    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

                      THE TAX-RELATED PROVISIONS OF H.R. 3

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

                                    HEARING

                                   before the

                    SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                     of the

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

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 16, 2011

                                   __________

                              Serial No. 112-SRM2

                                   __________

             Printed for the use of the Committee on Ways and Means

                                    _____

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    71-160                    WASHINGTON : 2011
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                    SUBCOMMITTEE ON SELECT REVENUE MEASURES

                       PATRICK J. TIBERI, Ohio, Chairman

    DEAN HELLER, Nevada                  RICHARD E. NEAL, Massachusetts,
    PETER J. ROSKAM, Illinois            Ranking
    ERIK PAULSEN, Minnesota              MIKE THOMPSON, California
    RICK BERG, North Dakota              JOHN B. LARSON, Connecticut
    CHARLES W. BOUSTANY, JR., Louisiana  SHELLEY BERKLEY, Nevada
    KENNY MARCHANT, Texas

                                C O N T E N T S

                                   __________

                                                                       Page

    Advisory of March 9, 2011, announcing the hearing................     2

                                    WITNESS

    Thomas A. Barthold, Chief of Staff, Joint Committee on Taxation..     5

                           SUBMISSIONS FOR THE RECORD

    American United for Life, statement..............................    48
    Cassing Hammond, statement.......................................    51
    Center for Reproductive Rights, statement........................    54
    NARAL Pro-Choice America Foundation, statement...................    61
    National Abortion Federation, statement..........................    71
    National Council of Jewish Women, statement......................    77
    National Health Law Program, statement...........................    79
    National Partnership for Women and Families, statement...........    81
    Religious Coalition for Reproductive Choice, statement...........    85
    Sara Rosenbaum, statement........................................    93

                      THE TAX-RELATED PROVISIONS OF H.R. 3

                                  ----------

                            THURSDAY, MARCH 16, 2011

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

        The Subcommittee met, pursuant to call, at 2:00 p.m., in
    Room 1100, Longworth House Office Building, Hon. Pat Tiberi
    [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) 225-1721
    FOR IMMEDIATE RELEASE
    Wednesday, March 9, 2011
    SRM-2

                     Chairman Tiberi Announces a Hearing on

                      The Tax-Related Provisions of H.R. 3

        Congressman Pat Tiberi, (R-OH), Chairman of the Subcommittee on
    Select Revenue Measures of the Committee on Ways and Means, today
    announced that the Subcommittee will hold a hearing on the Tax Code's
    treatment of abortion-related expenses and the changes to such tax
    treatment proposed by section 2 of H.R. 3--the No Taxpayer Funding for
    Abortion Act--as ordered reported by the House Judiciary Committee on
    March 3, 2011. The hearing will take place on Wednesday, March 16,
    2011, in Room 1100 of the Longworth House Office Building beginning at
    2:00 p.m.

        In view of the limited time available to hear witnesses, oral
    testimony at this hearing will be from invited witnesses only. However,
    any individual or organization not scheduled for an oral appearance may
    submit a written statement for consideration by the Committee and for
    inclusion in the printed record of the hearing. A list of invited
    witnesses will follow.

    BACKGROUND:

        Rep. Chris Smith (R-NJ) introduced the No Taxpayer Funding for
    Abortion Act (H.R. 3) on January 20, 2011. The bill was referred to the
    Committee on the Judiciary, and, in addition, to the Committees on
    Energy and Commerce and Ways and Means. On March 3, 2011, the House
    Judiciary Committee ordered the bill reported to the House by a vote of
    23-14. The Ways and Means Committee received a referral because the
    bill includes tax provisions that fall within the jurisdiction of the
    Committee. Ways and Means Committee Chairman Dave Camp (R-MI) asked
    Chairman Tiberi to hold a hearing for the purpose of examining these
    provisions so that the Committee can provide its expertise, ensuring
    that the tax provisions are administrable and operate as intended.

        In announcing the hearing, Chairman Tiberi said, ``The Ways and
    Means Committee has a responsibility to lend our tax policy expertise
    to the development of H.R. 3 to ensure that the relevant provisions
    serve their intended purpose.''

    FOCUS OF THE HEARING:

        The hearing will focus on the tax policy issues raised by H.R. 3 as
    ordered reported by the House Judiciary Committee on March 3, 2011.

    DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

        Please Note: Any person(s) and/or organization(s) wishing to submit
    written comments 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 ``Hearings.'' 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, submit all requested information. ATTACH your
    submission as a Word document, in compliance with the formatting
    requirements listed below, by the close of business on Wednesday, March
    30, 2011. 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. For questions, or if you encounter
    technical problems, please call (202) 225-3625 or (202) 225-2610.

    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 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.

        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.

        Note: All Committee advisories and news releases are available on
    the World Wide Web at http://www.waysandmeans.house.gov/.

