[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
_____
U.S. GOVERNMENT PRINTING OFFICE
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
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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
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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
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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:]