[Congressional Record Volume 144, Number 105 (Thursday, July 30, 1998)]
[Senate]
[Pages S9426-S9431]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for Mr. Lott (for himself, Mr. Hagel, Mr. 
        Roberts, Mr. Burns, Mr. Craig, Mr. Shelby, Mr. Sessions, and 
        Mr. Thomas)):
  S. 2371. A bill to amend the Internal Revenue Code of 1986 to reduce 
individual capital gains tax rates and to provide tax incentives for 
farmers; to the Committee on Finance.


              family investment and rural savings tax act

  Mr. GRASSLEY. Mr. President, today several of us from rural States 
and the leadership of the Senate take a step to help America's farmers 
as representatives of States with major agricultural economies. All of 
us introducing this legislation agree that farmers are facing some 
difficult times.
  While we must do what we can to make sure that farmers survive for 
the short term, the key to the agricultural economic situation is long-
term solutions. While we can't eliminate every risk and we can't 
control every factor that governs the success of the family farm, there 
are initiatives that we can pursue that will help smooth out some of 
the bumps that are in the road.
  That is why today several of us are introducing the FIRST Act, the 
Family Investment and Rural Savings Tax Act of 1998. As I said at the 
outset, there are some genuine problems in the ag community. Some parts 
of the country are experiencing problems that are worse than we are 
seeing in my own State of Iowa. We can offer reforms that address 
short-term and long-term needs.
  To address short-term needs and help give farmers that extra support 
that some will need to get through this year, I have joined with 
several of my colleagues in supporting legislation that will speed up 
transition payments, payments that would be made during 1999 and could, 
upon election by individual farmers, be taken in 1998. In my State of 
Iowa, that will bring 36 cents per bushel into the farmer's income in 
1998 that would otherwise not be there.
  But the focus of this legislation which I am speaking about today, 
the FIRST Act, is to address long-term need, because what I just 
described to you, advancing the transition payments, is obviously a 
short-term solution.
  What we are saying is that we must ensure economic stability for 
everyone first through the transition proposition I described, and then 
we must help our farmers plan for the future.
  This measure takes a three-prong approach to assist farmers and 
families through tax reform.
  The first section of our bill reduces the capital gains tax rate for 
individuals from 20 percent to 15 percent. This will spur growth, 
entrepreneurship and help farmers make the most of their capital 
assets. It will also encourage movement of capital investment from one 
generation to the other to help young farmers get started.
  This language builds on the capital gains tax reform that we made in 
last year's Tax Relief Act.
  Secondly, the FIRST Act includes my legislation that creates savings 
accounts for farmers. This initiative would allow farmers to make 
contributions to tax-deferred accounts. These Grassley savings 
accounts, as I call them, will give farmers a tool to control their 
lives. This savings account legislation will encourage farmers to save 
during good years to help cushion the fall from the inevitable bad 
years. The accounts will give farmers even greater freedom in their 
business decisions rather than giving the Government more authority 
over farmers and their lives.
  As a working farmer myself, and an American, I know that we want to 
control our own destiny. We want to manage our own business. We want to 
make those decisions that are connected with being a good business 
operator. We do not want to have to wait for the bureaucrats at the 
USDA in Washington, DC, in that bureaucracy to tell us how many acres 
of corn and how many acres of soybeans that we can plant. This allows, 
through the balancing out of income, the leveling out of the peaks and 
valleys from one year to another, because in farming, it seems to be 
all boom or all bust. This farmers' savings account that I suggest will 
give farmers an opportunity to do that.
  Finally, our tax legislation allows for the permanent extension of 
income averaging. Income averaging helps farmers because when prices 
are low and when farmers' income goes down, their tax burden will also 
be lowered. This helps farmers prepare for the especially volatile 
nature of their income.
  This is a tough time for a lot of farmers. I know there is a great 
deal of anxiety among farmers about what the future might bring. This 
proposal will help them to know that we in Congress recognize the 
particular difficulties they face in trying to plan for the future. I, 
along with other Members who have worked on this bill, believe that our 
initiatives will provide farmers with additional financial insurance 
they need to help face the future.
  The initiatives of this legislation have been endorsed by virtually 
every major agricultural organization. These organizations know that 
these measures are what farmers need to have more confidence and 
security in the future.
  I am very pleased to see the majority leader, Trent Lott, the Senator 
from Mississippi, taking a strong stand in favor of this. I thank my 
colleagues who have worked with me on this legislation. We all agree 
that passing this measure as soon as possible is one of the best things 
that we can do for our farmers in our States and across the country.
  This legislation is a long-term solution. It helps our farmers and 
our families survive and to keep control of their own decisions, so 
that we can let Washington make decisions for Washington but let 
farmers make decisions for themselves.
  The bottom line, Mr. President, is right now we are facing a variety 
of troubling circumstances: an economic crisis in southeast Asia, a 
drought combined with the hot weather in Texas today, fires in Florida, 
too much wheat coming across the Canadian border, unfairly, to drive 
down the price of