        Chairman TIBERI. I would like to call today's hearing to
    order. Before we proceed, I would like to introduce a new
    Member of the Subcommittee and a new Member of the Full
    Committee. He reigns from the great State of Texas. Please
    welcome Kenny Marchant. Kenny, glad to have you with us. Would
    you like to say a few words as a new Member of the
    Subcommittee.
        Mr. MARCHANT. Thank you, Mr. Chairman. I really appreciate
    the opportunity to serve on the Committee. I thank the steering
    committee for making the recommendation, and was thrilled to
    see that I was assigned to your Subcommittee. So I am ready to
    go to work.
        Chairman TIBERI. Great to have you. Thank you so much. The
    Ways and Means Committee derives its jurisdiction from Article
    1, section 7, of the United States Constitution, which provides
    that all bills for raising revenue shall originate in the House
    of Representatives. Furthermore, Rule 21 Clause 5(a) of the
    rules of the House allows a point of order to be raised against
    any bill containing a tax or a tariff measure that is reported
    by a Committee other than the Ways and Means Committee.
        I want to thank Chairman Camp for asking me to hold the
    hearing today, as H.R. 3 clearly contains tax provisions within
    the Ways and Means Committee jurisdiction. I agree with
    Chairman Camp that it is imperative for the Ways and Means
    Committee to review, and when necessary, to mark up bills
    containing tax-related provisions that are moving throughout
    the legislative process within other committees of
    jurisdiction.
        H.R. 3 was introduced by Representative Chris Smith on
    January 20th of 2011. The bill was referred to the Judiciary
    Committee, the Energy and Commerce Committee and the Ways and
    Means Committee. On March 3, 2011, the Judiciary Committee
    ordered the bill to be favorably reported to the House. In
    addition, H.R. 358 was introduced by Representative Joseph
    Pitts on January 20th of 2011. On February 15, 2011, the Energy
    and Commerce Committee ordered the bill favorably reported. The
    purpose of today's hearing is to review and to better
    understand the tax-related provisions of both H.R. 3 and H.R.
    358, which are within the Ways and Means Committee's
    jurisdiction, and to determine to what extent these provisions
    work or don't work as intended.
        I look forward to working with Mr. Neal and the other
    Members of the Subcommittee to accomplish this task. In
    addition, I want to welcome our witness today, Tom Barthold,
    Chief of Staff of the Joint Committee on Taxation, to this
    hearing, and thank him for leading us with his expertise on
    these tax issues. I yield as much time as he would like to the
    former Chairman and to the Ranking Member, my friend, Mr. Neal.
        Mr. NEAL. Thank you very much, Mr. Chairman. Last week was
    the 100th anniversary of International Women's Day, a
    celebration rooted in the struggle for women to participate in
    society on an equal footing with men. The President and many
    other world leaders chose this time to laud accomplishments of
    women and expressed renewed commitments to ending violence and
    discrimination against women. One way in which we can honor
    that struggle is by improving women's health, certainly not
    limiting it. But last night I found out that we will be also
    debating a bill today which may allow hospitals to deny
    emergency lifesaving care to pregnant women, a bill not even
    referred to this Committee. It is expected that this Committee
    will take up H.R. 3 and H.R. 358 as introduced in a matter of
    weeks. H.R. 3 seeks to extend current restrictions on abortions
    in Federal facilities to private health care plans, but it
    doesn't stop just there. It seeks to redefine rape, excluding
    protections for any rape short of forceable rape, a distinction
    surely lost on most victims. It seeks to redefine incest,
    including protections for any incest not involving a minor.
        The bill, even as modified by the Judiciary Committee,
    would exclude protections for women whose life is medically
    endangered, but not by the pregnancy itself, such as a woman
    suffering from brain cancer in need of chemotherapy. The
    American College of Obstetricians and Gynecologists, a
    profession dedicated solely to women's health, expressed
    opposition to legislative proposals that ``put government
    between a physician and a patient.''
        Remember how incensed we were a decade ago that medical
    decisions could be made by HMO bean counters, and yet here we
    will let government bean counters do it for us. And because
    this bill has not been drafted as amendments to the Internal
    Revenue Code, it is hard to capture its full reach. Can a
    company deduct expenses for research on a better birth control
    pill, where abortion might, emphasis on the word ``might,'' be
    possible as part of the clinical trial?
        There are at least a dozen tax provisions potentially
    impacted by this imprecise language. And I have to wonder what
    is next in our Committee. Do Members in opposition to the death
    penalty deny deductions for research expenses on a drug which
    might be used in conjunction with that? Do Members in
    opposition to tobacco use deny advertising deductions to
    tobacco companies? The Tax Code can be an extremely powerful
    tool to accomplish a policy goal, including social policy, but
    it also can be a very blunt instrument. This is the first time
    in almost two decades that I have served on this Committee that
    the issue of abortion has come to us other than by amendments,
    and I am surprised that it is being brought to us the way that
    it has been.
        Mr. Chairman, both you and Chairman Camp had talked with
    great sincerity about simplifying our Tax Code, and I certainly
    believe both of you. We want to streamline that Tax Code for
    the benefit of individuals, businesses and tax administrators,
    and I want to be part of that effort, but this bill certainly
    doesn't get us there. Thank you, Mr. Chairman.
        Chairman TIBERI. Thank you, Mr. Neal. And I ask unanimous
    consent that all Members' written statements be included in the
    record. Without objection, so ordered. Obviously, this topic
    provides a lot of heated debate from folks, not just within the
    Committee, but outside the Committee. There is one point of
    clarification, Mr. Neal, that I want to make: that the
    introduced version of the bill talked about forceable rape.
    That was corrected within the Judiciary Committee's markup.
        Mr. Barthold, thank you for appearing today. You have the
    customary 5 minutes to present your testimony, with your full
    written testimony submitted for the record. And you may begin.

