[Congressional Record Volume 143, Number 156 (Saturday, November 8, 1997)]
[House]
[Pages H10398-H10406]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           LINE-ITEM VETO FIX

  Mr. THOMAS. Mr. Speaker, I move that the House suspend the rules and 
pass the bill (H.R. 2513), to amend the Internal Revenue Code of 1986 
to restore and modify the provision of the Taxpayer Relief Act of 1997 
relating to exempting active financing income from foreign personal 
holding company income and to provide for the nonrecognition of gain on 
the sale of stock in agricultural processors to certain farmers' 
cooperatives, as amended, and table the bill, H.R. 2444.
  The Clerk read as follows:

                               H.R. 2513

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

     SECTION 1. EXEMPTION FOR ACTIVE FINANCING INCOME.

       (a) Exemption From Foreign Personal Holding Company 
     Income.--Section 954 of the Internal Revenue Code of 1986 (as 
     amended by subsection (d)) is amended by adding at the end 
     the following new subsection:
       ``(h) Special Rule for Income Derived in the Active Conduct 
     of Insurance Businesses and Banking, Financing, or Similar 
     Businesses.--
       ``(1) In general.--For purposes of subsection (c)(1), 
     foreign personal holding company income shall not include 
     income which is--

[[Page H10399]]

       ``(A) derived in the active conduct by a controlled foreign 
     corporation of a banking, financing, or similar business, but 
     only if--
       ``(i) the corporation is predominantly engaged in the 
     active conduct of such business, and
       ``(ii) such income is derived from transactions with 
     customers located within the country under the laws of which 
     the corporation is created or organized,
       ``(B) received from a person other than a related person 
     (within the meaning of subsection (d)(3)) and derived from 
     the investments made by a qualifying insurance company of its 
     reserves or of 80 percent of its unearned premiums (as both 
     are determined in the manner prescribed under paragraph (4)), 
     or
       ``(C) received from a person other than a related person 
     (within the meaning of subsection (d)(3)) and derived from 
     investments made by a qualifying insurance company of an 
     amount of its assets equal to--
       ``(i) in the case of property, casualty, or health 
     insurance contracts, one-third of its premiums earned on such 
     insurance contracts during the taxable year (as defined in 
     section 832(b)(4)), and
       ``(ii) in the case of life insurance or annuity contracts, 
     10 percent of the reserves described in subparagraph (B) for 
     such contracts.
       ``(2) Predominantly engaged.--For purposes of paragraph 
     (1)(A), a controlled foreign corporation shall be deemed 
     predominantly engaged in the active conduct of a banking, 
     financing, or similar business only if--
       ``(A) more than 70 percent of its gross income is derived 
     from such business from transactions with customers which are 
     located within the country under the laws of which the 
     corporation is created or organized, or
       ``(B) the corporation is--
       ``(i) engaged in the active conduct of a banking business 
     and is an institution licensed to do business as a bank in 
     the United States (or is any other corporation not so 
     licensed which is specified by the Secretary in regulations), 
     or
       ``(ii) engaged in the active conduct of a securities 
     business and is registered as a securities broker or dealer 
     under section 15(a) of the Securities Exchange Act of 1934 or 
     is registered as a Government securities broker or dealer 
     under section 15C(a) of such Act (or is any other corporation 
     not so registered which is specified by the Secretary in 
     regulations).
       ``(3) Principles for determining insurance income.--Except 
     as provided by the Secretary, for purposes of paragraphs (1) 
     (B) and (C)--
       ``(A) in the case of any contract which is a separate 
     account-type contract (including any variable contract not 
     meeting the requirements of section 817), income credited 
     under such contract shall be allocable only to such contract, 
     and
       ``(B) income not allocable under subparagraph (A) shall be 
     allocated ratably among contracts not described in 
     subparagraph (A).
       ``(4) Methods for determining unearned premiums and 
     reserves.--For purposes of paragraph (1)(B)--
       ``(A) Property and casualty contracts.--The unearned 
     premiums and reserves of a qualifying insurance company with 
     respect to property, casualty, or health insurance contracts 
     shall be determined using the same methods and interest rates 
     which would be used if such company were subject to tax under 
     subchapter L.
       ``(B) Life insurance and annuity contracts.--The amount of 
     the reserve of a qualifying insurance company for any life 
     insurance or annuity contract shall be equal to the greater 
     of--
       ``(i) the net surrender value of such contract (as defined 
     in section 807(e)(1)(A)), or
       ``(ii) the reserve determined under paragraph (5).
       ``(C) Limitation on reserves.--In no event shall the 
     reserve determined under this paragraph for any contract as 
     of any time exceed the amount which would be taken into 
     account with respect to such contract as of such time in 
     determining foreign statement reserves (less any catastrophe, 
     deficiency, or similar reserves).
       ``(5) Amount of reserve.--The amount of the reserve 
     determined under this paragraph with respect to any contract 
     shall be determined in the same manner as it would be 
     determined if the qualifying insurance company were subject 
     to tax under subchapter L, except that in applying such 
     subchapter--
       ``(A) the interest rate determined for the foreign country 
     in which such company is created or organized and which, 
     except as provided by the Secretary, is calculated in the 
     same manner as the Federal mid-term rate under section 
     1274(d) shall be substituted for the applicable Federal 
     interest rate,
       ``(B) the highest assumed interest rate permitted to be 
     used in determining foreign statement reserves shall be 
     substituted for the prevailing State assumed interest rate, 
     and
       ``(C) tables for mortality and morbidity which reasonably 
     reflect the current mortality and morbidity risks in the 
     foreign country shall be substituted for the mortality and 
     morbidity tables otherwise used for such subchapter.
       ``(6) Definitions.--For purposes of this subsection--
       ``(A) Qualifying insurance company.--The term `qualifying 
     insurance company' means any entity which--
       ``(i) is subject to regulation as an insurance company by 
     the country under the laws of which the entity is created or 
     organized,
       ``(ii) derives at least 50 percent of its net written 
     premiums from the insurance or reinsurance of risks located 
     within such country, and
       ``(iii) is engaged in the active conduct of an insurance 
     business and would be subject to tax under subchapter L if it 
     were a domestic corporation.
       ``(B) Life insurance or annuity contract.--For purposes of 
     this section and section 953, the determination of whether a 
     contract issued by a controlled foreign corporation is a life 
     insurance contract or an annuity contract shall be made 
     without regard to sections 72(s), 101(f), 817(h), and 7702 
     if--
       ``(i) such contract is regulated as a life insurance or 
     annuity contract by the country under the laws of which the 
     corporation is created or organized, and
       ``(ii) no policyholder, insured, annuitant, or beneficiary 
     with respect to the contract is a United States person.
       ``(C) Noncancellable accident and health insurance 
     contracts.--A noncancellable accident and health insurance 
     contract shall be treated for purposes of this subsection in 
     the same manner as a life insurance contract except that 
     paragraph (4)(B)(i) shall not apply.
       ``(D) Located.--
       ``(i) In general.--The determination of where a customer is 
     located shall be made under rules prescribed by the 
     Secretary.
       ``(ii) Special rule for qualified business units.--Gross 
     income derived by a corporation's qualified business unit 
     (within the meaning of section 989(a)) from transactions with 
     customers which are located in the country in which the 
     qualified business unit both maintains its principal office 
     and conducts substantial business activity shall be treated 
     as derived from transactions with customers which are located 
     within the country under the laws of which the controlled 
     foreign corporation is created or organized.
       ``(E) Customer.--
       ``(i) In general.--The term `customer' means, with respect 
     to any controlled foreign corporation, any person which has a 
     customer relationship with such corporation.
       ``(ii) Exception for related, etc. persons.--A person who 
     is a related person (as defined in subsection (d)(3)), an 
     officer, a director, or an employee with respect to any 
     controlled foreign corporation shall not be treated as a 
     customer with respect to any transaction if a principal 
     purpose of such transaction is to satisfy any requirement of 
     this subsection.
       ``(7) Anti-abuse rules.--For purposes of applying this 
     subsection and subsection (c)(2)(C)(ii), there shall be 
     disregarded any item of income, gain, loss, or deduction with 
     respect to any transaction or series of transactions one of 
     the principal purposes of which is qualifying income or gain 
     for the exclusion under this section, including--
       ``(A) any change in the method of computing reserves or any 
     other transaction or series of transactions a principal 
     purpose of which is the acceleration or deferral of any item 
     in order to claim the benefits of such exclusion through the 
     application of this subsection, and
       ``(B) organizing entities in order to satisfy any same 
     country requirement under this subsection.
       ``(8) Coordination with other provisions.--
       ``(A) Section 901(k).--
       ``(i) In general.--The amount of qualified taxes (as 
     defined in section 901(k)(4)) to which paragraphs (1) and (2) 
     of section 901(k) do not apply by reason of paragraph (4) of 
     such section 901(k) shall be reduced by an amount which bears 
     the same ratio to such qualified taxes as the amount of 
     income from the active conduct of a securities business which 
     is not subpart F income solely by reason of this subsection, 
     subsection (c)(2)(C)(ii), and subsection (e)(2)(C) bears to 
     the total income from the active conduct of a securities 
     business by a controlled foreign corporation which is not 
     subpart F income. The determination under the preceding 
     sentence shall be made by treating all members of an 
     affiliated group as 1 corporation. For purposes of this 
     clause, the term `subpart F income' has the meaning given 
     such term by section 952(a) but determined without regard to 
     section 952(c) and paragraphs (3) and (4) of subsection (b) 
     of this section.
       ``(ii) Election not to have subsection and certain other 
     provisions apply.--Clause (i) shall not apply for any taxable 
     year of a foreign corporation if such corporation (and all 
     members of the affiliated group of which such corporation is 
     a member) elect not to have this subsection, subsection 
     (c)(2)(C)(ii), and subsection (e)(2)(C) apply for such 
     taxable year.
       ``(B) Treatment of income to which section 953 applies.--
     Subparagraphs (B) and (C) of paragraph (1) shall not apply to 
     investment income allocable to contracts that insure related 
     party risks or risks located in a foreign country other than 
     the country in which the qualifying insurance company is 
     created or organized.
       ``(9) Application.--This subsection, subsection 
     (c)(2)(C)(ii), and subsection (e)(2)(C) shall apply only to 
     the first full taxable year of a foreign corporation 
     beginning after December 31, 1997, and before January 1, 
     1999, and to taxable years of United States shareholders with 
     or within which such taxable year of such foreign corporation 
     ends.''

