[Congressional Record Volume 149, Number 138 (Thursday, October 2, 2003)]
[Senate]
[Pages S12378-S12380]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SMITH (for himself, Mr. Graham of Florida, Mrs. Boxer, Mr. 
        Chafee, Mr. Corzine, and Mr. Wyden):
  S. 1702. A bill to amend the Internal Revenue Code of 1986 to extend 
the exclusion from gross income for employer-provided health coverage 
to designated plan beneficiaries of employees, and for other purposes; 
to the Committee on Finance.
  Mr. SMITH. Mr. President, I rise today to speak about the need for 
consistent tax treatment of employer-provided health insurance for 
domestic partners. Today, Senator Bob Graham and I are introducing the 
Domestic Partner Health Benefits Equity Act, a bill that seeks to 
simplify the tax code and address the growing trend among both public 
and private employers who have decided to provide domestic partner 
benefits to their employees.
  More than one-third of Fortune 500 companies, as well as numerous 
State and local governments, are providing health insurance benefits to 
the domestic partners of their employees. This is a clear trend in the 
American workplace. However, Federal tax law has not kept pace with 
corporate changes in this area and employers who offer such benefits 
and the employees who receive them are taxed inequitably. Our 
legislation would provide consistent tax treatment for employer-
provided health insurance for domestic partners.
  Currently, the tax code provides that the employer's contribution of 
the premium for health insurance for an employee's spouse is excluded 
from the employee's taxable income. An employer's contribution for the 
domestic partner's coverage, however, is included in an employee's 
taxable income as a fringe benefit. In addition, the employer's payroll 
tax liability is increased. This forces businesses to create a two-
track payroll system for benefits provided to spouses and those 
provided to domestic partners, an administrative burden that this 
legislation would eliminate.
  I believe that by passing this legislation and changing current law, 
we will increase the number of Americans covered by health insurance by 
providing employers with a tax incentive. The tax code should not 
penalize employers for offering these benefits to their employees.
  I urge my colleagues to join me and support the Domestic Partner 
Health Benefits Equity Act. I ask unanimous consent that the text of 
this legislation be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1702

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

     SECTION 1. SHORT TITLE.

        This Act may be cited as the ``Domestic Partner Health 
     Benefits Equity Act''.

     SEC. 2. EXTENSION OF EXCLUSION FOR AMOUNTS RECEIVED BY AN 
                   EMPLOYEE THROUGH ACCIDENT OR HEALTH INSURANCE 
                   AS REIMBURSEMENT FOR EXPENSES FOR MEDICAL CARE.

       (a) In General.--Section 105(b) of the Internal Revenue 
     Code of 1986 (relating to amounts expended for medical care) 
     is amended--
       (1) by striking ``Except in the case'' and inserting the 
     following:

[[Page S12379]]

       ``(1) In general.--Except in the case'',
       (2) by adding at the end of paragraph (1) as redesignated 
     in paragraph (1) the following new sentence: ``For the 
     purposes of this subsection, the term `dependents' shall 
     include any individual who is an eligible beneficiary as 
     defined in the employer's accident or health insurance 
     arrangement.'', and
       (3) by adding at the end the following new paragraph:
       ``(2) Applicable percentage of exclusion for certain 
     amounts.--
       ``(A) In general.--In the case of taxable years beginning 
     after December 31, 2004, and before January 1, 2011, the 
     exclusion from income applicable by reason of the third 
     sentence of paragraph (1) shall be equal to the applicable 
     percentage of the amount which would (but for this paragraph) 
     be the amount of such exclusion.
       ``(B) Applicable percentage.--For purposes of subparagraph 
     (A), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2005, 2006, or 2007...........................................25 ....

  2008, 2009, 2010...........................................50.''.....

       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 3. EXTENSION OF EXCLUSION FOR CONTRIBUTIONS BY EMPLOYER 
                   TO ACCIDENT AND HEALTH PLANS.

       (a) In General.--Section 106 of the Internal Revenue Code 
     of 1986 (relating to contributions by employer to accident 
     and health plans) is amended by adding at the end the 
     following new subsection:
       ``(d) Coverage Provided for Eligible Beneficiaries of 
     Employees.--
       ``(1) In general.--Subsection (a) shall not fail to apply 
     by reason of the coverage of an eligible beneficiary as 
     defined in the employer's accident or health plan.
       ``(2) Applicable percentage of exclusion for certain 
     coverage.--
       ``(A) In general.--In the case of taxable years beginning 
     after December 31, 2004, and before January 1, 2011, the 
     exclusion from income applicable by reason of paragraph (1) 
     shall be equal to the applicable percentage of the amount 
     which would (but for this paragraph) be the amount of such 
     exclusion.
       ``(B) Applicable percentage.--For purposes of subparagraph 
     (A), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2005, 2006, or 2007...........................................25 ....

  2008, 2009, 2010...........................................50.''.....

       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 4. EXTENSION OF DEDUCTION FOR HEALTH INSURANCE COSTS OF 
                   SELF-EMPLOYED INDIVIDUALS.

