[Congressional Record Volume 151, Number 45 (Friday, April 15, 2005)]
[Senate]
[Pages S3736-S3753]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
By Mr. DURBIN:
S. 811. A bill to require the Secretary of the Treasury to mint coins
in commemoration of the bicentennial of the birth of Abraham Lincoln;
to the Committee on Banking, Housing, and Urban Affairs.
Mr. DURBIN. Mr. President, today I am introducing a bill that will
honor Abraham Lincoln with a commemorative coin and provide funds to
the Abraham Lincoln Bicentennial Commission, which has been charged by
Congress with planning the celebration of Lincoln's bicentennial in
2009.
The bill authorizes the Treasury to mint 500,000 one dollar silver
coins. The design, which will represent the life and legacy of Abraham
Lincoln, will be selected by the Secretary after consultation with the
Commission of Fine Arts and the ALBC and reviewed by the Citizens
Coinage Advisory Committee.
The coins will be sold for face value plus a $10 surcharge and the
cost of designing and issuing them. All funds collected by the
surcharge will be provided to the ALBC to further its work.
Abraham Lincoln was one of our greatest leaders, demonstrating
enormous courage and strength of character during the Civil War,
perhaps the greatest crisis in our Nation's history. Lincoln was born
in Kentucky, grew to adulthood in Indiana, achieved fame in Illinois,
and led the Nation in Washington, D.C. He rose to the Presidency
through a combination of honesty, integrity, intelligence, and
commitment to the United States.
Adhering to the belief that all men are created equal, Lincoln led
the effort to free all slaves in the United States. Despite the great
passions aroused by the Civil War, Lincoln had a generous heart and
acted with malice toward none and with charity for all. Lincoln made
the ultimate sacrifice for the country he loved, dying from an
assassin's bullet on April 15, 1865. All Americans could benefit from
studying the life of Abraham Lincoln, As we near the bicentennial of
Lincoln's birth, we should recognize his great achievement in ensuring
that the United States remained one Nation, united and inseparable.
______
By Mr. SPECTER:
S. 812. A bill to amend the Internal Revenue Code of 1986 to impose a
flat tax only on Individual taxable earned income and business taxable
income, and for other purposes; to the Committee on Finance.
Mr. SPECTER. Mr. President, this week, American taxpayers face
another Federal income tax deadline. The date of April 15 stabs fear,
anxiety, and unease into the hearts of millions of Americans. Every
year during ``tax season,'' millions of Americans spend their evenings
poring over page after page of IRS instructions, going through their
records looking for information and struggling to find and fill out all
the appropriate forms on the Federal tax returns. Americans are
intimidated by the sheer number of different tax forms and their
instructions, many of which they may be unsure whether they need to
file. Given the approximately 325 possible forms, not to mention the
instructions that accompany them, simply trying to determine which form
to file can in itself be a daunting and overwhelming task. According to
a 2002 study conducted by the Tax Foundation, American taxpayers,
including businesses, spend more than 5.8 billion hours and $194
billion each year in complying with tax laws. That works out to more
than $2,400 per U.S. household. Much of this time is spent burrowing
through IRS laws and regulations which fill 17,000 pages and have grown
from 744,000 words in 1955 to over 6.9 million words in 2000. By
contrast, the Pledge of Allegiance has only 31 words, the Gettysburg
Address has 267 words, the Declaration of Independence has about 1,300
words, and the Bible has only about 1,773,000 words.
The majority of taxpayers still face filing tax forms that are far
too complicated and take far too long to complete. According to the
estimated preparation time listed on the forms by the IRS, the 2004
Form 1040 is estimated to take 13 hours and 35 minutes to complete.
Moreover this does not include the estimated time to complete the
accompanying schedules, such as Schedule A, for itemized deductions,
which carries an estimated preparation time of 5 hours, 37 minutes, or
Schedule D, for reporting capital gains and losses, shows an estimated
preparation time of 6 hours, 10 minutes. Moreover, this complexity is
getting worse each year. Just from 2000 to 2004 the estimated time to
prepare Form 1040 jumped 34 minutes.
It is no wonder that well over half of all taxpayers, 56 percent
according to a recent survey, now hire an outside professional to
prepare their tax returns for them. However, the fact that only about
30 percent of individuals itemize their deductions shows that a
significant percentage of our taxpaying population believes that the
tax system is too complex for them to deal with. We all understand that
paying taxes will never be something we enjoy, but neither should it be
cruel and unusual punishment. Further, the pace of change to the
Internal Revenue Code is brisk--Congress made about 9,500 tax code
changes in the past thirteen years. And we are far from being finished.
Year after year, we continue to ask the same question--isn't there a
better way?
My flat tax legislation would make filing a tax return a manageable
chore, not a seemingly endless nightmare, for most taxpayers. My flat
tax legislation will fundamentally revise the present tax code, with
its myriad rates, deductions, and instructions. This legislation would
institute a simple, flat 20 percent tax rate for all individuals and
businesses. This proposal is not cast in stone, but is intended to move
the debate forward by focusing attention on three key principles which
are critical to an effective and equitable taxation system: simplicity,
fairness and economic growth.
My flat tax plan would eliminate the kinds of frustrations I have
outlined above for millions of taxpayers. This flat tax would enable us
to scrap the great majority of the IRS rules, regulations and
instructions and delete most of the 6.9 million words in the Internal
Revenue Code. Instead of billions of hours of non-productive time spent
in compliance with, or avoidance of, the tax code, taxpayers would
spend only the small amount of time necessary to fill out a postcard-
sized form. Both business and individual taxpayers would thus find
valuable hours freed up to engage in productive business activity, or
for more time with their families, instead of poring over tax tables,
schedules and regulations.
My flat tax proposal is dramatic, but so are its advantages: a
taxation system that is simple, fair and designed to maximize
prosperity for all Americans. A summary of the key advantages are:
Simplicity: A 10-line postcard filing would replace the myriad forms
and attachments currently required, thus saving Americans up to 5.8
billion hours they currently spend every year in tax compliance.
Cuts Government: The flat tax would eliminate the lion's share of IRS
rules, regulations and requirements, which have grown from 744,000
words in 1955 to 6.9 million words and 17,000 pages currently. It would
also allow us to slash the mammoth IRS bureaucracy of approximately
117,000 employees, creating opportunities to put their expertise to use
elsewhere in the government or in private industry.
Promotes Economic Growth: Economists estimate a growth due to a flat
tax of over $2 trillion in national wealth over seven years,
representing an increase of approximately $7,500 in personal wealth for
every man, woman and child in America. This growth would also lead to
the creation of 6 million new jobs.
Increases Efficiency: Investment decisions would be made on the basis
of productivity rather than simply for tax
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avoidance, thus leading to even greater economic expansion.
Reduces Interest Rates: Economic forecasts indicate that interest
rates would fall substantially, by as much as two points, as the flat
tax removes many of the current disincentives to savings.
Lowers compliance costs: Americans would be able to save or invert up
to $194 billion they currently spend every year in tax compliance.
Decreases fraud: As tax loopholes are eliminated and the tax code is
simplified, there will be far less opportunity for tax avoidance and
fraud, which now amounts to over $120 billion in uncollected revenue
annually.
Reduces IRS costs: Simplification of the tax code will allow us to
save significantly on the $10 billion annual budget currently allocated
to the Internal Revenue Service.
The most dramatic way to illustrate the flat tax is to consider that
the income tax form for the flat tax is printed on a postcard--it will
allow all taxpayers to file their April 15 tax returns on a simple 10-
line postcard. This postcard will take 15 minutes to fill out.
At my town hall meetings across Pennsylvania, there is considerable
public support for fundamental tax reform.
This is a win-win situation for America because it lowers the tax
burden on the taxpayers in the lower brackets. For example in the 2004
tax year, the standard deduction is $4,850 for a single taxpayer,
$7,150 for a head of household and $9,700 for a married couple filing
jointly, while the personal exemption for individuals and dependents is
$3,100. Thus, under the current tax code, a family of four which does
not itemize deductions would pay taxes on all income over $22,100--that
is personal exemptions of$12,400 and a standard deduction of $9,700. By
contrast, under my flat tax bill, that same family would receive a
personal exemption of $30,000, and would pay tax on only income over
that amount.
The tax loopholes enable write-offs of some $393 billion a year. What
is eliminated under the flat tax are the loopholes, the deductions in
this complicated code which can be deciphered, interpreted, and found
really only by the $500-an-hour lawyers. That money is lost to the
taxpayers. $120 billion would be saved by the elimination of fraud
because of the simplicity of the Tax Code, the taxpayer being able to
find out exactly what they owe.
This bill is modeled after a proposal organized and written by two
very distinguished professors of law from Stanford University,
Professor Hall and Professor Rabushka. Their model was first introduced
in the Congress in the fall of 1994 by Majority Leader Richard Armey. I
introduced the flat tax bill--the first one in the Senate--on March 2,
1995, Senate bill 488. On October 27, 1995, I introduced a Sense of the
Senate Resolution calling on my colleagues to expedite Congressional
adoption of a flat tax. The Resolution, which was introduced as an
amendment to pending legislation, was not adopted. I reintroduced my
legislation in the 105th Congress with slight modifications to reflect
inflation-adjusted increases in the personal allowances and dependent
allowances. I re-reintroduced the bill on April 15, 1999--income tax
day--in a bill denominated as S. 822. I then introduced my flat tax
legislation as an amendment to S. 1429, the Tax Reconciliation bill;
the amendment was not adopted. During the 108th Congress, I introduced
my flat tax legislation once again on April 11, 2003. On May 14, 2003,
I offered an amendment to the Tax Reconciliation legislation urging the
Senate to hold hearings and consider legislation providing for a flat
tax; this amendment passed by a vote of 70 to 30 on May 15, 2003. I
then testified on this issue at a subsequent hearing held by the Joint
Economic Committee on November 5, 2003.
Over the years and prior to my legislative efforts on behalf of flat
tax reform, I have devoted considerable time and attention to analyzing
our nation's tax code and the policies which underlie it. I began the
study of the complexities of the tax code over 40 years ago as a law
student at Yale University. I included some tax law as part of my
practice in my early years as an attorney in Philadelphia. In the
spring of 1962, I published a law review article in the Villanova Law
Review, ``Pension and Profit Sharing Plans: Coverage and Operation for
Closely Held Corporations and Professional Associations,'' 7 Villanova
L. Rev. 335, which in part focused on the inequity in making tax-exempt
retirement benefits available to some kinds of businesses but not
others. It was apparent then, as it is now, that the very complexities
of the Internal Revenue Code could be used to give unfair advantage to
some. Einstein himself is quoted as saying ``the hardest thing in the
world to understand is the income tax.''
The Hall-Rabushka model envisioned a flat tax with no deductions
whatever. After considerable reflection, I decided to include in the
legislation limited deductions for home mortgage interest for up to
$100,000 in borrowing and charitable contributions up to $2,500. While
these modifications undercut the pure principle of the flat tax by
continuing the use of tax policy to promote home buying and charitable
contributions, I believe that those two deductions are so deeply
ingrained in the financial planning of American families that they
should be retained as a matter of fairness and public policy--and also
political practicality. With those two deductions maintained, passage
of a modified flat tax will be difficult, but without them, probably
impossible.
In my judgment, an indispensable prerequisite to enactment of a
modified flat tax is revenue neutrality. Professor Hall advised that
the revenue neutrality ofthe Hall-Rabushka proposal, which uses a 19
percent rate, is based on a well-documented model founded on reliable
governmental statistics. My legislation raises that rate from 19
percent to 20 percent to accommodate retaining limited home mortgage
interest and charitable deductions.
This proposal taxes business revenues fully at their source, so that
there is no personal taxation on interest, dividends, capital gains,
gifts or estates. Restructured in this way, the tax code can become a
powerful incentive for savings and investment--which translates into
economic growth and expansion, more and better jobs, and raising the
standard of living for all Americans.