[[Page H10400]]

       (b) Special Rules for Dealers.--Section 954(c)(2)(C) of 
     such Code is amended to read as follows:
       ``(C) Exception for dealers.--Except as provided by 
     regulations, in the case of a regular dealer in property 
     (within the meaning of paragraph (1)(B)), forward contracts, 
     option contracts, or similar financial instruments (including 
     notional principal contracts and all instruments referenced 
     to commodities), there shall not be taken into account in 
     computing foreign personal holding income--
       ``(i) any item of income, gain, deduction, or loss (other 
     than any item described in subparagraph (A), (E), or (G) of 
     paragraph (1)) from any transaction (including hedging 
     transactions) entered into in the ordinary course of such 
     dealer's trade or business as such a dealer, and
       ``(ii) if such dealer is a dealer in securities (within the 
     meaning of section 475), any interest or dividend or 
     equivalent amount described in subparagraph (E) or (G) of 
     paragraph (1) from any transaction (including any hedging 
     transaction or transaction described in section 956(c)(2)(J)) 
     entered into in the ordinary course of such dealer's trade or 
     business as such a dealer in securities, but only if 
     employees of the dealer which are located in the country 
     under the laws of which the dealer is created or organized 
     (or in the case of a qualified business unit described in 
     section 989(a) which both maintains its principal office and 
     conducts substantial business activity in a country, 
     employees of such unit which are located in such country) 
     materially participate in such transaction.''.
       (c) Exemption From Foreign Base Company Services Income.--
     Paragraph (2) of section 954(e) of such Code (as amended by 
     subsection (d)) is amended by striking ``or'' at the end of 
     subparagraph (A), by striking the period at the end of 
     subparagraph (B) and inserting ``, or'', and by adding at the 
     end the following:
       ``(C)(i) a transaction by the controlled foreign 
     corporation if the income from the transaction is not foreign 
     personal holding company income by reason of subsection (h), 
     or
       ``(ii) a transaction by the controlled foreign corporation 
     if subsection (c)(2)(C)(ii) applies to such transaction.''.
       (d) Repeal of Canceled Provisions.--Section 1175 of the 
     Taxpayer Relief Act of 1997, and the amendments made by such 
     section, are hereby repealed, and the Internal Revenue Code 
     of 1986 shall be applied and administered as if such section 
     (and amendments) had never been enacted.

     SEC. 2. NONRECOGNITION OF GAIN ON SALE OF STOCK TO CERTAIN 
                   FARMERS' COOPERATIVES.

       (a) In General.--Part III of subchapter O of chapter 1 of 
     the Internal Revenue Code of 1986 (relating to nontaxable 
     exchanges) is amended by inserting after section 1042 the 
     following new section:

     ``SEC. 1042A. SALES OF STOCK TO CERTAIN FARMERS' 
                   COOPERATIVES.

       ``(a) Nonrecognition of Gain.--If--
       ``(1) the taxpayer elects the application of this section 
     with respect to any sale of qualified agricultural processor 
     stock,
       ``(2) the taxpayer purchases qualified replacement property 
     within the replacement period, and
       ``(3) the requirements of subsection (c) are met with 
     respect to such sale,

