[Congressional Record Volume 143, Number 76 (Thursday, June 5, 1997)]
[Senate]
[Pages S5343-S5344]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SHELBY (for himself, Mr. Bond, Mr. Hagel, Mr. Hutchinson, 
        and Mr. Coverdell):
  S. 831. A bill to amend chapter 8 of title 5, United States Code, to 
provide for congressional review of any rule promulgated by the 
Internal Revenue Service that increases Federal revenue, and for other 
purposes; to the Committee on Governmental Affairs.


                     the stealth tax prevention act

  Mr. SHELBY. Mr. President, I rise today to introduce the Stealth Tax 
Prevention Act. Perhaps the most important power given to the Congress 
in the Constitution of the United States is bestowed in article I, 
section 8--the power to tax. This authority is vested in Congress 
because, as elected representatives, Congress remains accountable to 
the public when they lay and collect taxes.
  Last year, Mr. President, Congress passed the Congressional Review 
Act of 1996, which provides that when a major agency rule takes effect, 
Congress has 60 days to review it. During this time period, Congress 
has the option to pass a disapproval resolution. If no such resolution 
is passed, the rule then goes into effect.
  The Internal Revenue Service, as the President here knows, has 
enormous power to affect the lives and the livelihoods of American 
taxpayers through their authority to interpret the Tax Code. The 
Stealth Tax Prevention Act that I am introducing today, along with 
Senator Bond and Senator Hagel, will expand the definition of a major 
rule to include, Mr. President, any IRS regulation which increases 
Federal revenue. Why? Because we desperately need this today.
  For example, if the Office of Management and Budget finds that the 
implementation and enforcement of a rule has resulted in an increase of 
Federal revenues over current practices or revenues anticipated from 
the rule on the date of the enactment of the statute under which the 
rule is promulgated. Therefore, the Stealth Tax Prevention Act will 
allow Congress to review the regulation and take appropriate measures 
to avoid raising taxes on hard-working Americans, in most cases, small 
businesses.
  Mr. President, the Founding Fathers' intent, as you know, was to put 
the power to lay and collect taxes in the hands of elected Members of 
Congress, not in the hands of bureaucrats who are shielded from public 
accountability. It is appropriate, I believe, that the IRS's breach of 
authority is addressed, in light of the fact that we are celebrating 
this week Small Business Week.
  The discretionary authority of the Internal Revenue Service exposes 
small businesses, farmers, and others to the arbitrary whims of 
bureaucrats, thus creating an uncertain and, under certain cases, 
hostile environment in which to conduct day-to-day activities. Most of 
these people do not have lobbyists that work for them, other than their 
elected Representatives, the way it should be. The Stealth Tax 
Prevention Act will be particularly helpful in lowering the tax burden 
on small business which suffers disproportionately, Mr. President, from 
IRS regulations. This burden discourages the startup of new firms and 
ultimately the creation of new jobs in the economy, which has really 
made America great today.
  Americans pay Federal income taxes. They, Mr. President, as you well 
know, pay State income taxes. They pay property taxes. On the way to 
work in the morning they pay a gasoline tax when they fill up their 
car, and a sales tax when they buy a cup of coffee.
  Mr. President, average Americans in small businesses are saddled with 
the highest tax burden in our country's history.
  Allowing bureaucrats to increase taxes even further, at their own 
discretion through interpretation of the Tax Code is intolerable. The 
Stealth Tax Prevention Act will leave tax policy where it belongs, to 
elected Members of the Congress, not unelected and unaccountable IRS 
bureaucrats.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 831

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

     SECTION 1. CONGRESSIONAL REVIEW OF INTERNAL REVENUE SERVICE 
                   RULES THAT INCREASE REVENUE.