The key advantages of this flat tax plan are threefold: First, it
will dramatically simplify the payment of taxes. Second, it will remove
much of the IRS regulatory morass now imposed on individual and
corporate taxpayers, and allow those taxpayers to devote more of their
energies to productive pursuits. Third, since it is a plan which
rewards savings and investment, the flat tax will spur economic growth
in all sectors of the economy as more money flows into investments and
savings accounts.
Professors Hall and Rabushka have projected that within seven years
of enactment, this type of a flat tax would produce a 6 percent
increase in output from increased total work in the U.S. economy and
increased capital formation. The economic growth would mean a $7,500
increase in the personal income of all Americans. No one likes to pay
taxes. But Americans will be much more willing to pay their taxes under
a system that they believe is fair, a system that they can understand,
and a system that they recognize promotes rather than prevents growth
and prosperity. My flat tax legislation will afford Americans such a
tax system.
I ask unanimous consent that a copy of my flat tax postcard, a
variety of specific cases that illustrate the fairness and simplicity
of this flat tax, and an example flat tax table be printed in the
Record following my statement.
I ask unanimous consent that the text of this bill be printed in the
Record.
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There being no objection, the material was ordered to be printed in
the Record, as follows:
S. 812
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; AMENDMENT OF 1986
CODE.
(a) Short Title.--This Act may be cited as the ``Flat Tax
Act of 2005''.
(b) Table of Contents.--The table of contents for this Act
is as follows:
Sec. 1. Short title; table of contents; amendment of 1986 Code.
Sec. 2. Flat tax on individual taxable earned income and business
taxable income.
Sec. 3. Repeal of estate and gift taxes.
Sec. 4. Additional repeals.
Sec. 5. Effective dates.
(c) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered
to be made to a section or other provision of the Internal
Revenue Code of 1986.
SEC. 2. FLAT TAX ON INDIVIDUAL TAXABLE EARNED INCOME AND
BUSINESS TAXABLE INCOME.
(a) In General.--Subchapter A of chapter 1 of subtitle A is
amended to read as follows:
``Subchapter A--Determination of Tax Liability
``Part I. Tax on Individuals.
``Part II. Tax on Business Activities.
``PART I--TAX ON INDIVIDUALS
``Sec. 1. Tax imposed.
``Sec. 2. Standard deduction.
``Sec. 3. Deduction for cash charitable contributions.
``Sec. 4. Deduction for home acquisition indebtedness.
``Sec. 5. Definitions and special rules.
``Sec. 6. Dependent defined.
``SEC. 1. TAX IMPOSED.
``(a) Imposition of Tax.--There is hereby imposed on every
individual a tax equal to 20 percent of the taxable earned
income of such individual.
``(b) Taxable Earned Income.--For purposes of this section,
the term `taxable earned income' means the excess (if any)
of--
``(1) the earned income received or accrued during the
taxable year, over
``(2) the sum of--
``(A) the standard deduction,
``(B) the deduction for cash charitable contributions, and
``(C) the deduction for home acquisition indebtedness, for
such taxable year.
``(c) Earned Income.--For purposes of this section--
``(1) In general.--The term `earned income' means wages,
salaries, or professional fees, and other amounts received
from sources within the United States as compensation for
personal services actually rendered, but does not include
that part of compensation derived by the taxpayer for
personal services rendered by the taxpayer to a corporation
which represents a distribution of earnings or profits rather
than a reasonable allowance as compensation for the personal
services actually rendered.
``(2) Taxpayer engaged in trade or business.--In the case
of a taxpayer engaged in a trade or business in which both
personal services and capital are material income-producing
factors, under regulations prescribed by the Secretary, a
reasonable allowance as compensation for the personal
services rendered by the taxpayer, not in excess of 30
percent of the taxpayer's share of the net profits of such
trade or business, shall be considered as earned income.
``SEC. 2. STANDARD DEDUCTION.
``(a) In General.--For purposes of this subtitle, the term
`standard deduction' means the sum of--
``(1) the basic standard deduction, plus
``(2) the additional standard deduction.
``(b) Basic Standard Deduction.--For purposes of subsection
(a), the basic standard deduction is--
``(1) 200 percent of the dollar amount in effect under
paragraph (3) of the taxable year in the case of--
``(A) a joint return, or
``(B) a surviving spouse (as defined in section 5(a)),
``(2) $15,000 in the case of a head of household (as
defined in section 5(b)), or
``(3) $10,000 in any other case.
``(c) Additional Standard Deduction.--For purposes of
subsection (a), the additional standard deduction is $5,000
for each dependent (as defined in section 6)--
``(1) whose earned income for the calendar year in which
the taxable year of the taxpayer begins is less than the
basic standard deduction specified in subsection (b)(3), or
``(2) who is a child of the taxpayer and who--
``(A) has not attained the age of 19 at the close of the
calendar year in which the taxable year of the taxpayer
begins, or
``(B) is a student who has not attained the age of 24 at
the close of such calendar year.
``(d) Inflation Adjustment.--
``(1) In general.--In the case of any taxable year
beginning in a calendar year after 2006, each dollar amount
contained in subsections (b) and (c) shall be increased by an
amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment for the calendar year
in which the taxable year begins.
``(2) Cost-of-living adjustment.--For purposes of paragraph
(1), the cost-of-living adjustment for any calendar year is
the percentage (if any) by which--
``(A) the CPI for the preceding calendar year, exceeds
``(B) the CPI for calendar year 2005.
``(3) CPI for any calendar year.--For purposes of paragraph
(2), the CPI for any calendar year is the average of the
Consumer Price Index as of the close of the 12-month period
ending on August 31 of such calendar year.
``(4) Consumer price index.--For purposes of paragraph (3),
the term `Consumer Price Index' means the last Consumer Price
Index for all-urban consumers published by the Department of
Labor. For purposes of the preceding sentence, the revision
of the Consumer Price Index which is most consistent with the
Consumer Price Index for calendar year 1986 shall be used.
``(5) Rounding.--If any increase determined under paragraph
(1) is not a multiple of $50, such amount shall be rounded to
the next lowest multiple of $50.
``SEC. 3. DEDUCTION FOR CASH CHARITABLE CONTRIBUTIONS.
``(a) General Rule.--For purposes of this part, there shall
be allowed as a deduction any charitable contribution (as
defined in subsection (b)) not to exceed $2,500 ($1,250, in
the case of a married individual filing a separate return),
payment of which is made within the taxable year.
``(b) Charitable Contribution Defined.--For purposes of
this section, the term `charitable contribution' means a
contribution or gift of cash or its equivalent to or for the
use of the following:
``(1) A State, a possession of the United States, or any
political subdivision of any of the foregoing, or the United
States or the District of Columbia, but only if the
contribution or gift is made for exclusively public purposes.
``(2) A corporation, trust, or community chest, fund, or
foundation--
``(A) created or organized in the United States or in any
possession thereof, or under the law of the United States,
any State, the District of Columbia, or any possession of the
United States,
``(B) organized and operated exclusively for religious,
charitable, scientific, literary, or educational purposes, or
to foster national or international amateur sports
competition (but only if no part of its activities involve
the provision of athletic facilities or equipment), or for
the prevention of cruelty to children or animals,
``(C) no part of the net earnings of which inures to the
benefit of any private shareholder or individual, and
``(D) which is not disqualified for tax exemption under
section 501(c)(3) by reason of attempting to influence
legislation, and which does not participate in, or intervene
in (including the publishing or distributing of statements),
any political campaign on behalf of (or in opposition to) any
candidate for public office.
A contribution or gift by a corporation to a trust, chest,
fund, or foundation shall be deductible by reason of this
paragraph only if it is to be used within the United States
or any of its possessions exclusively for purposes specified
in subparagraph (B). Rules similar to the rules of section
501(j) shall apply for purposes of this paragraph.
``(3) A post or organization of war veterans, or an
auxiliary unit or society of, or trust or foundation for, any
such post or organization--
``(A) organized in the United States or any of its
possessions, and
``(B) no part of the net earnings of which inures to the
benefit of any private shareholder or individual.
``(4) In the case of a contribution or gift by an
individual, a domestic fraternal society, order, or
association, operating under the lodge system, but only if
such contribution or gift is to be used exclusively for
religious, charitable, scientific, literary, or educational
purposes, or for the prevention of cruelty to children or
animals.
``(5) A cemetery company owned and operated exclusively for
the benefit of its members, or any corporation chartered
solely for burial purposes as a cemetery corporation and not
permitted by its charter to engage in any business not
necessarily incident to that purpose, if such company or
corporation is not operated for profit and no part of the net
earnings of such company or corporation inures to the benefit
of any private shareholder or individual.
For purposes of this section, the term `charitable
contribution' also means an amount treated under subsection
(d) as paid for the use of an organization described in
paragraph (2), (3), or (4).
``(c) Disallowance of Deduction in Certain Cases and
Special Rules.--
``(1) Substantiation requirement for certain
contributions.--
``(A) General rule.--No deduction shall be allowed under
subsection (a) for any contribution of $250 or more unless
the taxpayer substantiates the contribution by a
contemporaneous written acknowledgment of the contribution by
the donee organization that meets the requirements of
subparagraph (B).
``(B) Content of acknowledgment.--An acknowledgment meets
the requirements of this subparagraph if it includes the
following information:
``(i) The amount of cash contributed.
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``(ii) Whether the donee organization provided any goods or
services in consideration, in whole or in part, for any
contribution described in clause (i).
``(iii) A description and good faith estimate of the value
of any goods or services referred to in clause (ii) or, if
such goods or services consist solely of intangible religious
benefits, a statement to that effect.
For purposes of this subparagraph, the term `intangible
religious benefit' means any intangible religious benefit
which is provided by an organization organized exclusively
for religious purposes and which generally is not sold in a
commercial transaction outside the donative context.
``(C) Contemporaneous.--For purposes of subparagraph (A),
an acknowledgment shall be considered to be contemporaneous
if the taxpayer obtains the acknowledgment on or before the
earlier of--
``(i) the date on which the taxpayer files a return for the
taxable year in which the contribution was made, or
``(ii) the due date (including extensions) for filing such
return.
``(D) Substantiation not required for contributions
reported by the donee organization.--Subparagraph (A) shall
not apply to a contribution if the donee organization files a
return, on such form and in accordance with such regulations
as the Secretary may prescribe, which includes the
information described in subparagraph (B) with respect to the
contribution.
``(E) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this paragraph, including regulations that
may provide that some or all of the requirements of this
paragraph do not apply in appropriate cases.
``(2) Denial of deduction where contribution for lobbying
activities.--No deduction shall be allowed under this section
for a contribution to an organization which conducts
activities to which section 11(d)(2)(C)(i) applies on matters
of direct financial interest to the donor's trade or
business, if a principal purpose of the contribution was to
avoid Federal income tax by securing a deduction for such
activities under this section which would be disallowed by
reason of section 11(d)(2)(C) if the donor had conducted such
activities directly. No deduction shall be allowed under
section 11(d) for any amount for which a deduction is
disallowed under the preceding sentence.
``(d) Amounts Paid to Maintain Certain Students as Members
of Taxpayer's Household.--
``(1) In general.--Subject to the limitations provided by
paragraph (2), amounts paid by the taxpayer to maintain an
individual (other than a dependent, as defined in section 6,
or a relative of the taxpayer) as a member of such taxpayer's
household during the period that such individual is--
``(A) a member of the taxpayer's household under a written
agreement between the taxpayer and an organization described
in paragraph (2), (3), or (4) of subsection (b) to implement
a program of the organization to provide educational
opportunities for pupils or students in private homes, and
``(B) a full-time pupil or student in the twelfth or any
lower grade at an educational organization located in the
United States which normally maintains a regular faculty and
curriculum and normally has a regularly enrolled body of
pupils or students in attendance at the place where its
educational activities are regularly carried on, shall be
treated as amounts paid for the use of the organization.
``(2) Limitations.--
``(A) Amount.--Paragraph (1) shall apply to amounts paid
within the taxable year only to the extent that such amounts
do not exceed $50 multiplied by the number of full calendar
months during the taxable year which fall within the period
described in paragraph (1). For purposes of the preceding
sentence, if 15 or more days of a calendar month fall within
such period such month shall be considered as a full calendar
month.