     then the gain (if any) on such sale which would be recognized 
     as long-term capital gain shall be recognized only to the 
     extent that the amount realized on such sale exceeds the cost 
     to the taxpayer of such qualified replacement property. The 
     preceding sentence shall not apply to a sale by an eligible 
     farmers' cooperative.
       ``(b) Limitation.--
       ``(1) In general.--If subsection (a) applies to the sale of 
     any stock by the taxpayer in a qualified agricultural 
     processor, the aggregate amount of gain taken into account by 
     the taxpayer under subsection (a) with respect to stock in 
     such processor shall not exceed the amount of the limitation 
     under paragraph (2) which is allocated to such sale by the 
     eligible farmers' cooperative.
       ``(2) Allocation.--The amount allocated under this 
     paragraph by any cooperative with respect to stock acquired 
     by such cooperative during any taxable year of such 
     cooperative shall not exceed $75,000,000.
       ``(3) Aggregation rules.--All eligible farmers' 
     cooperatives which are under common control (within the 
     meaning of subsection (a) or (b) of section 52) shall be 
     treated as 1 cooperative for purposes of paragraph (2), and 
     the limitation under such paragraph shall be allocated among 
     such cooperatives in such manner as the Secretary shall 
     prescribe.
       ``(c) Requirements To Qualify for Nonrecognition.--A sale 
     of qualified agricultural processor stock meets the 
     requirements of this subsection if--
       ``(1) Sale to eligible farmers' cooperative.--Such stock is 
     sold to an eligible farmers' cooperative.
       ``(2) Special rule for certain cooperatives.--
       ``(A) In general.--In the case of a sale of such stock to 
     an eligible farmers' cooperative described in subparagraph 
     (B), the processor purchased, during at least 3 of the 5 most 
     recent taxable years of such processor ending on or before 
     the date of the sale, more than one-half of the agricultural 
     or horticultural products to be refined or processed by such 
     processor from such cooperative or farmers who are members of 
     such cooperative.
       ``(B) Cooperatives described.--A cooperative is described 
     in this subparagraph with respect to any sale if, for any 
     taxable year ending before the date of such sale--
       ``(i) such cooperative had gross receipts of more than 
     $1,000,000,000, or
       ``(ii) such cooperative sold more than a de minimis amount 
     of specialty produce.
       ``(C) Specialty produce.--For purposes of subparagraph (B), 
     the term `specialty produce' means any agricultural or 
     horticultural product other than wheat, feed grains, oil 
     seeds, cotton, rice, cattle, hogs, sheep, or dairy products.
       ``(D) Special rules.--
       ``(i) Gross receipts.--For purposes of subparagraph (B)(i), 
     rules similar to the rules of paragraph (2), and 
     subparagraphs (B) and (C) of paragraph (3), of section 448(c) 
     shall apply.
       ``(ii) Predecessor.--Any reference in this paragraph to a 
     cooperative or processor shall be treated as including a 
     reference to any predecessor thereof.
       ``(3) Cooperative must hold 100 percent of stock after 
     sale.--The eligible farmers' cooperative owns, immediately 
     after the sale, all of the qualified agricultural processor 
     stock of the corporation.
       ``(4) Written statement and holding period.--Requirements 
     similar to the requirements of paragraphs (3) and (4) of 
     section 1042(b) are met.
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualified agricultural processor stock.--The term 
     `qualified agricultural processor stock' means stock (other 
     than stock described in section 1504(a)(4)) issued by a 
     qualified agricultural processor.
       ``(2) Qualified agricultural processor.--The term 
     `qualified agricultural processor' means a domestic C 
     corporation substantially all of the assets of which are used 
     in the active conduct of the trade or business of refining or 
     processing agricultural or horticultural products in the 
     United States.
       ``(3) Eligible farmers' cooperative.--The term `eligible 
     farmers' cooperative' means an organization to which part I 
     of subchapter T applies and which is engaged in the marketing 
     of agricultural or horticultural products.
       ``(4) Replacement period.--The term `replacement period' 
     means the period which begins 3 months before the date on 
     which the sale of qualified agricultural processor stock 
     occurs and which ends 12 months after the date of such sale.
       ``(5) Qualified replacement property.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `qualified replacement property' has the meaning 
     given such term by section 1042(c)(4).
       ``(B) Exception.--The term `qualified replacement property' 
     shall not include any security issued by the taxpayer or by 
     any corporation controlled by the taxpayer immediately after 
     the purchase. For purposes of the preceding sentence, the 
     term `control' has the meaning given such term by section 
     304(c) (determined by substituting `10 percent' for `50 
     percent' each place it appears in paragraph (1) thereof).
       ``(e) Special Rules.--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, rules similar to the rules of paragraphs (5) and 
     (6) of section 1042(c), subsections (d), (e), and (f) of 
     section 1042, section 1016(a)(22), and section 1223(13) shall 
     apply for purposes of this section.
       ``(2) Certain provisions not to apply.--
       ``(A) Recognition on complete liquidation.--Section 332 
     shall not apply to the liquidation into the cooperative or 
     any related person of a qualified agricultural processor if 
     the cooperative or related person acquired the stock in such 
     processor in a sale to which subsection (a) applied.
       ``(B) Deemed sale election not available.--No election may 
     be made under section 338(h)(10) with respect to a sale to 
     which subsection (a) applies.
       ``(f) Recapture of Tax Benefit Where Lack of Continuity.--
       ``(1) In general.--If there is a recapture event during any 
     taxable year with respect to any sale to an eligible farmers' 
     cooperative to which this section applied, such cooperative's 
     tax imposed by this chapter for such taxable year shall be 
     increased by an amount equal to--
       ``(A) the recapture percentage of the amount allocated 
     under subsection (b) to such sale, multiplied by
       ``(B) the highest rate of tax imposed by section 11 for 
     such taxable year.
       ``(2) Recapture event.--For purposes of this subsection, a 
     recapture event shall be treated as occurring in any taxable 
     year if--
       ``(A) any portion of such taxable year is within the 3-year 
     period beginning on the date on which the eligible farmers' 
     cooperative acquired stock in a qualified agricultural 
     processor in a sale to which this section applied and, as of 
     the close of such portion, there is a decrease in the direct 
     or indirect percentage ownership of such stock held by such 
     cooperative which was not previously taken into account under 
     this subsection, or
       ``(B) such taxable year is one of the first 5 taxable years 
     ending after the date of such sale and is the third of such 
     taxable years during which one-half or less of the 
     agricultural or horticultural products refined or processed 
     by the qualified agricultural processor are purchased from 
     the eligible farmers' cooperative or farmers who are members 
     of such cooperative.
       ``(3) Recapture percentage.--For purposes of this 
     subsection, the term `recapture percentage' means--

[[Page H10401]]

       ``(A) in the case of a recapture event described in 
     paragraph (2)(A), the percentage equal to a fraction--
       ``(i) the numerator of which is the percentage decrease 
     described in paragraph (2)(A), and
       ``(ii) the denominator of which is the percentage which the 
     qualified agricultural processor stock acquired by the 
     cooperative in a sale to which this section applied bears to 
     all qualified agricultural processor stock in the processor, 
     and
       ``(B) in the case of a recapture event described in 
     paragraph (2)(B), 100 percent.

     In no event shall the recapture percentage for any taxable 
     year exceed 100 percent minus the sum of the recapture 
     percentages for all prior taxable years.
       ``(4) Exceptions to purchase requirement.--The purchase 
     requirement of paragraph (2)(B) shall be treated as met for 
     any taxable year if the Secretary determines that such 
     requirement was not met due to 1 or more of the following: 
     flood, drought, or other weather-related conditions, 
     environmental contamination, disease, fire, or other similar 
     extenuating circumstances prescribed by the Secretary.
       ``(g) Coordination With Section 1042.--No election may be 
     made under this section with respect to any sale if an 
     election is made under section 1042 with respect to such 
     sale.
       ``(h) Regulations.--The Secretary shall prescribe such 
     regulations as are appropriate to carry out this section, 
     including regulations which treat 2 or more sales which are 
     part of the same transaction as 1 sale.''
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 26(b) of such Code is amended 
     by striking ``and'' at the end of subparagraph (P), by 
     striking the period at the end of subparagraph (Q) and 
     inserting ``, and'', and by adding at the end the following 
     new subparagraph:
       ``(R) section 1042A(f) (relating to recapture of tax 
     benefit where lack of continuity in certain agricultural 
     processors).''
       (2) The table of sections for part III of subchapter O of 
     chapter 1 of such Code is amended by inserting after the item 
     relating to section 1042 the following new item:

``Sec. 1042A. Sales of stock to certain farmers' cooperatives.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to sales after December 31, 1997.

     SEC. 3. DISPOSAL OF PALLADIUM AND PLATINUM IN NATIONAL 
                   DEFENSE STOCKPILE.

       (a) Disposal Required.--(1) During fiscal year 1998, the 
     President shall dispose of not more than 130,000 troy ounces 
     of palladium and not more than 20,000 troy ounces of platinum 
     contained in the National Defense Stockpile so as to result 
     in receipts to the United States in an amount equal to 
     $17,000,000 during fiscal year 1998.
       (2) During each of the fiscal years 1999 through 2002, the 
     President shall dispose of not more than 60,000 troy ounces 
     of palladium contained in the National Defense Stockpile so 
     as to result in receipts to the United States in an amount 
     equal to $4,000,000 during each of the fiscal years 1999 
     through 2002.
       (b) Deposit of Receipts.--Notwithstanding section 9 of the 
     Strategic and Critical Materials Stock Piling Act (50 U.S.C. 
     98h), funds received as a result of the disposal of materials 
     under subsection (a) shall be deposited into the general fund 
     of the Treasury for the purpose of deficit reduction.
       (c) Relationship to Other Disposal Authority.--The disposal 
     authority provided in subsection (a) is new disposal 
     authority and is in addition to, and shall not affect, any 
     other disposal authority provided by law regarding palladium 
     or platinum contained in the National Defense Stockpile.
       (d) Termination of Disposal Authority.--The disposal 
     authority provided in subsection (a) shall terminate with 
     regard to a fiscal year specified in such subsection on the 
     date on which the total amount of receipts to the United 
     States during that fiscal year from the disposal of materials 
     under such subsection equals the amount specified in such 
     subsection for that fiscal year.
       (e) Definition.--The term ``National Defense Stockpile'' 
     means the stockpile provided for in section 4 of the 
     Strategic and Critical Materials Stock Piling Act (50 U.S.C. 
     98c).

     SEC. 4. RECOVERY OF COSTS OF HEALTH CARE SERVICES.

