. 986 is 
supported by the National Education Association on behalf of its 2.7 
million members.

                                 

    Chairman CAMP. Thank you very much for your testimony. What 
effect would your proposal have on the ability of schools to 
attract quality teachers?
    Ms. WILSON. In my view, it will have a tremendous impact. 
If you look at the average experience level of teachers in 
Title I schools compared to the experience levels of teachers 
in more affluent neighborhoods, there's a big difference. We 
have to be honest about it. Sometimes teaching in disadvantaged 
neighborhoods, it's just a harder job. You have to spend more 
time. You're there after school more. It's just a tougher job.
    I guess it's not a big surprise that maybe you start out 
there and then maybe you move into a different neighborhood. 
This gives teachers in schools where kids are growing up in 
poverty a little bit extra incentive to stay teaching at that 
school, because there's a $2,000 tax credit that goes along 
with it.
    Chairman CAMP. Thank you. Mr. Franks, Congress through the 
Code has allowed the deductibility of gifts for a very long 
time. Tell me why your proposal would supplement that, and why 
that's necessary.
    Mr. FRANKS. I appreciate--that's a very cogent question, 
because we asked the same question in Arizona. We had the 
ability to contribute to scholarship funds for children and get 
a deduction for it. We were raising about $100,000 a year for 4 
or 5 years straight. It just wasn't moving much. When we turned 
that deduction into a credit, it went from 100,000 to now 50 
million a year. We now have the largest school choice program 
in the Nation.
    So there is something about the mindset, you know, getting 
a dollar-for-dollar reduction, that seems to catalyze the 
contributions in a huge way. You understand, we're not trying 
to replicate that on the Federal level. We're simply trying to 
catalyze other states to do the same thing that Arizona has 
done, and there are five states now that have moved in that 
direction. Again, the five of them together eclipse all other 
school choice programs in the Nation.
    I don't think tax credits have been given really the fair 
look that they deserve in this situation. The success has been 
profound, and

the cost effect here. I wish people could understand this. In 
Arizona, it costs us about $7,500 per year to educate a child 
on an average basis. It costs half that much for us to do it in 
a private school, half that much.
    Besides that, the parents and the people--the extended 
family and other people that are trying to help the child often 
augment the scholarship in the second place. So, we end up 
having a two, three, and sometimes four-to-one savings of the 
cost of education, and the child outperforms their peers in the 
public schools two to three grade levels.
    You know, as you can see, it's something I feel very, very 
good about. This is something that worked. This is not theory. 
It worked very well, and it especially worked well for low 
income children who sometimes find themselves just a little 
bottom in the chair to the system. This turns them into 
royalty, Mr. Chairman.
    Chairman CAMP. Thank you very much. The gentleman from New 
York, Mr. McNulty, may inquire.
    Mr. MCNULTY. Thank you, Mr. Chairman. I thank you all for 
your testimony. Gary, would you just clarify on your bill, 
because I note that the IRS did repeal this tax earlier this 
year.
    Mr. MILLER. Oh, sure.
    Mr. MCNULTY. Okay. But would you clarify again for me what 
portion of these services is still subject to a Federal tax?
    Mr. MILLER. Just hard line services, and that's an 
individual who doesn't have a cell phone, mainly disadvantaged 
individuals, senior citizens. Every other repeal amongst the 
phone has pretty much been taken place on the--the problem we 
face is about $4.5 billion over the next 10 years is applied to 
those lower income levels, we believe. Over 200 Members of 
Congress----
    Mr. MCNULTY. How does that happen if the tax has been 
repealed? I don't understand.
    Mr. MILLER. From long distance phone calls. A repeal of 
that portion.
    Mr. MCNULTY. Okay.
    Mr. MILLER. Bundled services. Those have been repealed. So, 
now it----
    Mr. MCNULTY. So, it was not repealed for local services?
    Mr. MILLER. No, it was not. It wasn't----
    Mr. MCNULTY. You're talking about the Federal tax?
    Mr. MILLER. It just applies to land phones, the phone you 
pick up at home, those are all it applies to. When you pick up 
a cell phone, you don't pay. But the people who don't have cell 
phones are having to pay this tax, and we believe that's 
regressive and really hits the people who should not be taxed.
    Mr. MCNULTY. Thank you.
    Chairman CAMP. Thank you. Mr. Foley may inquire.
    Mr. FOLEY. Thanks very much. Ms. Wilson, I notice your bill 
builds on a Camp legislation, which is the $250 deduction for 
school supplies. Is that the base by which you started?
    Ms. WILSON. It's not--it wasn't--it's not tied to that 
specific measure. It is just a $2,000 per teacher tax credit 
for those who teach in low income Title I schools.
    Mr. FOLEY. Title I. Okay. Because current law, I know Mr. 
Camp introduced a bill that allows for the deduction of cost of 
supplies. This is listed in our little handout.
    Ms. WILSON. Okay.
    Mr. FOLEY. That's the only reason I asked if you were using 
that as a model to advance your legislation.
    Ms. WILSON. Well, Mr. Chairman, I think that Camp 
legislation is a great idea, but the--it wasn't particularly 
tied to that.
    Mr. FOLEY. You answered correctly.
    [Laughter.]
    The Title I schools, that's based on eligibility on free 
and reduced lunch?
    Ms. WILSON. Free and reduced price lunch. It's 40 percent 
of the students are growing up in poverty is I think the 
criteria now for a Title I school.
    Mr. FOLEY. Okay. That's an above-the-line? That's a tax 
credit?
    Ms. WILSON. Tax credit.
    Mr. FOLEY. Okay. Thank you. Ms. Christensen, the amount of 
cover. It doesn't have a score at this point of what it would 
provide revenues to both Puerto Rico and Virgin Islands. Do you 
have an idea what that additional revenues would enhance your 
abilities?
    Ms. CHRISTENSEN. It would be an additional 25 cents on the 
proof gallon, and it would probably--within the cap from where 
it is right now would be about $80 million.
    Mr. FOLEY. Eighty million. What would you anticipate that 
providing for the residents of Puerto Rico and Virgin Islands, 
where would you see that additional revenue being allocated?
    Ms. CHRISTENSEN. In Puerto Rico, I believe that the extra 
25 cents goes to a conservation fund. The Virgin Islands, it 
has not been determined where it would go at this point, but it 
would go, I would think for school, infrastructure repair. But 
it has not been decided specifically.
    Mr. FOLEY. Okay. Mr. Fossella, on your legislation relative 
to deductions for sending children to private school, can you 
give me the impetus for that?
    Mr. FOSSELLA. Certainly. I think at the core is I think in 
life these days you have a choice of buying a car, a home, a 
shirt, a tie, and yet many parents don't have a choice as to 
where to send their kid to school. So, I think fundamental is 
that we should do everything possible to provide incentives to 
have a mother, a father or both send their kids to the school 
of their choosing.
    But more specifically is that over the last several years, 
decades, the trend has been because of the nature and the costs 
associated with educating children in nonpublic schools has 
continued to rise, the cost, you'll recall decades ago, it was 
not unusual to have clergy be the teachers, nuns. Salaries were 
practically zero. They were parish subsidies to these nonpublic 
schools.
    Well, the fact is there's probably more nuns over the age 
of 90 than there are under the age of 50. We've had more lay 
teachers in the nonpublic schools that we want to attract--that 
school systems want to attract with good paying jobs, like 
every other job. So, those costs rise, the parish subsidies 
continue to increase.
    Therefore, you're at a point like in the archdiocese of New 
York where to educate a student, although about one-third of 
the public school, there still is at a point where they're 
closing schools. The archdiocese of New York in the last 2 
years alone have closed 63 schools throughout the State of New 
York. In Detroit, in LA, in Chicago, they're closing schools 
because they can't afford to keep them open.
    So, I believe a combination of providing those families on 
the cusp, maybe a police officer or a nurse, an opportunity to 
obtain this tax credit and recognize the rising cost of 
nonpublic schools is the impetus. As I say, at the core, doing 
everything possible to give every parent a choice to send their 
child to a school of their choosing.
    Mr. FOLEY. How do you answer the critics that suggest it 
will further deplete student population from public settings?
    Mr. FOSSELLA. Well, I think it's, again, in my testimony, 
it speaks to the lack of confidence in the school system. I 
believe, and to this day I enjoy a tremendous relationship with 
my teachers. I am a product of public schools. We have some 
great teachers, great educational professionals who dedicate 
their life to helping young people achieve the best in this 
country.
    But at the same time, I think we have to recognize that 
some parents are choosing differently, and that if we can 
provide a healthy dose of competition but allow particularly 
low income, middle income parents the same opportunities that 
families who make a lot of money have, then I think we're doing 
them a service. I don't buy into that rhetoric that it would 
deplete. I think the best will go where the best should go.
    Mr. FOLEY. Thank you. Yes, Mr. Franks?
    Mr. FRANKS. Mr. Foley, maybe I could, to that point, you 
know, a lot of times, if you look at the past, people said that 
Federal Express, when it came about, that it would destroy the 
post office. But it had the exact opposite effect. It actually 
caused the post office to improve tremendously. They started 
giving us money back. Now you see a Federal Express box in 
front of post offices. It's astonishing what happens when you, 
you know, incent excellence.
    They key here is to understand that most of these go to low 
income children. The rich children can go anywhere they want to 
right now. But this makes all the difference for those kids who 
don't have that opportunity. I would just say to you that 
rather than hurting the public schools in Arizona, what it's 
done, it's improved people's assessment of the public schools.
    Mr. FOLEY. Thank you.
    Chairman CAMP. All right. Thank you. The gentlewoman from 
Pennsylvania, Ms. Hart, may inquire.
    Ms. HART. Thank the Chairman, and sorry to go back to the 
same two panel members, but I'm going to do that. I'm a big fan 
of both Vito's bill, I mean, Congressman Fossella's bill, and 
Congressman Franks' bill. I think the goal that you have of 
providing more opportunities for more students to really attend 
the schools that will be better for them and really allow that 
decision to rest more fully in the hands of the parents is a 
great idea, and I want to go back to Congressman Fossella's 
legislation, which is purely a tax credit to the family. I've 
been supportive of school choice, and I've always been 
concerned about tax credits, because I think it still doesn't 
provide an opportunity for those who may need it the most to 
still access that other private or religious education. My 
question for you is, do you think that your tax credit is 
enough to really allow the people who need it the most to 
attend those schools?
    Mr. FOSSELLA. Well, I think I share your view of choice 
when it comes to education. I tried to keep the legislation as 
simple and as straightforward as possible without any other 
bells or whistles attached to it. I would hope, as my 
colleague, Mr. Franks, just stated, that with an injection of 
this and healthy competition, that not only will these schools 
continue to flourish, but public schools will improve as well.
    So, there is no provision that addresses income in any way.
    Ms. HART. Thank you. Mr. Franks, do you think that maybe 
your legislation could fill in where Mr. Fossella's would not? 
For example, people who are low enough income that they maybe 
don't pay that much in taxes or couldn't put the money together 
to pay the tuition?
    Mr. FRANKS. Thank you, ma'am. I will say first of all that 
I'm a strong supporter of Mr. Fossella's bill. Having said 
that, the scholarship tax credit approach is very different 
than a direct tax credit to families. It sounds a little bit 
like it's circuitous. But what it does, this legislation allows 
poor children whose parents don't pay any taxes or have any tax 
liability whatsoever to get full scholarships to go to--so it 
completely bypasses that challenge that you put before us.
    The way it does it, is it allows those who do have tax 
liability to voluntarily make these contributions, and it 
reduces their--it's no difference to them in the bottom line, 
but, you know, a lot of times people would rather give money to 
help a child have a better future than to give it to 
bureaucrats. It's just--humanity, you know. But the reality is 
that this anticipates that in a very wonderful way.
    The secondary impact is not only do poor kids have 
opportunity for full scholarships even though their parents 
have no tax liability or pay no taxes, this has catalyzed a 
major building program in Arizona of private schools. Certainly 
the diocese there, Mr. Fossella has built schools there for the 
first time in 30 years because there's not enough room to put 
the kids. These are schools the government doesn't have to 
build. It is a tremendous savings to the state and a tremendous 
boon to the children.
    Ms. HART. As I see it, I think the two bills together would 
really address the needs of families. My State of Pennsylvania 
actually has something similar to the one you discuss in 
Arizona, and we actually started a fund to do that, and a lot 
of folks did contribute to it to provide grants to students to 
go to private religious schools as a result.
    I see both of you as really helping to address a problem 
that we see out there, and that is that if we do become so 
dependent upon a system of public education, that is not very 
American when you think about different people wanting 
different things and being able to make different choices for 
their children. So, I appreciate both of the bills very much.
    I yield back, Mr. Chairman.
    Chairman CAMP. Thank you very much. I want to thank all of 
you for your testimony. This will conclude panel number two, 
and we'll move to panel number three, the Honorable Steve 
Chabot, a Representative in Congress from the State of Ohio; 
the Honorable Tom Udall, a Representative in Congress from the 
State of New Mexico; the Honorable Tim Murphy, a representative 
of Congress from the State of Pennsylvania; and the Honorable 
Jeff Fortenberry, a Representative in Congress from the State 
of Nebraska.
    We'll begin with the gentleman from Ohio, Mr. Chabot. Each 
of you will have 5 minutes to summarize your testimony. We will 
make all of your full statements a part of the permanent 
record. These microphones are a little bit difficult, so if you 
speak directly into the microphone, it will avoid the fading in 
and out that we've had from some other testimonies this 
morning.
    Thank you all for coming. Look forward to hearing about 
your ideas. The gentleman from Ohio, Mr. Chabot, you may begin.