``(B) Compensation or reimbursement.--Paragraph (1) shall
not apply to any amount paid by the taxpayer within the
taxable year if the taxpayer receives any money or other
property as compensation or reimbursement for maintaining the
individual in the taxpayer's household during the period
described in paragraph (1).
``(3) Relative defined.--For purposes of paragraph (1), the
term `relative of the taxpayer' means an individual who, with
respect to the taxpayer, bears any of the relationships
described in subparagraphs (A) through (G) of section
6(d)(2).
``(4) No other amount allowed as deduction.--No deduction
shall be allowed under subsection (a) for any amount paid by
a taxpayer to maintain an individual as a member of the
taxpayer's household under a program described in paragraph
(1)(A) except as provided in this subsection.
``(e) Denial of Deduction for Certain Travel Expenses.--No
deduction shall be allowed under this section for traveling
expenses (including amounts expended for meals and lodging)
while away from home, whether paid directly or by
reimbursement, unless there is no significant element of
personal pleasure, recreation, or vacation in such travel.
``(f) Disallowance of Deductions in Certain Cases.--For
disallowance of deductions for contributions to or for the
use of Communist controlled organizations, see section 11(a)
of the Internal Security Act of 1950 (50 U.S.C. 790).
``(g) Treatment of Certain Amounts Paid to or for the
Benefit of Institutions of Higher Education.--
``(1) In general.--For purposes of this section, 80 percent
of any amount described in paragraph (2) shall be treated as
a charitable contribution.
``(2) Amount described.--For purposes of paragraph (1), an
amount is described in this paragraph if--
``(A) the amount is paid by the taxpayer to or for the
benefit of an educational organization--
``(i) which is described in subsection (d)(1)(B), and
``(ii) which is an institution of higher education (as
defined in section 3304(f)), and
``(B) such amount would be allowable as a deduction under
this section but for the fact that the taxpayer receives
(directly or indirectly) as a result of paying such amount
the right to purchase tickets for seating at an athletic
event in an athletic stadium of such institution.
If any portion of a payment is for the purchase of such
tickets, such portion and the remaining portion (if any) of
such payment shall be treated as separate amounts for
purposes of this subsection.
``(h) Other Cross References.--
``(1) For treatment of certain organizations providing
child care, see section 501(k).
``(2) For charitable contributions of partners, see section
702.
``(3) For treatment of gifts for benefit of or use in
connection with the Naval Academy as gifts to or for the use
of the United States, see section 6973 of title 10, United
States Code.
``(4) For treatment of gifts accepted by the Secretary of
State, the Director of the International Communication
Agency, or the Director of the United States International
Development Cooperation Agency, as gifts to or for the use of
the United States, see section 25 of the State Department
Basic Authorities Act of 1956.
``(5) For treatment of gifts of money accepted by the
Attorney General for credit to the `Commissary Funds, Federal
Prisons' as gifts to or for the use of the United States, see
section 4043 of title 18, United States Code.
``(6) For charitable contributions to or for the use of
Indian tribal governments (or subdivisions of such
governments), see section 7871.
``SEC. 4. DEDUCTION FOR HOME ACQUISITION INDEBTEDNESS.
``(a) General Rule.--For purposes of this part, there shall
be allowed as a deduction all qualified residence interest
paid or accrued within the taxable year.
``(b) Qualified Residence Interest Defined.--The term
`qualified residence interest' means any interest which is
paid or accrued during the taxable year on acquisition
indebtedness with respect to any qualified residence of the
taxpayer. For purposes of the preceding sentence, the
determination of whether any property is a qualified
residence of the taxpayer shall be made as of the time the
interest is accrued.
``(c) Acquisition Indebtedness.--
``(1) In general.--The term `acquisition indebtedness'
means any indebtedness which--
``(A) is incurred in acquiring, constructing, or
substantially improving any qualified residence of the
taxpayer, and
``(B) is secured by such residence.
Such term also includes any indebtedness secured by such
residence resulting from the refinancing of indebtedness
meeting the requirements of the preceding sentence (or this
sentence); but only to the extent the amount of the
indebtedness resulting from such refinancing does not exceed
the amount of the refinanced indebtedness.
``(2) $100,000 Limitation.--The aggregate amount treated as
acquisition indebtedness for any period shall not exceed
$100,000 ($50,000 in the case of a married individual filing
a separate return).
``(d) Treatment of Indebtedness Incurred on or Before
October 13, 1987.--
``(1) In general.--In the case of any pre-October 13, 1987,
indebtedness--
``(A) such indebtedness shall be treated as acquisition
indebtedness, and
``(B) the limitation of subsection (c)(2) shall not apply.
``(2) Reduction in $100,000 limitation.--The limitation of
subsection (c)(2) shall be reduced (but not below zero) by
the aggregate amount of outstanding pre-October 13, 1987,
indebtedness.
``(3) Pre-october 13, 1987, indebtedness.--The term `pre-
October 13, 1987, indebtedness' means--
``(A) any indebtedness which was incurred on or before
October 13, 1987, and which was secured by a qualified
residence on October 13, 1987, and at all times thereafter
before the interest is paid or accrued, or
``(B) any indebtedness which is secured by the qualified
residence and was incurred after October 13, 1987, to
refinance indebtedness described in subparagraph (A) (or
refinanced indebtedness meeting the requirements of this
subparagraph) to the extent (immediately after the
refinancing) the principal amount of the indebtedness
resulting from the refinancing does not exceed the principal
amount of the refinanced indebtedness (immediately before the
refinancing).
``(4) Limitation on period of refinancing.--Subparagraph
(B) of paragraph (3) shall not apply to any indebtedness
after--
``(A) the expiration of the term of the indebtedness
described in paragraph (3)(A), or
[[Page S3744]]
``(B) if the principal of the indebtedness described in
paragraph (3)(A) is not amortized over its term, the
expiration of the term of the first refinancing of such
indebtedness (or if earlier, the date which is 30 years after
the date of such first refinancing).
``(e) Other Definitions and Special Rules.--For purposes of
this section--
``(1) Qualified residence.--For purposes of this
subsection--
``(A) In general.--Except as provided in subparagraph (C),
the term `qualified residence' means the principal residence
of the taxpayer.
``(B) Married individuals filing separate returns.--If a
married couple does not file a joint return for the taxable
year--
``(i) such couple shall be treated as 1 taxpayer for
purposes of subparagraph (A), and
``(ii) each individual shall be entitled to take into
account \1/2\ of the principal residence unless both
individuals consent in writing to 1 individual taking into
account the principal residence.
``(C) Pre-october 13, 1987, indebtedness.--In the case of
any pre-October 13, 1987, indebtedness, the term `qualified
residence' has the meaning given that term in section
163(h)(4), as in effect on the day before the date of
enactment of this subparagraph.
``(2) Special rule for cooperative housing corporations.--
Any indebtedness secured by stock held by the taxpayer as a
tenant-stockholder in a cooperative housing corporation shall
be treated as secured by the house or apartment which the
taxpayer is entitled to occupy as such a tenant-stockholder.
If stock described in the preceding sentence may not be used
to secure indebtedness, indebtedness shall be treated as so
secured if the taxpayer establishes to the satisfaction of
the Secretary that such indebtedness was incurred to acquire
such stock.
``(3) Unenforceable security interests.--Indebtedness shall
not fail to be treated as secured by any property solely
because, under any applicable State or local homestead or
other debtor protection law in effect on August 16, 1986, the
security interest is ineffective or the enforceability of the
security interest is restricted.
``(4) Special rules for estates and trusts.--For purposes
of determining whether any interest paid or accrued by an
estate or trust is qualified residence interest, any
residence held by such estate or trust shall be treated as a
qualified residence of such estate or trust if such estate or
trust establishes that such residence is a qualified
residence of a beneficiary who has a present interest in such
estate or trust or an interest in the residuary of such
estate or trust.
``SEC. 5. DEFINITIONS AND SPECIAL RULES.
``(a) Definition of Surviving Spouse.--
``(1) In general.--For purposes of this part, the term
`surviving spouse' means a taxpayer--
``(A) whose spouse died during either of the taxpayer's 2
taxable years immediately preceding the taxable year, and
``(B) who maintains as the taxpayer's home a household
which constitutes for the taxable year the principal place of
abode (as a member of such household) of a dependent--
``(i) who (within the meaning of section 6, determined
without regard to subsections (b)(1), (b)(2), and (d)(1)(B))
is a son, stepson, daughter, or stepdaughter of the taxpayer,
and
``(ii) with respect to whom the taxpayer is entitled to a
deduction for the taxable year under section 2.
For purposes of this paragraph, an individual shall be
considered as maintaining a household only if over one-half
of the cost of maintaining the household during the taxable
year is furnished by such individual.
``(2) Limitations.--Notwithstanding paragraph (1), for
purposes of this part a taxpayer shall not be considered to
be a surviving spouse--
``(A) if the taxpayer has remarried at any time before the
close of the taxable year, or
``(B) unless, for the taxpayer's taxable year during which
the taxpayer's spouse died, a joint return could have been
made under the provisions of section 6013 (without regard to
subsection (a)(3) thereof).
``(3) Special rule where deceased spouse was in missing
status.--If an individual was in a missing status (within the
meaning of section 6013(f)(3)) as a result of service in a
combat zone and if such individual remains in such status
until the date referred to in subparagraph (A) or (B), then,
for purposes of paragraph (1)(A), the date on which such
individual dies shall be treated as the earlier of the date
determined under subparagraph (A) or the date determined
under subparagraph (B):
``(A) The date on which the determination is made under
section 556 of title 37 of the United States Code or under
section 5566 of title 5 of such Code (whichever is
applicable) that such individual died while in such missing
status.
``(B) Except in the case of the combat zone designated for
purposes of the Vietnam conflict, the date which is 2 years
after the date designated as the date of termination of
combatant activities in that zone.
``(b) Definition of Head of Household.--
``(1) In general.--For purposes of this part, an individual
shall be considered a head of a household if, and only if,
such individual is not married at the close of such
individual's taxable year, is not a surviving spouse (as
defined in subsection (a)), and either--
``(A) maintains as such individual's home a household which
constitutes for more than one-half of such taxable year the
principal place of abode, as a member of such household, of--
``(i) a qualifying child of the individual (as defined in
section 6(c), determined without regard to section 6(e)), but
not if such child--
``(I) is married at the close of the taxpayer's taxable
year, and
``(II) is not a dependent of such individual by reason of
section 6(b)(2) or 6(b)(3), or both, or
``(ii) any other person who is a dependent of the taxpayer,
if the taxpayer is entitled to a deduction for the taxable
year for such person under section 2, or
``(B) maintains a household which constitutes for such
taxable year the principal place of abode of the father or
mother of the taxpayer, if the taxpayer is entitled to a
deduction for the taxable year for such father or mother
under section 2.
For purposes of this paragraph, an individual shall be
considered as maintaining a household only if over one-half
of the cost of maintaining the household during the taxable
year is furnished by such individual.
``(2) Determination of status.--For purposes of this
subsection--
``(A) an individual who is legally separated from such
individual's spouse under a decree of divorce or of separate
maintenance shall not be considered as married,
``(B) a taxpayer shall be considered as not married at the
close of such taxpayer's taxable year if at any time during
the taxable year such taxpayer's spouse is a nonresident
alien, and
``(C) a taxpayer shall be considered as married at the
close of such taxpayer's taxable year if such taxpayer's
spouse (other than a spouse described in subparagraph (B))
died during the taxable year.
``(3) Limitations.--Notwithstanding paragraph (1), for
purposes of this part, a taxpayer shall not be considered to
be a head of a household--
``(A) if at any time during the taxable year the taxpayer
is a nonresident alien, or
``(B) by reason of an individual who would not be a
dependent for the taxable year but for--
``(i) subparagraph (H) of section 6(d)(2), or
``(ii) paragraph (3) of section 6(d).
``(c) Certain Married Individuals Living Apart.--For
purposes of this part, an individual shall be treated as not
married at the close of the taxable year if such individual
is so treated under the provisions of section 7703(b).
``SEC. 6. DEPENDENT DEFINED.