                     STATEMENT OF THOMAS BARTHOLD,
              CHIEF OF STAFF, JOINT COMMITTEE ON TAXATION

        Mr. BARTHOLD. Well, thank you, Mr. Chairman and Mr. Neal.
    It is my pleasure to present the testimony of the staff of the
    Joint Committee on Taxation concerning the potential effects on
    the Internal Revenue Code of H.R. 3, the No Taxpayer Funding
    for Abortion Act, as reported by the Committee on the
    Judiciary. And also I will make some brief comments about H.R.
    358, the Protect Life Act. H.R. 3 as reported by Judiciary does
    not amend the Internal Revenue Code, but it does directly
    affect the Code by prohibiting certain tax benefits from being
    used to pay for abortions or health benefit plans that may
    cover abortions. So in particular, section 303 of that bill
    seeks to prevent abortions from being paid for with Federal tax
    credits or deductions or with funds withdrawn on a tax
    preferred basis from certain trusts and accounts.
        So the purpose of my testimony today is to outline some of
    the key tax-related features of the bill and to explain which
    provisions of a Code our staff believes are clearly implicated
    by the bill and which provisions might be implicated and
    perhaps to discuss some of the questions raised by the
    ambiguities in the bill's language in its present form for the
    Internal Revenue laws of the United States.
        Now, as I mentioned, the bill does not directly amend the
    Code. And consequently, there is some uncertainty about which
    Code provisions are affected by the bill. This uncertainty
    relating to the scope of the bill is increased because the bill
    does not define certain key terms. The undefined terms include
    which Code sections count as credits under the Internal Revenue
    laws, what vehicles might be considered ``tax preferred trusts
    or accounts'' from which funds may be withdrawn on a tax
    preferred basis and which taxpayers are intended to be
    prohibited from using tax benefits to pay for abortions.
    Certain health benefits related to the Code are definitely
    impacted by the bill. These sections include the health care
    tax credit, the premium assistance credit, the Indian
    employment credit, the small business health care credit and
    the individual deduction for medical expenses.
        All of these sections that I just named contain tax credits
    and deductions that are clearly defined in the Code and that
    directly relate to the taxation of health benefits and medical
    expenses. Our staff also believes that it is clear that if a
    taxpayer withdraws funds from an Archer Medical Savings
    Account, MSAs, or a Health Savings Account, known as HSAs in
    common parlance, to pay for an abortion, then the amount of
    funds withdrawn must be included in the taxpayer's income. This
    is because both Archer MSAs and HSAs are clearly tax exempt,
    that means that they are tax preferred, and they are trusts or
    accounts the funds of which are held exclusively for payment of
    qualified medical expenses. They thus come directly under the
    language of the bill as reported by Judiciary. But other
    sections of the Code may be impacted by the bill as well,
    depending upon the interpretation of the bill's language. These
    sections include the COBRA premium assistance, the deduction
    for general business expenses, and the research credit.
        Whether COBRA premium assistance is affected by the bill
    depends upon whether repayment of premium assistance amounts to
    employers by the IRS--whether that is understood as a tax
    credit or as a mere procedural device for purposes of the bill.
    Whether the deduction for general business expenses is affected
    by the bill depends upon the breadth and interpretation of the
    term ``taxpayer.'' Whether the research credit is affected
    depends both upon how broadly the phrase ``amounts paid are
    incurred for an abortion'' is interpreted and also on the
    intended scope of the legislation itself. Under the bill,
    distributions or payments under employer-sponsored health plans
    using integral government trusts, retiree medical accounts,
    welfare benefit plans, including VEBAs, health flexible
    spending arrangements, health reimbursement arrangements, might
    need to be included in income if used to pay for an abortion.
    But here, whether employer-sponsored health plans using these
    arrangements are affected depends upon the interpretation of
    the bill's language, and in particular, it is unclear whether
    all those vehicles that I just named are, in fact, tax
    preferred trusts or accounts for purposes of the bill.
        Now, last, let me note that H.R. 358, the Protect Life Act,
    amends the Patient Protection and Affordable Care Act to
    prohibit the use of premium assistance credits that were
    provided for under that Act and are section 36B of the Internal
    Revenue Code for qualified health plans that offer abortion
    coverage. In this respect, H.R. 358 is like H.R. 3, as reported
    by the Judiciary Committee. That concludes my brief oral
    summary.
        As the Chairman noted, our staff has prepared a more
    detailed discussion of why we think some things might clearly
    fall under the aegis of H.R. 3 as reported by the Judiciary and
    where there are ambiguities. And I, of course, am ready to try
    to answer any question that you or the other Members of the
    Subcommittee might have. Thank you very much, Mr. Chairman.
        [The prepared statement of Mr. Barthold follows:]