 STATEMENT OF HON. STEVE CHABOT, A REPRESENTATIVE IN CONGRESS 
                     FROM THE STATE OF OHIO

    Mr. CHABOT. Thank you very much, Mr. Chairman, and I want 
to thank all the members of the panel for their opportunity to 
testify here this morning before the Subcommittee in support of 
the New Markets Tax Credit program, a program that is making a 
very big difference in my district, and I would guess in many 
other districts around the country. I also want to thank my 
colleague, Mr. Lewis, for introducing legislation that would 
reauthorize this important program through 2012, and I am proud 
to be a cosponsor of his bill, H.R. 3957, the New Markets Tax 
Credit Reauthorization Act.
    Mr. Chairman, the New Markets Tax Credit, enacted as part 
of the Community Renewal Tax Relief Act of 2000, takes an 
innovative approach to address poverty by using the Tax Code to 
enlist the support of both the public and private sector, 
making the program unique among Federal economic development 
initiatives.
    The New Market Tax Credit, a 39 percent credit against 
Federal taxes over a 7-year period, has helped spur investment 
and economic development in low income communities in my 
district, which is the City of Cincinnati. For example, the New 
Markets Tax Credit program is attracting a significant amount 
of private capital to low income neighborhoods in Cincinnati, 
and is reshaping the area around the University of Cincinnati's 
main campus.
    All told, the New Markets Tax Credit is responsible for 
$102 million in private investments within my district, and is 
providing momentum to spur redevelopment and job creation in 
some of the city's most distressed neighborhoods.
    I hear regularly from my constituents who support this 
program and have witnessed Cincinnati institutions, such as 
Procter & Gamble, Federated Department Stores, the University 
of Cincinnati, and area hospitals reinvest in the urban core. 
Nationwide, the momentum for the New Markets Tax Credits 
program is continuing to grow. Data released from the Treasury 
Department reveals that $4.72 billion in new private capital 
has been raised from 560 investors with increasing demand among 
community development organizations for the credit. In fact, 
the average demand in the four rounds of New Markets Tax 
Credits was nearly nine times that of the available tax 
credits.
    Mr. Chairman, the New Markets Tax Credits program works. 
Providing the private sector with incentives to redevelop and 
strengthen distressed neighborhoods makes sense. In my opinion, 
easing tax and regulatory burdens on the American people is 
always good policy made all the better when struggling 
communities directly benefit.
    As you know, Mr. Chairman, the House passed legislation a 
few months ago to extend the credit for another year. I am 
hopeful that this extension can be signed into law before 
Congress adjourns for the year and look forward to 
reauthorizing the New Markets Tax Credit program into the 
future.
    I want to thank all the Committee Members for their 
attention on this important issue this morning. Unfortunately, 
I would ask to be excused because I have other commitments to 
take care of. Thank you very much.
    [The prepared statement of Hon. Steve Chabot follows:]
 Prepared Statement of The Honorable Steve Chabot, a Representative in 
                    Congress from the State of Ohio
    Mr. Chairman, thank you for the opportunity to testify today before 
your Subcommittee in support of the New Markets Tax Credit program--a 
program that is making a difference in my district. I also want to 
thank my colleague, Mr. Lewis, for introducing legislation that would 
reauthorize this important program through 2012, and I'm proud to be a 
cosponsor of his bill.
    Mr. Chairman, the New Markets Tax Credit, enacted as part of the 
Community Renewal Tax Relief Act of 2000, takes an innovative approach 
to address poverty by using the Tax Code to enlist the support of both 
the public and private sector--making the program unique among Federal 
economic development initiatives. The New Market Tax Credit--a 39 
percent credit against Federal taxes over a 7-year period--has helped 
spur investment and economic development in low-income communities in 
my district.
    For example, the New Markets Tax Credit Program is attracting a 
significant amount of private capital to low income neighborhoods in 
Cincinnati and is reshaping the area around the University of 
Cincinnati's main campus.
    All told, the New Markets Tax Credit is responsible for $102 
million in private investments within my district and is providing 
momentum to spur redevelopment and job creation in some of the city's 
most distressed neighborhoods. I hear regularly from my constituents 
who support this program and have witnessed Cincinnati institutions 
such as Proctor & Gamble, Federated Department Stores, the University 
of Cincinnati, and area hospitals reinvest in the urban core.
    Nationwide, the momentum for the New Markets Tax Credit program is 
continuing to grow. Data released from the Treasury Department reveals 
that $4.72 billion in new private capital has been raised from 560 
investors--with increasing demand among community development 
organizations for the credit. In fact, the average demand in the four 
rounds of New Markets Tax Credits was nearly nine times that of the 
available tax credits.
    Mr. Chairman, the New Markets Tax Credit program works. Providing 
the private sector with incentives to redevelop and strengthen 
distressed neighborhoods makes sense. In my opinion, easing tax and 
regulatory burdens on the American people is always good policy--made 
all the better when struggling communities directly benefit.
    As you know, Mr. Chairman, the House passed legislation a few 
months ago to extend the Credit for another year. I am hopeful that 
this extension can be signed into law before Congress adjourns for the 
year and look forward to reauthorizing the New Markets Tax Credit 
program into the future.

                                 

    Chairman CAMP. Thank you very much for appearing.
    Now we will go to the gentleman, Mr. Udall, from New 
Mexico. Thank you for being here. You have 5 minutes.

STATEMENT OF HON. TOM UDALL, A REPRESENTATIVE IN CONGRESS FROM 
                    THE STATE OF NEW MEXICO

    Mr. UDALL. Thank you. Thank you very much, Chairman Camp 
and Ranking Member McNulty.
    Thank you both for holding this hearing and for giving me 
the opportunity to testify today about legislation I introduced 
in an attempt to remedy an outdated tax law.
    Mr. Chairman, in early 2004 Mrs. Novella Wheaton Nied, a 
U.S. citizen and a native New Mexican, brought to my attention 
a tax law that is effectively precluding her and her husband, 
Mr. Veit Nied, from spending their golden years together in the 
manner of their choosing. At issue is the foreign income tax 
credit. As you know, the United States has tax agreements with 
many countries to prevent double taxation as well as provisions 
in the Tax Code that allow resident aliens who pay taxes to a 
foreign country to claim the foreign tax credit which reduces 
their U.S. income taxes.
    Unfortunately, taxes paid to international organizations, 
such as the European Commission, to whom taxation authority is 
sometimes ceded by member nations, do not qualify for the 
foreign income credit. This is precisely the issue facing the 
Nieds. Mr. Nied, an economist and German citizen, worked for 
the European Commission in Brussels, Belgium, for 27 years, as 
long as he and Novella have been married, before retiring in 
September, 2001.
    Following his retirement, the couple decided to retire in 
Taos, New Mexico, Novella's home. Veit was approved for 
permanent resident status in the United States, but found that 
his pension from the European Commission would be subject to 
double taxation. The initial tax assessed by the European 
Commission because Germany ceded taxation authority to them, 
and the second tax assessed by the United States.
    Double taxation on his pension will create a hardship for 
the Nieds in their retirement, both financially and 
emotionally. As a result, Mr. Nied did not accept the permanent 
resident status and has been traveling back and forth between 
Germany and the United States. All the while he has remained 
extremely cognizant and diligent about following U.S. 
immigration and taxation laws, and therefore has not stayed 
longer than 120 days per annum in the United States, which 
would render him liable for taxes in this country.
    This unfortunate living situation has been ongoing since 
2001, when they learned of the double taxation and have been 
seeking a solution that would allow them once again to live 
together. During this time the Nieds have corresponded with the 
IRS seeking a solution to the problem--to no avail.
    I have consulted with the IRS, as well as with the 
Congressional Research Service, seeking a solution short of 
introducing legislation, but it has become clear that only 
legislation will remedy this problem. That is why I introduced 
H.R. 2307. This legislation seeks to rectify this unfortunately 
predicament by amending the Internal Revenue Code so that 
employment taxes paid to the European Union by employees of the 
European Union are treated as income taxes paid to a foreign 
country for the purposes of the foreign tax credit.
    When I introduced this legislation with the Nieds in mind 
specifically, I believe there must be other families facing the 
same problem. To date, however, I have had difficulty locating 
others facing the same situation as the Nieds.
    Mr. Chairman, this is a bill designed with the intention of 
modernizing a section of the Tax Code that lags behind changes 
in international political institution. In doing so, it will 
allow families such as the Nieds greater freedom, and in the 
particular case of the Nieds will allow them to spend their 
retirement where they wish.
    Mr. Chairman, I thank you once again for holding this 
hearing, and for allowing me to testify. I welcome any 
questions from Members of the Committee as well as any 
suggestions or wisdom on how best to address this complicated 
and unfortunate situation. Thank you, Mr. Chairman.
    [The prepared statement of Hon. Tom Udall follows:]
  Prepared Statement of The Honorable Tom Udall, a Representative in 
                 Congress from the State of New Mexico
    Chairman Camp and Ranking Member McNulty:
    Thank you both for holding this hearing and for allowing me the 
opportunity to testify today about legislation I introduced in attempt 
to remedy an outdated tax law.
    Mr. Chairman, in early 2004, Mrs. Novella Wheaton Nied, a U.S. 
citizen and a native New Mexican, brought to my attention a tax law 
that is effectively precluding her and her husband, Mr. Veit Nied, from 
spending their golden years together in the manner of their choosing. 
At issue is the foreign income tax credit. As you know, the United 
States has tax agreements with many countries to prevent double 
taxation, as well as provisions in the Tax Code that allow resident 
aliens who pay taxes to a foreign country to claim the foreign tax 
credit, which reduces their U.S. income taxes. Unfortunately, taxes 
paid to international organizations such as the European Commission, to 
whom taxation authority is sometimes ceded by member nations, do not 
qualify for the foreign income credit.
    This is precisely the issue facing the Nied's. Mr. Nied, an 
economist and German citizen, worked for the European Commission in 
Brussels, Belgium, for 27 years, as long as he and Novella have been 
married, before retiring in September 2001. Following his retirement, 
the couple decided to retire in Taos, New Mexico, Novella's home. Veit 
was approved for permanent resident status in the United States, but 
found that his pension from the European Commission would be subject to 
double taxation; the initial tax, assessed by the European Commission 
because Germany ceded taxation authority to them, and the second tax, 
assessed by the United States.
    Double taxation on his pension will create a hardship for the Nieds 
in their retirement--both financially and emotionally. As a result, Mr. 
Nied did not accept the permanent resident status and has been 
traveling back and forth between Germany and the United States. All the 
while he has remained extremely cognizant and diligent about following 
U.S. immigration and taxation laws, and therefore has not stayed longer 
than 120 days per annum in the United States, which would render him 
liable for taxes in this country. This unfortunate living situation has 
been ongoing since 2001 when they learned of the double taxation and 
have been seeking a solution that would allow them to once again live 
together.
    During this time, the Nieds have corresponded with the IRS seeking 
a solution to the problem, to no avail. I have consulted with the IRS, 
as well as with the Congressional Research Service, seeking a solution 
short of introducing legislation, but it has become clear that only 
legislation will remedy this problem.
    That is why I introduced H.R. 2307. This legislation seeks to 
rectify this unfortunate predicament by amending the Internal Revenue 
Code so that employment taxes paid to the European Union by employees 
of the European Union are treated as income taxes paid to a foreign 
country, for purposes of the foreign tax credit. While I introduce this 
legislation with the Nieds in mind specifically, I believe that there 
must be other families facing the same problem. To date, however, I 
have had difficulty locating others facing the same situation as the 
Nieds.
    Mr. Chairman, this is a bill designed with the intention of 
modernizing a section of the Tax Code that lags behind changes in 
international political institutions. In so doing, it will allow 
families such as the Nied's greater freedom, and in the particular case 
of the Nied's, will allow them to spend their retirement where they 
wish.
    Mr. Chairman, I thank you once again for holding this hearing and 
for allowing me to testify. I welcome any questions from the Members of 
the Committee, as well as any suggestions or wisdom on how best to 
address this complicated and unfortunate situation.
    Thank you.

                                 

    Chairman CAMP. Thank you very much for your testimony.
    Now the gentleman from Pennsylvania, the Honorable Tim 
Murphy.

STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN CONGRESS FROM 
                   THE STATE OF PENNSYLVANIA

    Mr. MURPHY. Thank you, Mr. Chairman, Chairman Camp, and 
Ranking Member McNulty and distinguished colleagues of the 
Subcommittee. I would like to thank you all for allowing me to 
speak before you today on behalf of this bill, H.R. 3580, the 
Environmental Restoration Act of 2005.
    Please allow me to explain how this bill can be a key 
component on national strategy to achieve energy independence. 
This Congress has been keenly aware of our Nation's need to 
produce more energy here at home. We procure too much energy 
from the most volatile regimes on the globe, and these 
dependent relationships compromise our long-term national 
security.
    My constituents in the Pittsburgh area are strong 
supporters of the Federal Government's efforts to increase 
domestic production. That is because more than a century ago 
the modern industrial world was literally built to a large 
extent by Pittsburgh energy. Andrew Carnegie did not 
manufacture steel in Pittsburgh because the region was filled 
with iron ore. Rather Carnegie and others established his steel 
empire in southwestern Pennsylvania because we had abundant 
supplies of coal, and the water resources to transport it.
    To this day Pittsburgh sits on a 250-year supply of coal, 
the Pittsburgh coal seam, which is one of the most valuable 
natural resource stockpiles in the entire world. As we seem to 
capitalize on domestic energy supplies, we must make coal a big 
part of this equation.
    Coal is currently burned to produce more than half of our 
domestic electricity, and this Congress has provided extensive 
funding for research and clean coal initiatives that will 
virtually eliminate emissions in future plants. However, the 
coal mines of decades past did not emphasize clean air or 
water. One of the unfortunate legacies of the coal mining 
industry are mountains of waste coal, also known as ``gob.'' In 
the past, mining technology was less sophisticated in 
separating out coal from other materials that were mined in the 
process. These gob piles are a mixture of coal, clay, rocks, 
soil and other unusable raw materials.
    These massive piles, in some instances totalling millions 
of cubic yards, can be seen in any mining state. They are 
unsightly, they are useless and they are a source of 
considerable pollution. For example, every time it rains, the 
resulting runoff is acid mine drainage, presenting an ongoing 
pollution problem for our waterways.
    However, the 1.1 billion tons of waste coal in the United 
States are a potential source of energy. By using waste coal as 
a fuel source in power plants, the existing waste coal sites 
can be reclaimed. The mine drainage associated with these sites 
can be ameliorated, alkaline coal combustion byproducts 
beneficially used in reclaiming the mine lands. It is an 
expensive process, but creating energy out of waste coal has 
obvious benefits for cleaning up the environment while 
producing that energy.
    Toward the objective of recycling more waste coal, H.R. 
3580 would encourage energy producers to use waste coal by 
providing a business tax credit for waste coal energy 
production. It would provide a tax credit to an energy producer 
of 75 cents per million BTUs of heat input from qualified waste 
coal recycling.
    Simply put, the bill would provide the necessary incentive 
for the private sector to overcome the financial costs of 
recycling waste coal and maximize its potential energy.
    Mr. Chairman, I know you and the Members of the 
Subcommittee share my unequivocal goal of attaining energy 
independence for America in the next decade. I believe H.R. 
3580 can be a small but indispensable and significant part of 
that strategy.
    Thank you for allowing me this time today and for your 
consideration of H.R. 3580. I look forward to continuing our 
cooperative work to secure an energy independent future.
    [The prepared statement of Hon. Tim Murphy follows:]
  Prepared Statement of The Honorable Tim Murphy, a Representative in 
                Congress from the State of Pennsylvania
    Chairman Camp, Ranking Member McNulty, distinguished colleagues of 
the Subcommittee, thank you for allowing me to speak before you today 
on behalf of my legislation, H.R. 3580, the Environmental Restoration 
Act of 2005. Please allow me to explain how this bill can be a key 
component of our national strategy to achieve energy independence.
    This Congress has been keenly aware of our nation's need to produce 
more energy here at home. We procure too much energy from the most 
volatile regimes on the globe; these dependent relationships compromise 
our long-term national security.
    My constituents in the Pittsburgh area are strong supporters of the 
Federal Government's efforts to increase domestic production. That's 
because, more than a century ago, the modern industrial world was 
literally built by Pittsburgh energy. Andrew Carnegie did not 
manufacture steel in Pittsburgh because the region had iron ore. 
Rather, Carnegie established his steel empire in Southwestern 
Pennsylvania because we had coal, and the water resources to transport 
it. To this day, Pittsburgh sits on a 250-year supply of coal--the 
Pittsburgh coal seam is one of the most valuable natural resource 
stockpiles in the entire world. As we seek to capitalize on domestic 
energy supplies, we must make coal a big part of this equation. Coal is 
currently burned to produce half of our domestic electricity.
    The coal production process yields a large amount of other 
material, which accompanies the coal to the surface when it is removed 
from underground mines. This material, known as waste coal or ``gob,'' 
consists of a mixture of clay, rocks, soil, minerals, and other 
unusable raw materials. These materials are piled in stagnant mountains 
of waste coal, and there is estimated to be at least 1.1 billion tons 
of waste coal in the U.S. However, they contain potential energy that 
can be recycled to create new sources of power. By using waste coal as 
the fuel source, the existing waste coal sites can be reclaimed, the 
mine drainage associated with these sites ameliorated, and the alkaline 
coal combustion byproducts beneficially used in reclaiming the mine 
lands.
    Toward the objective of recycling more waste coal, H.R. 3580 would 
encourage energy producers to address waste coal by providing a 
business tax credit for waste coal energy production. The bill would 
provide a tax credit to an energy producer of 75 cents per million BTUs 
of heat input from qualified waste coal recycling. Simply put, the bill 
would provide the necessary incentive for the private sector to 
overcome the financial cost of recycling waste coal and maximize its 
energy potential.
    Mr. Chairman, I know you and Members of the Subcommittee share my 
unequivocal goal of attaining energy independence for America in 10 
years. I believe H.R. 3580 can be a small, but indispensable part of 
such a strategy.
    Thank you for this time today, and for your consideration of H.R. 
3580. I look forward to continuing our cooperation to secure an energy 
independent future for our nation.

                                 

    Chairman CAMP. Thank you very much for your testimony.
    Now, the Honorable Mike Turner, from the State of Ohio. You 
will have 5 minutes to summarize your testimony and your full 
statement will be made part of the record. Thank you for being 
here.

  STATEMENT OF HON. MIKE TURNER, A REPRESENTATIVE IN CONGRESS 
                     FROM THE STATE OF OHIO

    Mr. TURNER. Thank you, Mr. Chairman. Chairman Camp, Ranking 
Member McNulty, Members of the Subcommittee, I want to thank 
you for the opportunity to testify concerning America's 
Brownfield Cleanup Act, H.R. 4480. I want to acknowledge that 
an original cosponsor with me on this bill is fellow Ohioan 
Stephanie Tubbs Jones and we have worked with Representatives 
Melissa Hart, Chris Chocola, Phil English, and Nancy Johnson in 
the drafting of this legislation.
    I want to thank you for the opportunity to testify 
concerning an issue that is of great importance to my 
constituents and many communities throughout the country. 
Before being elected to Congress, I served as Mayor for the 
City of Dayton for 8 years. My top priorities were urban 
revitalization and economic development. The City of Dayton is 
not unlike many of America's inner cities that continue to 
struggle economically. In most of urban America tax revenues 
are declining and jobs are leaving.
    Although many center cities are inventing wonderfully 
creative programs to achieve economic revitalization, they are 
hindered by the very thing that makes them unique--density. The 
availability of land is an enormous impediment to the economic 
renewal and revitalization of cities. There is a solution to 
this predicament. American cities hold acres of abandoned land 
that could be, should be redeveloped as the key ingredient to 
urban recovery. These abandoned properties include former 
factories and other contaminated sites called brownfields. 
Brownfields are defined as abandoned or unutilized properties, 
old factories, where expansion or redevelopment is complicated 
by environmental contamination. These properties are found in 
every state and every congressional district.
    Estimates range from a half a million to one million 
brownfield sites nationwide, covering at least 178,000 acres or 
roughly the combined land area of Atlanta, Seattle, and San 
Francisco. These sites are missed economic development 
opportunities.
    Local officials, developers, and environmentalists all 
consider brownfields a federally created problem, and that 
under current law a property owner may be fully responsible for 
all costs to remediate environmental problems once those 
problems are identified.
    One unintended consequence of the current environmental law 
is that properties where suspected contamination is located are 
abandoned to avoid potential liability for higher cleanup cost. 
The end result is that brownfields remain, marring the face of 
our communities and impeding economic development and job 
creation.
    H.R. 4480, America's Brownfield Cleanup Act, provides a 
Federal program to encourage redevelopment by providing funding 
for demolition and environmental remediation costs for sites 
enrolled in a state voluntary cleanup action program.
    Brownfield tax credits would be allocated for up to 50 
percent of demolition and remediation costs pursuant to an 
approved plan. Tax credits would be competitively awarded based 
on remediation and redevelopment plans. The remainder of the 
cleanup costs would be deductible or may be capitalized by the 
property owner, and the plan also includes incentives for 
original polluters to participate in the redevelopment.
    In September 2003, Chairman Tom Davis and I requested a 
Government Accountability Office study regarding the EPA's 
Brownfields Programs and the general state of brownfield 
redevelopment across the Nation. The result of that report was 
a finding that stakeholders believed that a Federal tax credit 
for developers or mediation costs could attract developers to 
brownfield sites on a broader national basis.
    As Chairman of the Government Reform Subcommittee on 
Federalism and the Census, I have held a series of hearings to 
determine the state of brownfield redevelopment, the effect of 
Federal laws and funding for remediation, and what further 
action Congress could take to encourage more aggressive 
remediation and redevelopment efforts.
    The Subcommittee has held a total of five hearings on this 
matter, and based upon the GAO report and these hearings, the 
Committee on Government Reform unanimously passed and reported 
to the Committee of the whole a report on September 6th, 2006.
    Mr. Chairman, I have attached a copy of the report to my 
submitted testimony that can be entered into the record, and 
among the ten recommendations of the report was a Federal tax 
credit would be the most useful incentive in attracting 
financial investment in brownfields redevelopment projects. A 
brownfield tax credit would constitute a powerful incentive to 
transform derelict brownfield sites into job producing economic 
development sites.
    Without a Federal program, brownfields will remain, marring 
the face of U.S. cities. Redeveloping brownfields will 
revitalize our cities, returning them to the life and vitality 
once seen when these sites provided jobs and were anchors for 
our neighborhoods and communities.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Mike Turner follows:]
 Prepared Statement of The Honorable Mike Turner, a Representative in 
                    Congress from the State of Ohio
    Chairman Camp, Ranking Member McNulty and Members of the 
Subcommittee, thank you for the opportunity to testify concerning 
America's Brownfield Cleanup Act--H.R. 4480.
    Mr. Chairman, thank you for another opportunity to address the 
Subcommittee about an issue of great importance to my constituents and 
many communities throughout the country. Before being elected to 
Congress I served for 8 years as the Mayor of the city of Dayton, Ohio 
where my top priorities were urban revitalization and economic 
development. The city of Dayton is not unlike many of America's center 
cities that continue to struggle economically.
    In most of urban America, tax revenues are declining and jobs are 
leaving. In my district, the city of Dayton is expected to lose 
approximately 6,000 jobs due to Delphi restructuring. Although many 
center cities are inventing wonderfully creative programs to achieve 
economic revitalization, they are hindered by the very thing that makes 
them unique: density. The availability of land is an enormous 
impediment to the economic renewal and revitalization of cities.
    And yet, there is a solution to this predicament. American cities 
hold acres of abandoned land that could be--should be--redeveloped as 
the key ingredient to urban recovery. These abandoned properties 
include former factories and other contaminated sites called 
brownfields.
    Brownfields are defined as abandoned or underutilized properties, 
such as old factories, where expansion or redevelopment is complicated 
by environmental contamination. These properties are found in every 
state and every congressional district.
    Estimates range from 500,000 to 1 million brownfields sites 
nationwide, covering at least 178,000 acres, or roughly the combined 
land area of Atlanta, Seattle, and San Francisco. These sites are 
missed economic development opportunities.
    Local officials, developers and environmentalists all consider 
brownfields a federally created problem in that under current law, a 
property owner may be fully responsible for all costs to remediate 
environmental problems once those problems are identified. One 
unintended consequence of the current environmental laws is that 
properties with suspected contamination are abandoned to avoid 
potential liability for high cleanup costs. The end result is that 
brownfields remain, marring the face of our communities and impeding 
economic development and job creation.
    H.R. 4480, America's Brownfield Cleanup Act, provides a Federal 
program to encourage redevelopment by providing funding for demolition 
and environmental remediation costs for sites enrolled in a state 
voluntary action program. Specifically the proposed Brownfields Tax 
Credit Program would provide $1 billion in Federal tax credits 
allocated to states according to population. The credit program would 
be administered by state development agencies in partnership with state 
environmental agencies, and would provide credits to brownfield 
redevelopment projects where the local government entity includes a 
census track with poverty in excess of 20%. The redevelopment project 
may be located anywhere within a qualifying local jurisdiction. States 
would be able to provide preference to redevelopment projects based on 
the extent of poverty, whether the site is located in an enterprise 
zone or renewal community, whether the site is located in the central 
business district, the extent of environmental remediation, the extent 
of redevelopment, the extent of financial commitment to the 
redevelopment, the amount of new employment resulting from the 
redevelopment, and whether a past owner/polluter is expected to provide 
at least 25% of the remediation expenditures.
    Brownfields tax credits would be allocated for up to 50% of 
demolition and remediation costs pursuant to an approved plan. Tax 
credits would be competitively awarded based on remediation and 
redevelopment plans. The proceeds of the sale would be non-taxable. The 
remainder of cleanup costs would be deductible or may be capitalized by 
the property owner, and the plan also includes incentives for original 
polluters to participate in redevelopment.
    In September 2003, Chairman Tom Davis and I requested a Government 
Accountability Office (GAO) study regarding the EPA's Brownfields 
Program and the general state of brownfields redevelopment across the 
Nation. The GAO's findings were released in a report (GAO-05-94) on 
January 13, 2005 and entitled ``Brownfield Redevelopment: Stakeholders 
Report That EPA's Program Helps to Redevelop Sites, but Additional 
Measures Could Complement Agency Efforts.''
    In the course of its work, GAO spoke with over 30 individuals and 
groups covering a wide range of stakeholders, including EPA, state and 
local government agencies, national groups with brownfields expertise, 
EPA brownfields grant recipients, real estate developers, property 
owners, attorneys, and nonprofit organizations. The majority of these 
stakeholders believe that a Federal tax credit, which would allow 
developers to offset a portion of their Federal income tax with their 
remediation expenditures, could complement EPA's Brownfields Program by 
attracting developers to brownfields on a broader national basis. Some 
of these stakeholders said that tax credits are an easily 
understandable and tangible incentive to the private sector and noted 
that other, similar tax credits--such as the affordable housing and 
historic preservation credits--have proven effective in stimulating 
redevelopment.
    The final report stated that according to stakeholders, EPA funds 
``provide [] an important contribution to site cleanup and 
redevelopment by funding activities that might not otherwise occur.'' 
The report stated Stakeholders recommended three possibilities to 
improve or complement the EPA's Brownfields Program. The first option 
would remove a provision that essentially bars landowners who purchased 
a brownfields site before January 2002 from grant eligibility. The 
second recommendation would simplify the administrative burdens for 
revolving loan funds. Finally, the report found that ``stakeholders 
believed a Federal tax credit for developers' remediation costs could 
attract developers to brownfield sites on a broader national basis.''
    As Chairman of the Government Reform Subcommittee on Federalism and 
the Census, I convened a series of hearings to determine: (1) the state 
of brownfields redevelopment across the country; (2) the effect of the 
Federal and numerous state brownfields programs on remediation and 
redevelopment; (3) and what further actions Congress could take to 
encourage more aggressive remediation and redevelopment efforts. The 
Subcommittee held a total of five hearings on this matter.
    Based on the GAO Report and these hearings, the Subcommittee wrote 
Report 109-616 titled ``Brownfields: What Will it Take To Turn Lost 
Opportunities Into America's Gain?'' The Committee on Government Reform 
unanimously passed and reported to the Committee of the Whole House 
this Report on September 6, 2006. Mr. Chairman, I have attached a copy 
of the report to my submitted testimony so that it can be entered into 
the record. Among the 10 recommendations included in the report was a 
``Federal tax credit would be the most useful incentive in attracting 
financial investment in brownfields redevelopment projects.''
    Mr. Chairman, a brownfields tax credit would constitute a powerful 
incentive to transform derelict brownfields sites into job-producing 
economic development. Without a federally created program, brownfields 
will remain, marring the face of U.S. cities. Redeveloping brownfields 
will revitalize our cities, returning to them the life and vitality 
once seen when these sites provided jobs and were anchors for our 
neighborhoods and communities.