``(a) In General.--For purposes of this subtitle, the term
`dependent' means--
``(1) a qualifying child, or
``(2) a qualifying relative.
``(b) Exceptions.--For purposes of this section--
``(1) Dependents ineligible.--If an individual is a
dependent of a taxpayer for any taxable year of such taxpayer
beginning in a calendar year, such individual shall be
treated as having no dependents for any taxable year of such
individual beginning in such calendar year.
``(2) Married dependents.--An individual shall not be
treated as a dependent of a taxpayer under subsection (a) if
such individual has made a joint return with the individual's
spouse under section 6013 for the taxable year beginning in
the calendar year in which the taxable year of the taxpayer
begins.
``(3) Citizens or nationals of other countries.--
``(A) In general.--The term `dependent' does not include an
individual who is not a citizen or national of the United
States unless such individual is a resident of the United
States or a country contiguous to the United States.
``(B) Exception for adopted child.--Subparagraph (A) shall
not exclude any child of a taxpayer (within the meaning of
subsection (f)(1)(B)) from the definition of `dependent' if--
``(i) for the taxable year of the taxpayer, the child has
the same principal place of abode as the taxpayer and is a
member of the taxpayer's household, and
``(ii) the taxpayer is a citizen or national of the United
States.
``(c) Qualifying Child.--For purposes of this section--
``(1) In general.--The term `qualifying child' means, with
respect to any taxpayer for any taxable year, an individual--
``(A) who bears a relationship to the taxpayer described in
paragraph (2),
``(B) who has the same principal place of abode as the
taxpayer for more than one-half of such taxable year,
``(C) who meets the age requirements of paragraph (3), and
``(D) who has not provided over one-half of such
individual's own support for the calendar year in which the
taxable year of the taxpayer begins.
``(2) Relationship.--For purposes of paragraph (1)(A), an
individual bears a relationship to the taxpayer described in
this paragraph if such individual is--
``(A) a child of the taxpayer or a descendant of such a
child, or
``(B) a brother, sister, stepbrother, or stepsister of the
taxpayer or a descendant of any such relative.
``(3) Age requirements.--
``(A) In general.--For purposes of paragraph (1)(C), an
individual meets the requirements of this paragraph if such
individual--
``(i) has not attained the age of 19 as of the close of the
calendar year in which the taxable year of the taxpayer
begins, or
[[Page S3745]]
``(ii) is a student who has not attained the age of 24 as
of the close of such calendar year.
``(B) Special rule for disabled.--In the case of an
individual who is permanently and totally disabled at any
time during such calendar year, the requirements of
subparagraph (A) shall be treated as met with respect to such
individual.
``(4) Special rule relating to 2 or more claiming
qualifying child.--
``(A) In general.--Except as provided in subparagraph (B),
if (but for this paragraph) an individual may be and is
claimed as a qualifying child by 2 or more taxpayers for a
taxable year beginning in the same calendar year, such
individual shall be treated as the qualifying child of the
taxpayer who is--
``(i) a parent of the individual, or
``(ii) if clause (i) does not apply, the taxpayer with the
highest adjusted gross income for such taxable year.
``(B) More than 1 parent claiming qualifying child.--If the
parents claiming any qualifying child do not file a joint
return together, such child shall be treated as the
qualifying child of--
``(i) the parent with whom the child resided for the
longest period of time during the taxable year, or
``(ii) if the child resides with both parents for the same
amount of time during such taxable year, the parent with the
highest adjusted gross income.
``(d) Qualifying Relative.--For purposes of this section--
``(1) In general.--The term `qualifying relative' means,
with respect to any taxpayer for any taxable year, an
individual--
``(A) who bears a relationship to the taxpayer described in
paragraph (2),
``(B) with respect to whom the taxpayer provides over one-
half of the individual's support for the calendar year in
which such taxable year begins, and
``(C) who is not a qualifying child of such taxpayer or of
any other taxpayer for any taxable year beginning in the
calendar year in which such taxable year begins.
``(2) Relationship.--For purposes of paragraph (1)(A), an
individual bears a relationship to the taxpayer described in
this paragraph if the individual is any of the following with
respect to the taxpayer:
``(A) A child or a descendant of a child.
``(B) A brother, sister, stepbrother, or stepsister.
``(C) The father or mother, or an ancestor of either.
``(D) A stepfather or stepmother.
``(E) A son or daughter of a brother or sister of the
taxpayer.
``(F) A brother or sister of the father or mother of the
taxpayer.
``(G) A son-in-law, daughter-in-law, father-in-law, mother-
in-law, brother-in-law, or sister-in-law.
``(H) An individual (other than an individual who at any
time during the taxable year was the spouse, determined
without regard to section 7703, of the taxpayer) who, for the
taxable year of the taxpayer, has the same principal place of
abode as the taxpayer and is a member of the taxpayer's
household.
``(3) Special rule relating to multiple support
agreements.--For purposes of paragraph (1)(C), over one-half
of the support of an individual for a calendar year shall be
treated as received from the taxpayer if--
``(A) no one person contributed over one-half of such
support,
``(B) over one-half of such support was received from 2 or
more persons each of whom, but for the fact that any such
person alone did not contribute over one-half of such
support, would have been entitled to claim such individual as
a dependent for a taxable year beginning in such calendar
year,
``(C) the taxpayer contributed over 10 percent of such
support, and
``(D) each person described in subparagraph (B) (other than
the taxpayer) who contributed over 10 percent of such support
files a written declaration (in such manner and form as the
Secretary may by regulations prescribe) that such person will
not claim such individual as a dependent for any taxable year
beginning in such calendar year.
``(4) Special rule relating to income of handicapped
dependents.--
``(A) In general.--For purposes of paragraph (1)(B), the
gross income of an individual who is permanently and totally
disabled at any time during the taxable year shall not
include income attributable to services performed by the
individual at a sheltered workshop if--
``(i) the availability of medical care at such workshop is
the principal reason for the individual's presence there, and
``(ii) the income arises solely from activities at such
workshop which are incident to such medical care.
``(B) Sheltered workshop defined.--For purposes of
subparagraph (A), the term `sheltered workshop' means a
school--
``(i) which provides special instruction or training
designed to alleviate the disability of the individual, and
``(ii) which is operated by an organization described in
section 501(c)(3) and exempt from tax under section 501(a),
or by a State, a possession of the United States, any
political subdivision of any of the foregoing, the United
States, or the District of Columbia.
``(5) Special rules for support.--For purposes of this
subsection--
``(A) payments to a spouse which are includible in the
gross income of such spouse shall not be treated as a payment
by the payor spouse for the support of any dependent, and
``(B) in the case of the remarriage of a parent, support of
a child received from the parent's spouse shall be treated as
received from the parent.
``(e) Special Rule for Divorced Parents.--
``(1) In general.--Notwithstanding subsection (c)(1)(B),
(c)(4), or (d)(1)(C), if--
``(A) a child receives over one-half of the child's support
during the calendar year from the child's parents--
``(i) who are divorced or legally separated under a decree
of divorce or separate maintenance,
``(ii) who are separated under a written separation
agreement, or
``(iii) who live apart at all times during the last 6
months of the calendar year, and
``(B) such child is in the custody of 1 or both of the
child's parents for more than one-half of the calendar year,
such child shall be treated as being the qualifying child or
qualifying relative of the noncustodial parent for a calendar
year if the requirements described in paragraph (2) are met.
``(2) Requirements.--For purposes of paragraph (1), the
requirements described in this paragraph are met if--
``(A) a decree of divorce or separate maintenance or
written separation agreement between the parents applicable
to the taxable year beginning in such calendar year provides
that the noncustodial parent shall be entitled to any
deduction allowable under section 2 for such child, and in
the case of such a decree or agreement executed before
January 1, 1985, the noncustodial parent provides at least
$600 for the support of such child during such calendar year,
or
``(B) the custodial parent signs a written declaration (in
such manner and form as the Secretary may prescribe) that
such parent will not claim such child as a dependent for such
taxable year.
For purposes of subparagraph (A), amounts expended for the
support of a child or children shall be treated as received
from the noncustodial parent to the extent that such parent
provided amounts for such support.
``(3) Custodial parent and noncustodial parent.--For
purposes of this subsection--
``(A) Custodial parent.--The term `custodial parent' means
the parent with whom a child shared the same principal place
of abode for the greater portion of the calendar year.
``(B) Noncustodial parent.--The term `noncustodial parent'
means the parent who is not the custodial parent.
``(4) Exception for multiple-support agreements.--This
subsection shall not apply in any case where over one-half of
the support of the child is treated as having been received
from a taxpayer under the provision of subsection (d)(3).
``(f) Other Definitions and Rules.--For purposes of this
section--
``(1) Child defined.--
``(A) In general.--The term `child' means an individual who
is--
``(i) a son, daughter, stepson, or stepdaughter of the
taxpayer, or
``(ii) an eligible foster child of the taxpayer.
``(B) Adopted child.--In determining whether any of the
relationships specified in subparagraph (A)(i) or paragraph
(4) exists, a legally adopted individual of the taxpayer, or
an individual who is lawfully placed with the taxpayer for
legal adoption by the taxpayer, shall be treated as a child
of such individual by blood.
``(C) Eligible foster child.--For purposes of subparagraph
(A)(ii), the term `eligible foster child' means an individual
who is placed with the taxpayer by an authorized placement
agency or by judgment, decree, or other order of any court of
competent jurisdiction.
``(2) Student defined.--The term `student' means an
individual who during each of 5 calendar months during the
calendar year in which the taxable year of the taxpayer
begins--
``(A) is a full-time student at an educational organization
described in section 3(d)(1)(B), or
``(B) is pursuing a full-time course of institutional on-
farm training under the supervision of an accredited agent of
an educational organization described in section 3(d)(1)(B)
or of a State or political subdivision of a State.
``(3) Determination of household status.--An individual
shall not be treated as a member of the taxpayer's household
if at any time during the taxable year of the taxpayer the
relationship between such individual and the taxpayer is in
violation of local law.
``(4) Brother and sister.--The terms `brother' and `sister'
include a brother or sister by the half blood.
``(5) Special support test in case of students.--For
purposes of subsections (c)(1)(D) and (d)(1)(C), in the case
of an individual who is--
``(A) a child of the taxpayer, and
``(B) a student, amounts received as scholarships for study
at an educational organization described in section
3(d)(1)(B) shall not be taken into account.
``(6) Treatment of missing children.--
``(A) In general.--Solely for the purposes referred to in
subparagraph (B), a child of the taxpayer--
``(i) who is presumed by law enforcement authorities to
have been kidnapped by someone who is not a member of the
family of such child or the taxpayer, and
[[Page S3746]]
``(ii) who had, for the taxable year in which the
kidnapping occurred, the same principal place of abode as the
taxpayer for more than one-half of the portion of such year
before the date of the kidnapping, shall be treated as
meeting the requirement of subsection (c)(1)(B) with respect
to a taxpayer for all taxable years ending during the period
that the child is kidnapped.
``(B) Purposes.--Subparagraph (A) shall apply solely for
purposes of determining--
``(i) the deduction under section 2(c), and
``(ii) whether an individual is a surviving spouse or a
head of a household (as such terms are defined in section 5).
``(C) Comparable treatment of certain qualifying
relatives.--For purposes of this section, a child of the
taxpayer--
``(i) who is presumed by law enforcement authorities to
have been kidnapped by someone who is not a member of the
family of such child or the taxpayer, and
``(ii) who was (without regard to this paragraph) a
qualifying relative of the taxpayer for the portion of the
taxable year before the date of the kidnapping, shall be
treated as a qualifying relative of the taxpayer for all
taxable years ending during the period that the child is
kidnapped.
``(D) Termination of treatment.--Subparagraphs (A) and (C)
shall cease to apply as of the first taxable year of the
taxpayer beginning after the calendar year in which there is
a determination that the child is dead (or, if earlier, in
which the child would have attained age 18).
``PART II--TAX ON BUSINESS ACTIVITIES
``Sec. 11. Tax imposed on business activities.
``SEC. 11. TAX IMPOSED ON BUSINESS ACTIVITIES.