[[Page S9427]]

wheat in North Dakota, and the prospect of having bumper crops this 
year and big carryovers from last year. These are things that are 
beyond the control of the family farmer.
  Because we in family farming assume the responsibility--each one of 
us--of feeding, on average, 126 other people, we must keep the family 
farms strong as a matter of national policy, as a matter of good 
economics. We do that not because of nostalgia for family farmers but 
because when there is a good supply of food, the urban populations of 
this country are going to feel more secure and more certain about the 
future.
  We want to continually remind people, though, through actions of this 
Congress that we in the Congress know that food grows on farms, it does 
not grow in supermarkets. If there were not farmers producing, if there 
were not the labor and processing people, if there were not truckers 
and trains taking the food from the farm to the city, we would not have 
the high quality of food we have, we would not have the quantity of 
food we have, we would not have the stability that we have in our 
cities, we would not have the quality of life that we have beyond food 
for the American people. Let's not forget that food as a percentage of 
disposable income at about 11 percent is cheaper for the American 
consumer than any consumer anywhere else in the world.
  This legislation that we are all introducing is in support of 
maintaining that sort of environment for the people of America, and 
also as we export food for people around the world. We are committed to 
it, but also as a Congress we are committed to maintaining the family 
farm as well. So I introduce this bill for Senator Lott, myself, 
Senator Hagel, Senator Roberts, Senator Burns, Senator Craig, Senator 
Shelby, and Senator Sessions. I thank my colleagues for their hard work 
and support.
  I yield the floor.
  Mr. HAGEL addressed the Chair.
  The PRESIDING OFFICER. The Senator from Nebraska.
  Mr. HAGEL. Thank you, Mr. President.
  Mr. President, I rise to support, as an original cosponsor, the 
Family Investment and Rural Savings Tax Act of 1998. I thank the 
majority leader, Senator Lott, for working with many of us to make tax 
relief for farmers and ranchers a very top priority this year.
  Mr. President, I am not a farmer. When I want advice about 
agricultural issues, I ask farmers, I ask ranchers. About a month ago, 
the Senators offering this bill, and several others concerned about the 
problems facing rural America, agriculture today, right now, sat down 
with every major farm and commodity group in America. These 
representatives of American agriculture--real agriculture--told us the 
same thing I hear repeatedly from ranchers and farmers across my State 
of Nebraska: ``We do not want to go back to the failed Government 
supply and demand policies of the past.'' That is clear. They told us 
very clearly that there are three things--three things--Congress can do 
to help America's farmers and ranchers: One, open up more export 
markets; two, tax relief; and, three, reduce Government regulation. 
This, after all, Mr. President, was indeed the promise of the 1996 
Freedom to Farm Act.
  Those of us on the floor today and our colleagues have been working 
very hard over the last few months to open more markets overseas, 
especially in the area of dealing with unilateral sanctions. And we are 
going to keep pushing aggressively for important export tools, 
important for all of America, not just American agriculture, important 
tools like fast track, and reform and complete funding for the IMF.
  This bill we are introducing today goes to the second point. It will 
provide real and meaningful tax relief, tax relief to America's 
agricultural producers. It will provide farmers and ranchers with the 
tools they need in managing the unique financial situations that they 
alone face on their farms and ranches.
  This bill has three provisions, which Senator Grassley has just 
outlined accurately and succinctly: One, the farm and ranch risk 
management accounts; two, the permanent extension of income averaging 
for farmers; and, three, reduction of capital gains rates not just for 
American agriculture but for all of America.
  Mr. President, I have said over the last 2 years I would like to see 
the capital gains tax completely eliminated. But that is a debate for 
another day. However, this bill is a major step in the right direction. 
This bill will mean lower taxes for our farmers and ranchers and many 
Americans. It is the right thing to do.
  I hope a majority of my colleagues will join us in support of this 
bill, an important bill for America, an important bill for our farmers 
and ranchers.
  Mr. THOMAS. Mr. President, I rise for just a moment to thank the 
Senator from Nebraska and the Senator from Iowa for their leadership on 
this agricultural issue that we have before us. I join as an original 
cosponsor to the effort.
  It seems to me that clearly there are two areas that have to be 
pursued. The Senator from Nebraska talked about one, and that is 
seeking to reopen and to strengthen these foreign markets that are 
there that are critical to agricultural production.
  One of the areas, of course, in this matter is unilateral sanctions, 
of which some action has already been taken in the case of Pakistan and 
India. We need to do more of that. The other, of course, is to do 
something domestically. I agree entirely that we should not try to 
return to the managed agriculture that we had before, but to continue 
to move towards market agriculture in which our production is based on 
demand. But it is a difficult transition. And that, coupled with the 
Asian crisis, coupled with the fact that, particularly in the northern 
tier and in the south, we have had drought, we have had floods, we have 
had freezes--we have had a series of difficult things that lend to the 
difficulty of agriculture.
  So I am pleased that the Congress has taken some steps. I think this 
idea of moving forward with the transition payments is a good idea.
  Certainly we can do that for farmers. Then if we can provide a farmer 
savings account which will allow them to have these payments, in 
advance, without being taxed until they are used, is a good one.
  Certainly, as the Senator from Nebraska has indicated, I, too, favor 
the idea of reducing and, indeed, eventually eliminating the capital 
gains taxes. I just want to say I support this very much.
  There perhaps are other activities that we can undertake that will be 
helpful, but we do need to get started. I think this is a good 
beginning. I want to say again that I appreciate the leadership of the 
Senator from Iowa and the Senator from Nebraska.
  I yield the floor.
  Mr. CRAIG addressed the Chair.
  The PRESIDING OFFICER (Mr. Thomas). The Senator from Idaho.
  Mr. CRAIG. Mr. President, I, too, have come to the floor this morning 
to thank you, and certainly the Senator from Iowa, the Senator from 
Wyoming, who has been involved with us, along with our leader, Trent 
Lott, Senator Burns of Montana, Senator Roberts, and myself in looking 
at the current agricultural situation in this country, which is very 
concerning to all of us as commodity prices plummet in the face of what 
could be record harvests and as foreign markets diminish because of the 
Asian crisis and world competition.
  As a result of that, we have come together to look at tools that we 
could bring to American agriculture, production agriculture, farmers 
and ranchers, that would assist them now and into the future to build 
stability there and allow them not only to invest but to save during 
years of profit in a way that is unique for American agricultural.
  In 1986, when this Congress made sweeping tax reform, they eliminated 
income averaging. I was in the House at that time and I opposed that 
legislation. I remember an economist from the University of Virginia 
saying that it would take a decade or more, but there would come a time 
when all of us in Congress would begin to see the problems that a 
denial of income averaging would do to production agriculture; that 
slowly but surely the ability to divert income during cyclical market 
patterns would, in effect, weaken production agriculture at the farm 
and ranch level to a point that they could not sustain themselves 
during