       (a) Short Title.--This Act may be cited as the ``Stealth 
     Tax Prevention Act''.
       (b) In General.--Section 804(2) of title 5, United States 
     Code, is amended to read as follows:
       ``(2) The term `major rule'--
       ``(A) means any rule that--
       ``(i) the Administrator of the Office of Information and 
     Regulatory Affairs of the Office of Management and Budget 
     finds has resulted in or is likely to result in--
       ``(I) an annual effect on the economy of $100,000,000 or 
     more;
       ``(II) a major increase in costs or prices for consumers, 
     individual industries, Federal, State, or local government 
     agencies, or geographic regions; or
       ``(III) significant adverse effects on competition, 
     employment, investment, productivity, innovation, or on the 
     ability of United States-based enterprises to compete with 
     foreign-based enterprises in domestic and export markets; or
       ``(ii)(I) is promulgated by the Internal Revenue Service; 
     and
       ``(II) the Administrator of the Office of Information and 
     Regulatory Affairs of the Office of Management and Budget 
     finds that the implementation and enforcement of the rule has 
     resulted in or is likely to result in any net increase in 
     Federal revenues over current practices in tax collection or 
     revenues anticipated from the rule on the date of the 
     enactment of the statute under which the rule is promulgated; 
     and
       ``(B) does not include any rule promulgated under the 
     Telecommunications Act of 1996 and the amendments made by 
     that Act.''.

  Mr. BOND. Mr. President, I rise today to join my distinguished 
colleague from Alabama, Senator Shelby, in introducing legislation to 
ensure that the Treasury Department's Internal Revenue Service does not 
usurp the power to tax--a power solely vested in Congress by the U.S. 
Constitution. The Stealth Tax Prevention Act will ensure that the duly 
elected representatives of the people, who are accountable to the 
electorate for our actions, will have discretion to exercise the power 
to tax. This legislation is intended to curb the ability of the 
Treasury Department to bypass Congress by proposing a tax increase 
without the authorization or consent of Congress.
  The Stealth Tax Prevention Act builds on legislation passed 
unanimously by the Senate just over 1 year ago. As chairman of the 
Committee on Small Business, I authored the Small Business Regulatory 
Enforcement Fairness Act--better known as the Red Tape Reduction Act--
to ensure that small businesses are treated fairly in agency rulemaking 
and enforcement activities. Subtitle E of the Red Tape Reduction Act 
provides that a final rule issued by a Federal agency and deemed a 
major rule by the Office of Information and Regulatory Affairs of the 
Office of Management and Budget

[[Page S5344]]

cannot go into effect for at least 60 days. This delay is to provide 
Congress with a window during which it can review the rule and its 
impact, allowing time for Congress to consider whether a resolution of 
disapproval should be enacted to strike down the regulation. To become 
effective, the resolution must pass both the House and Senate and be 
signed into law by the President or enacted as the result of a veto 
override.
  The bill Senator Shelby and I introduce today amends this law to 
provide that any rule issued by the Treasury Department's Internal 
Revenue Service that will result in a tax increase--any increase--will 
be deemed a major rule by OIRA and, consequently, not go into effect 
for at least 60 days. This procedural safeguard will ensure that the 
Department of the Treasury and its Internal Revenue Service cannot make 
an end-run around Congress, as it is currently attempting with the 
stealth tax it proposed on January 13.
  As my colleagues are aware, the IRS has issued a proposal that is 
tantamount to a tax increase on businesses structured as limited 
liability companies. The IRS proposal disqualifies a taxpayer from 
being considered as a limited partner if he or she ``participates in 
the partnership's trade or business for more than 500 hours during a 
taxable year'' or is involved in a ``service'' partnership, such as 
lawyers, accountants, engineers, architects, and health-care providers.
  The IRS alleges that its proposal merely interprets section 
1402(a)(13) of the Tax Code, providing clarification, when in actuality 
it is a tax increase by regulatory fiat. Under the IRS proposal, 
disqualification as a limited partner will result in a tax increase on 
income from both capital investments as well as earnings of the 
partnership. The effect will be to add the self-employment tax--12.4 
percent for social security and 2.9 percent for Medicare--to income 
from investments as well as earnings for limited partners that under 
current rules can exclude such income from the self-employment tax.