``(a) Tax Imposed.--There is hereby imposed on every person
engaged in a business activity located in the United States a
tax equal to 20 percent of the business taxable income of
such person.
``(b) Liability for Tax.--The tax imposed by this section
shall be paid by the person engaged in the business activity,
whether such person is an individual, partnership,
corporation, or otherwise.
``(c) Business Taxable Income.--
``(1) In general.--For purposes of this section, the term
`business taxable income' means gross active income reduced
by the deductions specified in subsection (d).
``(2) Gross active income.--For purposes of paragraph (1),
the term `gross active income' means gross income other than
investment income.
``(d) Deductions.--
``(1) In general.--The deductions specified in this
subsection are--
``(A) the cost of business inputs for the business
activity,
``(B) the compensation (including contributions to
qualified retirement plans but not including other fringe
benefits) paid for employees performing services in such
activity, and
``(C) the cost of personal and real property used in such
activity.
``(2) Business inputs.--
``(A) In general.--For purposes of paragraph (1)(A), the
term `cost of business inputs' means--
``(i) the actual cost of goods, services, and materials,
whether or not resold during the taxable year, and
``(ii) the actual cost, if reasonable, of travel and
entertainment expenses for business purposes.
``(B) Purchases of goods and services excluded.--Such term
shall not include purchases of goods and services provided to
employees or owners.
``(C) Certain lobbying and political expenditures
excluded.--
``(i) In general.--Such term shall not include any amount
paid or incurred in connection with--
``(I) influencing legislation,
``(II) participation in, or intervention in, any political
campaign on behalf of (or in opposition to) any candidate for
public office,
``(III) any attempt to influence the general public, or
segments thereof, with respect to elections, legislative
matters, or referendums, or
``(IV) any direct communication with a covered executive
branch official in an attempt to influence the official
actions or positions of such official.
``(ii) Exception for local legislation.--In the case of any
legislation of any local council or similar governing body--
``(I) clause (i)(I) shall not apply, and
``(II) such term shall include all ordinary and necessary
expenses (including, but not limited to, traveling expenses
described in subparagraph (A)(iii) and the cost of preparing
testimony) paid or incurred during the taxable year in
carrying on any trade or business--
``(aa) in direct connection with appearances before,
submission of statements to, or sending communications to the
committees, or individual members, of such council or body
with respect to legislation or proposed legislation of direct
interest to the taxpayer, or
``(bb) in direct connection with communication of
information between the taxpayer and an organization of which
the taxpayer is a member with respect to any such legislation
or proposed legislation which is of direct interest to the
taxpayer and to such organization, and that portion of the
dues so paid or incurred with respect to any organization of
which the taxpayer is a member which is attributable to the
expenses of the activities carried on by such organization.
``(iii) Application to dues of tax-exempt organizations.--
Such term shall include the portion of dues or other similar
amounts paid by the taxpayer to an organization which is
exempt from tax under this subtitle which the organization
notifies the taxpayer under section 6033(e)(1)(A)(ii) is
allocable to expenditures to which clause (i) applies.
``(iv) Influencing legislation.--For purposes of this
subparagraph--
``(I) In general.--The term `influencing legislation' means
any attempt to influence any legislation through
communication with any member or employee of a legislative
body, or with any government official or employee who may
participate in the formulation of legislation.
``(II) Legislation.--The term `legislation' has the meaning
given that term in section 4911(e)(2).
``(v) Other special rules.--
``(I) Exception for certain taxpayers.--In the case of any
taxpayer engaged in the trade or business of conducting
activities described in clause (i), clause (i) shall not
apply to expenditures of the taxpayer in conducting such
activities directly on behalf of another person (but shall
apply to payments by such other person to the taxpayer for
conducting such activities).
``(II) De minimis exception.--
``(aa) In general.--Clause (i) shall not apply to any in-
house expenditures for any taxable year if such expenditures
do not exceed $2,000. In determining whether a taxpayer
exceeds the $2,000 limit, there shall not be taken into
account overhead costs otherwise allocable to activities
described in subclauses (I) and (IV) of clause (i).
``(bb) In-house expenditures.--For purposes of provision
(aa), the term `in-house expenditures' means expenditures
described in subclauses (I) and (IV) of clause (i) other than
payments by the taxpayer to a person engaged in the trade or
business of conducting activities described in clause (i) for
the conduct of such activities on behalf of the taxpayer, or
dues or other similar amounts paid or incurred by the
taxpayer which are allocable to activities described in
clause (i).
``(III) Expenses incurred in connection with lobbying and
political activities.--Any amount paid or incurred for
research for, or preparation, planning, or coordination of,
any activity described in clause (i) shall be treated as paid
or incurred in connection with such activity.
``(vi) Covered executive branch official.--For purposes of
this subparagraph, the term `covered executive branch
official' means--
``(I) the President,
``(II) the Vice President,
``(III) any officer or employee of the White House Office
of the Executive Office of the President, and the 2 most
senior level officers of each of the other agencies in such
Executive Office, and
``(IV) any individual serving in a position in level I of
the Executive Schedule under section 5312 of title 5, United
States Code, any other individual designated by the President
as having Cabinet level status, and any immediate deputy of
such an individual.
``(vii) Special rule for indian tribal governments.--For
purposes of this subparagraph, an Indian tribal government
shall be treated in the same manner as a local council or
similar governing body.
``(viii) Cross reference.--
``For reporting requirements and alternative taxes related to this
subsection, see section 6033(e).
``(e) Carryover of Excess Deductions.--
``(1) In general.--If the aggregate deductions for any
taxable year exceed the gross active income for such taxable
year, the amount of the deductions specified in subsection
(d) for the succeeding taxable year (determined without
regard to this subsection) shall be increased by the sum of--
``(A) such excess, plus
``(B) the product of such excess and the 3-month Treasury
rate for the last month of such taxable year.
``(2) 3-month treasury rate.--For purposes of paragraph
(1), the 3-month Treasury rate is the rate determined by the
Secretary based on the average market yield (during any 1-
month period selected by the Secretary and ending in the
calendar month in which the determination is made) on
outstanding marketable obligations of the United States with
remaining periods to maturity of 3 months or less.''
(b) Conforming Repeals and Redesignations.--
(1) Repeals.--The following subchapters of chapter 1 of
subtitle A and the items relating to such subchapters in the
table of subchapters for such chapter 1 are repealed:
(A) Subchapter B (relating to computation of taxable
income).
(B) Subchapter C (relating to corporate distributions and
adjustments).
(C) Subchapter D (relating to deferred compensation, etc.).
(D) Subchapter G (relating to corporations used to avoid
income tax on shareholders).
(E) Subchapter H (relating to banking institutions).
(F) Subchapter I (relating to natural resources).
(G) Subchapter J (relating to estates, trusts,
beneficiaries, and decedents).
(H) Subchapter L (relating to insurance companies).
(I) Subchapter M (relating to regulated investment
companies and real estate investment trusts).
[[Page S3747]]
(J) Subchapter N (relating to tax based on income from
sources within or without the United States).
(K) Subchapter O (relating to gain or loss on disposition
of property).
(L) Subchapter P (relating to capital gains and losses).
(M) Subchapter Q (relating to readjustment of tax between
years and special limitations).
(N) Subchapter S (relating to tax treatment of S
corporations and their shareholders).
(O) Subchapter T (relating to cooperatives and their
patrons).
(P) Subchapter U (relating to designation and treatment of
empowerment zones, enterprise communities, and rural
development investment areas).
(Q) Subchapter V (relating to title 11 cases).
(R) Subchapter W (relating to District of Columbia
Enterprise Zone).
(2) Redesignations.--The following subchapters of chapter 1
of subtitle A and the items relating to such subchapters in
the table of subchapters for such chapter 1 are redesignated:
(A) Subchapter E (relating to accounting periods and
methods of accounting) as subchapter B.
(B) Subchapter F (relating to exempt organizations) as
subchapter C.
(C) Subchapter K (relating to partners and partnerships) as
subchapter D.
SEC. 3. REPEAL OF ESTATE AND GIFT TAXES.
Subtitle B (relating to estate, gift, and generation-
skipping taxes) and the item relating to such subtitle in the
table of subtitles is repealed.
SEC. 4. ADDITIONAL REPEALS.
Subtitles H (relating to financing of presidential election
campaigns) and J (relating to coal industry health benefits)
and the items relating to such subtitles in the table of
subtitles are repealed.
SEC. 5. EFFECTIVE DATES.
(a) In General.--Except as provided in subsection (b), the
amendments made by this Act apply to taxable years beginning
after December 31, 2005.
(b) Repeal of Estate and Gift Taxes.--The repeal made by
section 3 applies to estates of decedents dying, and
transfers made, after December 31, 2005.
(c) Technical and Conforming Changes.--The Secretary of the
Treasury or the Secretary's delegate shall, as soon as
practicable but in any event not later than 90 days after the
date of enactment of this Act, submit to the Committee on
Ways and Means of the House of Representatives and the
Committee on Finance of the Senate a draft of any technical
and conforming changes in the Internal Revenue Code of 1986
which are necessary to reflect throughout such Code the
changes in the substantive provisions of law made by this
Act.
______
By Mr. SPECTER:
S. 813. A bill to amend part D of title XVIII of the Social Security
Act to authorize the Secretary of Health and Human Services to
negotiate for lower prices for medicare prescription drugs; to the
Committee on Finance.
Mr. SPECTER. Mr. President, I have sought recognition today to
introduce the Prescription Drug and Health Improvement Act of 2005 to
reduce the high prices of prescription drugs for Medicare
beneficiaries. I introduced a similar version of this bill in the 108th
Congress, S. 2766. To increase the likelihood that this bill may become
law this bill does not include a costly provision which would have
closed the gap in prescription drug costs for Medicare beneficiaries.
Americans, specifically senior citizens, pay the highest prices in
the world for brand-name prescription drugs. With 45 million uninsured
Americans and many more senior citizens without an adequate
prescription drug benefit, filling a doctor's prescription is
unaffordable for many people in this country. The United States has the
greatest health care system in the world; however, too many seniors are
forced to make difficult choices between life-sustaining prescription
drugs and daily necessities.
The Centers for Medicare and Medicaid Services estimate that in 2004
per capita spending on prescription drugs rose approximately 12
percent, with a similar rate of growth expected for this year. Much of
the increase in drug spending is due to higher utilization and the
shift from older, lower cost drugs to newer, higher cost drugs.
However, rapidly increasing drug prices are a critical component.
High drug prices, combined with the surging older population, are
also taking a toll on State budgets and private sector health insurance
benefits. Medicaid spending on prescription drugs increased at an
average annual rate of nearly 19 percent between 1998 and 2002. Until
lower priced drugs are available, pressures will continue to squeeze
public programs at both the State and Federal level.
To address these problems, my legislation would reduce the high
prices of prescription drugs to seniors by repealing the prohibition
against interference by the Secretary of HHS with negotiations between
drug manufacturers, pharmacies, and prescription drug plan sponsors and
instead authorize the Secretary to negotiate contracts with
manufacturers of covered prescription drugs. It will allow the
Secretary of HHS to use Medicare's large beneficiary population to
leverage bargaining power to obtain lower prescription drug prices for
Medicare beneficiaries.
Price negotiations between the Secretary of HHS and prescription drug
manufacturers would be analogous to the ability of the Secretary of
Veterans Affairs to negotiate prescription drug prices with
manufacturers. This bargaining power enables veterans to receive
prescription drugs at a significant cost savings. According to the
National Association of Chain Drug Stores, the average ``cash cost'' of
a prescription in 2001 was $40.22. The average cost in the Veterans
Affairs (VA) health care system in fiscal year 2001 was $22.87.
In the 108th Congress, in my capacity as chairman of the Veterans'
Affairs Committee, I introduced the Veterans Prescription Drugs
Assistance Act, S. 1153, which was reported out of committee, but was
not considered before the full Senate. In the 109th Congress, I have
again introduced the Veterans Prescription Drugs Assistance Act, S.
614.