[[Page S9428]]

these cyclical patterns. Bankruptcies would occur; family operations 
that had been in business for two or three generations would begin to 
fail.
  We are at that point. We have been at that point for several years. I 
remember the words of that economist in a hearing before one of the 
House committees echoing, saying, ``Don't do this. This is the wrong 
approach.'' In those days, though, I wasn't, but others in Congress 
were anxious to crank up the money and spend it here in Washington and 
return it in farm products, recycle it, skim off the 15 or 20 percent 
that it oftentimes takes to run a government operation, and then 
somehow appear to be magnanimous by returning it in some form of farm 
program.
  That day is over. We ought to be looking at the tools that we can 
offer production agriculture of the kind that is now before the Senate 
in the legislation that we call the Family Investment and Rural Savings 
Act, not only looking at a permanency income averaging, but looking at 
real estate depreciation, recapturing, and a variety of tools that we 
think will be extremely valuable to production agriculture at a time 
when they are in very real need.
  Also, the transition payments' extension that we have talked about 
moving forward to give some immediate cash to production agriculture, 
that is appropriate under the Freedom to Farm transitions in which we 
are currently involved, becomes increasingly valuable.
  I join today and applaud those who have worked on this issue, to 
bring it immediately, and I hope that we clearly can move it in this 
Congress, to give farmers and ranchers today those tools--be it drought 
or be it a very wet year or be it the collapse of foreign markets. 
Prices in some of our commodity areas today are at a 20-plus year low, 
yet, of course, the tractor and the combine purchased is at an all-time 
high.
  I do applaud those who have worked with us in bringing this 
legislation to the floor, and I thank the chairman for the time.
  I yield the floor.
  The PRESIDING OFFICER. The distinguished former chairman of the House 
Agriculture Committee, the Senator from Kansas.
  Mr. ROBERTS. I thank the Presiding Officer and the distinguished 
Senator from Wyoming.
  Mr. ROBERTS. Mr. President, I am pleased to join my friends and 
colleagues in introducing the Family Investment and Rural Savings Tax 
(FIRST) Act. I would especially like to thank our Leader, Senator Lott, 
for his strong commitment to this effort. His dedication and interest 
in these important issues should underscore how serious we are about 
providing tax relief and improvements for farmers and ranchers before 
the 105th Congress adjourns.
  America's producers are currently experiencing a troubling time. 
Thanks in large part to the Asian economic crisis and the 
Administration's inability to open up new markets for U.S. farm 
products, commodity prices across the board have fallen to dangerously 
low levels. Low prices, combined with isolated weather-related problems 
in some regions of the country on one hand and election-year posturing 
on the other, have prompted some of our Democratic colleagues to call 
for a return to the failed agriculture policies of the past. They 
support loan programs that price the United States out of the world 
market. They support a return to the system whereby the U.S. Government 
is in the grain business. And they support a return to command-and-
control agriculture whereby producers are required to limit their 
production in a foolish and futile attempt to try to bolster commodity 
prices. These policies did not work for 50 years and they will not work 
now.
  The FIRST Act is designed to address the real needs of producers 
today. The FIRST Act provides tax relief for every farmer and rancher 
in the United States. Specifically, income averaging--which was an 
important component of the 1996 tax bill--would become permanent, the 
capital gains tax brackets would be cut by 25 percent across the board 
and a new Farm and Ranch Risk Management Account would be established 
to allow producers to manage the volatile shifts in farm income from 
one year to another.
  I specifically want to address the capital gains tax cut and the 
FARRM accounts. The capital gains tax represents one of the most 
burdensome, expensive provisions of the U.S. Tax Code for America's 
farmers and ranchers and for America's families. Production agriculture 
is a capital-intensive business. Without equipment and inputs--
expensive equipment and inputs--you simply can't survive in the 
incredibly competitive agriculture world. Therefore, because of the 
tremendous costs of depreciating that expensive equipment, the capital 
gains tax hits farmers and ranchers especially hard. In addition, today 
the Congress encourages middle-income families to save for their future 
in part to take pressure off of the Social Security system. However, we 
continue to allow capital gains taxes to hit America's families twice. 
Investors' money is taxed both as income when they get their paycheck 
and as capital gain when they make a smart investment. That's a strange 
and counterproductive way to encourage personal responsibility and 
savings for the future. As a result, I am very grateful to our Majority 
Leader for including the ``Crown Jewel'' of his tax and Speaker 
Gingrich's tax bill in the FIRST Act today and I look forward to 
working with the Leader to pass meaningful tax relief before the Senate 
adjourns.
  I also want to address the creation of the new FARRM Accounts. While 
Chairman of the House Agriculture Committee, I was charged with 
producing the 1996 farm bill. As we were producing that legislation, I 
wanted very badly to create what I called a ``farmer IRA.'' Basically, 
the farmer IRA would be a rainy day account whereby if a farmer or 
rancher had a good year, he could invest part of his profits in a tax-
deferred account. Then, when a bad year hits, he could withdraw that 
money to offset the downturn. That's exactly what the FARRM Accounts 
would do. Producers will be able to invest up to 20 percent of their 
Schedule F (farm) income in any interest-bearing account. They may 
withdraw that money at any time during a five-year period. If passed, 
FARRM Accounts will correct the huge problem in our existing Tax Code 
that encourages producers to buy a new tractor or combine at the end of 
the year in order to reduce taxable income instead of saving for the 
future. Again, I wanted to do this during the farm bill but we ran out 
of time. I'm very pleased that the Congress may finally get the 
opportunity to provide the flexibility and tax relief producers so 
desperately need.
  I want to thank my colleagues again for their leadership in this area 
and I look forward to working with them and the rest of the Senate to 
pass this important legislation.
  Mr. GRASSLEY. Mr. President, I ask unanimous consent that a copy of 
the bill be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2371