        Chairman TIBERI. Thank you, Mr. Barthold. I appreciate your
    testimony today and being here to answer questions that we
    might have. Many Americans will disagree with the notion that
    absent special circumstances such as the life of the mother,
    rape or incest abortion should be properly categorized as
    medical care. But the question I have for you today, under
    current tax law, all legal abortions are considered to be
    medical care, and the heart of the question would be, does H.R.
    3 then change that or is it silent on that?
        Mr. BARTHOLD. What constitutes medical care is generally
    described under Treasury regulations, it is not specified in
    the Internal Revenue Code. And current Treasury regulations
    provide that abortions are considered medical care. H.R. 3 as
    reported by the Judiciary Committee does not amend the
    definition in the regulations. The effect that--one effect that
    it does have, however, is that it would narrow the scope of
    deductibility of what is otherwise considered to be medical
    care. So the short answer to your question, Mr. Chairman, is
    no, H.R. 3 does not change that abortion, that legal abortions,
    are considered to be medical care.
        Chairman TIBERI. You touched on this in your comments. The
    Internal Revenue Code is Title 26 of the U.S. Code. H.R. 3 adds
    tax provisions to Title 1 of the U.S. Code, not to Title 26.
    You indicated the bill's failure to amend the Tax Code directly
    may cause some ambiguity or uncertainty about what exactly the
    bill does, and that is one of the reasons why we are here to
    talk to you today. Would it create more certainty under the Tax
    Code, particularly for taxpayers and those who analyze this
    legislation, if we directly amended the appropriate sections of
    the Tax Code rather than having them off-coded provisions in
    other areas?
        Mr. BARTHOLD. As a general matter, I would think the answer
    would have to be yes. A couple of the points that I made in my
    testimony is that there is a lack of clarity about whether the
    term ``taxpayer'' used in H.R. 3. It seems in the language of
    H.R. 3 to be intended just to apply to individual taxpayers,
    but under the Internal Revenue Code, ``taxpayer'' is defined to
    be individuals, but also corporations, trusts and different
    types of entities. So I would assume that the Ways and Means
    Committee, if they were to address this issue, would clarify
    more precisely what was intended by ``taxpayer.'' So by
    amending the Internal Revenue Code you would be providing
    clarity on that point.
        Chairman TIBERI. Employers generally may deduct ordinary
    and necessary expenses of conducting a trade or a business.
    Health insurance premiums for employees generally constitute a
    deductible business expense for that purpose. My understanding
    of the author's intent is that H.R. 3 is not supposed to affect
    the employer's business expense deduction. Does the language in
    the bill make that clear or is there ambiguity in section 303?
        Mr. BARTHOLD. Section 303 of the bill as reported in
    Subparagraph 2 is the language that refers to treatment of
    deductions. And it is here that there is one of the points of
    ambiguity that I just touched upon. It refers to a deduction by
    a taxpayer, but it also says the taxpayer's spouse or dependant
    child. That would seem to suggest that taxpayer refers to just
    an individual not a business entity. However, as I just noted a
    moment ago, the defined term taxpayer in the Internal Revenue
    Code includes a business entity. For example, a C-corporation
    is a taxpayer.
        So if a broader interpretation were taken of the word
    ``taxpayer'' in the context of H.R. 3 as reported, I think that
    is why our staff concluded there is ambiguity. And it could be
    argued by some that a deduction for the employer's business
    expense would be implicated by the current language of H.R. 3
    as reported.
        Chairman TIBERI. So your recommendation would be to clarify
    that with the author?
        Mr. BARTHOLD. Taxpayers, individuals, always like things
    clarified, so I will say yes.
        Chairman TIBERI. I appreciate that. I will yield 5 minutes
    to Mr. Neal.
        Mr. NEAL. Thank you, Mr. Chairman. Mr. Barthold, let me ask
    you a few questions about H.R. 3 as introduced and amended,
    just so we have a better understanding of how it will impact
    women in their health care decisions. And just to clarify, it
    is the introduced version of H.R. 3 which was referred to Ways
    and Means.
        Now, let's consider the case of a woman suffering a severe
    and chronic heart condition who has been advised to terminate
    her pregnancy. Under this bill, when she deducts those medical
    expense's, the IRS would determine whether or not the deduction
    was appropriate. If the doctor believed her heart condition
    would worsen because of that pregnancy or may not prove to be
    fatal, then the doctor could not certify the IRS certification
    test as specified by this bill and her medical costs would be
    denied, is that correct?
        Mr. BARTHOLD. Let me say as you phrased it, it sounds like
    generally yes, but since you are talking about the IRS
    providing certification procedures, I think it would fall into
    a gray area, because as you correctly noted, the language of
    the bill talks about placing the woman, in this case, in danger
    of death due to the continued pregnancy. That then becomes
    somewhat judgmental. And if we are going to have a
    certification as to what constituents danger of death, maybe
    Dr. Boustany could inform you much better than I could. So I
    think as you phrased your question, Mr. Neal, the answer is
    yes, but I think because there is not a bright line about this
    kind of--this particular condition is on one side and another
    type of condition is on the other side that we really couldn't
    say with certainty how it would be implemented. Sorry for the
    long answer.
        Mr. NEAL. I saw the comments from Grover Norquist this
    morning who has deemed this bill impacting pregnant women and
    their families as a tax increase. He apparently has received an
    assurance from this Subcommittee that the tax increase will be
    offset with some other cuts. Now, it is clear that this bill,
    even as modified, will impact not only an individual such as
    the woman with heart disease that I outlined above, but could
    also impact families with an employer-provided health insurance
    plan, am I correct?
        Mr. BARTHOLD. Yes. Let me offer a couple of examples.
    Paragraph 1 of section 303 would deny credits to the employer-
    provided plans--to an employer who provided health plans that
    offered abortion coverage. The small business assistance credit
    would therefore be implicated. The Indian wage credit where the
    credit for wages include compensation that includes employer-
    provided health benefits, that would also be implicated. And
    those would be employer-provided plans.
        Mr. NEAL. Mr. Barthold, let me clear up some confusion by
    the provisions of H.R. 358. Under the new health care law,
    health exchange plans could cover abortion services, but only
    if the plans collected two premiums from the enrollee: One for
    the cost of the abortion coverage and one for the remaining
    cost of the plan, and kept those premiums segregated from any
    tax credits or other government assistance.
        Under this bill, though, no one using premium assistance
    credits, all of whom are low- to middle-income families, can
    still choose a plan covering abortion services even if they
    paid for that coverage with their own money. So all of these
    low- and middle-income women would be segregated into one plan
    prohibiting abortion, but those wealthier women not needing the
    premium assistance could be in a separate plan that did provide
    abortion coverage, is that correct?
        Mr. BARTHOLD. Yes, I would have to agree that that would
    seem to be how H.R. 358 would work.
        Mr. NEAL. And I understand that H.R. 3 was referred to the
    Ways and Means--referred to the Ways and Means Committee is
    that despite the fact that it does not amend the Tax Code, it
    does seek to end, as the title of the bill states, taxpayer
    funding of abortions. If this bill passes, it seems that there
    could be no limit to any tax deduction or tax credit in the
    Code being considered public financing and subject to our
    scrutiny.
        Mr. Barthold, one could argue that the deduction for
    charitable donations like the various tax deductions and
    credits targeted by this bill, or even the tax-exempt status
    afforded religious groups, could be viewed as a taxpayer
    funding of certain religions, is that correct?
        Mr. BARTHOLD. That is actually an open question, Mr. Neal.
