[Congressional Record Volume 145, Number 39 (Thursday, March 11, 1999)]
[Senate]
[Pages S2601-S2603]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. SHELBY (for himself, Mr. Bond, Mr. Coverdell, Mr. Hagel,
Mr. Kyl, Mr. Burns, Mr. Gramm, Mr. Ashcroft, Mr. Thomas, Mr.
Abraham, Mr. Grassley, Mr. Helms, Mr. Inhofe, Mr. Sessions, Mr.
Grams, Mr. Cochran, Mr. Hutchinson and Ms. Snowe):
S. 602. A bill to amend chapter 8 of title 5, United States Code, to
provide for congressional review of any rule promulgated by the
Internal Revenue Service that increases Federal Revenue, and for other
purposes; to the Committee on Government Affairs.
the stealth tax prevention act
Mr. SHELBY. Mr. President, I rise today with my colleague Senator
Bond, to introduce the Stealth Tax Prevention Act. Among the many
powers given to Congress by the Constitution of the United States, the
responsibility of taxation is perhaps the most important. The Founding
Fathers rationale behind bestowing this power to Congress is that
because, as elected representative, Congress remains accountable to the
voters when they levy and collect taxes. Politicians are rightly held
responsible to the public for producing fair and prudent tax
legislation.
Three years ago, Mr. President, Congress passed the Congressional
Review Act, which provides that when a major agency rule takes effect,
Congress has 60 days to review it. During this time
[[Page S2602]]
period, Congress has the option to pass a disapproval resolution. If no
such resolution is passed, the rule then goes into effect.
As you know, Mr. President, the Internal Revenue Service maintains an
enormous amount of power over the lives and the livelihoods of the
American taxpayers through their authority to interpret the Tax Code.
The Stealth Tax Prevention Act, that Senator Bond and I are introducing
along with Mr. Coverdell, Mr. Hagel, Mr. Kyl, Mr. Burns, Mr. Gramm, Mr.
Ashcroft, Mr. Thomas, Mr. Abraham, Mr. Grassley, Mr. Helms, Mr. Inhofe,
Mr. Sessions, Mr. Grams, Mr. Cochran, Mr. Hutchinson, and Ms. Snowe,
will expand the definition of a major rule to include, Mr. President,
any IRS regulation which increases Federal revenue. Why? Because we
need to return the authority of taxation to the United States Congress.
For example, if the Office of Management and Budget finds that the
implementation and enforcement of a rule would result in an increase of
Federal revenues over current practices or revenues anticipated from
the rule on the date of the enactment of the statute, the Stealth Tax
Prevention Act would allow Congress to review the regulations and take
appropriate measures to avoid raising taxes on hard working Americans,
in most cases, small businesses.
The discretionary authority of the Internal Revenue Service exposes
small businesses, farmers, and others to the sometimes arbitrary
actions of bureaucrats, thus creating an uncertain and, under certain
cases, hostile environment in which to conduct day-to-day activities.
Most of these people do not have lobbyists that work for them other
than their elected Representatives. The Stealth Tax Prevention Act will
be particularly helpful in lowering the tax burden on small business
which suffers disproportionately, Mr. President, from IRS regulations.
This burden discourages the startup of new firms and ultimately the
creation of new jobs in the economy, which has really made America
great today.
Americans are now paying a higher share of their income to the
Federal government than at any time since the end of World War II.
They, Mr. President, as you well know, pay State income taxes. They pay
property taxes. On the way to work in the morning they pay a gasoline
tax when they fill up their car, and a sales tax when they buy a cup of
coffee.
Allowing bureaucrats to increase taxes even further, at their own
discretion through interpretation of the Tax Code is unconscionable.
The Stealth Tax Prevention Act will leave tax policy where it belongs,
to elected Members of the Congress, not unelected and unaccountable IRS
bureaucrats.
Mr. BOND. Mr. President, today I join my distinguished colleague from
Alabama, Senator Shelby, in reintroducing legislation, which we proudly
offered in the 105th Congress and will work to enact during the 106th
Congress. Our goal is to ensure that the Treasury Department's Internal
Revenue Service does not usurp the power to tax--a power solely vested
in Congress by the U.S. Constitution. ``The Stealth Tax Prevention
Act'' will ensure that the duly elected representatives of the people,
who are accountable to the electorate for our actions, will have
discretion to exercise the power to tax. This legislation is intended
to curb the ability of the Treasury Department to bypass Congress by
proposing a tax increase without the authorization or consent of
Congress.
The Stealth Tax Prevention Act builds on legislation passed
unanimously by the Senate in the 104th Congress. As Chairman of the
Committee on Small Business, I authored the Small Business Regulatory
Enforcement Fairness Act--better known as the Red Tape Reduction Act--
to ensure that small businesses are treated fairly in agency rulemaking
and enforcement activities. Subtitle E of the Red Tape Reduction Act
provides that a final rule issued by a Federal agency and deemed a
``major rule'' by the Office of Information and Regulatory Affairs of
the Office of Management and Budget cannot go into effect for at least
sixty days. This delay is to provide Congress with a window during
which we can review the rule and its impact, allowing time for Congress
to consider whether a resolution of disapproval should be enacted to
strike down the regulation. To become effective, the resolution must
pass both the House and Senate and be signed into law by the President
or enacted as the result of a veto override.
