[Congressional Record Volume 141, Number 203 (Monday, December 18, 1995)]
[House]
[Pages H14972-H14975]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




AMENDING UNITED STATES CODE TO LIMIT STATE TAXATION OF CERTAIN PENSION 
                                 INCOME

  Mr. GEKAS. Mr. Speaker, I move to suspend the rules and pass the bill 
(H.R. 394) to amend title 4 of the United States Code to limit State 
taxation of certain pension income, as amended.
  The Clerk read as follows:

                                H.R. 394

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. LIMITATION ON STATE INCOME TAXATION OF CERTAIN 
                   PENSION INCOME.

       (a) In General.--Chapter 4 of title 4, United States Code, 
     is amended by adding at the end the following:

     ``Sec. 114. Limitation on State income taxation of certain 
       pension income

       ``(a) No State may impose an income tax on any retirement 
     of an individual who is not a resident or domiciliary of such 
     State (as determined under the laws of such State).
       ``(b) For purposes of this section--
       ``(1) The term `retirement income'' means any income from--
       ``(A) a qualified trust under section 401(a) of the 
     Internal Revenue Code of 1986 that is exempt under section 
     501(a) from taxation;
       ``(B) a simplified employee pension as defined in section 
     408(k) of such Code;
       ``(C) an annuity plan described in section 403(a) of such 
     Code;
       ``(D) an annuity contract described in section 403(b) of 
     such Code;
       ``(E) an individual retirement plan described in section 
     7701(a)(37) of such Code;
       ``(F) an eligible deferred compensation plan (as defined in 
     section 457 of such Code);
       ``(G) a governmental plan (as defined in section 414(d) of 
     such Code);
       ``(H) a trust described in section 501(c)(18) of such Code; 
     or
       ``(I) any plan, program, or arrangement described in 
     section 3121(v)(2)(C) of such Code, if such income--
       ``(i) is part of a series of substantially equal periodic 
     payments (not less frequently than annually) made for--
       ``(I) the life or life expectancy of the recipient (or the 
     joint lives or joint life expectancies of the recipient and 
     the designated beneficiary of the recipient), or
       ``(II) a period of not less than 10 years, or
       ``(ii) is a payment received after termination of 
     employment and under a plan, program, or arrangement (to 
     which such employment relates) maintained solely for the 
     purpose of providing retirement benefits for employees in 
     excess of the limitations imposed by 1 or more of sections 
     401(a)(17), 401(k), 401(m), 402(g), 403(b), 408(k), or 415 of 
     such Code or any other limitation on contributions or 
     benefits in such Code on plans to which any of such sections 
     apply.

     Such term includes any retired or retainer pay of a member or 
     former member of a uniform service computed under chapter 71 
     of title 10, United States Code.
       ``(2) The term `income tax' has the meaning given such term 
     by section 110(c).
       ``(3) The term `State' includes any political subdivision 
     of a State, the District of Columbia, and the possessions of 
     the United States.
       ``(e) Nothing in this section shall be construed as having 
     any effect on the application of section 514 of the Employee 
     Retirement Income Security Act of 1974.''.
       ``(b) Conforming Amendment.--The table of sections for 
     chapter 4 of title 4, United States Code, is amended by 
     adding at the end the following:

``114. Limitation on State income taxation of certain pension income''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts received after December 31, 1995.

  The SPEAKER pro tempore. The gentleman from Pennsylvania, [Mr. Gekas] 
will be recognized for 20 minutes, and the gentleman from Virginia [Mr. 
Scott] will be recognized for 20 minutes.
  The Chair recognizes the gentleman from Pennsylvania [Mr. Gekas].
  Mr. GEKAS. Mr. Speaker, I yield myself such time as I might consume.
  