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

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Family 
     Investment and Rural Savings Tax Act''.
       (b) Table of Contents.--

Sec. 1. Short title; table of contents.

        TITLE I--REDUCTION IN INDIVIDUAL CAPITAL GAINS TAX RATES

Sec. 101. Reduction in individual capital gains tax rates.

                  TITLE II--TAX INCENTIVES FOR FARMERS

Sec. 201. Farm and ranch risk management accounts.
Sec. 202. Permanent extension of income averaging for farmers.
        TITLE I--REDUCTION IN INDIVIDUAL CAPITAL GAINS TAX RATES

     SEC. 101. REDUCTION IN INDIVIDUAL CAPITAL GAINS TAX RATES.

       (a) In General.--Subsection (h) of section 1 of the 
     Internal Revenue Code of 1986 is amended to read as follows:
       ``(h) Maximum Capital Gains Rate.--
       ``(1) In general.--If a taxpayer has a net capital gain for 
     any taxable year, the tax imposed by this section for such 
     taxable year shall not exceed the sum of--
       ``(A) a tax computed at the rates and in the same manner as 
     if this subsection had not been enacted on taxable income 
     reduced by the net capital gain,
       ``(B) 7.5 percent of so much of the net capital gain (or, 
     if less, taxable income) as does not exceed the excess (if 
     any) of--
       ``(i) the amount of taxable income which would (without 
     regard to this paragraph) be taxed at a rate below 28 
     percent, over

[[Page S9429]]