This legislation will broaden the ability of veterans to access the
Veterans Affairs' Prescription Drug Program. Under my bill, all
Medicare-eligible veterans will be able to purchase medications at a
tremendous price reduction through the Veterans Affairs' Prescription
Drug Program. In many cases, this will save veterans who are Medicare
beneficiaries up to 50 percent on the cost of prescribed medications, a
significant savings for veterans. Similar savings may be available to
America's seniors from the savings achieved using the HHS bargaining
power, like the Veterans Affairs bargaining power for the benefit of
veterans. These savings may provide America's seniors with fiscal
relief from the increasing costs of prescription drugs.
I believe this bill can provide desperately needed access to
inexpensive, effective prescription drugs for America's seniors. The
time has come for concerted action in this arena. I urge my colleagues
to move this legislation forward promptly.
I ask unanimous consent that the text 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. 813
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. NEGOTIATING FAIR PRICES FOR MEDICARE PRESCRIPTION
DRUGS.
(a) In General.--Section 1860D-11 of the Social Security
Act (42 U.S.C. 1395w-111) is amended by striking subsection
(i) (relating to noninterference) and by inserting the
following:
``(i) Authority To Negotiate Prices With Manufacturers.--In
order to ensure that beneficiaries enrolled under
prescription drug plans and MA-PD plans pay the lowest
possible price, the Secretary shall have authority similar to
that of other Federal entities that purchase prescription
drugs in bulk to negotiate contracts with manufacturers of
covered part D drugs, consistent with the requirements and in
furtherance of the goals of providing quality care and
containing costs under this part.''.
(b) Effective Date.--The amendment made by this section
shall take effect as if included in the enactment of section
101 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173; 117 Stat.
2066).
(c) HHS Reports Comparing Negotiated Prescription Drug
Prices and Retail Prescription Drug Prices.--Beginning in
2007, the Secretary of Health and Human Services shall
regularly, but in no case less often than quarterly, submit
to Congress a report that compares the prices for covered
part D drugs (as defined in section 1860D-2(e) of the Social
Security Act (42 U.S.C. 1395w-102(e)) negotiated by the
Secretary pursuant to section 1860D-11(i) of such Act (42
U.S.C. 1395w-111(i)), as amended by subsection (a), with the
average price a retail pharmacy would charge an individual
who does not have health insurance coverage for purchasing
the same strength, quantity, and dosage form of such covered
part D drug.
[[Page S3748]]
______
By Mr. THOMAS (for himself, Ms. Snowe, Mr. Enzi, Mr. Bingaman,
Mr. Alexander, Mr. Talent, Mr. Ensign, and Mr. Smith):
S. 815. A bill to amend the Internal Revenue Code of 1986 to allow a
15-year applicable recovery period for depreciation of certain electric
transmission property; to the Commission on Finance.
Mr. THOMAS. Mr. President, today I rise to introduce a bill to
encourage the construction of electric transmission lines. One of the
biggest energy problems our country faces is a lack of electric
transmission capacity. Recently, my home State of Wyoming joined forces
with Utah, Nevada, and California in a partnership to create a new
transmission line--the Frontier Line--to send coal-generated
electricity to the West Coast.
Demand for electricity in the West has grown by 60 percent in the
last two decades, while transmission capacity has grown by only 20
percent. But ours is certainly not the only region affected. Energy
production and distribution is a serious issue affecting all Americans.
From our dependence on foreign oil and natural gas, to limited refining
capacity and distribution ability, never mind development of non-
traditional fuels, we need to get our energy house in order. I have
long-favored a comprehensive energy policy and will continue to
champion that cause because it is badly needed and the right thing to
do.
One piece of any energy policy needs to be providing for electric
transmission capacity. If we're producing a surplus in one area of the
country but can't convey it to other areas that need it, it doesn't do
anyone any good. The bill I introduce today will help alleviate the
problem by making it less expensive to invest in electric transmission
lines that we badly need.
I ask unanimous consent that the text of this bill be printed in the
Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 815
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. ELECTRIC TRANSMISSION PROPERTY TREATED AS 15-YEAR
PROPERTY.
(a) In General.--Subparagraph (E) of section 168(e)(3) of
the Internal Revenue Code of 1986 (relating to classification
of certain property) is amended by striking ``and'' at the
end of clause (v), by striking the period at the end of
clause (vi) and by inserting ``, and'', and by adding at the
end the following new clause:
``(vii) any section 1245 property (as defined in section
1245(a)(3)) used in the transmission at 69 or more kilovolts
of electricity for sale the original use of which commences
with the taxpayer after the date of the enactment of this
clause.''.
(b) Alternative System.--The table contained in section
168(g)(3)(B) of the Internal Revenue Code of 1986 is amended
by inserting after the item relating to subparagraph (E)(vi)
the following:
``(E)(vii).......................................................30.''.
(c) Effective Date.--The amendments made by this section
shall apply to property placed in service after the date of
the enactment of this Act, in taxable years ending after such
date.
______
By Mr. REID (for Mrs. Clinton):
S. 816. A bill to establish the position of Northern Border
Coordinator in the Department of Homeland Security; to the Committee on
Homeland Security and Governmental Affairs.
Mr. REID (for Mrs. Clinton). Mr. President, I ask unanimous consent
that the text 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. 816
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. NORTHERN BORDER COORDINATOR.
(a) In General.--Title IV of the Homeland Security Act of
2002 (6 U.S.C. 201 et seq.) is amended--
(1) in section 402--
(A) by redesignating paragraph (8) as paragraph (9); and
(B) by inserting after paragraph (7) the following:
``(8) Increasing the security of the border between the
United States and Canada and the ports of entry located along
that border, and improving the coordination among the
agencies responsible for maintaining that security.''; and
(2) in subtitle C, by adding at the end the following:
``SEC. 431. NORTHERN BORDER COORDINATOR.
``(a) In General.--There shall be within the Directorate of
Border and Transportation Security the position of Northern
Border Coordinator, who shall be appointed by the Secretary
and who shall report directly to the Under Secretary for
Border and Transportation Security.
``(b) Responsibilities.--The Northern Border Coordinator
shall be responsible for--
``(1) increasing the security of the border, including
ports of entry, between the United States and Canada;
``(2) improving the coordination among the agencies
responsible for the security described under paragraph (1);
``(3) serving as the primary liaison with State and local
governments and law enforcement agencies regarding security
along the border between the United States and Canada; and
``(4) serving as a liaison with the Canadian government on
border security.''.
(b) Clerical Amendment.--The table of contents in section
1(b) of the Homeland Security Act of 2002 (6 U.S.C. 101 et
seq.) is amended by inserting after the item relating to
section 430 the following:
``Sec. 431. Northern Border Coordinator.''.
______
By Ms. STABENOW (for herself, Mr. Graham, and Mr. Bayh):
S. 817. A bill to amend the Trade Act of 1974 to create a Special
Trade Prosecutor to ensure compliance with trade agreements, and for
other purposes; to the Committee on Finance.
Ms. STABENOW. Mr. President, I rise to introduce a bill on behalf of
myself and Senators Graham and Bayh.
This bill would create an ambassador-level position within the office
of the U.S. Trade Representative entitled: Special Trade Prosecutor.
This individual would be appointed by the President and confirmed by
the Senate, with the authority to ensure compliance with trade
agreements to protect our manufacturers against unfair trade practices.
In practical terms, this prosecutor will have the authority to
investigate and recommend prosecuting cases before the World Trade
Organization and under trade agreements to which the United States is a
party.
Why this bill? At this time?
We have an Executive Branch that is organized in such a way as to
make prosecution of unfair trade cases unlikely at best. When you
couple this with the fact that our government has sat idle as our
domestic manufacturing base has eroded due to unfair trade practices,
it becomes very clear that we have put our manufacturers in an
impossible situation.
Under the current structure of the office of the U.S. Trade
Representative, we are asking our Trade Representative to do too much.
Quite simply, the office is not able to deliver.
The current structure demands that they negotiate trade agreements
with foreign nations and simultaneously enforce other agreements with
those same countries--all without damaging the U.S.'s ability to
negotiate the next trade deal.
It's not working. And, while significant portions of our trade
imbalances are not caused by lax enforcement, much of it is.
In February, the Department of Commerce reported that the merchandise
trade deficit reached a record level of $666.2 billion in the 2004, a
21.7 percent increase since 2003.
If we can address any portion of this deficit we must do it. This
bill represents a straight-forward, common-sense solution.
There are many U.S. industries facing unfair trade practices and this
bill represents an institutional change that will allow the U.S. to
thoroughly and vigorously investigate and prosecute these cases.
For instance, China is a textbook case of how a foreign government
has used a network of illegal subsidies and government interventions in
order to destroy foreign competition, both in the United States as well
as in many other countries.
According to the U.S. China Economic and Security Commission, these
actions have gone virtually unchallenged by the U.S. government,
despite the fact that China's actions are in clear violations of both
U.S. trade law and WTO rules.
These ``anti-competitive actions by China's government include
currency manipulation (estimated to provide as much as a 40 percent
subsidy for Chinese exporters), illegal direct government subsidies of
its money losing state-owned textile and apparel sectors, illegal
export tax rebates (13 percent) and the deliberate extension of
[[Page S3749]]
billions of dollars in non-performing (``free money'') loans by China's
central banks in order to award a competitive advantage against foreign
competition.''
The Commission goes on to say that ``in the case of China, the
dramatic increase in subsidies has caused Chinese prices to drop by an
average of 58 percent over the past two years in those product areas
where quotas have been removed. As a result, China has gained a near
monopoly share in these products over the last 24 months, taking 60
percent of the market.''
However, the U.S. government has failed to file any complaints at the
WTO, despite the Chinese government's repeated and widespread
violations of WTO rules.
Our government's inaction is costing us millions of American jobs,
crippling our manufacturing sector, distorting trade and investment
patterns globally, and leaving hundreds of millions of Chinese workers
vulnerable and mistreated.
Let me give you a concrete example of the violations that are
occurring.
Counterfeit automotive products are a big problem in my home State of
Michigan. Not only does it kill American jobs, but it has the potential
to kill Americans as cheap shoddy automotive products replace
legitimate ones of higher-quality.
The American automotive parts and components industry looses an
estimated $12 billion in sales on a global basis to counterfeiting.
And, we don't even keep statistics on the potential loss of life.
As many have said, we should understand that, if left unchecked,
penetration by counterfeit automotive products, as well as other
manufactured goods, has the potential to undermine the public's
confidence and trust in what they are buying. We can't let that happen.
In Michigan, we lost 51,000 manufacturing jobs between 1989 and 2003
due to China's unfair trade practices, according to the Economic Policy
Institute.
Unfortunately, the plant closings continue in Michigan and around the
Nation. Over the past three months we see example after example of the
damage a ``wait and see'' attitude has on workers in this country.
We should not be shirking our responsibilities to enforce trade
rules. This Bill helps us reverse the course upon which we find
ourselves--it helps us save American jobs.
I believe in trade and the benefits it can have for our
manufacturers, farmers, and other industries. But, we need to have fair
trade first and foremost.
A Special Trade Prosecutor would have the power to stand up for our
manufacturers and farmers and make sure that other countries are
holding up their end of their trade agreements.
I ask unanimous consent that the text 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. 817
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. CREATION OF SPECIAL TRADE PROSECUTOR.
(a) Establishment of Position.--Section 141(b)(2) of the
Trade Act of 1974 (19 U.S.C. 2171(b)(2)) is amended to read
as follows:
``(2) There shall be in the Office 3 Deputy United States
Trade Representatives, 1 Chief Agricultural Negotiator, and 1
Special Trade Prosecutor. The 3 Deputy United States Trade
Representatives, the Chief Agricultural Negotiator, and the
Special Trade Prosecutor shall be appointed by the President,
by and with the advice and consent of the Senate. As an
exercise of the rulemaking power of the Senate, any
nomination of a Deputy United States Trade Representative,
the Chief Agricultural Negotiator, or the Special Trade
Prosecutor submitted to the Senate for its advice and
consent, and referred to a committee, shall be referred to
the Committee on Finance. Each Deputy United States Trade
Representative, the Chief Agricultural Negotiator, and the
Special Trade Prosecutor shall hold office at the pleasure of
the President and shall have the rank of Ambassador.''.