                                 

    Chairman CAMP. Thank you very much, and without objection, 
the report will be made part of the record. Now we have from 
Nebraska, Mr. Fortenberry. Welcome.

    STATEMENT OF HON. JEFF FORTENBERRY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEBRASKA

    Mr. FORTENBERRY. Thank you, Mr. Chairman. I appreciate it, 
and Ranking Member McNulty, thank you so much for the 
opportunity to testify today on tax-related issues. I'm pleased 
to have this opportunity to request your support for H.R. 3874, 
a very straightforward bill that I introduced to help the 
agricultural economy at no additional cost to the taxpayer.
    Currently, Federal tax-exempt bonds can be used for a 
manufacturing facility. However, the definition of a 
manufacturing facility does not include property used for the 
processing of agricultural products. H.R. 3874 would correct 
this problem by providing tax-exempt financing to the processor 
of agricultural products.
    The ability to provide lower cost financing for 
agricultural processing projects is crucial to America's 
farmers and ranchers, and the efforts of states to create and 
maintain jobs. Farmers and ranchers must have a variety of 
avenues for their products if they are to compete effectively. 
States must have the necessary tools to attract these projects 
as well. This proposed change addresses both issues by 
facilitating additional markets for agricultural products and 
stimulating economic development, particularly in non-
metropolitan areas.
    It is important to emphasize that each state is limited by 
Federal law to a maximum amount of private activity bonds that 
may be issued annually. Expanding the provisions of the Code to 
permit the tax-exempt financing of land and depreciable 
property for the processing of agricultural products, as is 
done in this legislation, results in no loss of revenue to 
either the Federal or state government.
    I would greatly appreciate this Subcommittee's assistance 
in moving this important legislation which will enhance and 
promote needed economic development across our country.
    Finally, I would like to add--to request your support for 
two other bills that I have introduced which have been referred 
to the Committee on Ways and Means. I believe we must work to 
adjust our tax laws to assist those who want to create new 
opportunities for their families and themselves. Last year I 
introduced two bills to promote entrepreneurship and long-term 
economic security. First, I propose allowing individuals to 
roll over portions of their retirement accounts into health 
savings accounts. Second, I propose to change the traditional 
IRA to allow small business investors to take loans from these 
retirement accounts similar to the existing loan provisions for 
the 401(k) plan. These bills address two key areas of concern 
for small businesses, providing increased access to insurance 
coverage and gaining access to capital.
    Again, thank you for the opportunity, Mr. Chairman, to 
offer this testimony.
    [The prepared statement of Hon. Jeff Fortenberry follows:]
Prepared Statement of The Honorable Jeff Fortenberry, a Representative 
                 in Congress from the State of Nebraska
    Chairman Camp and Members of the Subcommittee: Thank you for 
holding this hearing to discuss tax-related legislation. I am pleased 
to have this opportunity to request your support for H.R. 3874, a 
straightforward bill I introduced to help the agricultural economy at 
no additional cost to the taxpayer.
    Currently, Federal tax exempt bonds can be used for ``a 
manufacturing facility.'' However, the definition of a ``manufacturing 
facility'' does not include property used for the processing of 
agricultural products. H.R. 3874 would correct this problem by 
providing tax-exempt financing to the processor of agricultural 
products.
    The ability to provide lower-cost financing for agricultural 
processing projects is crucial to America's farmers and ranchers and 
the efforts of states to create and maintain jobs. Farmers and ranchers 
must have a variety of avenues for their products if they are to 
compete effectively. States must have the necessary tools to attract 
these projects. This proposed change addresses both issues by 
facilitating additional markets for agricultural products and 
stimulating economic development, particularly in non-metropolitan 
areas.
    It is important to emphasize that each state is limited by Federal 
law to a maximum amount of private activity bonds that may be issued 
annually. Expanding the provisions of the Code to permit the tax-exempt 
financing of land and depreciable property for the processing of 
agricultural products, as is done in this legislation, results in no 
loss of revenue to either the Federal or state government.
    I would greatly appreciate this Subcommittee's assistance in moving 
this important legislation which will enhance and promote needed 
economic development across our country.
    Finally, I would like to request your support for two other bills I 
have introduced which have been referred to the Ways and Means 
Committee. I believe we must work to adjust our tax laws to assist 
those who want to create new opportunities for themselves and their 
families. Last year I introduced two bills to promote entrepreneurship 
and long-term economic security. First, I propose allowing individuals 
to roll-over portions of their retirement accounts into Health Savings 
Accounts. Second, I will propose to change the traditional IRA to allow 
small business investors to take loans from these retirement accounts 
similar to the existing loan provisions for the 401(k) plan. These 
bills address two key areas of concern for small businesses--providing 
increased access to insurance coverage and gaining access to capital.
    Again, thank you for the opportunity to offer this testimony.

                                 

    Chairman CAMP. Well, thank you. I want to thank you all for 
your testimony. Mr. Udall, the couple you mentioned are living 
in the U.S. and are enjoying the benefits and privileges of 
living in the U.S. It seems to me that the entity that ought to 
not be taxing them is the European Union, not the place where 
they're getting the benefits and services from--did I 
understand your testimony properly, or?
    Mr. UDALL. Chairman Camp, actually they are unable to live 
together because of the situation. So, he can spend 120 days in 
the United States, and if he stayed any longer than that, he 
would be taxed. So, they travel back and forth from--they're a 
married couple that's unable to live together. The problem is, 
it's very succinctly stated by the Treasury Department, who 
wrote me in their last--and I'll make this available to you. It 
says: The fundamental purpose of the Foreign Tax Credit 
provisions is to relieve double taxation of income earned 
abroad by U.S. taxpayers. Then it cites a Supreme Court case.
    While I sympathize with your constituents' situation, the 
U.S. Foreign Tax Credit rules require individuals to pay 
foreign taxes to a foreign country to be eligible for the 
credit. Any change would require legislative action. So, 
they're stuck in this situation where he worked for the 
European Union, he paid his--basically, he paid his income 
taxes to the European Union. Germany ceded the ability to tax 
him, and so he's in a situation where he doesn't qualify. So, 
therefore, if he moves to the United States and lives with his 
bride, he then gets doubled taxed by the United States and by 
the European Union.
    Chairman CAMP. If the European Union were defined as a 
country, he would get the tax credit?
    Mr. UDALL. Could you say that again?
    Chairman CAMP. Well, it's a definitional issue partially, 
isn't it?
    Mr. UDALL. Yes. Oh, yeah. If we----
    Chairman CAMP. Okay.
    Mr. UDALL. If you defined the European Union as a foreign 
country under this provision of the Tax Code Section 901, it 
would be----
    Chairman CAMP. Then they----
    Mr. UDALL [continuing]. Taken care of.
    Chairman CAMP. All right. Okay. Thank you. I appreciate 
that clarification.
    Mr. UDALL. Thank you.
    Chairman CAMP. Mr. Turner, you know, current law already 
provides for the deduction of costs to clean up brownfields. 
So, how would your legislation improve upon--that law has 
expired, and hopefully it will be extended in the extenders 
that we're going to be debating at some point. But how would 
your legislation proposed change that, or improve upon that?
    Mr. TURNER. The issue of deductibility is certainly an 
important one for economic development, revitalization of 
brownfields. It permits, as I know you are aware, the treatment 
of expenditures for remediation as a deductibility expense 
instead of a capitalization expense. This would actually be a 
tax credit. For deductibility to have value for a redevelopment 
project, you have to have profitability occurrence. In most of 
these sites, the issue of the value of the property being less 
than the environmental remediation expenses results in the 
deductibility would not be an incentive for redevelopment. By 
providing a credit, you're actually providing a subsidy that 
can be utilized to address the value of remediation versus the 
value of the overall project and result in attracting 
additional investment.
    If we can get this land cleaned up, if we can get the 
buildings that are there demolished, these sites are very 
attractive. The utilities are there. The transportation 
structures are there. They're usually located in an area that 
is attractive for investment, but it's that overall cost where 
the remediation exceeds the value of the property that results 
in them lying abandoned.
    Chairman CAMP. All right. Thank you. Mr. McNulty may 
inquire.
    Mr. MCNULTY. Thank you, Mr. Chairman. I thank you all for 
your testimony. Congressman Murphy, what would the average 
company save under your proposal?
    Mr. MURPHY. What would they save? It's not totally clear 
how much that would be. We do know that there was a cost to 
providing--to burning waste coal. It depends how much they use. 
Some companies try to use some elements now, but it requires 
special technology, and they would then have to invest in that 
in order to extract the waste coal.
    One way of looking at this is what the Nation would save, 
and that's massive amounts. I do have some numbers nationwide 
for the Btu equivalents, for example, of burning waste coal. In 
replacing of crude oil, for example, it's over 2 billion 
barrels of oil equivalent, or natural gas, it's equivalent to 
over 11 billion Mcfs. So one has to put that into perspective. 
I don't have the exact numbers of how much that would----
    Mr. MCNULTY. Okay. Did you get a revenue estimate from 
joint tax?
    Mr. MURPHY. We have been waiting for the last month for 
that, but they promised it to us tomorrow.
    Mr. MCNULTY. Okay. Mr. Chairman, the only other comment I 
would want to make would be about Mr. Chabot's testimony, 
because he was talking about the same bill that Congressman 
Lewis spoke about on an earlier panel.
    I would just note that of all the bills we've listened to 
this morning, you know, some are newer, some have been around a 
while, some are controversial, but there are also some that 
have been around for quite a while and are not very 
controversial, and I think that one falls into that category.
    As I said, Congressman Chabot brought it up on this last 
panel. The lead sponsor on the bill is Congressman Lewis, was a 
Member, a majority Member of the Committee on Ways and Means. 
His cosponsor is Charlie Rangel, who is the minority, Ranking 
Minority Member on the Committee on Ways and Means, and I would 
just express the hope that it be our goal on this panel to move 
those pieces of legislation along to the full Committee so that 
we can get them out on the floor and get some action.
    Chairman CAMP. Well, I sure appreciate that, and obviously 
this legislation would certainly help in rural housing, and 
that's certainly up my alley. So, I'm very sympathetic to both 
his proposal and your comments as well.
    Thank you. I want to thank this panel very much. Appreciate 
your testimony. Thank you. Now we'll move to panel 4, the 
Honorable John McHugh, a Representative in Congress from the 
State of New York; the Honorable Earl Blumenauer, a 
Representative in Congress from the State of Oregon; the 
Honorable Steve King, a Representative in Congress from the 
State of Iowa; and the Honorable Michael Conaway, a 
Representative in Congress from the State of Texas.
    Thank you very much for being here. You'll each have 5 
minutes. We'll make your full testimony part of the record, of 
course. The microphones are a little bit directional, so if you 
could just speak directly into them, I think it will help a 
fading in and out problem we've been having all morning, but 
thank you for being here. We'll start with Mr. McHugh. Welcome 
to the Committee, and I look forward to your testimony.