       (a) In General.--Paragraph (1) of section 162(l) of the 
     Internal Revenue Code of 1986 (relating to special rules for 
     health insurance costs of self-employed individuals) is 
     amended to read as follows:
       ``(1) Allowance of deduction.--
       ``(A) In general.--In the case of an individual who is an 
     employee within the meaning of section 401(c)(1), there shall 
     be allowed as a deduction under this section an amount equal 
     to the amount paid during the taxable year for insurance 
     which constitutes medical care for the taxpayer, his spouse, 
     and dependents. For the purposes of this subparagraph, the 
     term `dependents' shall include any individual who is an 
     eligible beneficiary as defined in the insurance arrangement 
     which constitutes medical care.
       ``(B) Applicable percentage of deduction for certain 
     amounts.--
       ``(i) In general.--In the case of taxable years beginning 
     after December 31, 2004, and before January 1, 2011, the 
     deduction applicable by reason of the second sentence of 
     subparagraph (A) shall be equal to the applicable percentage 
     of the amount which would (but for this subparagraph) be the 
     amount of such deduction.
       ``(ii) Applicable percentage.--For purposes of clause (i), 
     the applicable percentage shall be determined in accordance 
     with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2005, 2006, or 2007...........................................25 ....

  2008, 2009, 2010...........................................50.''.....

       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 5. EXTENSION OF SICK AND ACCIDENT BENEFITS PROVIDED TO 
                   MEMBERS OF A VOLUNTARY EMPLOYEES' BENEFICIARY 
                   ASSOCIATION AND THEIR DEPENDENTS.

       (a) In General.--Section 501(c)(9) of the Internal Revenue 
     Code of 1986 (relating to list of exempt organizations) is 
     amended by adding at the end the following new sentence: 
     ``For purposes of providing for the payment of sick and 
     accident benefits to members of such an association and their 
     dependents, the term `dependents' shall include any 
     individual who is an eligible beneficiary as determined under 
     the terms of a medical benefit, health insurance, or other 
     program under which members and their dependents are entitled 
     to sick and accident benefits.''.
       (b) Applicable Percentage of Payment of Certain Sick and 
     Accident Benefits.--Section 501 of the Internal Revenue Code 
     of 1986 (relating to exemption from tax on corporations, 
     certain trusts, etc.) is amended by redesignating subsection 
     (p) as subsection (q) and by inserting after subsection (o) 
     the following new subsection:
       ``(p) Applicable Percentage of Payment of Certain Sick and 
     Accident Benefits.--
       ``(1) In general.--In the case of taxable years beginning 
     after December 31, 2004, and before January 1, 2011, the 
     exemption from tax applicable by reason of the second 
     sentence of subsection (c)(9) shall be equal to the 
     applicable percentage of the amount which would (but for this 
     subsection) be the amount of such exemption.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2005, 2006, or 2007...........................................25 ....

  2008, 2009, 2010...........................................50.''.....

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 6. AMENDMENTS TO VARIOUS DEFINITIONS.

       (a) FICA.--
       (1) In general.--Section 3121 of the Internal Revenue Code 
     of 1986 (relating to definitions) is amended by adding at the 
     end the following new subsection:
       ``(z) Exclusion of Certain Amounts from Wages.--
       ``(1) In general.--For purposes of applying subsection (a) 
     with respect to expenses described in paragraph (2)(B) of 
     such subsection, the term `dependents' shall include any 
     individual who is an eligible beneficiary as defined in the 
     plan or system established by the employer.
       ``(2) Applicable percentage of exclusion from wages.--
       ``(A) In general.--In the case of taxable years beginning 
     after December 31, 2004, and before January 1, 2011, the 
     exclusion from wages applicable by reason of paragraph (1) 
     shall be equal to the applicable percentage of the amount 
     which would (but for this paragraph) be the amount of such 
     exclusion.
       ``(B) Applicable percentage.--For purposes of subparagraph 
     (A), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2005, 2006, or 2007...........................................25 ....

  2008, 2009, 2010...........................................50.''.....

       (2) Conforming Amendment.--Section 209 of the Social 
     Security Act (42 U.S.C. 409) is amended by adding at the end 
     the following new subsection:
       ``(l)(1) For purposes of applying subsection (a) with 
     respect to medical or hospitalization expenses described in 
     paragraph (2) thereof, the term `dependents' shall include 
     any individual who is an eligible beneficiary as defined in 
     the plan or system established by the employer.
       ``(2)(A) In the case of taxable years beginning after 
     December 31, 2004, and before January 1, 2011, the exclusion 
     from wages applicable by reason of paragraph (1) shall be 
     equal to the applicable percentage of the amount which would 
     (but for this paragraph) be the amount of such exclusion.
       ``(B) For purposes of subparagraph (A), the applicable 
     percentage shall be determined in accordance with the 
     following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2005, 2006, or 2007...........................................25 ....

  2008, 2009, 2010...........................................50.''.....