[[Page H14973]]

  Mr. Speaker, I think it would be valuable if we gave a small 
hypothetical to set the stage for the description of the legislation 
which we are about to consider. Assume that in State A, in your State, 
shall we say, Mr. Speaker, an individual works hard all of his working 
life and then at retirement age qualifies for a certain pension and 
then moves to another State.
  It has come about over the last several years, in fact decades, that 
after that individual establishes domicile in a residence in another 
State, your State, maybe we should not use yours, maybe your State 
would not do this, but it is just for the sake of a hypothetical, your 
State reaches out across the State lines into the State into which the 
former resident of your State now resides, and imposes a tax on the 
pension income of that individual.
  For several years we have had a movement within the Congress, both in 
the Senate and the House, and now we have come to grips with it in a 
reasonable way. This bill is the answer.
  What it says is that when a qualified pensioner, one who has 
dutifully earned a pension under a qualified system set forth by 
previous statute and custom moves to another State, it will be beyond 
the powers of the original State to reach over the State borders and to 
attach its taxing authority onto that pension. That is the simple 
explanation of what we tried to do.
  Mr. Speaker, there is an additional factor to it when we have a 
situation in which perhaps it is not a qualified pension, so-called; 
that is, when an arrangement has been reached between employer and 
employee where, although it looks like a pension, it is a kind of a one 
lump-sum settlement for past services rendered, et cetera, and that 
portion, many believe, should not be outside the purview of the taxing 
state, even though that individual goes outside the State for the 
remainder of his life.
  So we have certain conditions attached here that unless that 
unqualified pension looks like a qualified pension with installment 
payments over a series of years so it really is like a pension, then in 
those circumstances we will be happy in this bill to accord that same 
protection to that pensioner as we did for the ones who qualified in a 
regular way.
  So there is no controversy left in this legislation. We have very 
much appreciated the gentleman from Virginia [Mr. Scott] and his 
colleagues on our committee, who have assented to the general thrust of 
the legislation.
  Mr. Speaker, I reserve the balance of my time.
  Mr. SCOTT. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, the gentleman from Pennsylvania has outlined the need 
for the bill. Taxes ought to be as fair and equitable as possible, and 
the fact is that it is virtually impossible in many circumstances to 
calculate these taxes because people will move from State to State, 
they will change jobs, and if you move even within the same corporation 
from one State to another State, and then retire, if the States in 
which you worked tried to figure out which portion of that pension 
check was attributable to which State you worked in which you worked 
there, it would be virtually impossible.
  In fact, the only people that are caught up with this tax right now 
are basically State employees where the State government is writing the 
check and sending it to another State and they have the money and they 
are withholding the money. It is very haphazard in its application and 
it is therefore unfair. I therefore agree with the general purposes of 
the bill, but I do have one or two reservations.