       ``(ii) the taxable income reduced by the net capital gain, 
     and
       ``(C) 15 percent of the amount of taxable income in excess 
     of the sum of the amounts on which tax is determined under 
     subparagraphs (A) and (B).
       ``(2) Net capital gain taken into account as investment 
     income.--For purposes of this subsection, the net capital 
     gain for any taxable year shall be reduced (but not below 
     zero) by the amount which the taxpayer takes into account as 
     investment income under section 163(d)(4)(B)(iii).''
       (b) Alternative Minimum Tax.--Paragraph (3) of section 
     55(b) of such Code is amended to read as follows:
       ``(3) Maximum rate of tax on net capital gain of 
     noncorporate taxpayers.--The amount determined under the 
     first sentence of paragraph (1)(A)(i) shall not exceed the 
     sum of--
       ``(A) the amount determined under such first sentence 
     computed at the rates and in the same manner as if this 
     paragraph had not been enacted on the taxable excess reduced 
     by the net capital gain,
       ``(B) 7.5 percent of so much of the net capital gain (or, 
     if less, taxable excess) as does not exceed the amount on 
     which a tax is determined under section 1(h)(1)(B), and
       ``(C) 15 percent of the amount of taxable excess in excess 
     of the sum of the amounts on which tax is determined under 
     subparagraphs (A) and (B).''
       (c) Conforming Amendments.--
       (1) Paragraph (1) of section 1445(e) of such Code is 
     amended by striking ``20 percent'' and inserting ``15 
     percent''.
       (2) The second sentence of section 7518(g)(6)(A) of such 
     Code, and the second sentence of section 607(h)(6)(A) of the 
     Merchant Marine Act, 1936, are each amended by striking ``20 
     percent'' and inserting ``15 percent''.
       (3) Section 311 of the Taxpayer Relief Act of 1997 is 
     amended by striking subsection (e).
       (4) Paragraph (7) of section 57(a) of such Code (as amended 
     by the Internal Revenue Service Restructuring and Reform Act 
     of 1998) is amended by striking the last sentence.
       (5) Paragraphs (11) and (12) of section 1223, and section 
     1235(a), of such Code (as amended by the Internal Revenue 
     Service Restructuring and Reform Act of 1998) are each 
     amended by striking ``18 months'' each place it appears and 
     inserting ``1 year''.
       (d) Transitional Rules For Taxable Years Which Include June 
     24, 1998.--
       (1) In general.--Subsection (h) of section 1 of such Code 
     (as amended by the Internal Revenue Service Restructuring and 
     Reform Act of 1998) is amended by adding at the end the 
     following new paragraph:
       ``(14) Special Rules for taxable years which include june 
     24, 1998.--For purposes of applying this subsection in the 
     case of a taxable year which includes June 24, 1998--
       ``(A) Gains or losses properly taken into account for the 
     period on or after such date shall be disregarded in applying 
     paragraph (5)(A)(i), subclauses (I) and (II) of paragraph 
     (5)(A)(ii), paragraph (5)(B), paragraph (6), and paragraph 
     (7)(A).
       ``(B) The amount determined under subparagraph (B) of 
     paragraph (1) shall be the sum of--
       ``(i) 7.5 percent of the amount which would be determined 
     under such subparagraph if the amount of gain taken into 
     account under such subparagraph did not exceed the net 
     capital gain taking into account only gain or loss properly 
     taken into account for the portion of the taxable year on or 
     after such date, plus
       ``(ii) 10 percent of the excess of the amount determined 
     under such subparagraph (determined without regard to this 
     paragraph) over the amount determined under clause (i).
       ``(C) The amount determined under subparagraph (C) of 
     paragraph (1) shall be the sum of--
       ``(i) 15 percent of the amount which would be determined 
     under such subparagraph if the adjusted net capital gain did 
     not exceed the net capital gain taking into account only gain 
     or loss properly taken into account for the portion of the 
     taxable year on or after such date, plus
       ``(ii) 20 percent of the excess of the amount determined 
     under such subparagraph (determined without regard to this 
     paragraph) over the amount determined under clause (i).
       ``(D) Rules similar to the rules of paragraph (13)(C) shall 
     apply.''
       (2) Alternative minimum tax.--Paragraph (3) of section 
     55(b) of such Code (as amended by the Internal Revenue 
     Service Restructuring and Reform Act of 1998) is amended by 
     adding at the end the following new sentence: ``For purposes 
     of applying this paragraph for a taxable year which includes 
     June 24, 1998, rules similar to the rules of section 1(h)(14) 
     shall apply.''
       (e) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to taxable years beginning on or after June 24, 1998.
       (2) Transitional rules for taxable years which include june 
     24, 1998.--The amendments made by subsection (d) shall apply 
     to taxable years beginning before such date and ending on or 
     after June 24, 1998.
       (3) Withholding.--The amendment made by subsection (c)(1) 
     shall apply only to amounts paid after the date of the 
     enactment of this Act.
       (4) Certain conforming amendments.--The amendments made by 
     subsection (c)(5) shall take effect on June 24, 1998.
                  TITLE II--TAX INCENTIVES FOR FARMERS

     SEC. 201. FARM AND RANCH RISK MANAGEMENT ACCOUNTS.

       (a) In General.--Subpart C of part II of subchapter E of 
     chapter 1 of the Internal Revenue Code of 1986 (relating to 
     taxable year for which deductions taken) is amended by 
     inserting after section 468B the following new section:

     ``SEC. 468C. FARM AND RANCH RISK MANAGEMENT ACCOUNTS.

       ``(a) Deduction Allowed.--In the case of an individual 
     engaged in an eligible farming business, there shall be 
     allowed as a deduction for any taxable year the amount paid 
     in cash by the taxpayer during the taxable year to a Farm and 
     Ranch Risk Management Account (hereinafter referred to as the 
     `FARRM Account').
       ``(b) Limitation.--The amount which a taxpayer may pay into 
     the FARRM Account for any taxable year shall not exceed 20 
     percent of so much of the taxable income of the taxpayer 
     (determined without regard to this section) which is 
     attributable (determined in the manner applicable under 
     section 1301) to any eligible farming business.
       ``(c) Eligible Farming Business.--For purposes of this 
     section, the term `eligible farming business' means any 
     farming business (as defined in section 263A(e)(4)) which is 
     not a passive activity (within the meaning of section 469(c)) 
     of the taxpayer.
       ``(d) FARRM Account.--For purposes of this section--
       ``(1) In general.--The term `FARRM Account' means a trust 
     created or organized in the United States for the exclusive 
     benefit of the taxpayer, but only if the written governing 
     instrument creating the trust meets the following 
     requirements:
       ``(A) No contribution will be accepted for any taxable year 
     in excess of the amount allowed as a deduction under 
     subsection (a) for such year.
       ``(B) The trustee is a bank (as defined in section 408(n)) 
     or another person who demonstrates to the satisfaction of the 
     Secretary that the manner in which such person will 
     administer the trust will be consistent with the requirements 
     of this section.
       ``(C) The assets of the trust consist entirely of cash or 
     of obligations which have adequate stated interest (as 
     defined in section 1274(c)(2)) and which pay such interest 
     not less often than annually.
       ``(D) All income of the trust is distributed currently to 
     the grantor.
       ``(E) The assets of the trust will not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(2) Account taxed as grantor trust.--The grantor of a 
     FARRM Account shall be treated for purposes of this title as 
     the owner of such Account and shall be subject to tax thereon 
     in accordance with subpart E of part I of subchapter J of 
     this chapter (relating to grantors and others treated as 
     substantial owners).
       ``(e) Inclusion of Amounts Distributed.--
       ``(1) In general.--Except as provided in paragraph (2), 
     there shall be includible in the gross income of the taxpayer 
     for any taxable year--
       ``(A) any amount distributed from a FARRM Account of the 
     taxpayer during such taxable year, and
       ``(B) any deemed distribution under--
       ``(i) subsection (f)(1) (relating to deposits not 
     distributed within 5 years),
       ``(ii) subsection (f)(2) (relating to cessation in eligible 
     farming business), and
       ``(iii) subparagraph (A) or (B) of subsection (f)(3) 
     (relating to prohibited transactions and pledging account as 
     security).
       ``(2) Exceptions.--Paragraph (1)(A) shall not apply to--
       ``(A) any distribution to the extent attributable to income 
     of the Account, and
       ``(B) the distribution of any contribution paid during a 
     taxable year to a FARRM Account to the extent that such 
     contribution exceeds the limitation applicable under 
     subsection (b) if requirements similar to the requirements of 
     section 408(d)(4) are met.