       (a) Authorities.--Section 904 of the Foreign Service Act of 
     1980 (22 U.S.C. 4084) is amended--
       (1) in subsection (a)--
       (A) by striking ``and'' after ``employees,'', and
       (B) by inserting before the period ``, and (for care 
     provided abroad) such other persons as are designated by the 
     Secretary of State'';
       (2) in subsection (d), by inserting ``, subject to 
     subsections (g) through (i)'' before ``the Secretary''; and
       (3) by adding at the end the following new subsections:
       ``(g)(1)(A) In the case of a covered beneficiary who is 
     provided health care under this section and who is enrolled 
     in a covered health benefits plan of a third-party payer, the 
     United States shall have the right to collect from the third-
     party payer a reasonable charge amount for the care to the 
     extent that the payment would be made under such plan for 
     such care under the conditions specified in paragraph (2) if 
     a claim were submitted by or on behalf of the covered 
     beneficiary.
       ``(B) Such a covered beneficiary is not required to pay any 
     deductible, copayment, or other cost-sharing under the 
     covered health benefits plan or under this section for health 
     care provided under this section.
       ``(2) With respect to health care provided under this 
     section to a covered beneficiary, for purposes of carrying 
     out paragraph (1)--
       ``(A) the reasonable charge amount (as defined in paragraph 
     (9)(C)) shall be treated by the third-party payer as the 
     payment basis otherwise allowable for the care under the 
     plan;
       ``(B) under regulations, if the covered health benefits 
     plan restricts or differentiates in benefit payments based on 
     whether a provider of health care has a participation 
     agreement with the third-party payer, the Secretary shall be 
     treated as having such an agreement as results in the highest 
     level of payment under this subsection;
       ``(C) no provision of the health benefit plan having the 
     effect of excluding from coverage or limiting payment of 
     charges for certain care shall operate to prevent collection 
     under subsection (a), including (but not limited to) any 
     provision that limits coverage or payment on the basis that--
       ``(i) the care was provided outside the United States,
       ``(ii) the care was provided by a governmental entity,
       ``(iii) the covered beneficiary (or any other person) has 
     no obligation to pay for the care,
       ``(iv) the provider of the care is not licensed to provide 
     the care in the United States or other location,
       ``(v) a condition of coverage relating to utilization 
     review, prior authorization, or similar utilization control 
     has not been met, or
       ``(vi) in the case that drugs were provided, the provision 
     of the drugs for any indicated purpose has not been approved 
     by the Federal Food, Drug, and Cosmetic Administration;
       ``(D) if the covered health benefits plan contains a 
     requirement for payment of a deductible, copayment, or 
     similar cost-sharing by the beneficiary--
       ``(i) the beneficiary's not having paid such cost-sharing 
     with respect to the care shall not preclude collection under 
     this section, and
       ``(ii) the amount the United States may collect under this 
     section shall be reduced by application of the appropriate 
     cost-sharing;
       ``(E) amounts that would be payable by the third-party 
     payer under this section but for the application of a 
     deductible under subparagraph (D)(ii) shall be counted 
     towards such deductible notwithstanding that under paragraph 
     (1)(B) the individual is not charged for the care and did not 
     pay an amount towards such care; and
       ``(F) the Secretary may apply such other provisions as may 
     be appropriate to carry out this section in an equitable 
     manner.
       ``(3) In exercising authority under paragraph (1)--
       ``(A) the United States shall be subrogated to any right or 
     claim that the covered beneficiary may have against a third-
     party payer;
       ``(B) the United States may institute and prosecute legal 
     proceedings against a third-party payer to enforce a right of 
     the United States under this section; and
       ``(C) the Secretary may compromise, settle, or waive a 
     claim of the United States under this section.
       ``(4) No law of any State, or of any political subdivision 
     of a State, shall operate to prevent or hinder collection by 
     the United States under this section.
       ``(5) If collection is sought from a third-party payer for 
     health care furnished a covered beneficiary under this 
     section, under regulations medical records of the beneficiary 
     shall be made available for inspection and review by 
     representatives of the third-party payer for the sole purpose 
     of permitting the third-party payer to verify, consistent 
     with this subsection that--
       ``(A) the care for which recovery or collection is sought 
     were furnished to the beneficiary; and
       ``(B) except as otherwise provided in this subsection, the 
     provision of such care to the beneficiary meets criteria 
     generally applicable under the covered health benefits plan.
       ``(6) The Secretary shall establish (and periodically 
     update) a schedule of reasonable charge amounts for health 
     care provided under this section. The amount under such 
     schedule for health care shall be based on charges or fee 
     schedule amounts recognized by third-party payers under 
     covered health benefits plans for payment purposes for 
     similar health care services furnished in the Metropolitan 
     Washington, District of Columbia, area.
       ``(7) The Secretary shall establish a procedure under which 
     a covered beneficiary may elect to have subsection (h) apply 
     instead of this subsection with respect to some or all health 
     care provided to the beneficiary under this section.
       ``(8) Amounts collected under this subsection, under 
     subsection (h), or under any authority referred to in 
     subsection (i), from a third-party payer or from any other 
     payer shall be deposited in the Treasury as a miscellaneous 
     offsetting receipt.
       ``(9) For purposes of this section:
       ``(A) The term `covered beneficiary' means a member or 
     employee (or family member of such a member of employee) 
     described in subsection (a) who is enrolled under a covered 
     health benefits plan.
       ``(B)(i) Subject to clause (ii), the term `covered health 
     benefits plan' means a health

[[Page H10402]]

     benefits plan offered under the Federal Employees Health 
     Benefits Program under chapter 89 of title 5, United States 
     Code.
       ``(ii) Such term does not include such a health benefits 
     plan (such as a plan of a staff-model health maintenance 
     organization) as the Secretary determines pursuant to 
     regulations to be structured in a manner that impedes the 
     application of this subsection to individuals enrolled under 
     the plan. To the extent practicable, the Secretary shall seek 
     to disseminate to members of the Service and designated 
     employees described in subsection (a) who are eligible to 
     receive health care under this section the names of plans 
     excluded under this clause.
       ``(C) The term `reasonable charge amount' means, with 
     respect to health care provided under this section, the 
     amount for such care specified in the schedule established 
     under paragraph (6).
       ``(D) The term `third-party payer' means an entity that 
     offers a covered health benefits plan.
       ``(h)(1) In the case of an individual who--
       ``(A) receives health care pursuant to this section; and
       ``(B)(i) is not a covered beneficiary (including by virtue 
     of enrollment only in a health benefits plan excluded under 
     subsection (g)(9)(B)(ii)), or
       ``(ii) is such a covered beneficiary and has made an 
     election described in subsection (g)(7) with respect to such 
     care,

     the Secretary is authorized to collect from the individual 
     the full reasonable charge amount for such care.
       ``(2) The United States shall have the same rights against 
     such individuals with respect to collection of such amounts 
     as the United States has with respect to collection of 
     amounts against a third-party payer under subsection (g), 
     except that the rights under this subsection shall be 
     exercised without regard to any rules for deductibles, 
     coinsurance, or other cost-sharing.
       ``(i) Subsections (g) and (h) shall apply to reimbursement 
     for the cost of hospitalization and related outpatient 
     expenses paid for under subsection (d) only to the extent 
     provided in regulations. Nothing in this subsection, or 
     subsections (g) and (h), shall be construed as limiting any 
     authority the Secretary otherwise has with respect to 
     obtaining reimbursement for the payments made under 
     subsection (d).''.
       (b) Effective Date.--(1) The amendments made by subsection 
     (a) shall apply to items and services provided on and after 
     January 1, 1998.
       (2) In order to carry out such amendments in a timely 
     manner, the Secretary of State is authorized to issue 
     interim, final regulations that take effect pending notice 
     and opportunity for public comment.
       (c) Authorization of Appropriations.--There are authorized 
     to be appropriated to the Secretary of State $2,000,000 to 
     offset the costs of carrying out the amendments made by this 
     section. Amounts appropriated under this subsection shall 
     remain available until expended.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
California [Mr. Thomas] and the gentlewoman from Connecticut [Mrs. 
Kennelly], each will control 20 minutes.
  The Chair recognizes the gentleman from California [Mr. Thomas].
  Mr. THOMAS. Mr. Speaker, I rise in support of H.R. 2513, which would 
restore and modify the two tax provisions in the Taxpayer Relief Act of 
1997 that was subject to a Presidential line-item veto earlier this 
year.
  The first provision applies to the income earned abroad by companies 
engaged in providing financial services, and the second one that was 
line item vetoed applies to the sale of farmer cooperatives of stock in 
a corporation that owns agricultural processing assets.
  President Clinton, by virtue of his line item power, canceled these 
two provisions, stating several objections. In short, the committee, 
working with the administration, with groups who were affected on the 
outside, and with Members who thought these were worthy projects, have 
now corrected the concerns of the administration, and as modified and 
presented here today, the two incentives are supported by the 
administration and by all known interested parties.