                              {time}  1300

  There are two significant differences between the bill that passed 
the House last Congress and the bill that is before us today. Last 
Congress' bill exempted only the first $30,000 of pension income since 
it was designated to help the modest-income individuals while allowing 
States to continue to tax their higher-income retirees. That is one 
point.
  The other is that the bill was also limited to what are called 
qualified pension plans while the bill before us today is not. That is 
primarily where the problem lies, and some of us have reservations 
about the bill although we will not oppose it today.
  Nonqualified plans, Mr. Speaker, are not recognized as pensions under 
Federal law and are not subject to any rules, regulations, guidelines 
or limitation in this use. They are typically used by a small number of 
highly compensated executives to defer taxes on large sums of 
compensation.
  At the subcommittee hearing, for example, the director of benefits 
and planning at a large corporation stated that all 76,000 of their 
employees were in qualified plans while only 400, about one-half of 1 
percent, were in nonqualified plans. A professor at the University of 
Georgia law school pointed out virtually all Americans are eligible for 
or, in fact, participated in some kind of qualified plan. The potential 
for tax avoidance by highly compensated individuals who funnel amounts 
into nonqualified plans in the last years before retirement are simply 
too great of a risk. These individuals would be sufficiently sheltered 
by Federal legislation that exempts a normally qualified plan, whatever 
that happens to be.
  Mr. Speaker, the amendment offered in the subcommittee by the 
gentleman from Rhode Island [Mr. Reed] attempted to draw a distinction 
between the taxation and qualified or nonqualified plans. That 
amendment passed. The manager's substitute refines that amendment so 
that those who are in most nonqualified plans can be properly 
considered.
  Mr. Speaker, I believe that we have to monitor this provision of the 
bill closely to insure that it is not abused. However, I will not 
oppose the legislation and hope that it may be revised in the Senate.
  Mr. Speaker, I reserve the balance of my time.
  Mr. GEKAS. Mr. Speaker, I yield such time as he may consume to the 
gentleman from Illinois [Mr. Hyde], the chairman of the Committee on 
the Judiciary.
  Mr. HYDE. Mr. Speaker, I speak in support of H.R. 394, a bill to 
amend title 4 of the United States Code to limit State taxation of 
certain pension income.
  In recent years, several States have discussed imposing an income tax 
on the pension income of retired individuals who worked in those States 
for part or all of their careers, but who no longer reside there. Some 
States, such as California and New York, currently do impose these 
``State source'' taxes.
  There is no question but that the States have constitutional 
authority to impose such a tax. However, State attempts to tax pension 
income received by nonresidents raise extraordinarily difficult 
questions of allocation and apportionment. They also pose substantial 
risks of multiple State taxation of the same income. And more 
basically, they subject taxes on persons who no longer vote in the 
taxing jurisdiction, thereby raising charges of unfairness to a 
population which cannot defend itself in the political arena. Taxation 
without representation is the cliched phrase.
  Mr. Speaker, the substitute amendment before us today is the product 
of negotiation and compromise between private employer groups and the 
Federation of Tax Administrators. It represents a middle ground which 
each can support: in addition to covering qualified pension plans, it 
includes all mirror image plans because those plans are tied to the 
underlying qualified plans. This is a significant narrowing of the bill 
as introduced, which would have granted protection to all pension 
plans, regardless of whether they bore any relationship to a qualified 
plan.
  Mr. Speaker, I want to commend my colleague, the gentlewoman from 
Nevada [Mrs. Vucanovich], for her leadership and perseverance in moving 
this legislation forward. I also want to commend the gentleman from 
Virginia [Mr. Scott], the ranking member of the subcommittee, as well 
as the distinguished and learned chairman, the gentleman from 
Pennsylvania [Mr. Gekas], for their leadership on this issue. But it 
was largely due to the efforts of the gentlewoman from Nevada [Mrs. 
Vucanovich] that this delicate compromise has been reached and the 
product of negotiation is expected to be expeditiously passed and 
signed by the President.
  Mr. SCOTT. Mr. Speaker, I yield 3 minutes to the gentlewoman from 
Florida [Mrs. Thurman].

[[Page H14974]]