Later this month, I will commemorate the third anniversary of the Red
Tape Reduction Act's enactment by highlighting the progress made to
date and the obstacles small businesses continue to face primarily due
to agency noncompliance. Because of the IRS' significant impact on the
activities of small businesses, the Service's implementation of the Red
Tape Reduction Act and the Regulatory Flexibility Act is of utmost
importance to the Committee on Small Business.
The bill Senator Shelby and I introduce today amends this law to
provide that any rule issued by the Treasury Department's Internal
Revenue Service that will result in a tax increase--any increase--will
be deemed a major rule by OIRA and, consequently, not go into effect
for at least 60 days. This procedural safeguard will ensure that the
Department of the Treasury and its Internal Revenue Service cannot make
an end-run around Congress, as it attempted with the ``stealth tax'' it
proposed on January 13, 1997.
In that case, the IRS issued a proposal that is tantamount to a tax
increase on businesses structured as limited liability companies. The
IRS proposed to disqualify a taxpayer from being considered as a
limited partner if he or she ``participates in the partnership's trade
or business for more than 500 hours during a taxable year'' or is
involved in a ``service'' partnership, such as lawyers, accountants,
engineers, architects, and health-care providers.
The IRS alleges that its proposal merely interprets section
1402(a)(13) of the Internal Revenue Code, providing clarification, when
in actuality it is a tax increase regulatory fiat. Under the IRS
proposal, disqualification as a limited partner will result in a tax
increase on income from both capital investments as well as earnings of
the partnership. The effect will be to add the self-employment tax
(12.4% for social security and 2.9% for Medicare) to income from
investments as well as earnings for limited partners who under current
rules can exclude such income from the self employment tax.
Under the bill introduced today, this tax increase on limited
partners, if later issued as a final rule, could not go into effect for
at least 60 days following its publication in the Federal Register.
This window, which coincides with issuance of a report by the
Comptroller General, would allow Congress the opportunity to review the
rule and vote on a resolution to disapprove the tax increase before it
is applied to a single taxpayer.
The Stealth Tax Prevention Act strengthens the Red Tape Reduction Act
and the vital procedural safeguards it provides to ensure that small
businesses are not burdened unnecessarily by new Federal regulations.
Congress enacted the 1996 provisions to strengthen the effectiveness of
the Regulatory Flexibility Act, a law which had been ignored too often
by government agencies, especially the Internal Revenue Service. Three
of the top recommendations of the 1995 White House Conference on Small
Business sought reforms to the way government regulations are developed
and enforced, and the Red Tape Reduction Act passed the Senate without
a single dissenting vote on its way to being signed into law on March
29, 1996. Despite the inclusion of language in the 1996 amendments that
expressly addresses coverage of IRS interpretative rules, the IRS
continues to bypass compliance with the Regulatory Flexibility Act.
As 18 of my Senate colleagues and I advised Secretary Rubin in an
April 9, 1997, letter, the proposed IRS regulation on limited-partner
taxation is precisely the type or rule for which a regulatory
flexibility analysis should be done. Although, on its face, the
rulemaking seeks merely to ``define a limited partner'' or to
``eliminate uncertainty'' in determining net earnings from self-
employment, the real effect of the rule would be to raise taxes by
executive fiat and expand substantially the spirit and letter of the
underlying statute. The rule also seeks to impose on small businesses a
burdensome new recordkeeping and collection of information requirement
that would affect
[[Page S2603]]
millions of limited partners and members of limited liability
companies. The IRS proposed this ``stealth'' tax increase with the
knowledge that Congress declined to adopt a similar tax increase in the
Health Security Act proposed in 1994--a provision that the
Congressional Joint Committee on Taxation estimated in 1994 would have
resulted in a tax increase of approximately $500 million per year.
The Stealth Tax Prevention Act would remove any incentive for the
Treasury Department to underestimate the cost imposed by an IRS
proposed or final rule in an effort to skirt the Administration's
regulatory review process or its obligations under the Regulatory
Flexibility Act. By amending the definition of ``major rule'' under the
Congressional Review Act, which is Subtitle E of the Red Tape Reduction
Act, we ensure that an IRS rule that imposes a tax increase will be a
major rule, whether or not it has an estimated annual effect on the
economy of $100,000,000. Our amendment does not change the trigger for
a regulatory flexibility analysis, which still will be required if a
proposed rule would have ``a significant economic impact on a
substantial number of small entities.'' We believe the heightened
scrutiny of IRS regulations called for by this legislation will provide
an additional incentive for the Treasury Department's Internal Revenue
Service to meet all of its procedural obligations under the Reg Flex
Act and the Red Tape Reduction Act.
I urge my colleagues to join us in supporting this important
legislation to ensure that the IRS neither usurps the proper role of
Congress--nor skirts its obligations to identify the impact of its
proposed and final rules. When the Department of the Treasury issues a
final IRS rule that increases taxes, Congress should have the ability
to exercise its discretion to enact a resolution of disapproval before
the rule is applicable to a single taxpayer. The Stealth Tax Prevention
Act Senator Shelby and I introduce today provides that opportunity.
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