  STATEMENT OF HON. JOHN McHUGH, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF NEW YORK

    Mr. MCHUGH. Thank you, Mr. Chairman, and Mr. McNulty, my 
esteemed fellow colleague from the great State of New York. 
It's an honor to be here, and I appreciate the inclusion 
totally of our statements, and I do have a formal statement, so 
thank you for that consideration.
    Let me first of all say how much I appreciate being here 
with my colleague, Congressman King, and to express my 
appreciation to you, to the distinguished Ranking Member, to 
all the Members of the Subcommittee and the full Committee, of 
course, for taking the time out of this very, very busy final 
week and addressing some issues that obviously across the broad 
scale of concerns are very, very important.
    I think it's a critically important part of the process 
that these kinds of hearings happen, Mr. Chairman and 
distinguished Ranking Member, and I commend you for it.
    I think that for most Americans, the Tax Code is a thing of 
intimidation, certainly in some people's minds, even 
punishment, but as you have embarked here today, Mr. Chairman, 
it can also be an illustration of how we can use the Tax Code 
proactively and to have it serve as a path for resolving some 
of the more difficult, some of the more important challenges 
facing our Nation today. That's what brings me here, and I 
thank you so much for that invitation.
    Because when we talk about things of importance, clearly, 
the affordability of health care has to rank, if not highest, 
certainly amongst the highest that face us. It is a very, very 
perplexing challenge that all of us have attempted to deal with 
as Members of this illustrious House over the past several 
years, and I suspect it is a challenge that will continue.
    Having said that, you are all familiar with the figures. 
Over 46 million Americans who are currently uninsured, many 
more who are underinsured, who have technical coverage, but it 
is coverage that does not drive the kind of protections that 
most of us would consider as adequate in providing health 
coverage that meets the need.
    It's a huge problem, and I would suggest, Mr. Chairman, 
it's one that really defies a single answer. For all of its 
complexity, however, I would suggest there are some things we 
can, and of course, as my appearance here today would suggest, 
we should be doing.
    As a loyal New Yorker, I'm a great fan of the New York 
Yankees Eastern Division champions for the ninth year in a row, 
I might add. But it was a great Yankee of years yesterday, Yogi 
Berra, who said it's deja vu all over again.
    The proposal that I have put forward is not new. It has 
been advanced by many of my colleagues over the past several 
years, but I would argue that given the realities of those more 
than 46 million Americans who are uninsured, it is a measure 
whose time has come. It is simply a means by which we can make 
health care coverage and insurance more affordable by providing 
through that proactive use of the Tax Code a way by which it 
can be purchased.
    It saddens me to state, gentlemen, that in America today, 
there is really an unspoken, perhaps unrealized prejudice but 
nevertheless a real prejudice, and that belief is simply that 
those who don't have health care coverage in this country are 
somehow lazy, that they're shiftless, that they're 
unemployable, that they don't care. The reality in America 
today, the unspoken secret is, for those who are amongst the 
truly poor, they have health care coverage. It's called 
Medicaid. The states, to their credit, have stepped forward and 
provided state children's health care insurance programs, the 
SCHIP program, that the Federal Government has been 
instrumental in and so on and so forth.
    The true burden of the unaffordability of health care falls 
upon the so-called working poor, those folks who are struggling 
each and every day, who get up, who go to work, who pay their 
taxes, who play by the rules, and yet in the ever escalating 
cost of health care coverage are unable to participate. That is 
where this suggested, I hope ultimately implemented, change to 
the Tax Code applies. It is a refundable tax credit, an above-
the-line tax credit.
    In the bill that I have provided and proposed, it would 
initiate $1,000 tax credit for an individual filer, $2,000 for 
a couple, with an additional $500 per child. Beyond that, a 
$500 tax credit thereafter for those moneys expended on health 
care coverage.
    It would not just be a refund for those who do not itemize. 
It would be, as I said, an above-the-line deduction. For those, 
much along the lines as the earned income tax credit, the ITC, 
it could actually provide cash back, simply to provide the 
resources necessary to purchase adequate health care coverage.
    There has been some analysis of this. Senator Mark Pauling 
of the Wharton School of Economics at the University of 
Pennsylvania, has said, depending on the amount of the tax 
credits, more than, more than 20 percent to 85 percent of the 
uninsured in this Nation might be covered by that.
    So, I just think that while obviously there are a lot of 
demands on our tax dollars in this Nation today, given the 
magnitude of the challenge of health care and affordability of 
health care across the board, rural, urban, suburban, this 
would be one of the wiser approaches we could implement with 
respect to our income tax structure.
    With that, I would yield back, Mr. Chairman, and I look 
forward to any questions you might have.
    [The prepared statement of Hon. John M. McHugh follows:]
 Prepared Statement of The Honorable John McHugh, a Representative in 
                  Congress from the State of New York
    Thank you, Mr. Chairman, for the opportunity to testify today on an 
issue of great importance--not only to the residents of my Central and 
Northern New York Congressional District, but also to citizens across 
the nation.
    As you well know, tens of millions of Americans today live without 
health insurance--15.9 percent on national average and nearly 14 
percent of them New Yorkers, according to recent estimates. In 
traveling throughout my District, I have found that the biggest fears 
associated with this issue span both the present and the future--that 
of spiraling health care costs for individuals and businesses, concerns 
about lack of coverage in the event of job change or job loss, and the 
shortage of accessible and affordable health care.
    A number of months ago, I held a series of forums in my District to 
personally hear from health care providers about the challenges that 
communities such as mine face in ensuring access, availability and 
affordability of health care for our largely rural region. As the front 
line of defense in providing health care, their ongoing input on ways 
to improve its delivery continues to be critical. During our sessions, 
we spoke about a wide variety of issues, including recruiting and 
retaining health professionals, providing resources for rural-based 
care, establishing a health information technology infrastructure, and 
making insurance more available to all Americans.
    Undoubtedly, all of these topics are important to ensuring our 
citizens receive quality health care. However, it is the latter of 
these issues that I wish to focus on today, Mr. Chairman.
    In addition to the millions of individuals and families who cannot 
afford health insurance premiums, many Americans in large measure lack 
the ability to take Federal income tax deductions under our current tax 
laws. Low- and middle-income taxpayers who do not have employer-based 
insurance or are not self-employed simply need our help. My 
legislation, the Health Insurance Tax Relief Act, is designed to help 
remedy this situation by allowing taxpayers a refundable credit against 
income tax for the purchase of private health insurance. These tax 
credits would range from $1,000 for an individual, $2,000 for a married 
couple, and $500 per child, with a cap of $3,000 per family. For any 
insurance premium costs that exceed these amounts, an additional credit 
of 50 percent is also permitted.
    Qualified taxpayers could easily claim the credit when filing their 
tax return and use it to either offset additional amounts they owe or 
to obtain a larger refund. A taxpayer could even benefit throughout the 
tax year by adjusting withholding tax amounts and realizing higher take 
home pay. The proposal also directs that advance payments of credit 
amounts be made to the provider of the taxpayer's health insurance.
    I am fully aware this is not a new idea, Mr. Chairman, as 
refundable income tax credits for health insurance have become a 
recurring topic of conversation in recent years. Some of my colleagues 
have introduced identical or similar legislation in this and previous 
Congresses, which have gained the support of dozens of Members from 
across the nation.
    Clearly, there is no one silver bullet that will solve our nation's 
health care crisis and this proposal is not meant to be the only 
approach we as a Congress could take in addressing affordability and 
accessibility issues. However, like my colleagues, I believe it is a 
good starting point. This change to the tax laws would be an important 
move toward closing the gap for so many individuals and families who 
work hard and pay taxes, but at the end of the month are still left 
without the financial resources to afford their own health insurance.
    Again, Mr. Chairman, I appreciate the opportunity to discuss my 
legislation with you today and welcome any comments or questions.

                                 

    Chairman CAMP. Thank you very much for your testimony. Now 
we'll move to the gentleman from Oregon, Mr. Blumenauer. You 
have 5 minutes, and we'll put your full statement in the 
record.
    Mr. BLUMENAUER. Thank you.
    Chairman CAMP. If you'll speak directly into the 
microphone. Thank you.

STATEMENT OF HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF OREGON

    Mr. BLUMENAUER. Thank you. I appreciate the courtesy in 
being able to spend a few minutes with you and making some 
comments about ways to make the--reform the revenue system, and 
solve some serious problems that we're facing. I would like to 
just focus on one aspect of that, an effort to level the 
playingfield as it relates to our energy policies in this 
country.
    You have an opportunity as Members of the Committee on Ways 
and Means to propose legislation that will help us stop picking 
winners and losers in the area of the energy arena. We have put 
tens of billions of dollars in subsidies into an energy 
industry that is reporting record profits. But at the same 
time, we have anomalies that create real problems.
    Ethanol is treated differently for tax purposes if it is 
generated from corn or from cellulose fiber. There's no good 
reason. It's just that's what the political process is. I am 
hopeful, I am hopeful that you can take a step back and help us 
take the revenue system, be able to deal with anomalies like 
that that enable us to have a reasonable opportunity for 
technologies to advance. I would hope that you would look hard 
at the practice we have of how we score these various things 
that have produced strange anomalies in terms of the credit.
    We don't have uniform tax credit provisions in terms of the 
duration. We had this scramble of late to be able to have the 
production tax credit that made it possible for wind energy 
resources, and yet we have an absurdly short window of time. 
I've heard from people in the industry that because it doesn't 
have--because there's a lack of certainty and too short of a 
window, that it adds 20 to 30 percent extra cost on wind energy 
projects. Certainly that wasn't the intention of Congress, and 
I would hope that with your help we could step back and deal 
with having a reasonable timeframe, I would suggest 10 years, 
to be able to allow this industry to develop and mature. It 
would promote greater utilization of wind energy, for instance, 
but other solar applications, any alternative energy 
technology, and then review it well before it expires so that 
we can again send the right signals to the communities and to 
the industry that's involved.
    It is an opportunity for us to deal with items that have 
minuscule costs. Frankly, the energy industry items that I 
mentioned would be offset by the savings to the industry 
itself, and having a stable Federal energy policy will spark a 
new industry, tens of billions of dollars of economic activity, 
and reduce our expensive and dangerous dependence on foreign 
oil.
    While I'm at it, I must reference one item that is 
brownfield Committee on Ways and Means now, just a simple 
adjustment in the Tax Code to treat bike commuters, if I may as 
chair of the Bike Caucus, just put in a little plug. We have 
the Bike Commuter Act. We have commuters now, 50 percent of 
American commuters commute less than 5 miles, 5 miles or less. 
But for purpose of the Tax Code, we discriminate against those 
people who are burning calories instead of gasoline, treating 
them different than people who are driving their cars and 
getting tax subsidized parking from their employer or transit 
passes. Not particularly logical, one would argue.
    The estimate from the Joint Committee on Taxation, it would 
only be $78 million for a 5-year period from 2006 to 2007, but 
it would have a profound effect in terms of increasing the 
opportunities for cycling commuting. It will reduce congestion. 
It will make employees healthier. It will reduce problems with 
parking. I would think it's the right sort of signal we want to 
send from the Tax Code about the future that we're looking 
forward to.
    I would hope that you would be able to take the long view 
and provide reasonable timeframes and stop this picking of 
winners and losers in a fashion that really isn't particularly 
rational.
    At another day, I hope to come back to you and to talk 
about the need we're going to have from the Committee on Ways 
and Means to deal with a transportation fund that will have 
been entirely exhausted by the time the next transportation 
bill is done but time and your energy doesn't permit at this 
point. But it is something that needs to be on our radar 
screen.
    [The prepared statement of Hon. Earl Blumenauer follows:]
 Prepared Statement of The Honorable Earl Blumenauer, a Representative 
                  in Congress from the State of Oregon
    I appreciate the opportunity to talk today about ways we can reform 
the tax system to spur innovation, save energy, and make our 
communities more livable.
    Let me begin with a bill that I've introduced this Congress, which 
enjoys the bipartisan cosponsorship of 54 of my colleagues. H.R. 807, 
the Bike Commuter Act, amends the IRS Code to include ``bicycles'' in 
the definition of transportation covered by the qualified 
transportation fringe benefit.
    Adding bike commuting to the Transportation Fringe Benefit program 
incentivizes a mode of transportation that can reduce traffic 
congestion, alleviate air quality problems, and conserve energy. These 
are all major issues that every community and every level of government 
is dealing with to see how they can create and pay for solutions.
    The Bike Commuter Act is a simple and low-cost effort that sends 
the right message about how the Federal Government can provide creative 
solutions that help with difficult problems. The Joint Committee on 
Taxation this year scored the bill at $78 million for the 5-year period 
from 2006 to 2011.
    Incentives for bicycle commuting have enormous potential to reduce 
single occupancy vehicle trips. In fact, a Rodale Press survey found 
that Americans want to have the opportunity to bike to work instead of 
driving, with 40% of those surveyed indicating they would commute by 
bike if safe facilities were available. The Bureau of Transportation 
Statistics found that bicycling is the second most preferred form of 
transportation after the automobile--ahead of public transportation.
    With over 50 percent of the working population commuting 5 miles or 
less to work, bicycling offers great potential for reducing single-
occupancy vehicle trips.
    Commuters want to save on energy costs. Employers want healthier 
workers. Communities are seeking to reduce traffic congestion, improve 
air quality, and enhance neighborhood safety. The Federal Government 
can assist in these efforts by promoting bicycle use through a small 
change to the Tax Code.
    The Bike Commuter Act is one simple step for providing the right 
incentives and for the Federal Government to be sending the right 
messages but there are several others that we should focus on, 
especially as it concerns energy.
    As energy prices have shot up over the last year there has been 
endless discussions about which new energy source, which new technology 
can wean us from our over-reliance on oil and other fossil fuels. We 
hear about hydrogen cars, wind farms, solar energy, biofuels such as 
ethanol, and there is even some fascinating research going on in my 
home State of Oregon about how we can harness tidal action and waves to 
light and heat our homes.
    These ideas and the research behind them are fascinating and I 
believe there is excellent potential behind each of these energy 
alternatives to move us towards a 21st Century energy plan.
    However, one of the shortcomings I frequently see with our Federal 
policies is how we pick winners and losers through unequal incentives. 
Additionally, Congress, playing budgetary games, has often refused to 
put in place tax credits for extended periods of time and instead 
renews the credits year to year, or sunsets them early.
    I find it extremely important that we provide the tax credits that 
create the opportunities to move our energy policies out of the 1950s, 
but Congress must get out of the way of dictating which ``new'' energy 
source or technology will get us there. Let's create a level playing 
field that brings these domestic sources to the marketplace, but let's 
let the market determine what it invests in based on demand, efficiency 
and cost.
    A renewable energy portfolio standard (RPS) has passed the Senate 
several times. It would require 10 percent of U.S. electricity by the 
year 2020 to come from renewable sources. Unfortunately, this was 
dropped from the 2005 Energy Bill, because this is the right kind of 
balanced standard that let's the market determine what renewable 
resource to invest in. We need to set the bar high and then provide the 
incentives to get us there.
    The marketplace also needs the reliability and predictability of 
these credits to have a long enough horizon to make the investments 
pencil out. I would suggest that a tax credit should be in the Code for 
a minimum of 10 years to give the marketplace the opportunity to 
utilize them and for Congress to evaluate a given credit and its 
impacts.
    Another important element to the tax credits is to help bridge the 
gap in the initial infrastructure investments that pay dividends for 
years to come. Often times the up-front costs prevent, say a builder, 
from constructing in a manner that would more than pay for itself over 
time. It is unacceptable that we continue to build in a way today that 
costs families more in the long-run through increased energy costs when 
the products and building techniques are currently available.
    The 2005 Energy Bill took some of these important steps, but most 
of the tax incentives and credits expire in 2 years. Congress should 
extend the tax credits to homebuilders that build homes projected to 
reduce heating and cooling energy use by 50 percent. Everyone wins--
builders save dollars through tax credits, families save dollars 
through lower energy bills, and the nation reduces its dependence on 
fossil fuels and takes a step in addressing global warming.
    Manufacturers of household appliances are currently eligible for 
tax credits for producing efficient models of dishwashers, washing 
machines, and refrigerators. These also end in 2007, which doesn't 
fully leverage the investments these manufacturers would make in 
researching more efficient models if the credits remained in place for 
a reasonable amount of time.
    I thank the Committee for its time and I urge the consideration of 
the Bike Commuter Act, H.R. 807, as a simple and low-cost effort that 
levels the playing field for commuters and sends the message that 
Congress should be sending to our communities--that we support efforts 
to reduce energy consumption, ease traffic congestion, and encourage 
healthy activities as a part of our daily routines.
    I will continue to support and legislate for tax credits that bring 
our energy policies to where they should be in the 21st Century.