                              {time}  1645

  It should also be noted that in revising the two provisions, they 
have been narrowed, it will be significantly reducing their revenue 
cost.
  Frankly, Mr. Speaker, we believe that in the changes that were made, 
since H.R. 2513 actually saves money, there is no need to have a 
revenue or a spending offset. Suffice it to say this is not the time, 
nor do we have the time, to argue the way in which we determined 
budgetary matters. So what we have done is made sure that there are 
some spending offsets which are available.
  We are indebted to the Committee on the Budget. The gentleman from 
Ohio [Mr. Kasich] has graciously provided in the bill two offsets, as I 
understand them. One is the disposal of some palladium and platinum in 
the national defense stockpile, and second, the recovery of costs of 
health care services for foreign service personnel. That is about the 
limit of my knowledge of these offsets.
  Mr. Speaker, I yield 3 minutes to the gentleman from Ohio [Mr. 
Hobson], a member of the Committee on the Budget, to explain these 
offsets in some detail.
  Mr. HOBSON. Mr. Speaker, I rise in support of the bill. The Joint Tax 
Committee estimates that the enactment of these two provisions will 
reduce Federal receipts by $72 million between 1998 through 2002. The 
two tax procedures are paid for by two other offsets as required by 
pay-go procedures.
  The first offset requires the U.S. Embassies to recover costs they 
incur by providing medical care to Federal employees overseas from the 
employee's health insurance provider when the employee is a participant 
in the Federal Employees Health Benefit Plan. This offset is going to 
provide $40 million, according to CBO.
  The second offset would sell 33 million dollars' worth of 
commodities, specifically platinum and palladium, that have been 
identified by the Department of Defense as being in excess to the 
national security. This would be the second amount and would complete 
the amount of money necessary to do this which is required under the 
current legislation relating to the line-item veto.
  Mrs. KENNELLY of Connecticut. Mr. Speaker, I yield myself such time 
as I may consume.
  Mr. Speaker, I am very appreciative to be talking about this bill 
today. It is a bill which I have worked for, for a number of years. In 
fact, my interest in it has dated back to 1986, when we did the large 
tax reform. This bill contains a modified version of the following two 
tax provisions that were contained in the recently enacted Taxpayer 
Relief Act of 1997. They were canceled by the President under his line-
item veto.
  The first one was a temporary exemption under subpart F of financial 
services income. The second part, and these two pieces are linked 
together in the override, is a nonrecognition of gain on certain sales 
of processing facilities to farmers' cooperatives.
  The bill is bipartisan, and it is a compromise that addresses the 
concerns of the President of the United States in his line-item veto. 
The administration does not object to the provisions contained in the 
bill before us today.
  I have been a supporter of this provision of the bill that modifies 
subpart F for active financial services income for the following 
reasons:
  U.S. companies with active businesses overseas generally are not 
required to pay tax on the income from these businesses until the 
income is repatriated back to the United States. This treatment is 
called deferral.
  The only active businesses not receiving the benefits of deferral are 
financial services businesses, because they derive much of their income 
in the form of dividends, interest, and capital gains that are subject 
to concurrent taxation under subpart F.
  Prior to 1986, active financial service businesses were eligible for 
the benefits of deferral. The 1986 Tax Reform Act denied the benefits 
of deferral to active financial service businesses out of concern that 
these businesses could utilize tax havens to avoid all taxation. The 
moneys in question had to stay within the countries where the business 
was being done.
  The bill reinstates pre-1986 treatment for financial businesses, but 
it contains many restrictions to limit the potential abuses that led to 
the enactment of the 1986 restrictions. When the President and his 
people at the White House looked as this bill, they were afraid that 
the same kind of abuses would happen as were thought to happen before 
1986. Interestingly enough, these things did not happen, but the same 
concerns were there when they were looking at the budget, and therefore 
that was the reason for the override.
  The floor consideration of this bill has been delayed because of 
concerns by the Committee on the Budget that it was not paid for as 
required under the pay-go rules, as the gentleman

[[Page H10403]]

from California [Mr. Thomas] has suggested and the Member from the 
Committee on the Budget has suggested do not, in fact, exist.
  The bill now contains two noncontroversial spending cuts to pay for 
the tax provisions. I do not object to the financing mechanism 
contained in the bill, but I do believe that the waiver of the pay-go 
requirement contained in the bill as reported by the Committee on Ways 
and Means was the better way to go. But to be on the safe said, they do 
have two places to pay for it here today, and on which the Member of 
the Committee on the Budget has said that these are good ways to have 
it happen.
  One of these two provisions, as I said, would provide fair and, I 
have not used this word in a long time, but a level playing field for 
our companies who are doing business in foreign countries. Generally 
U.S. companies with active businesses overseas are allowed to defer 
U.S. tax on the income from their businesses until that income comes 
back to the United States.
  Unfortunately, U.S. financial service companies, like a large number 
of insurance companies headquartered in my district of Connecticut, and 
the many securities dealers represented from all over these States, as 
well as our own banking industry, have not been eligible to benefit 
from the general rules because they derive much of their income, as I 
said, from dividends, interest, and capital gains.
  Even though many foreign countries exempt income earned abroad from 
tax altogether, and our companies are forced to compete with these 
companies that are not taxed, they not only are not taxed, many of 
these companies are subsidized. I have been interested in the whole 
situation of us being able to compete abroad in these financial 
industries of banking, insurance, securities.
  Over the years I have seen things develop. We are making some 
progress. I remember 1 year going to talk about trade in a country, and 
it was a very lovely meeting, and everybody was being very polite to 
each other in a diplomatic manner. We were told, do not worry about it, 
of course we want your insurance companies to come in and compete. Of 
course we know you have some of the best products. Do not think too 
much about it, we want to open up our business to you.
  That night I went back to the hotel where we were staying, not having 
enough reading material with me, there was a copy of the Constitution 
of that country in the hotel room, and I happened to take the time to 
read it. Now this was called really bored, but I did this. And in the 
Constitution of that country, I looked, and I could not believe my 
eyes, having heard this discussion during the meeting during the day. I 
read right there, anybody who tries to sell insurance from another 
country and not from this country will be criminally prosecuted.
  So we have come a long way in our financial services in competition. 
Of course, as now we are in the midst of fast-track debate and all the 
things that many of us are concerned about on both sides of the 
question, one thing we have to say, not only that we can be proud of 
our financial services, not only can we be proud of our regulation of 
our securities, of the fine products we sell in insurance, of our 
banking that is renowned around the world for its regulation, honesty, 
and good business practices, but we can say if we are over there 
competing, there is no question about the environment or there is no 
question about not paying properly, because you have to be well-
educated to do these services in the proper fashion that we do it. 
Really, this is an area that we should be very proud of, that we can 
compete in internationally.