    There is a case before the Ninth Circuit currently, which is
    essentially asking that question. It is asking, is a deduction
    permitted for a charitable donation to a church funding a State
    religion, so is a deduction to an organization a funding? So I
    think we would have to consider that an open question.
        In perhaps the context, the more direct context that you
    are asking, you might phrase it by saying there is a 501(c)(3)
    hospital organization. If abortions were performed at that
    hospital, and one made what are under present law deductible
    donations to the 501(c)(3) hospital, would that be construed
    under the bill as funding an abortion and therefore excludable.
    I think the same rationale that has the case before the Ninth
    Circuit would say that we have to call that uncertain at
    present.
        Mr. NEAL. Last, the Hyde amendment has been accepted
    practice in this institution, with nobody really being in love
    with it, but at the same time, acknowledging the reality of
    what it has done. And for us to take this approach today is far
    different than Mr. Hyde would have proposed years ago. Thank
    you, Mr. Chairman.
        Chairman TIBERI. Thank you, Mr. Neal. I think you make a
    good point that one of the reasons why Mr. Camp wanted to have
    this hearing today is to try to clarify the way the bill is
    written versus the way it should be properly written under the
    Internal Revenue Code and maybe potential unintended
    consequences, and one of those is, to my point earlier, that
    provisions of the bill are written to Title 1 of the U.S. Code
    and not to Title 26. So that is, again, within our
    jurisdiction. And unintended consequences of the bill within
    the Tax Code would need to be corrected, and it is this
    Committee's job to do that. With that, I will yield to Mr. Berg
    from North Dakota.
        Mr. BERG. Thank you, Mr. Chairman. I wanted to address one
    issue on whether or not the impact on revenue, my understanding
    is the Joint Committee on Taxation has determined that the
    impact is negligible and my understanding is the CBO also has
    reviewed this and said the financial impact is negligible. To
    continue, back in the 1990s, Congress enacted some self-
    employed deductions enabling them to deduct the cost of their
    health premiums. It was an attempt to provide some tax equality
    for employer-provided health insurance. And my question is on
    section 303 which will deny certain deductions. What is the
    effect that provision would have on self-employers or would it
    affect them?
        Mr. BARTHOLD. Thank you, Mr. Berg. Our staff feels that it
    is quite clear that as reported by the Judiciary Committee that
    paragraph 2 of section 303, which, as you noted, would deny
    deductions for payments for abortion and abortion-related
    services, that a self-employed individual under present law
    would not be affected. The deduction under present law for
    self-employed persons is that they may deduct the premium for
    purchasing insurance. Purchasing the premium of insurance is
    not a payment for an abortion, and so we feel that the clearest
    reading of that is there would be no effect on the self-
    employed health deduction.
        Mr. BERG. Thank you. I will yield back, Mr. Chairman.
        Chairman TIBERI. Thank you, Mr. Berg. Mr. Thompson is
    recognized.
        Mr. THOMPSON. Thank you very much. I guess I am not
    surprised that this bill has been introduced, but I am a bit
    mystified as to how it is written. It is a fairly sloppy
    drafting job, and I appreciate the Committee's willingness to
    hold a hearing on it so at least the American public can hear
    the consequences of this poorly drafted bill, both its intended
    and unintended consequences. And I think it sounds like it is a
    priority for the majority to pass this bill or something
    similar. And I believe we all know the intended consequences of
    the legislation. That is, to make it harder or near impossible
    for women across our country to have access to a safe legal
    medical procedure and one that is protected by the
    Constitution, and to deny women and their families the
    opportunity to purchase with their own money, with their own
    money, private health insurance that covers abortion services.
    But because the bill is so badly drafted, I think that there
    are some other things that this bill is going to do that fall
    into the unintended consequences category.
        My read of the bill suggests that it raises taxes on
    millions of American families violating the majority's pledge
    not to support tax increases. It also changes the entire
    structure of the private health insurance market, or if not the
    entire structure, I think about 80 percent--70 to 80 percent--
    of the plans that cover these procedures, so a major portion of
    the market. And it may require that the IRS snoop into what
    American women are doing with their own money. So Mr. Barthold,
    does H.R. 3 provide any insight into how this legislation would
    be enforced?
        For instance, would a woman have to certify that money from
    her health savings account that she may have used for other
    services, would she have to certify that that money was not
    used to pay for an abortion?
        Mr. BARTHOLD. Do you have in mind a pre-certification? I
    guess the reason I am halting is under present law, for
    payments from a flexible spending account or a health spending
    account, there are regulations and general guidelines. So, of
    course, to--the Treasury would have to promulgate some
    regulations and say, to make clear, what is a permissible
    expense and what is not a permissible expense. Now, that----
        Mr. THOMPSON. And that burden falls on whom?
        Mr. BARTHOLD. Well, that burden falls--to comply the
    ultimate burden always falls on the individual. That doesn't
    mean that everyone always complies. And to verify the
    compliance that is usually undertaken under audit procedures. I
    mean, there are payments that one could try to have paid from a
    health savings account today which are not permissible.
        Mr. THOMPSON. So if a woman were audited, would the IRS
    agents be at her house demanding what court documents or
    affidavits providing that her pregnancy was a result of incest
    or rape?
        Mr. BARTHOLD. Well, I am not sure how the IRS would carry
    out that audit. The burden of proof, I believe, would be on the
    taxpayer. So if the taxpayer had such documents or was in a
    position to obtain such documents to verify the claim, that
    should satisfy the IRS.
        Mr. THOMPSON. So it may be one of the most difficult times
    in a woman's life, she would have to provide some sort of
    documentation that rape or incest was the reason that she had
    to have what I can only imagine to be a very, very difficult
    choice that she made to have this procedure? Would H.R. 3 save
    the government any money?
        Mr. BARTHOLD. As Mr. Berg had noted on the receipt side,
    our staff has estimated that it would have a negligible effect.
    And he reported, I believe this is also accurate, that the
    Congressional Budget Office said that there was only a
    negligible budgetary effect on the overall budget.
        Mr. THOMPSON. Negligible budgetary effect, but individuals
    and employers could see their taxes increased?
        Mr. BARTHOLD. Well, to have a negligible budgetary effect,
    it means that on net, there is basically next to no effect.
    Now, in fact, just maybe to be a little clearer on that, there
    is some potential to increase revenues, because as is clearly
    the case, some credits, for example, might be denied. However,
    we then think also one of the behavioral effects would be
    perhaps more pregnancies are carried to term, even if they
    result in an adoption, for example, and resulting spending on
    prenatal care, deliveries and the like, sort of increases tax
    reductions or tax benefits for that medical care.
        That is the basis upon which we reached our conclusion that
    there was a negligible receipts effect.
        Chairman TIBERI. The gentleman's time is expired. With that
    note, I would like to ask unanimous consent to submit for the
    record a Congressional Budget Office cost estimate which
    estimates that effects on direct spending would be negligible
    for each year over the 10-year period, the 10-year, window.
        Without objection, the CBO cost estimate will be submitted
    for the record. And I certainly wouldn't want to speak for the
    author of the bill, but the intent is that millions of
    taxpayers do not want to see their tax dollars go to taxpayer
    fundings or credit of abortion. With that I recognize the
    gentleman from Texas, Mr. Marchant, for questions. Five
    minutes.
        [The information follows:]