                                 

    Chairman CAMP. Thank you. Thank you very much for your 
testimony. Now the gentleman from Iowa, Mr. King. You'll have 5 
minutes. Welcome to the Committee.

STATEMENT OF HON. STEVE KING, A REPRESENTATIVE IN CONGRESS FROM 
                       THE STATE OF IOWA

    Mr. KING. Thank you, Mr. Chairman, and thank you, Mr. 
McNulty. I appreciate the privilege to make remarks before this 
panel, and I'm raising the issue of the fair tax as a solution 
to our tax reform problems.
    Many of the proposals that will come before this Committee 
bring some measure of relief to the American taxpayer. However, 
beneficial as they may be, they do little more than attempt to 
correct the many faults of our current income tax system, only 
in a piecemeal fashion.
    Unlike these proposals, which are intended to simply tinker 
with the Code, H.R. 25, the FairTax, offers the American people 
a complete departure from the way we have been taxed in the 
past. This one bill will completely alter the Federal 
Government's tax collection practices, taxing consumption 
rather than production.
    By doing this, we could completely untax productive 
behavior in the United States and give Americans all the 
incentive in the world to earn all they can, invest all they 
can, save all they can, keep all they wish, and decide when and 
how much to pay in taxes each year when they make their 
purchases.
    Ronald Reagan once said what you tax, you get less of. It's 
vitally important that we keep this axiom in mind as we discuss 
various proposals to reform our Tax Code. With our current 
income tax system, the Federal Government has the first lien on 
all productivity in America. Because of this, as Ronald Reagan 
predicted, our economy is less productive than it otherwise 
could be.
    The simple fact is that our Tax Code inhibits our 
production. I owned and ran a construction company for 28 
years, and after my second audit by the IRS, I decided there 
had to be a better way for the Federal Government to collect 
its revenue. After years of careful thought and research and 
informative decisions, discussions, I came to the conclusion 
that a national sales tax is the only comprehensive tax reform 
plan out there that will spur economic growth, remove tax 
barriers that currently favor production abroad, to production 
here in the U.S. It'll level--maintain a level of progressivity 
and offer itself as a truly fair means of revenue collection 
and be completely transparent to the taxpayer.
    H.R. 25 would replace all Federal income taxes, payroll 
taxes, excise taxes, estate taxes, gift taxes, interest income, 
pension income, alternative minimum tax, every Federal tax out 
there other than some user fees that I can find, and replace it 
with a national sales tax of an embedded 23 percent. That's on 
consumption of goods and services.
    With a shift of taxation from production--from tax on 
production to tax on consumption, Americans will be able to 
take home their entire paycheck, and this will have a large 
stimulus effect on our economy.
    Not only will Americans have more money to spend, they'll 
have more money to save and invest, which will give American 
businesses more access to capital. This in turn will allow 
greater investment in research and development and allow for 
economic expansion through every sector of our economy and help 
us keep on the high speed treadmill that leads the rest of the 
world. It will take America to a new level of our economic 
destiny.
    With a move from our income tax system to a system of taxes 
on consumption, we will see retail prices fall in the United 
States as well. As companies are no longer forced to pass on 
embedded payroll taxes and compliance costs to consumers, 
competition will force prices down as much as 22 percent. While 
the 23 percent embedded tax rate will in some cases offset 
decline in the prices in goods and services, it's important to 
note that consumers will, even in this scenario of price 
parity, have greater buying power, because they have access to 
their entire paycheck.
    A shift away from our income tax system will increase the 
competitiveness of our manufacturers abroad. Right now American 
producers must pay payroll taxes and embedded income taxes as 
compliance costs in this country, but the exporters overseas do 
not have that disadvantage. So when our products are sold 
overseas, they're more expensive than those in domestic 
markets.
    I think I'll just slip to the end of this statement, 
because I'd like to talk with you openly in the couple of 
minutes I may have left about the advantages of the FairTax. I 
have looked at this issue for 26 or more years, and I describe 
it this way. Every time I turn that Rubik's cube of the 
national sales, the FairTax around and look at it another way, 
it looks better and better and better. I don't find holes in 
it. I find that it gets stronger.
    I look, for example--an example would be if you take an 
American made automobile and it's on the lot right now perhaps 
at a $30,000 price, and up against let's say a Mazda that's 
made all in Japan. Now when you pass the FairTax, competition 
will drive those embedded Federal taxes out of the price of the 
American made product, in this case being a car, but they will 
stay in the Japanese Mazda, so the $30,000 Chevy goes down to 
$24,300 sticker price. The Mazda stays at $30,000. You add the 
tax back into that, and the drive-it-off-the-lot price for the 
Chevy is going to be $30,400, but the drive-it-off-the-lot 
price for the Mazda is $39,000. That's an $8,600 advantage, and 
it's a 28 percent marketing advantage.
    So, that says that we keep American jobs here in the United 
States, and we export products overseas. We sell California 
wine to the French. That really changes our balance of trade.
    I will just say, the FairTax fixes everything that any 
other tax policy fixes, and more besides. It will take us to 
the next level of our economic destiny.
    Thank you.
    [The prepared statement of Hon. Steve King follows:]
  Prepared Statement of The Honorable Steve King, a Representative in 
                    Congress from the State of Iowa
    Mr. Chairman and Members of the Subcommittee,
    Thank you for the opportunity to appear before you today.
    Many of the proposals that are being brought before you have merit. 
But they have merit in the same sense that treating the symptoms of a 
serious disease rather than the underlying cause of the disease has 
merit. If we have no means of treating the underlying disease, then we 
treat the symptoms in the hope the disease will run its course and the 
patient will improve. If we have not yet accurately diagnosed the 
disease, then we alleviate the symptoms until the tests are completed 
and we can attack the underlying problem. On the other hand, if we 
understand the disease and we have the means to treat it, there is no 
merit in withholding curative treatment from the patient and only 
treating the patient's symptoms.
    Yet that is precisely what this Congress is doing with our tax 
policy. We understand the destructive impact that the current tax 
system is having on the American people. We understand that the current 
tax system is driving high paying jobs overseas and destroying 
opportunity for the American people because we tax American producers 
heavily whether the goods are sold in the U.S. or abroad but impose no 
tax on foreign production sold here. We understand that the current tax 
system has a dramatic adverse impact on the standard of living of the 
American people by discouraging work, savings, investment and 
entrepreneurship. We understand that the current tax system is 
obscenely complex and costly. We understand that the current tax system 
is unfair. We understand that the current tax system can barely be 
administered and fosters evasion at an ever accelerating pace 
notwithstanding ever more severe penalties and ever more intrusive 
reporting requirements.
    Yet all Congress has done is tinker with an irretrievably broken 
tax system. We owe the American people a better tax system. And we 
should deliver one.
    What would a better tax system look like? What are the criteria by 
which we should measure whether a tax system is good or bad?
    A good tax system should not favor consumption over savings and 
investment. A good tax system should have the lowest possible marginal 
tax rates, removing to the greatest extent possible the disincentive to 
work, save and invest and providing the greatest opportunity for upward 
mobility. A good tax system should not put U.S. producers at a 
disadvantage with those who produce abroad; it should not provide an 
artificial incentive to move jobs and production overseas. A good tax 
system should impose the same tax burden on all forms of productive 
activity and should tax each activity at a uniform rate. A good tax 
system should treat human capital formation and physical capital 
formation alike. A good tax system should dramatically reduce the 
administrative and compliance burden on the public. Such a tax system 
would lead to a dramatic increase in the prosperity of the American 
people.
    A good tax system should exempt the poor from tax and allow 
everyone to meet the necessities of life before paying tax. Once the 
necessities of life have been met, however, a good tax system should 
treat people equally without favoring one set of taxpayers over 
another. A good tax system should not play favorites or reward the 
politically powerful and well connected.
    A good tax system should be transparent and understandable so the 
public understands it; it should not hide the true tax burden or 
obfuscate. A good tax system should be politically stable, so that the 
reform will last. The transition to such a system should be manageable 
and fair. Such a tax system would be honest and improve the American 
political system.
    The tax reform proposal that best meets these criteria is H.R. 25, 
the FairTax.
    The FairTax replaces the individual and corporate income tax, all 
payroll taxes and the estate and gift tax with a 23 percent national 
retail sales tax on all consumption of goods and service without 
exception. A prebate would be provided monthly in advance to all 
households. The prebate amount would be equal to the poverty level 
times 23 percent. An extra amount is provided to married couples to 
prevent a marriage penalty.
    The FairTax eliminates the current tax bias against saving and 
investment. It would, therefore, promote capital formation, increase 
productivity and enhance the competitiveness of American workers. The 
FairTax would get the government out of the business of picking 
favorites among industries and investments and allow businesses to 
invest based on what makes business sense. The FairTax has the broadest 
possible tax base consistent with economic growth. It, therefore, has 
the lowest possible marginal tax rates. It will dramatically reduce the 
tax drag on work, savings and investment and promote economic growth 
and prosperity to the maximum degree.
    The current tax system drives good jobs and businesses out of the 
U.S. Why? The current tax system taxes U.S. American producers--both 
workers and companies--whether the goods and services are sold in the 
U.S. or abroad. The current tax system imposes no tax burden whatsoever 
on foreign goods and services sold in the U.S. The U.S. tax system 
accords a nearly 20 percent advantage to foreign producers. And 
virtually every foreign country relies to a great degree on consumption 
taxes (usually VATs) that are imposed on U.S. goods sold there and 
rebated on foreign goods sold here. It should come as no surprise that 
we produce only \2/3\ of what we consume, that our great manufacturing 
companies are in decline and that high quality blue collar jobs are 
rapidly leaving the U.S. We have now lost our agricultural surplus and 
our services sectors are under intense pressure.
    The FairTax remediates this problem by taxing foreign and U.S. 
goods alike when sold at retail. U.S. exports are not taxed. It levels 
the playing field. No other tax plan with wide support does this.
    The FairTax treats investments in human capital and physical 
capital alike. Both are treated as investments and not taxed. No other 
tax plan does this.
    The FairTax repeals the regressive payroll tax and entirely untaxes 
the poor. The prebate ensures that no poor American will pay tax on 
their consumption expenditures and dramatically reduces the tax rate on 
middle income Americans. No other tax plan does this.
    The FairTax would eliminate the massive administrative burden on 
the American people imposed by the current system. For the first time 
in living memory, April 15th would be just another Spring day. What 
people earned would be what they keep. And every American would 
understand the tax system and how it worked.
    By reducing marginal tax rates dramatically, the Fairtax reduces 
the incentive to engage in tax evasion. By radically simplifying the 
tax system, if audit resources are held constant, audit rates will 
increase and the likelihood of apprehending tax evaders will increase. 
Thus, the benefit of evading taxes will decline and the cost of tax 
evasion will increase and tax evasion will decline.
    The FairTax offers us an unprecedented opportunity to make the 
lives of the American people better. It will enable U.S. workers and 
businesses to compete effectively in world markets. It will stop the 
hemorrhaging of high quality jobs that we are experiencing. It will 
promote entrepreneurship and enhance capital formation and productivity 
improvement. It will be fair and it will be comprehensible. It will 
reduce the tax gap and it will reduce compliance costs.
    It is time to adopt the FairTax.
    Thank you.