  Mr. Speaker, I hope soon we can find a permanent solution to this 
financial service industry so we can compete more effectively overseas. 
But in the meantime I say, Mr. Speaker, that this is an issue that has 
been before us for a number of years. It is an issue that a number of 
us have worked on.
  Each time when we try to get a little ways, then we find something 
else that is in our way. I think what has happened in the presentation 
of this bill today, coming up in the fashion that it has, is that we 
have all parties having studied this very carefully, really sanitized 
it, then having it go to the President and to the White House and to 
the administration, and once again being looked at in a very proper and 
wonderful fashion, in a bipartisan fashion, and we are here today to 
finally say to our financial industries, we do not want to handicap 
you. We do not want to have you deal abroad with one hand tied behind 
your back. We are proud of our financial industries, and we are very 
delighted today that we have this bill on the floor before us.
  Mr. Speaker, I reserve the balance of my time.
  Mr. THOMAS. Mr. Speaker, it is my pleasure and privilege, actually, 
to yield 7 minutes to the gentleman from Missouri [Mr. Hulshof], a 
freshman on the Committee on Ways and Means, who has now run the 
virtual gamut of emotions, as he was the original author of the 
provision which was line-item vetoed by the President, an historical 
point he probably does not wish to remember, and then worked diligently 
and, quite frankly, brilliantly to produce the compromise that now 
stands before us, moving from triumph to tragedy and soon to triumph.
  Mr. HULSHOF. Mr. Speaker, I thank the gentleman for yielding me the 
time. I thank him for that reminder of how it is we came to this point.
  In fact, if the gentleman will indulge me as a point of personal 
privilege, when I was sworn in on this floor on January 7, my parents 
were here, of course, and proud Papa remarked to one of the newspaper 
people that his son was going to be in the history books someday.
  And I had to call him in that first week in August and say, Dad, you 
were right, your prophecy has come true. I have made it in the history 
books. I am the first ever victim of the line item veto. I just thought 
history would taste a little sweeter than this.
  We have come full circle, hopefully. I certainly support H.R. 2513, 
the new and improved version. I know that there are colleagues of mine 
that will be speaking to the subpart F, and in support. So what I want 
to do is focus primarily on the farmer cooperative provision.
  I would be remiss unless I provided kudos to the gentleman from Texas 
[Mr. Stenholm], who coauthored this provision with me. I am happy to 
have worked with the gentleman from Texas [Mr. Stenholm] in trying to 
resurrect this provision. I think we have a good provision.
  As the gentleman pointed out, this was part of the Taxpayer Relief 
Act of 1997. We made it through the House, through the Senate, back 
through conference, and ultimately to the President's desk, and when 
the President actually vetoed this provision, he said that it was a 
well-intentioned provision, but that it was overbroad, that it was 
vague, and looked forward to working with the gentleman from Texas [Mr. 
Stenholm] and myself in trying to craft a measure that could pass 
muster. So we have been able to do that. We stayed the course, and I 
think again have a good bill.
  Let me briefly talk about the goal of the legislation as far as it 
relates to the farmer co-ops. With the enactment of the farm bill in 
the last Congress, and as we move toward a balanced budget, toward the 
year 2002, Federal spending for agriculture programs will be unable to 
stay at the same level that they have been in decades past.
  Having come from a family farm, I think I know firsthand that if our 
Nation's farmers and our rural communities are to remain economically 
viable, if they are going to remain self-reliant, then we in Congress 
have a duty to reach out to them as we can to help them remain self-
sufficient.
  I do not think there is any controversy that a company, a U.S. 
company, is more profitable as it vertically integrates. The same is 
true in agriculture. It is widely acknowledged that the most profitable 
sector of agriculture is in the refining and processing of agriculture 
products.
  If Members will allow me to demonstrate, this is a chart, a blowup 
that we used back in Missouri's Ninth Congressional District, but it is 
applicable to all American farmers. But just a couple of quick 
examples.
  In the State of Missouri, from 1 acre of corn you can generally count 
on about 135 bushels of corn from that single acre. If you take that 
corn to the grain elevator, the average price you will receive is about 
$405 from that single acre of corn.

[[Page H10404]]

  But if you take that raw product of corn and you add value to it, if 
you turn corn into ethanol, which is a corn-based fuel, there are about 
378 gallons of ethanol and ethanol by-products that come forth from the 
processing of the corn from 1 acre, which is about $800, which is about 
twice the amount, as you add value to the corn.
  Obviously, corn going into cereal, over 6,700 boxes of corn flakes 
come from 1 acre of corn, with a profit margin of about $13,000. The 
same thing is true with soybeans. An acre of soybeans in Missouri will 
generally yield about 40 bushels per acre; again, about $350 per 
bushel. But if you take that acre of soybeans and turn it into 
vegetable oil or to soybean meal or to soy diesel or to any other 
value-added product, you are allowing farmers to reap the profits and 
the rewards of the value-added side of the processing of this raw 
product.

                              {time}  1700

  Now, some of my colleagues talk about trying to complicate the Tax 
Code, and I want to briefly talk to those individuals, because what we 
want to do is try to make sure we have a fairer code.
  Why do we need this particular provision? Right now, if we were a 
corporation and we wanted to acquire a processing facility owned by 
another corporation, we would look to the Internal Revenue code, 
section 368. And assuming that we were selling this processing plant at 
$100 million, the amount of capital gains would be approximately $35 
million. Well, under section 368, that amount of gain can be deferred. 
That amount of gain would be deferred.
  Similarly, an ESOP provision, employee stock ownership plan; section 
1042 of the code would allow a deferral of that $35 million in gains, 
so that there would be no gain. A section of the code is available for 
those that participate in employee stock ownership plans, such that 
they would not have any gain, that the gain would be deferred. Even 
foreign corporations have a section of the code whereby they get some 
preferential treatment.
  And then we have farmer cooperatives. What we are trying to do is 
allow farmers who belong to farmer cooperatives to participate on the 
same level playing field. And right now they are not there. So what we 
have done through this section of the code is to allow the seller of a 
processing facility to defer that gain as long as that gain is 
reinvested as long as that gain is not reinvested in other assets that 
are owned by the seller.
  We want to make sure, and the White House told us that they want to 
the make sure, that this provision would not be used for sham 
transactions or the avoidance of tax liability. That was not the intent 
of the legislation. So we have cracked down and tightened up, and we 
put restrictions in to accomplish the goal, and that is to help those 
farmers who participate and our members of farmer cooperatives to allow 
them to reap the benefits of value-added agriculture.
  Again, we took the President up on his offer to work with the White 
House. And I commend those with Treasury and the White House. I also, 
again, commend the gentleman from Texas [Mr. Stenholm] for his 
steadfastness in working out this provision. I think it is a good bill, 
and I would urge my colleagues to support H.R. 2513.
  I thank the gentleman from California [Mr. Thomas] for yielding me 
the time.
  Mr. THOMAS. Mr. Speaker, I once again congratulate the gentleman from 
Missouri [Mr. Hulshof].
  Mrs. KENNELLY of Connecticut. Mr. Speaker, I yield such time as he 
may consume to the gentleman from Texas [Mr. Stenholm]. My colleague 
has, of course, worked very hard with the gentleman from Missouri [Mr. 
Hulshof] on this bill, and we are all pleased at the outcome.
  (Mr. STENHOLM asked and was given permission to revise and extend his 
remarks.)
  Mr. STENHOLM. Mr. Speaker, I thank the gentlewoman from Connecticut 
[Mrs. Kennelly] for yielding me the time and appreciate her efforts and 
the gentleman from California (Mr. Thomas], the gentleman from Texas 
[Mr. Archer], and ranking member, the gentleman from New York [Mr. 
Rangel], who have worked very hard to bring this legislation to the 
point in which we have it today.
  I, too, commend my colleague from Missouri [Mr. Hulshof] for his 
tenacity on the Committee on Ways and Means, which had the jurisdiction 
over this, what started out to be noncontroversial but got to be 
somewhat controversial.
  When President Clinton announced his decision to veto the provision 
providing a tax deferral to sales of agricultural processing facilities 
to farmer cooperatives, I was extremely disappointed. But at the same 
time, he indicated a willingness to continue to work for legislation to 
help farmer cooperatives become vertically integrated.
  I continue to believe that the original provision was effectively 
structured and that the veto was based on misinformation and a 
misunderstanding of the challenges facing farmers in the current world 
market. I do not believe for a moment that the original provision was a 
narrow tax benefit that should have been subject to the line item veto, 
and I believe the fact that we are here today indicates that there is 
now a general consensus of all that that was true.
  I want to make it clear that this legislation before us is not my 
preferred position or my preferred option. The gentleman from Missouri 
[Mr. Hulshof] and I agreed, though, that this compromised language 
because it was the only way to enact the provision after the veto was 
used on the original language which was included in the Taxpayer Relief 
Act.
  The compromise legislation which is before us does not include all 
the improvements I would have liked or Mr. Hulshof would have liked and 
falls short of our original legislation. I am concerned that it places 
several restrictions on sales of agricultural processing facilities to 
farmer cooperatives that do not apply to transactions with corporate 
agribusinesses. These restrictions also continue to leave cooperatives 
at a competitive disadvantage against corporate agribusinesses.
  However, as I have said, we were forced to add these restrictions to 
go after the administration's and others' objections to the original 
legislation. These reservations notwithstanding, I am very pleased that 
this compromise offers significant opportunities over current law for 
cooperatives comprised of individual family farmers to compete with 
corporate agriculture in the ever growing world marketplace. In that 
regard, I believe that a good deal. The original intent of the 
legislation has now been restored.
  It is important for all of us in this body and for others to remember 
that even the largest cooperatives are comprised of thousands of small 
and midsized farmers who have come together to farm these cooperatives. 
In an effort to be competitive with the phaseout of Federal farm 
programs, it is imperative that farmers develop new strategies for 
remaining financially viable. Strengthening cooperatives grants 
individual farmers the opportunity to increase their income, provide 
better risk management, capitalize on new market opportunities, and 
compete more effectively in a changing global economy.
  While not as thorough as our original legislation, this compromise 
begins the process of leveling the playing field by giving farmers and 
their cooperatives tax treatments similar to that for other types of 
corporate business, employee stock ownership plans, and worker 
cooperatives, when it comes to the purchase of processing and refining 
facilities.
  I am pleased that the administration has moved from the original 
line-item veto to a position of greater understanding for the needs of 
small farmers and their cooperatives. We have a victory in compromise. 
Farmers will gain admission into markets they were excluded from absent 
this agreement. It is not as sweet a victory as we had hoped, but it is 
a testament to our democratic government which reinforces balance and 
compromise.
  I have appreciated the support and advice and counsel of the National 
Council of Farmer Cooperatives, which has endorsed this compromise as a 
significant improvement over current law. Based on the advice of the 
National Council and other agricultural groups who have concluded that 
half a loaf offered by this bill is better than no loaf at all, I 
intend to vote for this bill and