        Mr. MARCHANT. Thank you, Mr. Chairman. Mr. Barthold, with
    respect to tax policy, both H.R. 3 and H.R. 358 seem to have in
    common, they are both attempting to prevent the new health care
    exchanges, health care coverage exchanges, provided for in
    ObamaCare to prohibit spending any kind of taxpayer money to
    provide abortions in these government run programs. What would
    be the effect of the provisions on the insurance market if that
    policy were put in place with these two bills?
        Mr. BARTHOLD. Thank you, Mr. Marchant. Let me try and
    clarify present law. So from the PPACA, it says that if
    abortion coverage is offered, and it leaves it to the States to
    determine what sort of policies would be offered through these
    State exchanges. So that if abortion coverage were offered, it
    must be offered and separately charged, and that no credit
    could be allocated to that separate charge. It does not, per
    se, say that there would actually have to be a separate
    insurance policy, just a separate charge.
        H.R. 3, as reported by Judiciary says, basically says
    unless there is a separate plan providing the abortion
    coverages, then no credit for the entire, for the entire plan.
    H.R. 358 says that if there is a plan that offers abortion
    coverage, the plan provider, the insurance company, must offer
    a plan that is parallel in all other respects, but with no
    abortion coverage, or else the plan would not qualify for the
    credit.
        So you would anticipate in H.R. 358, under that legal
    structure, that you would see these credits used only for plans
    that offer no abortion coverage. And in practice, because of
    relatively, I will say, a modest cost of legal abortions and
    for the moral hazard aspect of who would want to purchase a
    plan that is essentially only offering abortion coverage, then
    I think our economic thinking is that those plans would not
    exist under H.R. 358, that you would just see within the State
    exchanges plans offering coverage without abortion. The
    incentives are largely the same than under H.R. 3. So that is
    sort of our current economic read of what the incentives would
    lead to.
        Mr. MARCHANT. So the practical effect would be that most
    State exchanges would offer the plan?
        Mr. BARTHOLD. Well, that is not completely the case,
    depending who is participating. But remember, what is being
    denied is credit that could be used to purchase the plan. So if
    there were a large enough number of people participating in the
    State exchanges who were not receiving the credits to help
    subsidize their purchase of the plan, it might still be viable
    for insurance companies to offer plans that provided some
    abortion coverage service.
        Mr. MARCHANT. Thank you. Mr. Chairman, I yield back.
        Chairman TIBERI. Thank you. Thank you, Mr. Marchant. Again,
    welcome to the Subcommittee. With that, I yield 5 minutes to
    the gentlelady from Nevada.
        Ms. BERKLEY. Thank you very much, Mr. Chairman, and thank
    you gentlemen for allowing me to share this occasion with you
    on the panel. I was reading Bloomberg today, and I read this
    paragraph that I would like to share and put on the record. ``I
    understand the point they are trying to make through the Tax
    Code saying abortion is not health care, said Grover Norquist,
    President of Americans for Tax Reform, a Washington-based
    advocacy group that says 237 House Members have signed its no-
    tax increase pledge who are just concerned that policy, however
    well intentioned or virtuous, not ever mask a net tax
    increase.''
        Now, I know the difference between tax policy and social
    policy when I see one, and this is pure social policy that is
    going to negatively impact the tax policy of this country. And
    I cannot understand how people that profess to want smaller
    government and keep government out of the lives of people can
    be so interested in a piece of legislation like this, that I
    can't think of anything more intrusive or invasive than
    interfering with a woman's right to choose, and making it even
    more difficult for a woman to obtain what might be a lifesaving
    or health-restoring medical procedure.
        In my district of Las Vegas, people are hurting. Our
    economy is in a mess. They talk to me about jobs and they talk
    to me about help with their mortgage foreclosures. I can't
    remember one person in the last year, 2 years, 10 years or 12
    years that I have been serving in Congress, coming to me and
    asking me to please make it even more difficult for a woman to
    get the proper health insurance in case she has a need of a
    life-saving or health-restoring abortion procedure.
        Mr. Barthold, let me ask you a couple of questions if I
    may. I am very concerned, as I said, and you have heard me
    testify how bad things are in Las Vegas--my small businesses
    are hurting, many are going under, and they were quite robust
    businesses less than 2 years ago. I am concerned about the
    small businesses in my district and how this might affect them.
    The health reform law provides for a tax credit for small
    employers so that they can provide health insurance coverage to
    employees. And may I say for the record the first 10 years that
    I served in Congress, every small business person that came
    into my office begged, begged the United States Congress to do
    something to help them to be able to provide health insurance
    to their employees. How would these credits be affected by H.R.
    3? Would it deny credits for employer-sponsored coverage that
    included abortion services.
        Mr. BARTHOLD. Thank you, Ms. Berkley. As I noted in my
    testimony, our staff thinks that it is quite clear that H.R. 3,
    as reported, would say that credit could not be claimed, that
    the small business insurance purchase assistance credit could
    not be claimed for a policy that provided for abortion
    coverage.
        Ms. BERKLEY. Now, let me ask you, how does JCT expect
    employers to respond if their credits are restricted? What do
    you think is going to happen?
        Mr. BARTHOLD. Well, our economic view is that employers
    purchase insurance or other health care benefits as part of
    compensation that they offer their employees. The effect of the
    proposal is to say that a certain type of benefit could not be
    provided. However, the credit that is being provided would
    exceed the value of just the incremental cost, so that the
    overall subsidy in the small business case that you raised
    would be reduced.
        So we might expect to see small business employers reduce
    their employee coverage through the plan--through the credit.
    Another option is to try and purchase smaller or different
    insurance packages that do not provide abortion services.