                                 

    Chairman CAMP. Thank you very much. Now the gentleman from 
Midland, Texas. Mr. Conaway, you have 5 minutes. Thank you.

   STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. CONAWAY. Thank you, Mr. Chairman. I appreciate the 
opportunity to get this on the record, and my good colleague 
from Iowa has said some of the things I've said.
    My professional background is I'm a CPA, and I'm keeping my 
license current, because as I tell folks in Texas, I'm one 
election away from being back in public practice.
    I've spent a career helping folks deal with and comply with 
and struggle with the Internal Revenue Code as we have known it 
over the last 30-plus years of my career. In 1986, there was a 
good sweep at trying to eliminate some of the complexities of 
the Code, but 20 years later, we are as complicated today in 
this Code as we've ever been.
    Part of the reason is, is we have constantly used the Code 
to social engineer or to try to get outcomes, to drive outcomes 
in the public policy arena that we think are in collectively 
all of our own best interests, whether it's a--I'm not sure how 
a bicycle credit is going to work, but a bicycle credit, or 
help with health care.
    The truth of the matter is, there's really only one true 
purpose for any tax collection scheme. That should be to 
produce the minimum amount of money needed to run the 
government. To the extent that we continue to try to engineer 
through the Tax Code, we will continue to have complications 
introduced into the Code and compliance issues that aren't 
necessary.
    I am a cosponsor of the FairTax. I think that we ought to 
have that very open public debate. I think it's the right 
answer, but I want to have a broad spectrum of America help 
tell us that that is the right solution. Much of what we do 
with the Tax Code today in terms of business is try to help 
individuals comply with the way they're going to--comply with 
the Code. Many, many--far too many of our business decisions 
are driven based on the tax consequences. It has nothing to do 
with the economics, separate and apart from those tax 
consequences. When you're doing that, that is inefficiencies 
built into a system that we don't have to.
    So, I would urge that the Committee begin what can be a 
long process of a full, fundamental, comprehensive rewrite of 
the Code to get us to something that's fair, something that's 
easy to comply with, something that most Americans would agree 
is the right way to do it, and eliminate the incentive or the 
concept of using that Tax Code for engineering purposes, or 
whatever the good reasons we may want to do this. Because as 
long as we have an income tax, we're going to have figure out 
what's deductible, what isn't taxable, what is taxable, what 
income is taxable and at what rates. We will be--we will use it 
for purposes other than, as I mentioned, collecting the minimum 
amount of money needed to fund this Federal Government.
    One of the advantages of a national sales tax is that if it 
were in place and a segment of the economy out there came to us 
and said, you know, if you would just exempt us from the 
national sales tax for a little while, we would be able to do 
X, Y or Z. That's going to be very transparent, and that's 
going to be very difficult to do.
    Currently, we are able to work those kinds of things into 
the existing Tax Code without a lot of transparency, without a 
lot of competition for other folks to say, no, that's really 
not the way we should do it. So, a national sales tax I think 
would help us wean ourselves from what I think is a very bad 
idea of using the Tax Code to engineer our societies, engineer 
our economy and do all the kinds of things that we do with each 
of those complicating factors that we have in the Code.
    So, now, having said that, since we do have the Tax Code in 
place as it is, I'm going to pitch in for an extension of the 
deductibility of sales taxes in those states that don't have 
income taxes.
    One of the ideas is that the Code ought to be fair, and in 
this instance, in states that have income taxes, and those 
taxes are deductible from their Federal income tax, Texas does 
not have a state income tax. We've enjoyed over the last year 
or two the deduction for sales taxes in lieu of income taxes.
    So in the spirit of fairness, I'm going to ask for more 
complications in the Tax Code that I just spoke against as long 
as we've got it in place, and that would be that we extend the 
deductions for sales taxes for those states that don't have 
income taxes.
    With that, Mr. Chairman, I'll yield back the balance of my 
time.
    [The prepared statement of Hon. K. Michael Conaway 
follows:]
       Prepared Statement of The Honorable K. Michael Conaway, a 
           Representative in Congress from the State of Texas
    Mr. Chairman and distinguished Members of the Committee, it is an 
honor and a privilege to testify before you today about an issue that 
I've spent my career working on: Taxes.
    As a CPA and small business owner, I have worked with our 
inefficient Tax Code and the many challenges that arise as a result of 
its complex nature. I believe that as Federal tax regulations have 
grown, economic efficiencies have decreased drastically. The best and 
most effective tax system for the Federal Government, would be one 
where individuals and businesses do not need to hire professionals to 
prepare their taxes. The complexities inherent to our Tax Code create a 
number of fundamental problems that must be addressed.
    I believe in the natural efficiencies of the free market and the 
need to let the market forces operate without unnecessary government 
regulation. As a nation, we waste over 6.5 billion hours every year 
filling out tax forms, keeping records, and learning new tax rules. The 
cost of complying with Federal income taxes is roughly $200 billion 
annually. Unfortunately, the 6.5 billion man hours and $200 billion 
spent, only demonstrate half of the economic losses caused by our Tax 
Code.
    In addition, every year the IRS fails to collect over 15 percent of 
the tax revenues owed to the Federal Government. This `tax gap' is 
estimated to be approximately $345 billion per tax year. To put this 
amount into perspective, this year we will spend $420 billion on all 
non-defense domestic discretionary spending and our estimated budget 
deficit for fiscal year 2006 year is $260 billion. As you know, $345 
billion is a large sum, even by Federal Government standards. Yet, 
through our broken tax system, we allow this money to go uncollected 
each year. This loss in tax revenue is apparently unavoidable with our 
current Tax Code.
    The IRS has increased its enforcement revenues from nearly $39 
billion in 2001 to $47 billion in 2005 by increasing the number of 
audits of taxpayers. While I applaud their efforts, more audits are not 
going to fix this problem. Even if every single taxpayer received an 
unwelcome audit from the IRS, we would still have a tax gap. We need to 
radically change the tax system in a way that completely eliminates 
that gap.
    When looking at proposals for fundamental tax reform, we should 
keep a few guiding principles in mind. The following principals were 
among ten outlined in a recent report by the AICPA on good tax policy: 
Equity and fairness, economy in collection, simplicity, economic 
efficiency, transparency, and minimizing the tax gap. It would behoove 
all of us, to keep these ideals in mind as we debate the future tax 
system.
    Taxpayers in the same or similar financial situations should be 
taxed in the same manner. By treating like taxpayers equally the system 
becomes more economically efficient and transparent, with diminished 
incentives to evade taxes. Likewise, a tax scheme that is simple and 
provides for easy compliance greatly increases economic efficiency, 
while reducing costs associated with collections.
    There is a proposal that will adhere to the aforementioned 
principles without requiring taxpayers to file tax returns, eliminate 
all Federal income, estate, and payroll taxes and reduce the `tax gap' 
to zero--the Fair Tax.
    The Fair Tax plan, H.R. 25 introduced by Congressman John Linder, 
is a Federal tax plan that would eliminate all Federal income, payroll, 
personal, gift, estate, capital gains, alternative minimum, Social 
Security, Medicare, self-employment, and corporate taxes. All of these 
taxes would be replaced with a simple progressive national retail sales 
tax. The plan includes tax rebates to ensure that no American pays 
Federal taxes while living at or below the poverty level. By taxing 
only what we choose to spend and not what we earn, the Fair Tax creates 
a system that is totally transparent and simple to comply with.
    Opponents of this plan claim it is regressive, hitting the poorest 
Americans the hardest. However, this problem is avoided by providing a 
prepaid monthly rebate for every household to pay for the taxes on all 
necessities up to the poverty level. This important feature ensures 
that low income Americans are not taxed and keeps the system 
progressive.
    Additionally, it is important to note that the prices for goods and 
services would not rise significantly under the Fair Tax. Under our 
current tax scheme hidden taxes make up to 20 percent of the cost of 
all retail prices. Income and corporate taxes are passed on to the 
consumer in everything we buy. By repealing the hidden taxes that are 
built into the retail price of an item and replacing them with a 
transparent national sales tax, all Americans will know exactly how 
much money they are contributing to the Federal Government every time 
they make a purchase.
    The IRS readily admits that there is a systemic problem of 
noncompliance inherent in the Tax Code. There is a vast underground 
economy in this country, consisting of illegal immigrants and criminals 
operating outside the confines of our tax system. Illegal immigrants, 
paid ``off the books'' don't file tax returns. With the Fair Tax, those 
who live in the trillion dollar world of the underground economy would 
be forced to pay their fare share.
    However, I must caution the Committee about adopting a `hybrid' 
type scheme that would include components of a national sales tax along 
with either payroll or income taxes. Such a proposal would fail to 
eliminate the complexities of the current system and would allow some 
of the inefficiencies to remain.
    Bearing in mind such a massive tax overhaul could not happen 
overnight, I would also like to take the opportunity to champion 
provisions that allow the deductibility of sales taxes in lieu of state 
income taxes. Not renewing this deduction before 2006, would amount to 
a tax increase for taxpayers in states that do not have income taxes, 
such as Texas. The American Jobs Creation Act of 2004, reinstated the 
deduction of sales tax in lieu of income taxes. If we allow the sales 
tax deduction to expire at the end of this year, we will have to defend 
what is in effect a $1.5 to $3 billion a year tax increase on selected 
citizens.
    In closing, I would like to reiterate my support for a 
comprehensive overhaul of our current tax collection scheme to bring 
clarity, transparency and fairness to the system. I thank the Committee 
for its time and hard work and I look forward to working with you to 
find a working solution to reforming our tax system.

                                 