[[Page H10405]]

continue to work toward greater equity for family farmers and their 
cooperatives and encourage my colleagues on both sides of the aisle to 
do the same.
  Mrs. KENNELLY of Connecticut. Mr. Speaker, I have no further 
speakers, and I yield back the balance of my time.
  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume.
  I want to congratulate my friend, the gentleman from Texas [Mr.  
Stenholm], on his comments. We began our legislative careers together. 
We were both Members of the 96th Congress and shared Committee on 
Agriculture seats together. I believe his analysis is absolutely 
correct.
  My hope is that the process that produced this compromise also 
created a learning curve so that the need to be as innovative as 
possible in a market that has removed subsidies need not be hindered by 
the kind of activity that was engaged in by this administration and, 
indeed, any administration who now has the ability to go in and 
specifically make changes. That is a significant new power. I hope they 
understand it takes significant new knowledge and, hopefully, extensive 
consultation as well.
  Mr. Speaker, it is my pleasure to yield 4 minutes to the gentleman 
from Illinois [Mr. Weller], a member of the Committee on Ways and 
Means, for the other portion of this combined bill dealing with 
financial services in companies that have income earned abroad.
  (Mr. WELLER asked and was given permission to revise and extend his 
remarks.)
  Mr. WELLER. Mr. Speaker, I stand here in strong support of H.R. 2513. 
First let me begin my remarks just by commending the gentleman from 
Texas [Mr. Archer] and his staff for their tireless efforts to resolve 
the challenges that we faced with this first ever line-item veto of a 
tax provision.
  I also want to commend my colleagues on both sides of the aisle that 
are members of this committee for their bipartisan effort to make this 
a successful effort, as well, because as my friend, the gentleman from 
Texas [Mr. Stenholm], says, this is a victory. It is a victory for 
agriculture, It is a victory for the financial sector, and it is also 
an effort to bring about some tax fairness for agriculture and for the 
financial services sector.
  Particularly, I also want to commend my friend, the gentleman from 
Missouri [Mr. Hulshof], in his freshman year, who has shown his 
tenacity and also his ability as a first-term legislator to be able to 
get his job done. I know he serves as president of the freshman class. 
And maybe he should be freshman legislator of the year for what he 
achieved and for what is happening today, because my colleague has done 
a terrific job, working in a bipartisan way, to get the job done and 
helping bring this legislation to the floor.
  I also know the portion of legislation that he and the gentleman from 
Texas [Mr. Stenholm] have worked tirelessly to move forward is 
important to Illinois agriculture as well as agriculture throughout the 
country.
  It is my understanding that portion of the legislation will benefit 
4,000 cooperatives throughout the country, benefiting 2 million farmer 
owners of these 4,000 cooperatives. We know that when we add value-
added to agriculture, that creates jobs not just on the farm but in 
town as well. And that is an important piece of legislation.
  I would like to speak briefly to the other half of this legislation, 
an issue that is important to Chicago and important to the Chicago 
south suburbs, because it addresses the taxation of the financial 
services sector, insurance, securities, and banking.
  If we look, as we now recognize, we are in a global economy, we 
looked at how our institutions here in the United States are able to 
compete overseas, we have seen some of the challenges that we have been 
facing. If we look at banks alone 20 years ago, there were many 
American institutions in the top 20 institutions in the world. Today we 
are lucky to have one American bank in the top 20 in assets worldwide.
  This legislation is so very, very important. And I have enjoyed 
working with my friend, the gentlewoman from Connecticut [Mrs. 
Kennelly], who has been a real leader on this issue over the years, and 
I have enjoyed working with her in a bipartisan way to bring about tax 
fairness and an issue of treating our financial services sector the 
same way we do others.
  What this legislation does is, it puts financial services on parity 
with other sectors of our economy, puts financial services at parity 
when it comes to tax treatment with manufacturing, for example, and 
will allow us to create more jobs here at home while our financial 
services sector sells services overseas. That is what this is all 
about, creating jobs in Illinois and throughout this country as we work 
to give our financial services sector a better way of competing by 
bringing them to parity with our manufacturing sector as well.
  Most importantly, though, is I want to point out that this has been a 
bipartisan effort. It has been an effort where Republicans and 
Democrats have worked together, where the administration has worked 
with the Congress. We have been able to address all concerns, and we 
produced a good bill, a bipartisan bill, a bill that helps agriculture, 
that creates jobs in towns and rural communities, but also gives the 
same advantages to compete overseas that our manufacturers have to our 
financial services sector as well. And that is what it is all about, 
creating jobs here at home as we sell products and services overseas.
  Mr. Chairman, I thank you for the opportunity to speak to this bill. 
I do ask for bipartisan support for H.R. 2513.
  Mr. NEAL of Massachusetts. Mr. Speaker, I rise in support of H.R. 
2513. I commend Chairman Archer of the Committee on Ways and Means and 
the ranking member of the committee, Mr. Rangel, for bringing this 
important measure to the floor today. This bill would promote the 
international competitiveness of the U.S. financial services industry 
by conforming its tax treatment to that of all other U.S. industries, 
and even more significantly to that of foreign competitors operating 
throughout the world.
  Title I of this measure is intended to replace the provision of the 
Taxpayers Relief Act of 1997 vetoed by the President on August 11 that 
was designed to change the antideferral rules of subpart F of the 
Internal Code that discriminates against the U.S. financial services 
industry by requiring current taxation of active financing income by 
foreign affiliates of U.S. banks, securities firms, and insurance and 
finance companies. I am pleased that the Committee on Ways and Means 
has been able to bring some rationality to the international taxation 
of U.S. financial service firms. Financial service companies are real 
businesses that deserve a fair international tax regime every bit as 
much as U.S. manufacturers. This bill begins the process of treating 
the two equally.
  This bill is just a 1-year solution, but I hope it will form the 
basis of a permanent resolution of these issues. In order to pass a 
bill in such a short time period, Treasury had to restrict some classes 
of income so that the bill would not be susceptible to abuse. I hope 
that in the year to come the Treasury will study international 
operations of financial services firms and review some of the 
provisions that were excluded from this bill.
  Finally, I am concerned by the Treasury's insistence that securities 
firms and banks forfeit some of their foreign tax credits in order to 
qualify for this new income-deferral provision. Foreign tax credits and 
income deferral have always coexisted because each serves a different 
purpose.
  I believe that an effective foreign tax credit system is the U.S. 
industry's defense against international double taxation. I believe 
that foreign income taxes incurred in the conduct of an active business 
abroad should be credited in the United States. As we work towards a 
permanent income-deferral provision for financial services firms, I 
urge the Treasury to recognize the dealer exception from section 901(k) 
as a necessary and appropriate part of our tax system.
  I urge my colleagues to support H.R. 2531. The enactment of this 
measure will move us toward the goal of eliminating the inequitable 
treatment of the financial services industry under current laws and 
enhance the ability of a vital sector of our economy to compete in the 
global marketplace.
  Mr. POMEROY. Mr. Speaker, I rise today in support of H.R. 2513, which 
will provide farmer cooperatives with a tool to help them compete in 
the industrializing world of agriculture.
  Cooperatives play a vital role in helping farmers market and process 
their crops and livestock and in securing farm supplies and other 
services at reasonable costs. The cooperative way of doing business in 
rural America simply makes sense.
  North Dakota has a long history with cooperatives, reaching back to 
the early part of this century. In the past 5 years, farmers and 
communities have worked together to create 20 new farmer cooperatives 
in North Dakota.