     For purposes of subparagraph (A), distributions shall be 
     treated as first attributable to income and then to other 
     amounts.
       ``(3) Exclusion from self-employment tax.--Amounts included 
     in gross income under this subsection shall not be included 
     in determining net earnings from self-employment under 
     section 1402.
       ``(f) Special Rules.--
       ``(1) Tax on deposits in account which are not distributed 
     within 5 years.--
       ``(A) In general.--If, at the close of any taxable year, 
     there is a nonqualified balance in any FARRM Account--
       ``(i) there shall be deemed distributed from such Account 
     during such taxable year an amount equal to such balance, and
       ``(ii) the taxpayer's tax imposed by this chapter for such 
     taxable year shall be increased by 10 percent of such deemed 
     distribution.

     The preceding sentence shall not apply if an amount equal to 
     such nonqualified balance is distributed from such Account to 
     the taxpayer before the due date (including extensions) for 
     filing the return of tax imposed by this chapter for such 
     year (or, if earlier, the date the taxpayer files such return 
     for such year).
       ``(B) Nonqualified balance.--For purposes of subparagraph 
     (A), the term `nonqualified balance' means any balance in the 
     Account on the last day of the taxable year which is 
     attributable to amounts deposited in such

[[Page S9430]]

     Account before the 4th preceding taxable year.
       ``(C) Ordering rule.--For purposes of this paragraph, 
     distributions from a FARRM Account shall be treated as made 
     from deposits in the order in which such deposits were made, 
     beginning with the earliest deposits. For purposes of the 
     preceding sentence, income of such an Account shall be 
     treated as a deposit made on the date such income is received 
     by the Account.
       ``(2) Cessation in eligible farming business.--At the close 
     of the first disqualification period after a period for which 
     the taxpayer was engaged in an eligible farming business, 
     there shall be deemed distributed from the FARRM Account (if 
     any) of the taxpayer an amount equal to the balance in such 
     Account at the close of such disqualification period. For 
     purposes of the preceding sentence, the term 
     `disqualification period' means any period of 2 consecutive 
     taxable years for which the taxpayer is not engaged in an 
     eligible farming business.
       ``(3) Certain rules to apply.--Rules similar to the 
     following rules shall apply for purposes of this section:
       ``(A) Section 408(e)(2) (relating to loss of exemption of 
     account where individual engages in prohibited transaction).
       ``(B) Section 408(e)(4) (relating to effect of pledging 
     account as security).
       ``(C) Section 408(g) (relating to community property laws).
       ``(D) Section 408(h) (relating to custodial accounts).
       ``(4) Time when payments deemed made.--For purposes of this 
     section, a taxpayer shall be deemed to have made a payment to 
     a FARRM Account on the last day of a taxable year if such 
     payment is made on account of such taxable year and is made 
     within 3\1/2\ months after the close of such taxable year.
       ``(5) Individual.--For purposes of this section, the term 
     `individual' shall not include an estate or trust.
       ``(g) Reports.--The trustee of a FARRM Account shall make 
     such reports regarding such Account to the Secretary and to 
     the person for whose benefit the Account is maintained with 
     respect to contributions, distributions, and such other 
     matters as the Secretary may require under regulations. The 
     reports required by this subsection shall be filed at such 
     time and in such manner and furnished to such persons at such 
     time and in such manner as may be required by those 
     regulations.''
       (b) Deduction Allowed in Computing Adjusted Gross Income.--
     Subsection (a) of section 62 of such Code (defining adjusted 
     gross income) is amended by inserting after paragraph (17) 
     the following new paragraph:
       ``(18) Contributions to farm and ranch risk management 
     accounts.--The deduction allowed by section 468C(a).''
       (c) Tax on Excess Contributions.--
       (1) Subsection (a) of section 4973 of such Code (relating 
     to tax on certain excess contributions) is amended by 
     striking ``or'' at the end of paragraph (3), by redesignating 
     paragraph (4) as paragraph (5), and by inserting after 
     paragraph (3) the following new paragraph:
       ``(4) a FARRM Account (within the meaning of section 
     468C(d)), or''.
       (2) Section 4973 of such Code is amended by adding at the 
     end the following new subsection:
       ``(g) Excess Contributions to FARRM Accounts.--For purposes 
     of this section, in the case of a FARRM Account (within the 
     meaning of section 468C(d)), the term `excess contributions' 
     means the amount by which the amount contributed for the 
     taxable year to the Account exceeds the amount which may be 
     contributed to the Account under section 468C(b) for such 
     taxable year. For purposes of this subsection, any 
     contribution which is distributed out of the FARRM Account in 
     a distribution to which section 468C(e)(2)(B) applies shall 
     be treated as an amount not contributed.''
       (3) The section heading for section 4973 of such Code is 
     amended to read as follows:

     ``SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, 
                   ANNUITIES, ETC.''