  Mrs. THURMAN. Mr. Speaker, I want to thank the gentleman from 
Virginia for yielding me this time and his commitment to this bill, as 
well as the gentleman from Pennsylvania [Mr. Gekas].
  I cannot begin to tell you how important an issue this has become 
from a Florida perspective. While I was in the Florida Senate, I 
actually had constituents come to me to find out if there was something 
I could do about it in the Florida Senate. Needless to say, it was a 
Federal issue, and we could not do much, but the State of Florida 
actually was able to say that they could not hit any of their property 
to try to defend away this, because it became a hardship to where, in 
fact, some States were actually going retroactively back into some of 
these pensions to grab these dollars so that they could use them, 
really causing a major issue for these folks.
  So I just want to say that I hope that the Senate takes this bill up. 
It is my understanding that they, too, will be looking at this and that 
possibly we, after we passed it last year out of the House, that now 
the Senate is going to look at this and that we give back to those 
seniors that have retired in other areas the freedom.
  They are not taking anything from the State in which they are being 
taxed from. Their services are being delivered by an entirely different 
State. I believe this is a fair way to make this program work.
  I just want to thank my colleagues for the work that they have done, 
and we will certainly let our folks know in Florida that this work has 
been taken care of.
  Mr. Speaker, I rise today in very strong support of H.R. 394, a bill 
to prohibit State taxation of pensions of nonresidents.
  Those of us who have worked on this issue--and I am one who has lived 
with it from the time I served in the Florida Senate--well, we 
sometimes wondered if this day would ever come.
  I know the seniors in my district affected by this very unfair 
situation were beginning to doubt this would ever be corrected.
  I want to thank Chairman Hyde and Chairman Gekas, Mr. Conyers and Mr. 
Scott, and everyone who has worked so hard and so long for bringing us 
to this moment.
  Most Americans probably do not even realize that under present law, 
certain States with a source tax are able to tax the retirement incomes 
of retirees who no longer reside in that State.
  Amazing! In other words, thousands of seniors across the country 
receive tax bills from States even though they have not lived in those 
States for years.
  As a Representative of a State which many seniors choose for their 
retirement years, I can tell you without hesitation that this money 
grab by source tax States causes unnecessary aggravation and hardship 
to many people.
  Taxing pension benefits of those who live in another State is anti-
senior and frankly, anti-American. Your freedom to travel and retire to 
any part of this great country should not be limited by the tax 
policies of your former State of residence.
  Mr. Speaker, the idea behind this bill makes good common sense. I am 
only sorry so many people had their incomes reduced in the time it took 
us to get to this point.
  Mr. SCOTT. Mr. Speaker, I yield such time as she may consume to the 
gentlewoman from North Carolina [Mrs. Clayton].
  Mrs. CLAYTON. Mr. Speaker, while we discussed the suspension of H.R. 
394, it is certainly one on suspension where we have reached 
compromise. I want to join on record to say this seems to be a very 
good compromise.
  I want to use it as an exemplary kind of compromise we need to work 
on the budget and want to use it as an opportunity to begin to talk 
about, as we come to suspension, is it not ideal how people, both 
sides, can agree on things that are essential that we do not have 
debate and do not have rancor.
  Indeed, in the paper today where we talk about the budget standoff, 
the issue of Medicaid, whether we have that as a right for poor people, 
for senior citizens, is also something that we ought to have unanimous 
consent on.
  I want to urge my colleagues, as we begin this discussion about the 
budget standoff, 250,000 employees are going to be furloughed. That is 
involuntary. That is a wasteful spending of money when we can take that 
money and those services and make sure the American people are served 
well.
  Medicaid is an issue that we need to struggle with, both sides, and 
apparently on the Senate side there is some reasonable thought process 
that we ought to move forward with the Government and, indeed, this 
would be an opportunity to do that.
  Mr. Speaker, again, suspension, and the American people are watching 
us as we talk about these bills. Are these bills important? Yes, they 
are. Are other bills important? Yes. Why can we not continue to some 
compromise on those big issues?
  So, therefore, Mr. Speaker, I want to urge my colleagues that they 
ought to use this exemplary nature where we come on both sides of our 
issues around issues that are going to affect millions of Americans.
  Finally, Mr. Speaker, I want to tell you this is the Christmas 
spirit. It is the giving. It is the giving within our means. And 
certainly it is not a spirit of taking. We should not be taking health 
care from millions of Americans in the spirit of Christmas.
  Mr. SCOTT. Mr. Speaker, I have no further requests for time, and I 
yield back the balance of my time.
  Mr. GEKAS. Mr. Speaker, I yield myself such time as I may consume.
  First, I am inserting at this point in the Record the technical 
explanation of the legislation that we are contemplating here, as 
follows:

                   Technical Explanation of H.R. 394


                              present law

       Certain State laws provide that some or all retirement 
     income is included for State income tax purposes if the 
     income was earned within the State, even though the 
     individual resides outside the State when the retirement 
     income is actually received. Some States achieve this result 
     through general rules that tax income earned within the 
     State, whereas others have explicit provisions regarding 
     retirement income.