[[Page H10406]]

  Last year, Congress decided to eliminate the farm program which will 
leave fathers without a mechanism to recoup losses when the growing 
season is poor. One of the self-help mechanisms available to assist 
farmers in maintaining and increasing their incomes in farming is 
through the development and success of farmer cooperatives.
  The success of agriculture ebbs and flows according to many 
circumstances outside the control of farmers. For instance, weather, 
disease, global market prices, and the economy all influence a 
producer's decisions. However, even with these influences on 
agriculture, the quality of the producer's goods increase and prices 
for consumers generally stay the same. Cooperatives benefit the farming 
community by allowing members to amass capital and maximize economic 
returns by enhancing the value of what farmers produce.
  Farmers need bargaining tools in order to regain some influence over 
the prices they receive. With market concentration increasing, 
agricultural producers are finding fewer and fewer buyers for their 
products. Many farmers can only sell their product to a single 
processing company, and are forced to accept the price the company 
offers them. With empowered bargaining or vertical integration, farmers 
would have a greater opportunity to prosper and to share in the end-use 
profits their goods sometimes bring to others.
  H.R. 2513 will provide for the nonrecognition of gain on the sale of 
stock in agricultural processors to eligible farmers' cooperatives. 
This provision will have the effect of encouraging agricultural 
processing facilities to work cooperatively with farmer cooperatives to 
maximize the work and profits of producers. The price paid to farmers 
for farm commodities represents less than 25 percent of the cost of the 
final product purchased by the consumer. It is imperative for the 
American farmer to increase his ownership stake in processing and 
refining in order to survive in an increasingly competitive market. 
Allowing farmers to become vertically integrated in their products will 
enable them to better adjust to fluctuations in commodity prices.
  Mr. CRANE. Mr. Speaker, today, I want to express my support for H.R. 
2513, legislation containing two important tax provisions, versions of 
which were contained in the landmark Taxpayer Relief Act of 1997. The 
provisions in question were line item vetoed by President Clinton on 
August 11, and today, we are endeavoring to pass slightly modified 
versions of the original proposals.
  One provisions of the bill relates to the sale of stock of a 
corporation that owns a processing facility of any cooperative which is 
engaged in marketing agriculture or horticultural products. This matter 
is of great concern and interest to the farm community in this country 
and it is hoped this version of the proposal can now be enacted.
  The other item in this legislation, and the provision to which I 
would like to devote the bulk of my remarks, relates to foreign 
affiliates of U.S. financial services companies. Under the language 
contained in H.R. 2513, these affiliates including banks, securities 
firms, and insurance and finance companies would not be taxed by the 
United States on their active trade or business income until that 
income is repatriated to the U.S. parent company or shareholders. In 
other words, this bill would equalize the treatment of income earned by 
U.S.-based financial services companies operating abroad with the 
active income earned by most other U.S.-based companies operating in 
international markets. As chairman of the Ways and Means Subcommittee 
on Trade, even more important to me is the fact that the bill will 
level the playing field for the U.S. financial services industry vis a 
vis their foreign competitors.
  As one of the Members who worked to include this provision in the 
Taxpayer Relief Act, I was disappointed with the President's line item 
veto. Therefore, I very much would like to make progress in this effort 
to remove a competitive obstacle imposed by our international tax rules 
on the overseas operations of U.S. financial services firms. Language 
in H.R. 2513 is intended to replace the vetoed provision of the 
Taxpayers Relief Act that was designed to reform the antideferral rules 
of subpart F of the Internal Revenue Code. In vetoing this measure, the 
President stated that the ``primary purpose of the provision was 
proper,'' but the manner in which it was written would have left room 
for abuses.
  Although I disagree with the decision of the President to veto this 
important provision, I am pleased he recognized that reform of the 
antideferral rules of subpart F represents sound and prudent tax 
policy. Subsequent to the veto, the financial services firms affected 
by this bill have worked intensely and closely with the Treasury and 
the Committee on Ways and Means to address the concerns raised, and I 
applaud the cooperative effort to come up with an interim solution.

  However, I must express my disappointment and concern that the bill, 
at the Treasury's insistence, unjustly singles our securities dealers. 
As currently drafted H.R. 2513 will force securities dealers to forfeit 
tax credits on foreign withholding taxes to which they are entitled 
under current law in order to obtain the benefits granted to other 
sectors of the financial services industry. These foreign tax credits 
are crucial to the role U.S. securities firms and banks play as global 
equities dealers, without which such dealers will not be able to remain 
competitive overseas.
  When we adopted section 901(k) of the code in 1997, we did so to 
forestall abusive trafficking in credits for foreign withholding taxes. 
We excluded some securities dealers from section 901(k) because those 
dealers, in the legitimate, ordinary course of their businesses, would 
almost by necessity run afoul of the simple rules for identifying 
transactions with trafficking potential. At the same time, we gave the 
Treasury authority to deal with any abuses by dealers. I have not heard 
of any evidence that Treasury has in fact identified any problems with 
section 901(k) to date. Therefore, I frankly must conclude that 
Treasury's insistence on this trade-off in the current bill reflects an 
ulterior motive to overturn the dealer exception in section 901(k), 
although we recently approved that exception by enacting it.
  Foreign tax credits and tax deferral for certain active overseas 
income have coexisted and should continue to do so, because each serves 
a different purpose. Foreign tax credits provide essential protection 
against double taxation of overseas income for U.S. businesses. 
Deferral does not provide such protection, but rather treats active 
overseas income of financial services firms consistently with such 
income of U.S. industrial firms, and helps to level the playing field 
with respect to their foreign competitors. It is my firm belief that 
foreign tax credits and deferral are independent provisions of our 
international tax regime, and their co-existence is consistent with 
sound international tax policy.
  Since the bill before us today would be effective for only 1 year, I 
strongly urge the Treasury to continue to work together with the 
securities and banking industries to reach a fair and lasting agreement 
on a permanent solution that can be enacted next year.
  Mr. Speaker, I urge my colleagues to vote for H.R. 2513. This 
legislation represents sound policy that will enhance the ability of 
the financial services industry to compete in the global marketplace.
  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume to 
simply ask Members for their support on this bipartisan effort on H.R. 
2513.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from California [Mr. Thomas] that the House suspend the rules 
and pass the bill, H.R. 2513, as amended, and lay on the table H.R. 
2444.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended, the bill, H.R. 2513, as amended, was 
passed.
  H.R. 2444 was laid on the table.
  The title of the bill, H.R. 2513, was amended so as to read: ``A bill 
to amend the Internal Revenue Code of 1986 to restore and modify the 
provision of the Taxpayer Relief Act of 1997 relating to exempting 
active financing income from foreign personal holding company income 
and to provide for the nonrecognition of gain on the sale of stock in 
agricultural processors to certain farmers' cooperatives, and for other 
purposes.''
  A motion to reconsider was laid on the table.

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