       (4) The table of sections for chapter 43 of such Code is 
     amended by striking the item relating to section 4973 and 
     inserting the following new item:

``Sec. 4973. Excess contributions to certain accounts, annuities, 
              etc.''
       (d) Tax on Prohibited Transactions.--
       (1) Subsection (c) of section 4975 of such Code (relating 
     to prohibited transactions) is amended by adding at the end 
     the following new paragraph:
       ``(6) Special rule for farrm accounts.--A person for whose 
     benefit a FARRM Account (within the meaning of section 
     468C(d)) is established shall be exempt from the tax imposed 
     by this section with respect to any transaction concerning 
     such Account (which would otherwise be taxable under this 
     section) if, with respect to such transaction, the account 
     ceases to be a FARRM Account by reason of the application of 
     section 468C(f)(3)(A) to such Account.''
       (2) Paragraph (1) of section 4975(e) of such Code is 
     amended by redesignating subparagraphs (E) and (F) as 
     subparagraphs (F) and (G), respectively, and by inserting 
     after subparagraph (D) the following new subparagraph:
       ``(E) a FARRM Account described in section 468C(d),''.
       (e) Failure To Provide Reports on FARRM Accounts.--
     Paragraph (2) of section 6693(a) of such Code (relating to 
     failure to provide reports on certain tax-favored accounts or 
     annuities) is amended by redesignating subparagraphs (C) and 
     (D) as subparagraphs (D) and (E), respectively, and by 
     inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) section 468C(g) (relating to FARRM Accounts).''
       (f) Clerical Amendment.--The table of sections for subpart 
     C of part II of subchapter E of chapter 1 of such Code is 
     amended by inserting after the item relating to section 468B 
     the following new item:

``Sec. 468C. Farm and Ranch Risk Management Accounts.''
       (g) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 202. PERMANENT EXTENSION OF INCOME AVERAGING FOR 
                   FARMERS.

       Section 933(c) of the Taxpayer Relief Act of 1997 is 
     amended by striking ``, and before January 1, 2001''.

  Mr. BURNS. Mr. President, I rise today along with Senators Lott, 
Craig, Grassley, Hagel, Roberts, Sessions, Shelby, and Thomas to 
introduce the Family Investment and Rural Savings Tax (FIRST) Act of 
1998.
  Mr. President, today's family farms are in jeopardy. This bill will 
help all Americans as well as our nation's farming families.
  The bill consists of two titles--the first will reduce the top 
individual capital gains tax rate from 20% to 15% and reduces the 
capital gains tax rate for individuals with lower incomes from 10% to 
7.5%.
  Title two of the bill consists of two separate measures which work 
hand in hand: First, the bill will allow farmers to open their own tax 
deferred savings accounts. These accounts would provide farmers and 
ranchers an opportunity to set aside income in high-income years and 
withdraw the money in low-income years. The money is taxed only when it 
is withdrawn and can be deferred for up to five years.
  In 1995, 2.2 million taxpayers, qualified as farmers under IRS 
definitions, would have been eligible to use these accounts. Only 
725,000 of those filed a net income while 1.5 million filed a net loss.
  Now that could mean one of two things: (1) fewer and fewer farmers 
are able to stay in the black or; (2) more and more farmers are going 
out of business. We cannot continue to treat our farmers and ranchers 
as second class citizens in our tax code.
  The second part of this title contains language that I introduced 
earlier this year. This language would allow farmers to use average 
their income over three years and make that tool permanent in the tax 
code. This bill will give American farmers a fair tool to offset the 
unpredictable nature of their business.
  The question is who will benefit most from income averaging and farm 
savings accounts. This is the best part--this legislation will allow 
farmers to delay payment of their taxes by reducing their overall 
income and spreading it out over a number of years.
  However, based on the tax rate schedule, this bill would favor 
farmers in the lower tax bracket. If a farmer could use these tools to 
reduce their tax burden from one year to the next, it is very 
conceivable that taxpayer would pay only 15% on his income compared to 
28%. That is a significant savings.
  This bill leaves the business decisions in the hands of farmers, not 
the government. Farmers can decide whether to defer income and when to 
withdraw funds to supplement operations.
  Farmers and ranchers labor seven days a week, from dawn until dusk, 
to provide our nation with the world's best produce, dairy products and 
meats. Farming is a difficult business requiring calloused hands and 
rarely a profitable financial reward. This profession is not getting 
any easier. Today, we are seeing more and more of our family farms 
swallowed up by the corporate farms.
  Farming has always been a family affair. Rural communities rely on 
the family farm for their own economic sustenance. Although family 
farms are traditionally passed on from father to son--it is becoming 
more and more difficult as the economics of farming are becoming more 
and more complicated. Further tightening of the belt on these folks can 
only mean the eventual loss of the family farm.
  Montana's farmers take pride in their harvests. You could call  
today's farmer the ultimate environmentalist. They know how to take 
care of the land and ensure that future harvests

[[Page S9431]]

will be plentiful. As land managers, farmers understand the importance 
of proper land stewardship.

