Congressional Record, Volume 143 Issue 156 (Saturday, November 8, 1997)

[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.''

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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