                        explanation of H.R. 394

       H.R. 394 amends title 4 of the United States Code (entitled 
     ``Flag and Seal, Seat of Government, and the States''), to 
     prohibit any State, including any political subdivision of a 
     State, the District of Columbia, and the possessions of the 
     United States, from imposing income tax on any retirement 
     income of any individual who is not a resident or domiciliary 
     of the State. For this purpose, retirement income includes 
     any income from a qualified retirement or annuity plan, a 
     simplified employee pension, a tax-sheltered annuity plan, an 
     eligible deferred compensation plan of a tax-exempt or State 
     and local government, an individual retirement arrangement, a 
     governmental plan, a trust created before June 25, 1959, and 
     that is part of a plan funded only by employee contributions, 
     and certain retired or retainer pay of a member or former 
     member of the uniformed services. The term retirement income 
     also includes income from a nonqualified deferred 
     compensation plan, provided such income is (1) part of a 
     series of substantially equal periodic payments made over (a) 
     the life or life expectancy of the recipient (or the joint 
     lives or life expectancies of the recipient and the 
     recipient's beneficiary), or (b) a period not less than 10 
     years, or (2) a payment received after termination of 
     employment under a plan, program, or arrangement (called a 
     ``mirror plan'') maintained solely for the purpose of 
     providing benefits in excess of limitations on contributions 
     or benefits in the Internal Revenue Code on qualified 
     retirement plans. The provision has no effect on the 
     application of the provision in the Employee Retirement 
     Income Security Act of 1974 (``ERISA'') that generally 
     preempts State laws.
       Effective date.--H.R. 394 is effective with respect to 
     amounts received after December 31, 1995.

                      Explanation of Mirror Plans

       A mirror plan is a nonqualified retirement plan maintained 
     by an employer solely for the purpose of providing benefits 
     in excess of certain limits on contributions and benefits 
     contained in the Internal Revenue Code (``Code'') which apply 
     to qualified retirement plans. The benefits provided under a 
     mirror plan are those benefits that would have been provided 
     under the terms of a qualified retirement plan, but for the 
     application of the following limits on contributions and 
     benefits:
       (1) Code section 401(a)(17): limits the amount of annual 
     compensation that may be taken into account under a qualified 
     retirement plan for purposes of computing benefits and 
     contributions to $150,000.
       (2) Code section 401(k): limits the amount of elective 
     deferrals (contributions at the election of the employee) 
     that may be made by a highly compensated employee to a 
     qualified cash or deferred arrangement (commonly called a 
     ``401(k) plan'') according to a nondiscrimination test based 
     on the amount of elective deferrals made by nonhighly 
     compensated employees.
       (3) Code section 401(m): limits the amounts of employer 
     matching contributions and after-tax employee contributions 
     that may be made to a 401(k) plan on behalf of highly 
     compensated employees according to a nondiscrimination test 
     based on the amount of such contributions made on behalf of 
     nonhighly compensated employees.
       (4) Code section 402(g): limits the annual amount of 
     elective deferrals that may be 

[[Page H14975]]
     made to a 401(k) plan (or a similar arrangement) generally to $9,240 
     for 1995 (adjusted for inflation in $500 increments).
       (5) Code section 403(b): limits the amount of annual 
     contributions that may be made to a tax-sheltered annuity 
     (maintained by certain tax-exempt entities and public 
     educational organizations) generally to the excess of the 
     product of 20 percent of compensation times the participant's 
     years of service over the amount contributed in prior years. 
     In addition, contributions to a tax-sheltered annuity are 
     subject to annual limit of $9,500.
       (6) Code section 408(k): limits the amount of elective 
     deferrals that may be made by a highly compensated employee 
     to a simplified employee pension (maintained by smaller 
     employers) based on the amount of elective deferrals made by 
     nonhighly compensated employees.
       (7) Code section 415: limits the amount of annual benefits 
     that may be paid from a defined benefit plan generally to the 
     lesser of $120,000 or 100 percent of the participant's 
     average compensation for the highest three years of 
     compensation, and limits the amount of annual contributions 
     that can be made to a defined contribution plan to the lesser 
     of $30,000 or 25 percent of compensation.