       (b) Railroad Retirement.--
       (1) In general.--Section 3231(e) of the Internal Revenue 
     Code of 1986 (defining compensation) is amended by adding at 
     the end the following new paragraph:
       ``(11) Treatment of certain dependents.--
       ``(A) In general.--For purposes of applying this subsection 
     with respect to medical or hospitalization expenses described 
     in paragraph (1)(i), the term `dependents' shall include any 
     individual who is an eligible beneficiary as defined in the 
     plan or system established by the employer.
       ``(B) Applicable percentage of exclusion from 
     compensation.--
       ``(i) In general.--In the case of taxable years beginning 
     after December 31, 2004, and before January 1, 2011, the 
     exclusion from compensation applicable by reason of 
     subparagraph (A) shall be equal to the applicable percentage 
     of the amount which would (but for this subparagraph) be the 
     amount of such exclusion.
       ``(ii) Applicable percentage.--For purposes of clause (i), 
     the applicable percentage shall be determined in accordance 
     with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2005, 2006, or 2007...........................................25 ....

  2008, 2009, 2010...........................................50.''.....

       (2) Conforming Amendment.--Section 1(h) of the Railroad 
     Retirement Act of 1974 (45 U.S.C. 231(h)) is amended by 
     adding at the end the following new paragraph:
       ``(9)(A) For purposes of applying this subsection, with 
     respect to medical or hospitalization expenses described in 
     paragraph (6)(v), the term `dependents' shall include any 
     individual who is an eligible beneficiary as defined in the 
     plan or system established by the employer.
       ``(B)(i) In the case of taxable years beginning after 
     December 31, 2004, and before January 1, 2011, the exclusion 
     from compensation applicable by reason of subparagraph

[[Page S12380]]

     (A) shall be equal to the applicable percentage of the amount 
     which would (but for this subparagraph) be the amount of such 
     exclusion.
       ``(ii) For purposes of clause (i), the applicable 
     percentage shall be determined in accordance with the 
     following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2005, 2006, or 2007...........................................25 ....

  2008, 2009, 2010...........................................50.''.....

       (c) FUTA.--Section 3306 of the Internal Revenue Code of 
     1986 (relating to definitions) is amended by adding at the 
     end the following new subsection:
       ``(v) Exclusion of Certain Amounts from Wages.--
       ``(1) In general.--For purposes of applying subsection (b) 
     with respect to expenses described in paragraph (2)(B) of 
     such subsection, the term `dependents' shall include any 
     individual who is an eligible beneficiary as defined in the 
     plan or system established by the employer.
       ``(2) Applicable percentage of exclusion from wages.--
       ``(A) In general.--In the case of taxable years beginning 
     after December 31, 2004, and before January 1, 2011, the 
     exclusion from wages applicable by reason of paragraph (1) 
     shall be equal to the applicable percentage of the amount 
     which would (but for this paragraph) be the amount of such 
     exclusion.
       ``(B) Applicable percentage.--For purposes of subparagraph 
     (A), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2005, 2006, or 2007...........................................25 ....

  2008, 2009, 2010...........................................50.''.....

       (d) Effective Date.--The amendments made by this section 
     shall apply to remuneration paid after December 31, 2004.

   Mr. GRAHAM of Florida. Mr. President, I am pleased to join my 
colleague from Oregon, Senator Smith, in introducing the Domestic 
Partner Health Benefits Equity Act, which corrects an inequity in our 
current tax law. Employees who receive health benefits from their 
employers are not taxed on the value of this benefit. The tax benefit 
also applies to health care that covers the employee's spouse and 
dependents.
   In growing numbers, both public and private sector employers are 
providing domestic partner benefits to employees. For example, more 
than one-third of the Fortune 500 companies and 146 State and local 
governments provide such benefits. Unlike health benefits provided to 
their other employees, however, health care that covers a domestic 
partner is taxable to both the employee and the employer.
   An employer's payroll tax liability is calculated based on its 
employees' taxable incomes. When contributions for domestic partner 
benefits are included in employees' incomes, employers pay higher 
payroll taxes. This provision also places an administrative burden on 
employers by requiring them to identify those employees utilizing their 
benefits for a partner rather than a spouse. Employers must then 
calculate the portion of their contribution that is attributable to the 
partner, and create and maintain a separate payroll function for these 
employees' income tax withholding and payroll tax. Thus, the employer 
is penalized for making a sound business decision that contributes to 
stability in the workforce.
   Senator Smith and I have drafted legislation to amend the tax law to 
allow health benefits to domestic partners to be received by employees 
on the same tax-free basis as ``spouses.'' Specifically, the bill 
changes the definition of ``dependent'' in the code--for purposes of 
employer-provided health benefits only--to be any beneficiary allowed 
by the health plan.
   Although the primary beneficiaries of this legislation will be 
employees with domestic partners, the change will also benefit 
employees who provide health insurance to family members who may not 
qualify as a ``dependent'' under current law. For example, the change 
would make it easier for an employee to include a brother, sister or 
parent on an employer's health plan even if the employee does not 
provide more than one-half of the support for that individual, a 
requirement for a person being a ``dependent''.
   I commend Senator Smith for his leadership in correcting this 
inequity in our tax laws. I also thank Senators Chafee, Wyden, Corzine 
and Boxer for joining us in this effort. I urge my colleagues to 
cosponsor our bill.
                                 ______