        Ms. BERKLEY. So in other words, and maybe you can answer
    yes or no, employers will seek coverage that does not cover
    abortion services?
        Mr. BARTHOLD. I think that would clearly be the case.
        Ms. BERKLEY. That is extremely disturbing, that is a
    disturbing outcome to me. It seems to me the implication of
    this bill is that if any of my constituents who participate in
    an employer-provided insurance plan that provides abortion
    coverage would have to change their policy, and that would mean
    we would be putting the cost of that transition on small
    businesses that are already hurting.
        If a company so situated wanted to keep its insurance plan
    exactly as it is today, would you expect the cost of doing so
    to rise dramatically--to rise under this legislation?
        Chairman TIBERI. The gentlelady's time has expired, but the
    gentleman may answer the question.
        Ms. BERKLEY. Thank you.
        Mr. BARTHOLD. Thank you, Mr. Chairman. As I noted just a
    moment ago, the credits offered under the small business credit
    helped tip the decision to purchase insurance. Absent that
    credit, obviously, the cost would rise.
        Ms. BERKLEY. Thank you very much.
        Chairman TIBERI. Thank you. The gentleman from Minnesota,
    Mr. Paulsen, is recognized for 5 minutes.
        Mr. PAULSEN. Thank you. Dr. Barthold, in your testimony you
    had indicated that in H.R. 3, it may deny the R&D credit and
    the Indian employment credit to employers in certain situations
    or circumstances. Can you explain in more detail the fact
    patterns you think could cause employers to lose potentially
    those credits?
        Mr. BARTHOLD. Certainly, sir. Let me start with the Indian
    employment credit, which I mentioned in my opening summary. The
    Indian employment credit provides a credit that is tied to the
    compensation of qualifying employees, and compensation is
    defined to include their cash wage, plus any health benefits
    that are provided.
        So in that case, if the employer were providing cash wages
    and purchasing insurance for his or her employees, a credit is
    provided based on the total cost of wage and insurance benefit
    provided. And it seems quite clear on the face of the language
    in H.R. 3 that that would be a credit for the purchase of a
    policy, which if the policy included abortion services, which
    included abortion services, and so the credit, the entire
    credit would be denied.
        We had--our staff had listed in the ambiguous category the
    research credit under section 41. We listed it as ambiguous
    because it goes to the ambiguity of, one, what constitutes an
    abortion for purposes of the bill? And two, what constitutes
    funding of an abortion? And so what we posited as an example in
    our more detailed document that we made available to the
    Members was that a business might be undertaking research into
    new contraceptives. Those contraceptives, to get them approved,
    requires clinical trials.
        If the contraceptives' action were deemed to be an
    abortion, then this could be construed by going, you know, sort
    of two steps down the road of funding of the research to fund
    the clinical trial was funding an abortion and therefore the
    research credit under section 41 might be denied to that
    business.
        Mr. PAULSEN. Thank you, Mr. Chairman. That is all.
        Chairman TIBERI. I thank the gentleman from Minnesota. The
    gentleman from New York, Mr. Crowley, is recognized for 5
    minutes.
        Mr. CROWLEY. I appreciate the Chairman for allowing me to
    participate in today's Subcommittee hearing. I am very
    grateful. One of the bills under review is H.R. 3. That is
    right, H.R. number 3. That means its enactment is a top
    priority for my colleagues on the other side of the aisle, my
    Republican colleagues. So to put things in perspective, the
    Republican's first priority, H.R. 1, I am not saying this, but
    outside groups are saying, is cutting 700,000 American jobs.
        The second priority, H.R. 2, repealing the American
    people's access to some kind of health care and the same type
    of health care that Members of Congress receive and adding $230
    billion to our deficit.
        Now priority number three, placing burdens on small
    businesses, hindering economic growth and job creation and
    intruding on the American people's ability to make decisions
    about their health without Uncle Sam sitting at their bedside.
    Tick-tock, tick-tock, I guess we will continue to wait for the
    Republican job agenda.
        In the meantime, let's take a look at H.R. 3 and how it
    will hurt America's small businesses. Mr. Barthold, section
    303, clause 1 of H.R. 3, prohibits tax credits for any health
    benefits that happen to include abortion. In the Joint
    Committee's analysis of the tax provisions impacted by H.R. 3,
    you identified eight tax credits that would be affected by this
    clause alone, is that correct?
        Mr. BARTHOLD. Yes, sir.
        Mr. CROWLEY. Thank you. And one of these tax credits is a
    small business tax credit included in the Affordable Care Act,
    which assists small businesses who provide private health care
    coverage to their employees, is that correct, sir?
        Mr. BARTHOLD. Yes, sir. That is what Ms. Berkley and I were
    just discussing.
        Mr. CROWLEY. Yes. Thank you, sir. This tax credit is worth
    35 percent of the cost of providing private health insurance
    coverage, and in 2014 that will increase to 50 percent of the
    cost of providing health insurance. It is still early, but we
    have already seen that more small businesses are now providing
    private health insurance to their employees as a result of
    these tax credits.
        However, if this private health insurance happens to
    include abortion care, as 87 percent of private health plans
    do, then these employers will no longer be eligible for this
    tax credit under H.R. 3, is that correct?
        Mr. BARTHOLD. Yes, sir.
        Mr. CROWLEY. Thank you, sir. This means that every small
    businessowner, right down to the mom and pops running a
    restaurant, will have to sort through pages of fine print just
    to apply for that tax credit. It is not always easy to tell
    whether a plan excludes or includes abortion procedures. With
    the time that they could be spending growing their business and
    creating jobs, small businessowners will instead spend their
    time flipping through paperwork and on the phone and on hold
    with their insurance provider to confirm whether or not that
    coverage is provided. We have heard a lot of rhetoric lately
    about eliminating burdens on small businesses. You might even
    recognize some of these same arguments that were used during
    the debate on 1099 repeal. I supported the repeal of the 1099
    requirement because I agree with that need to reduce paperwork
