[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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                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:]




                                 
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