  Under the bill introduced today, the tax increase proposed by the 
Internal Revenue Service of the Treasury Department, if later issued as 
a final rule, could not go into effect for at least 60 days following 
its publication in the Federal Register. This window, which coincides 
with issuance of a report by the Comptroller General, would allow 
Congress the opportunity to review the rule and vote on a resolution to 
disapprove the tax increase before it is applied to a single taxpayer.
  The Stealth Tax Prevention Act strengthens the Red Tape Reduction Act 
and the vital procedural safeguards it provides to ensure that small 
businesses are not burdened unnecessarily by new Federal regulations. 
Congress enacted the 1966 provisions to strengthen the effectiveness of 
the Regulatory Flexibility Act, a law which had been ignored too often 
by Government agencies, especially the Internal Revenue Service. Three 
of the top recommendations of the 1995 White House Conference on Small 
Business sought reforms to the way Government regulations are developed 
and enforced, and the Red Tape Reduction Act passed the Senate without 
a single dissenting vote on its way to being signed into law last year. 
Despite the inclusion of language in the 1996 amendments that expressly 
addresses coverage of IRS interpretative rules, we find ourselves faced 
again with an IRS proposal that was not issued in compliance with the 
Regulatory Flexibility Act.
  As 18 of my Senate colleagues and I advised Secretary Rubin in an 
April letter, the proposed IRS regulation on limited partner taxation 
is precisely the type of rule for which a regulatory flexibility 
analysis should be done. Although, on its face, the rulemaking seeks 
merely to define a limited partner or to eliminate uncertainty in 
determining net earnings from self-employment, the real effect of the 
rule would be to raise taxes by executive fiat and expand substantially 
the spirit and letter of the underlying statute. The rule also seeks to 
impose on small businesses a burdensome new recordkeeping and 
collection of information requirement that would affect millions of 
limited partners and members of limited liability companies. The 
Treasury's IRS proposes this stealth tax increase with the knowledge 
that Congress declined to adopt a similar tax increase in the Health 
Security Act proposed in 1994--a provision that the Congressional Joint 
Committee on Taxation estimated in 1994 would have resulted in a tax 
increase of approximately $500 million per year.
  The Stealth Tax Prevention Act would remove any incentive for the 
Treasury Department to underestimate the cost imposed by an IRS 
proposed or final rule in an effort to skirt the administration's 
regulatory review process or its obligations under the Regulatory 
Flexibility Act. By amending the definition of major rule under the 
Congressional Review Act, which is subtitle E of the Red Tape Reduction 
Act, we ensure that an IRS rule that imposes a tax increase will be a 
major rule, whether or not it has an estimated annual effect on the 
economy of $100,000,000. Our amendment does not change the trigger for 
a regulatory flexibility analysis, which still will be required if a 
proposed rule would have a significant economic impact on a substantial 
number of small entities. We believe the heightened scrutiny of IRS 
regulations called for by this legislation will provide an additional 
incentive for the Treasury Department's Internal Revenue Service to 
meet all of its procedural obligations under the Regulatory Flexibility 
Act and the Red Tape Reduction Act.
  I urge my colleagues to join Senator Shelby and me in supporting this 
important legislation to ensure that the IRS not usurp the proper role 
of Congress--nor skirt its obligations to identify the impact of its 
proposed and final rules. Rules such as that currently proposed by the 
IRS should be carefully scrutinized by Congress. When the Department of 
the Treasury issues a final IRS rule that increases taxes, Congress 
should have the ability to exercise its discretion to enact a 
resolution of disapproval before the rule is applicable to a single 
taxpayer. The Stealth Tax Prevention Act Senator Shelby and I introduce 
today provides that opportunity.
                                 ______