    and regulatory hoops that small businessowners have to jump
    through. What I don't understand is why my Republican
    colleagues now want to impose an avalanche of new paperwork on
    small businesses. And let me be clear, these new onerous rules
    on employer-provided health care offered by Republican
    colleagues pertain to private health insurance plans and to
    private sector small businesses.
        We are not talking about a health plan for Federal
    employees that is subsidized by our employers, the American
    taxpayers. That plan already prohibits any form of abortion
    coverage. So why are we adding these new job killing onerous
    provisions on small businesses, the engine for job creation in
    America? Why is this bill priority number three? I know you
    can't answer that question, Mr. Barthold, I am not asking you
    that, but nor can I, Mr. Barthold.
        Mr. Barthold, I am frustrated as well. I can't answer that
    question either. Under this proposal, the IRS will have to
    divert resources from finding tax cheats to scrutinizing every
    single small business filing to ensure they are not offering
    health coverage to their employees that offer abortion
    services.
        Mr. Barthold, I know this bill doesn't bother to get into
    the details of how this new intrusion into private health care
    will be enforced, so I am not going to ask you to speculate.
    But it seems likely to me that H.R. 3 would create a massive
    and unnecessary burden on small businessowners and will give
    vast new power to the IRS to examine our individual health care
    decisions. Aside from the burden on small businesses and
    expanding the reach of the IRS, H.R. 3 would also mean a brand
    new tax burden on small businesses. I yield back the balance of
    my time.
        Chairman TIBERI. I guess the gentleman of New York does not
    have a question for Mr. Barthold.
        Mr. CROWLEY. I asked three or four, and he answered them.
    Thank you, sir.
        Chairman TIBERI. Thank you. The gentleman from Louisiana,
    Dr. Boustany, is recognized for 5 minutes.
        Mr. BOUSTANY. Thank you, Mr. Chairman. When we think about
    burdens on small businesses, I have to harken back to the
    burdens that the new health care law is going to add on small
    businesses, large businesses and on job creation in this
    country. I want to make a couple points first, and then I may
    have a question as well. To my friend from New York, part of
    this is protecting the jurisdiction of this Committee. The
    bill, H.R. 3, has tax implications and the bill was referred to
    our Committee. I am thankful that the Speaker and his office
    saw it fit to bring that bill to our Committee so that we can
    actually look at the accuracy of the language in the bill with
    regard to the tax provisions. I think that is very important.
    And I think it is important to protect the integrity of the
    jurisdiction of this Committee.
        My friend also referenced the expansion of IRS activities
    with regard to small businesses and how this bill would affect
    them. But I would also like to express that the IRS' activity
    is going to be vastly expanded because of the Health Care Act.
    And the more we grow government intrusion in any form into
    health care and personal decisions, obviously, the IRS, because
    there are tax implications, their role will grow. On our side
    of the aisle we don't like it, but that is where we are today.
    So I just wanted to respond to a couple of those things.
        Dr. Barthold, with regard to FSAs, I don't think we
    mentioned anything about the impact of this bill on FSAs, and I
    understand that the authors of H.R. 3 intended to prevent tax
    free distributions from FSAs from being used to pay for
    abortions. And people still could use FSA money for abortions,
    but they would be taxed on it, is that correct?
        Mr. BARTHOLD. Dr. Boustany, there is actually some--this is
    one of the areas we identified as lack of clarity. I mean, we
    noted that the staff's view is that for Archer MSAs, for
    example, it is quite clear that that is a tax preferred
    account. And paragraph 3 of section 303 of H.R. 3, too many 3s
    there, as reported, would say that the taxpayer would have to
    take an income inclusion for a payment from a tax preferred
    account for abortion--related to abortion services. It is not
    clear under present law if an FSA would be considered to be a
    tax preferred account under H.R. 3. If however, as you note,
    the intent were that it be treated as a tax preferred account,
    then following the analysis of the Archer MSA, yes, you could
    still pay for abortion services, but then the value of that
    payment would be included in the taxable income of the
    recipient.
        Mr. BOUSTANY. And so if H.R. 3, as referred by the
    Judiciary Committee, were to come to us, or would go on and be
    passed into law, I should say, then we would need further IRS
    guidance on this tax implication?
        Mr. BARTHOLD. Well, I would think that the Committee would
    want to tell the IRS--tell the Treasury to tell the IRS what
    the intent was in terms of the scope of a tax preferred
    account. Or if left to its own, yes, it would fall under IRS
    guidance as to whether an FSA constituted a tax preferred
    account.
        Mr. BOUSTANY. Thank you, Dr. Barthold.
        Mr. CROWLEY. Would the gentleman yield just for the purpose
    of adding to the record, a statement for the record? Unanimous
    consent, that is all I am asking?
        Mr. BOUSTANY. Yes, that is fine.
        Mr. CROWLEY. Mr. Chairman, I would just ask unanimous
    consent to include in the record a Bloomberg article that Ms.
    Berkley had mentioned. I am not so sure that you entered that
    into the record.
        Chairman TIBERI. Without objection.
        Mr. CROWLEY. I would like to actually enter that into the
    record. Thank you.
        [The information follows:]

        Mr. BOUSTANY. Thank you. I yield back, Mr. Chairman.
        Mr. TIBERI. Thank you. I thank the gentleman from
    Louisiana.
        That concludes today's hearing. Please be advised that
    Members may submit written questions to the witnesses. Those
    questions and the witness' answers may be part of the record.
        I thank you, Dr. Barthold, for providing guidance and
    expertise to us in the drafting of the tax provisions of H.R. 3
    and H.R. 358. As I said earlier, millions of taxpayers do not
    believe that their taxes should go to funding or subsidizing in
    any way abortions, and I hope this hearing helps inform the
    full Committee, as it may consider the provisions of H.R. 3 and
    H.R. 358 in future that fall within the Committee's
    jurisdiction.
        With that, the hearing is adjourned.
        [Whereupon, at 3:00 p.m., the Subcommittee was adjourned.]
        [Submissions for the Record follow:]