  Second, I want to briefly add my little voice to the debate on health 
care. The President, as I recall, in previous times has proposed that 
the Medicare spending be slowed, and that is what the Republicans have 
said.
  The President has said we should have a tax cut for the middle class, 
echoed by the gentleman from Missouri [Mr. Gephardt], and the 
Republicans have said the same thing.
  So, if someone is cutting someplace, it must be everybody is cutting, 
if that is the right word to use. But in the meantime, we believe that 
we are on the right track to balance the budget.
  Mrs. SMITH of Washington. Mr. Speaker, I rise in strong support of 
legislation to eliminate the so-called source tax. This is the single-
biggest issue for many of my constituents who suffer from this 
nefarious tax. Many of my constituents have waited many years for the 
source tax to be eliminated. I believe the 104th Congress will finally 
end this tax once and for all.
  Having fought this unfair tax at the State level when I served in the 
Washington State Legislature, I am quite familiar with the long, hard 
journey that retirees have traveled to see this tax repealed.
  The source tax is truly taxation without representation. By levying a 
source tax, States are able to target the retirement income of 
nonresidents even though the nonresidents receive no benefits or 
services in return for the assessed taxes. Thousands of residents 
throughout my home State of Washington have been burdened by this 
unfair tax.
  Many of these retirees once worked in the neighboring States of 
Oregon or California and found Washington to be a popular place to 
retire since Washington did not impose a State income tax. 
Unfortunately, these retirees have seen a good portion of their 
retirement income go to another State's coffers. These retirees are 
paying for another State's taxes and do not even get the benefit of the 
services that their taxes finance.
  While I want to thank everyone who has written or called in support 
of this legislation, I especially want to thank Jim Dawes of Sequim, 
WA, for his diligent efforts to repeal the source tax. He has been a 
tireless advocate on behalf of the countless people in Washington State 
who are subjected to this tax.
  Ms. DUNN of Washington. Mr. Speaker, as a cosponsor of H.R. 394, I am 
pleased to lend my support to this bill under suspension of the rules. 
H.R. 394 will eliminate the so-called source tax, a misguided provision 
of Federal law which allows States to tax retirement income of 
nonresidents.
  The source tax is nothing less than taxation without representation 
and contradicts a fundamental American principle. Not only is it wrong 
to allow States to tax the pensions and retirement income of Americans 
who have moved out of the State, but it is an unfair burden on retirees 
whose current State also lays claim to the income. I have heard from 
countless constituents who have relayed their stories of how States 
across the country extend their arms into the hard-earned pensions of 
retirees who have moved to Washington State. This is simply 
unacceptable.
  Retirees are currently forced to somehow calculate the portion of 
taxes to be allocated to each State. Simply put, Mr. Chairman, retirees 
should not be forced to pay taxes to a State in which they no longer 
reside and no longer vote. I urge my colleagues to end this practice 
and suspend the rules and pass H.R. 394 to return fairness to taxpayers 
in Washington State and across the country.
  Mr. HEINEMAN. Mr. Speaker, I rise today to express my strong support 
for H.R. 394. This legislation will provide some much needed tax relief 
to our Nation's retirees. Current law allows a State to tax a retiree's 
pension income even when they no longer live in that State. I believe 
that is wrong. H.R. 394 will correct this problem.
  H.R. 394 prohibits States from taxing the pension income of 
nonresident retirees. It is unfair for some States to take money away 
from seniors and retirees who do not even live in that State and may 
have not lived there for years. This represents taxation without 
representation and needs to stop.
  Time and again I have heard my colleagues say that we should not 
unfairly burden our Nation's senior citizens and retirees. I agree. As 
a senior, I believe this Congress needs to stand up for what is right 
and support this important legislation. If this Congress does not act, 
some States will continue to tax retirees living in other States. Do 
not let this injustice continue, support H.R. 394.
  Mr. GEKAS. Mr. Speaker, I have no further requests for time at this 
time, and I yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Hayworth). The question is on the motion 
offered by the gentleman from Pennsylvania [Mr. Gekas] that the House 
suspend the rules and pass the bill, H.R. 394, as amended.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended and the bill, as amended, was passed.
  A motion to reconsider was laid on the table.

                          ____________________