(b) Functions of Position.--Section 141(c) of the Trade Act
of 1974 (19 U.S.C. 2171(c)) is amended by adding at the end
the following new paragraph:
``(6) The principal function of the Special Trade
Prosecutor shall be to ensure compliance with trade
agreements relating to United States manufactured goods and
services. The Special Trade Prosecutor shall have the
authority to investigate and recommend prosecuting cases
before the World Trade Organization and under trade
agreements to which the United States is a party. The Special
Trade Prosecutor shall recommend administering United States
trade laws relating to foreign government barriers to United
States goods and services. The Special Trade Prosecutor shall
perform such other functions as the United States Trade
Representative may direct.''.
______
By Mr. JOHNSON:
S. 819. A bill to authorize the Secretary of the Interior to
reallocate costs of the Pactola Dam and Reservoir, South Dakota, to
reflect increased demands for municipal, industrial, and fish and
wildlife purposes; to the Committee on Energy and Natural Resources.
Mr. JOHNSON. Mr. President, I rise today to introduce legislation
that codifies an agreement between the City of Rapid City, SD and the
Rapid Valley Water Conservancy District for a water service contract.
The renegotiated agreement reallocates the costs of the Pactola Dam to
better reflect the City's growing need for municipal water supply and
the Rapid Valley District's decreasing demand for irrigation.
The legislation implements an agreement to improve upon the current
municipal, industrial, irrigation, recreation, and wildlife
requirements of Rapid City and the Rapid Valley District. It is my hope
that this legislation can be quickly approved to facilitate the
completion of this contract.
I ask unanimous consent that the text of the Pactola Reservoir
Reallocation Authorization Act be printed in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 819
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 ``Pactola Reservoir
Reallocation Authorization Act of 2005''.
SEC. 2. FINDINGS.
Congress finds that--
(1) it is appropriate to reallocate the costs of the
Pactola Dam and Reservoir, South Dakota, to reflect increased
demands for municipal, industrial, and fish and wildlife
purposes; and
(2) section 302 of the Department of Energy Organization
Act (42 U.S.C. 7152) prohibits such a reallocation of costs
without congressional approval.
SEC. 3. REALLOCATION OF COSTS OF PACTOLA DAM AND RESERVOIR,
SOUTH DAKOTA.
The Secretary of the Interior may, as provided in the
contract of August 2001 entered into between Rapid City,
South Dakota, and the Rapid Valley Conservancy District,
reallocate, in a manner consistent with Federal reclamation
law (the Act of June 17, 1902 (32 Stat. 388, chapter 1093),
and Acts supplemental to and amendatory of that Act (43
U.S.C. 371 et seq.)), the construction costs of Pactola Dam
and Reservoir, Rapid Valley Unit, Pick-Sloan Missouri Basin
Program, South Dakota, from irrigation purposes to municipal,
industrial, and fish and wildlife purposes.
______
By Mr. FEINGOLD (for himself and Ms. Collins):
S. 820. A bill to promote the development of health care cooperatives
that will help businesses to pool the health care purchasing power of
employers, and for other purposes; to the Committee on Health,
Education, Labor, and Pensions.
Mr. FEINGOLD. Mr. President, today, along with my colleague from
Maine, Senator Collins, I am introducing legislation to help businesses
form group-purchasing cooperatives to obtain enhanced benefits, to
reduce health care rates, and to improve quality for their employees'
health care.
High health care costs are burdening businesses and employees across
the Nation. These costs are digging into profits and preventing access
to affordable health care. Too many patients feel trapped by the
system, with decisions about their health dictated by costs rather than
by what they need.
Nationally, the annual average cost to an employer for an employee's
health care is $6,348. In my home State of Wisconsin it is even
higher--the average cost there is $7,618. We must curb these rapidly
increasing health care costs. I strongly support initiatives to ensure
that everyone has access to health care. It is crucial that we support
successful local initiatives to reduce health care premiums and to
improve the quality of employees' health care.
By using group purchasing to obtain rate discounts, some employers
have been able to reduce the cost of health
[[Page S3750]]
care premiums for their employees. According to the National Business
Coalition on Health, there are nearly 80 employer-led coalitions across
the United States that collectively purchase health care. Through these
pools, businesses are able to proactively challenge high costs and
inefficient delivery of health care and share information on quality.
These coalitions represent over 10,000 employers nationwide.
Improving the quality of health care will also lower the cost of
care. By investing in the delivery of quality health care, we will be
able to lower long term health care costs. Effective care, such as
quality preventive services, can reduce overall health care
expenditures. Health purchasing coalitions help promote these services
and act as an employer forum for networking and education on health
care cost containment strategies. They can help foster a dialogue with
health care providers, insurers, and local HMOs.
Health care markets are local. Problems with cost, quality, and
access to health care are felt most intensely in the local markets.
Health care coalitions can function best when they are formed and
implemented locally. Local employers of large and small businesses have
formed health care coalitions to track health care trends, create a
demand for quality and safety, and encourage group purchasing.
In Wisconsin, there have been various successful initiatives that
have formed health care purchasing cooperatives to improve quality of
care and to reduce cost. For example, the Employer Health Care Alliance
Cooperative, an employer-owned and employer-directed not-for-profit
cooperative, has developed a network of health care providers in Dane
County and 12 surrounding counties on behalf of its 160 member
employers. Through this pooling effort, employers are able to obtain
affordable, high-quality health care for their 87,500 employees and
dependents.
This legislation seeks to build on successful local initiatives, such
as the Alliance, that help businesses to join together to increase
access to affordable and high-quality health care.
The Promoting Health Care Purchasing Cooperatives Act would authorize
grants to a group of businesses so that they could form group-
purchasing cooperatives to obtain enhanced benefits, reduce health care
rates, and improve quality.
This legislation offers two separate grant programs to help different
types of businesses pool their resources and bargaining power. Both
programs would aid businesses to form cooperatives. The first program
would help large businesses that sponsor their own health plans, while
the second program would help small businesses that purchase their
health insurance.
My bill would enable larger businesses to form cost-effective
cooperatives that could offer quality health care through several ways.
First, they could obtain health services through pooled purchasing from
physicians, hospitals, home health agencies, and others. By pooling
their experience and interests, employers involved in a coalition could
better address essential issues, such as rising health insurance rates
and the lack of comparable health care quality data. They would be able
to share information regarding the quality of these services and to
partner with these health care providers to meet the needs of their
employees.
For smaller businesses that purchase their health insurance, the
formation of cooperatives would allow them to buy health insurance at
lower prices through pooled purchasing. Also, the communication within
these cooperatives would provide employees of small businesses with
better information about the health care options that are available to
them. Finally, coalitions would serve to promote quality improvements
by facilitating partnerships between their group and the health care
providers.
By working together, the group could develop better quality insurance
plans and negotiate better rates.
This legislation also tries to alleviate the burden that our Nation's
farmers face when trying to purchase health care for themselves, their
families, and their employees. Because the health insurance industry
looks upon farming as a high-risk profession, many farmers are priced
out of, or simply not offered, health insurance. By helping farmers
join cooperatives to purchase health insurance, we will help increase
their health insurance options.
Past health purchasing pool initiatives have focused only on cost and
have tried to be all things for all people. My legislation creates an
incentive to join the pools by giving grants to a group of similar
businesses to form group-purchasing cooperatives. The pools are also
given flexibility to find innovative ways to lower costs, such as
enhancing benefits, for example, more preventive care, and improving
quality. Finally, the cooperative structure is a proven model, which
creates an incentive for businesses to remain in the pool because they
will be invested in the organization.
I am pleased that this bill is supported by the National Business
Coalition on Health, an organization that already understands that
allowing businesses to come together to increase their health care
purchasing power can lead to an increase in health care quality, and a
decrease in health care costs.
We must reform health care in America and give employers and
employees more options. This legislation, by providing for the
formation of cost-effective coalitions that will also improve the
quality of care, contributes to this essential reform process. I urge
my colleagues to join me in cosponsoring this proposal to improve the
quality and costs of health care.
I ask unanimous consent that the text 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. 820
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 ``Promoting Health Care
Purchasing Cooperatives Act''.
SEC. 2. FINDINGS AND PURPOSE.
(a) Findings.--Congress makes the following findings:
(1) Health care spending in the United States has reached
15 percent of the Gross Domestic Product of the United
States, yet 45,000,000 people, or 15.6 percent of the
population, remains uninsured.
(2) After nearly a decade of manageable increases in
commercial insurance premiums, many employers are now faced
with consecutive years of double digit premium increases.
(3) Purchasing cooperatives owned by participating
businesses are a proven method of achieving the bargaining
power necessary to manage the cost and quality of employer-
sponsored health plans and other employee benefits.
(4) The Employer Health Care Alliance Cooperative has
provided its members with health care purchasing power
through provider contracting, data collection, activities to
enhance quality improvements in the health care community,
and activities to promote employee health care consumerism.
(5) According to the National Business Coalition on Health,
there are nearly 80 employer-led coalitions across the United
States that collectively purchase health care, proactively
challenge high costs and the inefficient delivery of health
care, and share information on quality. These coalitions
represent more than 10,000 employers.
(b) Purpose.--It is the purpose of this Act to build off of
successful local employer-led health insurance initiatives by
improving the value of their employees' health care.
SEC. 3. GRANTS TO SELF INSURED BUSINESSES TO FORM HEALTH CARE
COOPERATIVES.
(a) Authorization.--The Secretary of Health and Human
Services (in this Act referred to as the ``Secretary''),
acting through the Director of the Agency for Healthcare
Research and Quality, is authorized to award grants to
eligible groups that meet the criteria described in
subsection (d), for the development of health care purchasing
cooperatives. Such grants may be used to provide support for
the professional staff of such cooperatives, and to obtain
contracted services for planning, development, and
implementation activities for establishing such health care
purchasing cooperatives.
(b) Eligible Group Defined.--
(1) In general.--In this section, the term ``eligible
group'' means a consortium of 2 or more self-insured
employers, including agricultural producers, each of which
are responsible for their own health insurance risk pool with
respect to their employees.
(2) No transfer of risk.--Individual employers who are
members of an eligible group may not transfer insurance risk
to such group.
(c) Application.--An eligible group desiring a grant under
this section shall submit to the Secretary an application at
such time, in such manner, and accompanied by such
information as the Secretary may require.
(d) Criteria.--
(1) Feasibility study grants.--
(A) In general.--An eligible group may submit an
application under subsection (c)
[[Page S3751]]
for a grant to conduct a feasibility study concerning the
establishment of a health insurance purchasing cooperative.
The Secretary shall approve applications submitted under the
preceding sentence if the study will consider the criteria
described in paragraph (2).
(B) Report.--After completion of a feasibility study under
a grant under this section, an eligible group shall submit to
the Secretary a report describing the results of such study.
(2) Grant criteria.--The criteria described in this
paragraph include the following with respect to the eligible
group:
(A) The ability of the group to effectively pool the health
care purchasing power of employers.
(B) The ability of the group to provide data to employers
to enable such employers to make data-based decisions
regarding their health plans.
(C) The ability of the group to drive quality improvement
in the health care community.
(D) The ability of the group to promote health care
consumerism through employee education, self-care, and
comparative provider performance information.
(E) The ability of the group to meet any other criteria
determined appropriate by the Secretary.
(e) Cooperative Grants.--After the submission of a report
by an eligible group under subsection (d)(1)(B), the
Secretary shall determine whether to award the group a grant
for the establishment of a cooperative under subsection (a).
In making a determination under the preceding sentence, the
Secretary shall consider the criteria described in subsection
(d)(2) with respect to the group.
(f) Cooperatives.--
(1) In general.--An eligible group awarded a grant under
subsection (a) shall establish or expand a health insurance
purchasing cooperative that shall--
(A) be a nonprofit organization;
(B) be wholly owned, and democratically governed by its
member-employers;
(C) exist solely to serve the membership base;
(D) be governed by a board of directors that is
democratically elected by the cooperative membership using a
1-member, 1-vote standard; and
(E) accept any new member in accordance with specific
criteria, including a limitation on the number of members,
determined by the Secretary.