  Those colleagues of mine who grew up on a farm or ranch would 
certainly understand the frustration of this business. Farmers and 
ranchers don't receive an annual salary. They cannot rely on income 
that may not be there at the end of the year and they certainly cannot 
count on a monthly paycheck. This is a crucial time for family farms 
and tax relief can mean the difference between keeping the family farm 
for future generations or losing it.
  With the recent passage of the Farm Bill, farmers are more than ever 
impacted by market forces and in the farming business, those market 
forces can be very unpredictable.
  Market forces in farming are very unique--drought, flooding, 
infestation and disease all play a vital role in a farmer's bottom 
line. And it's not often when the elements of mother nature allow for a 
profitable harvest.
  At best, most farmers are lucky to break even more than two years in 
a row. One year may be a windfall, while the next may mean bankruptcy. 
Farmers and ranchers are forced to make large capital investments in 
machinery, livestock and improvements to their properties.
  Agricultural markets are rarely predictable. Farmers, more than any 
other sector of our economy are likely to experience substantial 
fluctuations in income.
  We also need to address the issue of the estate tax. This is a death 
blow to a family farm that has been passed down through the 
generations. A family farm in Montana is not really referred to as an 
estate. We call it home, we call it work, and we call it our lives, but 
we don't call it an estate.
  I urge my colleagues to support this bill and urge you also to 
support future bills such as estate tax relief legislation to encourage 
America's farming family of a safe and secure future.
  I have letters in support of this bill signed by numerous agriculture 
groups as well as a letter from the National Federation of Independent 
Businesses (NFIB). I ask unanimous consent to have both of these 
letters printed in the Record.
  There being no objection, the letters were ordered to be printed in 
the Record, as follows:

                                                    July 23, 1998.
     Hon. Conrad Burns,
     U.S. Senate, Dirksen Senate Office Building, Washington, DC.
       Dear Senator Burns: Farming and ranching is a high risk 
     endeavor. Problems due to this year's adverse weather and low 
     prices provide a vivid illustration of the difficulties that 
     can be caused by nature and markets.
       The tax code can and should help producers deal with 
     financial uncertainties unique to agriculture. Agricultural 
     organizations have recommended estate tax relief, permanent 
     income averaging for farmers, the full deductibility of 
     health insurance premiums for the self-employed and the 
     creation of farm and ranch risk management accounts (FARRM).
       We applaud you for introducing legislation that encompasses 
     the creation of FARRM accounts and makes income averaging a 
     permanent part of the tax code. FARRM accounts will help 
     producers by providing incentives to save during good times 
     for times that are not. Income averaging will help producers 
     by allowing them to manage their volatile incomes for 
     financial planning.
       A reduction in capital gains tax rates is also part of your 
     legislation. Because farming and ranching is a capital 
     intensive business, capital gains taxes have a huge impact on 
     agriculture. Lower capital gains tax rates will help 
     producers by making it easier for them to invest in their 
     businesses and make the best use of their capital assets.
       We support your legislation and pledge our help to secure 
     its passage into law.
       Agricultural Retailers Association.
       Alabama Farmers Federation .
       American Farm Bureau Federation.
       American Horse Council.
       American Nursery and Landscape Association.
       American Sheep Industry Association.
       American Soybean Association.
       American Sugarbeet Growers Association.
       Communicating for Agriculture.
       Farm Credit Council.
       The Fertilizer Institute.
       National Association of State Departments of Agriculture.
       National Association of Wheat Growers.
       National Barley Growers Association.
       National Cattlemen's Beef Association.
       National Corn Growers Association.
       National Cotton Council of America.
       National Council of Farmer Cooperatives.
       National Grain Sorghum Producers Association.
       National Grange.
       National Pork Producers Council.
       National Sunflower Association.
       North Carolina Peanut Growers Association.
       United Fresh Fruit and Vegetable Association.
       USA Rice Federation.
                                  ____

         National Federation of Independent Business--The Voice of 
           Small Business,
                                                    July 29, 1998.
     Hon. Conrad Burns,
     U.S. Senate, Washington, DC.
       Dear Senator Burns: I am writing to commend you for 
     introducing legislation, ``The Family Investment and Rural 
     Savings Tax (FIRST) Act of 1998, that will provide needed tax 
     relief to small businesses and farms.
       Among other provisions, this legislation would reduce and 
     simplify the current capital gains tax for the many small 
     business owners who file as individuals. Small businesses 
     face unique difficulties trying to obtain capital, including 
     lack of access to the securities market and difficulty in 
     getting bank loans. They often must get their capital from 
     the business itself, family members or associates. Small 
     businesses, therefore, need capital gains relief that will 
     promote investment by both investors and business owners 
     themselves.
       The FIRST Act also contains needed relief to help farmers 
     and ranchers by allowing eligible ones to make contributions 
     to tax deferred accounts and by restoring income averaging. 
     We very much support extending income averaging to small 
     businesses, as well, and hope that Congress will consider 
     this soon.
       We applaud your efforts to reduce the tax burden on small 
     businesses, farmers and ranchers, and look forward to working 
     with you in the future.
           Sincerely,

                                                   Dan Danner,

                                                   Vice President,
                                   Federal Governmental Relations.
                                 ______