    Chairman CAMP. Thank you. I know we have a vote on, so I'll 
try to be brief. Mr. King, and to the same extent, Mr. Conaway, 
the FairTax, as I understand it, does not tax any property or 
services purchased for business or investment, or for export, 
for that matter. So, there still will be a determination of 
what you're doing and why and how. That doesn't end.
    So, tell me, how would this be administered, given that 
there wouldn't be any national filing? Would it be up to the 
states then to determine the proper use, you know, for 
oversight, administration of this, in your mind?
    Mr. KING. My answer to that is, yes, for the most part, in 
that it's either 44 or 45 states have a state sales tax. Their 
department of revenue already has the system and the network in 
place to do that, and they do make decisions on what's taxable 
and what isn't, consistent with their state law.
    So, it's not a new experience to be making those decisions 
in the tiebreaker, say, for example, if you're buying a 
lawnmower to cut the grass around your gas station versus one 
to cut the grass around your house, those decisions would be--
that definition would always have to be worked and massaged and 
would be some adjustment to do with that.
    But most of the administration would be through the state 
departments of revenue. We propose that we pay them a very 
small percentage for collecting that, as well as the retailer a 
very small percentage for collecting the tax, which will be the 
first time we've ever rewarded someone for being a tax 
collector other than a payroll check.
    Chairman CAMP. Do you see any Federal oversight or 
administration in that process at all then? It's all done by 
the state department of revenues?
    Mr. KING. I think we have to have a Federal oversight, 
because if you had a state that was unwilling, then they would 
not as vigorously enforce that, and they may see it as a 
competitive opportunity for them compared to a state next door 
that is more actively enforcing.
    I have not worked out myself what entity that will be. But 
I am determined that it's essential that we eliminate the IRS 
as an agency so that it can't roll back on us again. That's the 
one piece that I think is essential. Then I've also introduced 
the legislation to repeal the Sixteenth Amendment so that it 
can't go back on us. But I don't believe we should make it a 
condition of the passage of the FairTax, because if we did 
that, the bar is too high. But if we give people the money they 
earn, they will want to repeal the Sixteenth Amendment.
    Chairman CAMP. Thank you. Mr. McNulty may inquire.
    Mr. MCNULTY. Thank you, Mr. Chairman. I did want to pursue 
this issue of the national sales tax a little bit, but I don't 
want to miss votes and I don't want to prevent the Members from 
getting to vote, so we'll save that for another day.
    I do want to commend Congressman McHugh on the scope of his 
bill. I haven't had a chance to take a look at the details of 
your bill, John, but earlier on another panel we were 
discussing this issue of so many people being uninsured in the 
country and how that number has grown dramatically in the last 
5 or 6 years from 39 million up to the figure that you cited, 
which is 46 million. We really need to do something about this. 
The bill we were discussing earlier would provide tax benefits 
to self-employed individuals, which I certainly support. But I 
ask the question, what about an employee who works for a 
corporation which does not provide health care coverage? Would 
that be covered under that particular bill? Of course the 
answer was no. But that person would be covered under your 
bill, because it would cover any taxpayer who was purchasing 
health care coverage for his or her--themselves and their 
family. So, I want to commend you for the scope of that, 
because I think that's a critical issue, ought to be at the top 
of the agenda, and thank you for contributing to a solution.
    Mr. MCHUGH. Thank you very much, Michael.
    Chairman CAMP. Thank you. I want to thank you as well, and 
I want to thank all of you for your excellent testimony. Thank 
you for appearing before the Subcommittee. Appreciate it.
    The Subcommittee on Select Revenue Measures is now 
adjourned.
    [Whereupon, at 12:12 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]
                         Statement of Dan Fedor
    I am writing to submit for the hearing record on Member Proposals 
on Tax Issues in the 109th Congress scheduled for Tuesday September 26, 
2006 in B-318 Rayburn House Office Building, beginning at 10:00 a.m.
    Congresswomen Berkley (NV) introduced H.R. 4887 which would amend 
the Internal Revenue Code of 1986 to exclude from gross income amounts 
awarded to qui tam plaintiffs. This bill was referred to the House 
Committee on Ways and Means the day it was introduced on March 7, 2006.
    The qui tam provision of the Federal False Claims Act clearly 
states that the relator is entitled to receive at least 15 percent but 
no more than 25 percent of the proceeds (see Title 31 Money and Finance 
31 USCS | 3730(d)(1)). If the proceeds are then to be included as gross 
income the relator does not actually receive the minimum 15 percent 
according to the qui tam provision. It appears that the language in the 
qui tam provision is incorrect/(misleading to potential relators) or 
that it was an oversight and amounts awarded to qui tam plaintiffs 
should be excluded from gross income.
    The qui tam provision has had the effect of privatizing government 
legal remedies by allowing private citizens to act as ``private 
attorneys general'' in the effort to prosecute government procurement 
and program fraud. Although most of the early successes in qui tam 
actions have been against defense contractors, more and more actions 
are being filed that involve other governmental agencies such as Health 
and Human Services, Environment, Energy, Education, NASA, Agriculture 
and Transportation. U.S. recoveries for qui tam cases, as of the end of 
2003, have totaled $7.8 billion.
    As a United States citizen and taxpayer I am concerned with 
government funds being wasted on fraudulent activities. The qui tam 
provision of the Federal False Claims Act has been, and continues to 
be, a very effective and successful tool in combating government 
procurement and program fraud. Bolstered by amendments passed by 
Congress in 1986, this law has armed private citizens, who have 
independent and direct knowledge of fraud, with a weapon to prosecute 
government contractors, and others who are defrauding the Government, 
and share in the recovery.
    As a result of the 1986 amendments, qui tam actions have increased 
dramatically and have been the most effective and successful means of 
combating procurement and program fraud. Since 1986, qui tam recoveries 
have exceeded $1 billion with most of the successes involving fraud in 
Defense and Health Care programs.
    The amendments that were passed in 1986 did not specifically 
exclude the private citizens' (relator's) recovery from being included 
in their gross income and therefore inappropriately taxed the award 
amount. H.R. 4887 addresses this issue and excludes the relator's 
recovery from gross income.
    The IRS states that all winnings from the lottery; a game show and 
awards from a civil judgement are to be included in gross income. I am 
aware that when a plaintiff receives a settlement from a jury or even 
when a person wins money on a game show or through a lottery drawing 
those proceeds are to be included in that persons gross income and are 
taxable as such. It is appropriate for the United States Government to 
tax such awards/winnings as income as the government has not received 
any portion from such a transaction. A qui tam settlement is 
significantly different due to the fact that the government already 
received a substantial recovery due to the relator bringing a civil 
action for a violation of section 3729/3730 for the United States of 
America. Therefore, in addition to the government receiving the 
recovery from the settlement they then include the relator's award in 
their gross income and impose income tax on that amount (double 
dipping).
    As private citizens become aware that the qui tam provision of the 
Federal False Claims Act is misleading with respect to the recovery 
award, they may not be as motivated to come forward with knowledge of 
fraudulent activities. Some opponents to H.R. 4887 may take a position 
that the relator still does receive a financial reward even if it is 
taxed and it is less than the minimum 15 percent (per the qui tam 
provision). However, there are significant negative career implications 
one encounters by filing a qui tam suit under the Federal False Claims 
Act. Career implications that must be considered based on the amount of 
the award and the ability for a relator to support his/her family in 
the future once the qui tam suit becomes public information.
    I was pleased to see that Congresswomen Shelley Berkley introduced 
H.R. 4887 to address this oversight thus ensuring that the qui tam 
provision of the Federal False Claims Act remains a strong motivator 
for citizens to bring forward knowledge of fraudulent activities.
    I appreciate your time and attention.

            Sincerely,
                                                    Daniel M. Fedor

                                 
                       Statement of John E. Shuey
    Thank you for the opportunity to express my thoughts on the need 
for, and process of, Tax Reform. I am sure you will be overwhelmed by 
responses to your call for testimony, so I will be brief.
    First, I would want to emphasize my conclusion, based on more than 
2 years of research into the problems of our present tax regimen and 
the potential alternatives to it, that the time has come to totally 
rethink how and when our nation collects the taxes necessary for its 
operation. In order to adequately address the needs of both the 
government and our economy going forward, any continuation of the 
tinkering and massaging of the income and related taxes that has led us 
into our present complex, anticompetitive, burdensome, and unfair 
system is no longer sufficient nor acceptable.
    To meet the needs of Twenty-first Century America, it is imperative 
that the Internal Revenue Code in its entirety be abandoned, and 
replaced with a new system that has at least the following attributes:

      It must be seen by all Americans as being fair. No longer 
can we afford a system where Congress picks winners and losers among 
our citizens and industries based on which way the political winds 
might be blowing at a particular moment;
      It must fully replace the revenues collected by the taxes 
it replaces;
      It must provide relief for the less fortunate of our 
citizens, particularly that group commonly referred to as the ``working 
poor'';
      It must enable our businesses to compete on a level 
playing field, both in world markets and at home;
      It must be broad-based, spreading the burden of funding 
government across a wide spectrum of citizens, residents, and visitors, 
thus keeping marginal rates as low as possible;
      It must make Social Security and Medicare fiscally secure 
as far into the future as possible;
      It must be a net plus to our economy, stimulating growth 
and job creation; and
      It must be simple, completely visible, much less 
susceptible to fraud and evasion than the current system.

    Of all the alternatives now offered: Keeping and further massaging 
the present system, a flat tax, Value-Added taxes, Transaction taxes, 
and Consumption taxes, only one meets all of the above criteria --a 
Consumption tax. Further, of the variations of Consumption tax that 
have been proposed, the one that is the simplest, fairest, and most 
likely to exceed the above requirements is H.R. 25/S. 25, commonly 
referred to as the Fair Tax.
    Although I am sure that Subcommittee Members and staff are familiar 
with the general provisions of H.R. 25, I would point to first a few 
that make its approach unique and then to some of the projected 
benefits to be derived from its adoption as drafted.
    H.R. 25 is unique in that it was created by asking the American 
people what they wanted out of a tax system, and then having a team of 
respected economists design a tax system that met those demands. It is 
not a product of special interests . . . unless you think of the 
American People as a special interest. Today, more than 600,000 
citizens work as volunteers on behalf of the Fair Tax.
    In essence, H.R. 25 replaces the personal and corporate income tax 
and all Federal payroll taxes with a national consumption tax. The tax 
is levied only once, at the point of purchase on new goods and 
services. The simplicity of H.R. 25 frees Americans from our current 
overwhelming Tax Code and unshackles the U.S. economy.
H.R. 25:
      Abolishes the IRS;
      Closes all tax loopholes and brings fairness to taxation;
      Maintains our current Social Security and Medicare 
benefits;
      Brings transparency and accountability to tax policy;
      Allows American products to compete fairly both at home 
and abroad; and
      Reimburses the tax on purchases of basic necessities, 
thus untaxing the poor.

    Because of a generous rebate, H.R. 25 is as progressive as the 
current income tax system. H.R. 25 is based upon a taxpayer's ability 
to pay because consumption above the poverty line is by definition the 
ability to pay the tax. Below-poverty-line consumption is not taxed by 
the Fair Tax.
    The poor are exempted from paying taxes under this system, and 
often have negative tax rates, while those who take the most out of 
society by consuming more pay the most in taxes.
    People can make choices about how much to pay in taxes by deciding 
when to buy and what to buy (used goods are not taxed under H.R. 25).
    There are no exceptions, no exclusions, and no loopholes to be 
exploited by special interests.
    H.R. 25 restores the upward mobility of the poor and the middle 
class. Because the payroll tax is repealed in its entirety, wage 
earners get to keep their whole paycheck.
    Under H.R. 25, inherited wealth is taxed when spent.
    Lower-income wage earners and the middle class lower their tax 
rates and dramatically increase their ability to consume, save, or 
invest.


----------------------------------------------------------------------------------------------------------------
                                                            Current income tax rate with
               Income for family of four                            payroll tax                     FairTax
----------------------------------------------------------------------------------------------------------------
       $22,500                                                                       17.9%                 0.0%
----------------------------------------------------------------------------------------------------------------
       $45,000                                                                       24.1%                11.5%
----------------------------------------------------------------------------------------------------------------
       $67,500                                                                       27.3%                15.3%
----------------------------------------------------------------------------------------------------------------
       $90,000                                                                       31.3%                17.3%
----------------------------------------------------------------------------------------------------------------


    Because H.R. 25 encourages savings and investment, virtually all 
economic models project a much healthier economy under H.R. 25:

      GDP will grow between 10.5 and 14 percent;
      Real investment will grow by 76.4 percent;
      Exports will jump by 26.4 percent;
      Capital stock will increase by 42 percent;
      Interest rates will drop between 20 and 30 percent; and
      Real wages will increase by 8 percent.

    There is of course much more information and data available 
relating to H.R. 25 and its potential to favorably impact our people 
and our economy. I am sure Representative Linder and his staff will be 
providing most of it to you.
    Again, thank you for this opportunity to speak in favor of H.R. 25. 
I wish you well in your important deliberations on behalf of our nation 
and people.

                                 
                      Statement of John Hassinger
    This is it! Here, finally, is the answer to the huge problem the 
Federal Government has become. First, let me summarize the problem, 
then the answer.
    Every person who works for the Federal Government wants more money 
and job security, just like the rest of us. For example, in Washington 
D.C. in a drab stone building, and in one of thousands of dusty 
cubicles, sits the operations manager of The Department of Very 
Important Stuff. He spends his days plotting and planning, his nights 
dreaming and scheming, intent on expanding his domain and increasing 
its importance, so he can hire more staff. Why? Because the more people 
he has working for him, the more responsibility he can demonstrate and 
the more easily he can justify his next pay increase at review time. 
Not only that, if in the rare event his funding is cut, he can reduce 
staff and do their jobs personally, thereby cushioning himself against 
layoff. If they could, these people would take all our income, put the 
money through the system, then mail each of us checks, not because they 
dislike us, but because it would help justify their bureaucratic 
existence.
    This, as I see it, is the present condition of our Federal 
bureaucracy.
    Furthermore, as layer upon layer of invisible Federal employees 
have continuously worked in this ever expanding manner in order to 
maintain employment, the Federal Government has steadily grown until 
today it is the nation's largest employer.
    As a result of this absurdity, both husband and wife must work, one 
to pay the bills, the other to pay the taxes to support this sea of 
bureaucrats.
    Gargantuan amounts of money pour into Washington and are funneled 
into bloated, pork, earmarked programs. Then, with straight faces, 
wide-eyed innocent-looking bureaucrats whine for ever more cash and 
power, always hungry, never satisfied, continually working to expand 
their empires.
    So what's to be done to clean up this awful mess?
    Surprisingly, this isn't difficult: the expenditures of the Federal 
Government simply need to be tied directly to the economy so that our 
beloved bureaucrats will have more money when times are good and less 
when times are bad, just like those of us who live in the real world.
    This will give all Federal employees, including the manager of the 
Department of Very Important Stuff, the needed incentive to do things 
that will steadily and persistently promote a good economy, such as: 
foster low interest rates, enthusiastically apply pressure to institute 
tort reform, and return to a gold standard so there is no more 
inflation.
    Ah, this sounds wonderful. This is fine. Everyone can now bask in 
the warm sunshine of prosperity.
    But wait a minute! I haven't told you how we can achieve this.
    Here's how: instead of taxing people when they earn money, give 
them their whole paycheck to spend.
    No Social Security deductions, no Federal income tax deductions, no 
1040's, and no IRS in people's lives.
    Instead, people would pay tax when they spend money rather than 
when they earn money.
    Everyone, including the wealthy, businesses, and the government, 
would pay a consumption tax when they purchase software, clothing, 
automobiles, haircuts, doctor services, and so on. All of us would pay 
the tax when we consume, but we would all begin with our entire 
paycheck.
    Therefore, the more items and services people buy, the more Federal 
sales tax is collected, and the more money the Federal Government 
receives.
    I guarantee this will cause an instantaneous attitude change in 
Federal employees. When a consumption tax, the fair tax, replaces the 
income tax, Social Security tax, and all other taxes, bureaucrats will 
get out of our way and the economy will explode with growth. If enacted 
as written, it is estimated that in the very first year the Gross 
National Product will jump 10%.
    Please buy the FairTax book, read it, and support this effort. This 
is the solution to the problems with Social Security, Medicare, and 
jobs leaving this country.
    And it is the way once and for all to get the Federal Government on 
our side.

                                 
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