(2) Authorized cooperative activities.--A cooperative
established under paragraph (1) shall--
(A) assist the members of the cooperative in pooling their
health care insurance purchasing power;
(B) provide data to improve the ability of the members of
the cooperative to make data-based decisions regarding their
health plans;
(C) conduct activities to enhance quality improvement in
the health care community;
(D) work to promote health care consumerism through
employee education, self-care, and comparative provider
performance information; and
(E) conduct any other activities determined appropriate by
the Secretary.
(g) Review.--
(1) In general.--Not later than 1 year after the date on
which grants are awarded under this section, and every 2
years thereafter, the Secretary shall study programs funded
by grants under this section and provide to the appropriate
committees of Congress a report on the progress of such
programs in improving the access of employees to quality,
affordable health insurance.
(2) Sliding scale funding.--The Secretary shall use the
information included in the report under paragraph (1) to
establish a schedule for scaling back payments under this
section with the goal of ensuring that programs funded with
grants under this section are self sufficient within 10
years.
SEC. 4. GRANTS TO SMALL BUSINESSES TO FORM HEALTH CARE
COOPERATIVES.
The Secretary shall carry out a grant program that is
identical to the grant program provided in section 3, except
that an eligible group for a grant under this section shall
be a consortium of 2 or more employers, including
agricultural producers, each of which--
(1) have 99 employees or less; and
(2) are purchasers of health insurance (are not self-
insured) for their employees.
SEC. 5. AUTHORIZATION OF APPROPRIATIONS.
From the administrative funds provided to the Secretary,
the Secretary may use not more than a total of $60,000,000
for fiscal years 2006 through 2015 to carry out this Act.
______
By Ms. MURKOWSKI (for herself and Mr. Stevens):
S. 822. A bill to prevent the retroactive application of changes to
Trans-Alaska Pipeline Quality Bank valuation methodologies; to the
Committee on Energy and Natural Resources.
Ms. MURKOWSKI. Mr. President, I rise today for myself and fellow
Alaska Senator Ted Stevens to introduce legislation concerning a
complex issue, the Quality Bank that is used to facilitate payments
between shippers using the Trans-Alaska Oil Pipeline System to reflect
variations in the value of different crude oil streams that are
injected into the pipeline.
Since its opening in June 1977, the Trans-Alaska Pipeline System,
TAPS, has carried crude oil from Alaska's North Slope to Valdez where
the oil is shipped to market. The pipeline carries crude oil from
various sources and of varying quality--the oil injected into the line
before the pipeline's Pump Station One near Deadhorse, AK, and
commingled as the blended stream of oil travels south to Valdez. The
TAPS Quality Bank was established to compensate producers of higher
quality crude oil for the difference in the value of the crude injected
at the North Slope and that of the lower-quality commingled stream
received in Valdez, since each shipper receives a quantity of the
blended stream equivalent to the amount it injected into the line.
Companies injecting low-quality crude oil pay into the Quality Bank,
while companies injecting high quality crude receive a payment from the
Quality Bank. In addition, between the North Slope and Valdez, two
refineries, Flint Hills and Petro Star, withdraw a portion of the
common stream from TAPS, partially refine the crude oil into products
such as gasoline, diesel and jet fuel, and reinject into TAPS the other
components of crude left over after their refinery processes. Each fuel
extracted from the crude is called a ``cut.'' To compensate producers
for the loss in value of the crude oil because of what is removed by
these refineries, refiners also pay into the Quality Bank. The
objective of the Quality Bank is to make monetary adjustments so that
each shipper is in the same economic position it would enjoy if it
received the same oil in Valdez that it delivered to TAPS on the
state's North Slope.
The methodology used to determine Quality Bank payments has been a
subject of controversy since the Quality Bank's creation. The problem
arises because there is no independent market for the crude injected on
the North Slope and thus no way to objectively determine its value. The
methodology is set by the Federal Energy Regulatory Commission. Since
the early 1980s, FERC-approved methodologies have been challenged in
court and revised multiple times. In 1993, the majority of North Slope
shippers proposed and FERC approved a settlement calling for the use of
a ``distillation'' methodology, which would value crude oil based on
the market price of various cuts created when the components are
separated based on different boiling points--the distillation process.
This methodology replaced the former ``gravity'' methodology where oil
was valued based on its relative gravity.
Since 1993, disputes have focused largely on the valuation of cuts at
the highest boiling points--the ``Heavy Distillate'' cut that
evaporates at temperatures between 350 and 650 degrees F. and the
Resid, residual, cut, which includes the portion remaining after
distillation of all other cuts at boiling points up to 1050 degrees F.
Two additional cuts are also at issue, the VGO and Naptha cuts.
In 1997, responding to a D.C. Circuit Court of Appeals ruling, FERC
approved a settlement with a revised valuation methodology for
Distillate and Resid. Under the FERC order, the new valuation
methodologies were to be applied on a prospective basis only. Later,
the D.C. Circuit in 1999 told FERC to revise some particular details of
the Resid valuation and also held that FERC had ``failed to provide an
adequate explanation'' as to why the new methodology should not be made
retroactive to 1993.
Responding to the ruling, the Administrative Law Judge, who in 1997
had decided that all changes should only apply prospectively, reversed
his position and released a decision in August 2004 calling for changes
in the Resid and Heavy Distillate cuts to be applied retroactively, in
the case of Resid to as far back as 1993. In addition, the
administrative law judge decided to apply new valuations for VGO and
Naptha, prospectively. Currently, the judge's decision is awaiting a
final decision by the FERC on whether to impose the Initial Decision or
alter it.
There are clearly major public policy implications resulting from
this Quality Bank issue. While the bank is a ``zero sum'' game as far
as money paid in and out of the bank is concerned, the impacts on the
parties and thus on the citizens of Alaska are anything but equal.
[[Page S3752]]
For decades Alaskans suffered under the impacts of having to import
all refined fuel products into the State from West Coast refineries.
Besides higher prices caused by transportation, that left the State
wholly dependent on fuel supplies that needed to travel at least 2,000
miles on average to reach Alaska consumers--sometimes through bad
weather and difficult sea conditions. With the construction of in-State
refineries, Alaskans finally saw greater security of supply, less
dependence upon weather for shipment arrivals, and the possibility of
lower fuel prices because of potentially reduced transportation costs.
The greater dependability of fuel supplies improved aviation freight
shipments at the Anchorage and Fairbanks international airports,
helping create jobs in air freight and related industries.
But the decision of the Administrative Law Judge to apply new Quality
Bank methodology assessments retroactively, places the economics of in-
State refineries at risk. That in turn not only impacts the job
security for the roughly 400 Alaskans who work at the refineries, but
also threatens the State's energy and economic security.
The problem is that both of the refineries must make long- and short-
term business decisions based on crude costs when they process crude
oil into product. Refineries optimize their production slates based on
current market realities. It is difficult for them to operate, given
low profit margins, if oil values can change years later as a result of
Quality Bank decisions. They simply have no way to make rational
business decisions when the value of their products can be determined
retroactively long after they can protect themselves for perceived
mistakes in FERC-approved valuation methodologies. This certainly
threatens the ability of the refineries to attract capital, money
needed for them to modernize and meet new ultra-low sulfur diesel
``clean fuel'' requirements soon to go into effect.
The State's Congressional Delegation last fall in report language
added to the Federal budget expressed its concern with the equity of
long retroactive Quality Bank valuation adjustments. Last autumn we
urged FERC to look carefully at the justice of the Initial Decision of
the Administrative Law Judge in this case and we encouraged all of the
eight parties that includes the State of Alaska, to reach an out-of-
court settlement of the 1993 case to bring finality to this complex
case before it harms instate refinery capabilities. At the time we
avoided a legislative solution to this purely Alaskan case. We are
renewing our pleas for action in a letter sent to FERC on Thursday.
In the intervening six months, while one mediation session has
occurred, the parties report little or no progress toward reaching a
mutually agreeable settlement. While opinions may differ on whether
Congress should intervene to settle the on-going case, there is little
doubt that Congress should step forward to prevent such an arcane
dispute from ever again threatening Alaska's energy industry.
For that reason prior to the next mediation session, today we
introduce legislation to limit the ability of FERC in the future to
make retroactive the impacts of future Quality Bank valuation
methodology changes. By this legislation, after December 31, 2005, FERC
still will be able to change the methodology for determining the value
of oil flowing through the pipeline but will not be permitted to apply
changes to Quality Bank valuation methodologies on anything other than
a prospective basis.
We have proposed this provision to prevent this legal nightmare from
happening again. This provision will first eliminate the perverse
current incentive for all sides to promote further litigation regarding
Quality Bank valuations based on the expectation of a retroactive
application of changes that would result in a large economic windfall.
The retroactive application of valuation methodology changes encourages
the sides in a dispute to sue in hopes of gaining a larger benefit in
the future. This is a ``lottery,'' however, that Alaskans are
guaranteed to lose.
By setting December 31, 2005, as the date that FERC can no longer
apply Quality Bank valuation methodologies on a retroactive basis, the
legislation will put the FERC and the litigants on record that the
current dispute must be resolved by the end of this year.
Requiring FERC to apply valuation methodology changes in connection
with any future disputes on a prospective basis only will eliminate the
risk and uncertainty associated with the prospect of nearly unlimited
retroactive application of Quality Bank payment methodology changes.
That will allow all Quality Bank participants to be able to conduct
business with the certainty of knowing that prices received and paid
for oil today cannot be altered years down the road. In addition, this
will eliminate the strong incentive that currently exists for some
parties to engage in endless litigation, in hopes of gaining windfall
benefits from retroactive application changes.
While we continue to call on all sides in the current dispute to
compromise and settle this case now, this bill will discourage if not
eliminate this type of dispute in the future--a benefit for all
Alaskans.
Mr. STEVENS. Mr. President, I join my colleague, Senator Lisa
Murkowski, in introducing legislation pertaining to the Trans Alaska
Pipeline System (TAPS) and the Quality Bank.
The Quality Bank was created to balance accounts among oil producers
on Alaska's North Slope who produce crude oil of different quality and
value from different oil fields. When the oil is delivered at Pump
Station No. 1, it is commingled and transported by TAPS to Valdez,
Alaska, where it is shipped by tanker to the lower 48 States.
This Quality Bank accounting concept also applies to oil refineries
in my State who receive needed crude oil from TAPS, refine various
petroleum products and return the balance of the crude oil to the
pipeline. The methodology used to determine these payments has been the
subject of dispute since the Bank's inception, creating uncertainty in
the market and a chilling effect on business investment in Alaska.
In 1989, a legal proceeding was initiated at the Federal Energy
Regulatory Commission (FERC) that in 1993 changed the methodology under
which ``Quality Banks'' in Alaska were operated. After 15 long and
protracted years of legal proceedings before FERC, an Administrative
Law Judge issued an Initial Decision proposing to replace the Quality
Bank methodology that the parties assumed they were operating under
since 1993. It proposes instead a new complex set of valuations that
the parties could not have predicted and that have very large financial
impacts, especially on refiners. Significantly, this decision also
proposes to apply the most significant of these new valuations
retroactively, all the way back to 1993.
The Administrative Law Judge's decision to apply this new methodology
retroactively puts Alaska's in-State refineries at risk at a time when
the United States can ill afford to lose its limited refining capacity.
Given the Potential impact should FERC decide to adopt the ALJ's
decision, Congress included legislative language in the Fiscal Year
2005 Consolidated Appropriations conference report expressing its
concern over this issue. Congress urged FERC to carefully Consider the
specific equities of this case to prevent special hardship, inequity,
or an unfair distribution of burdens to any party, to assess the equity
of assigning retroactivity, and to resolve this matter in a fair and
equitable manner.
In addition, the State's Congressional Delegation urged the parties
to reach a settlement to end over 15 years of litigation and bring
finality to this issue. Despite repeated calls for settlement, the
parties appear to have made little or no progress towards this end.
The issue of retroactivity and its application in the aforementioned
case is problematic given the lack of clear Congressional action on the
subject. Congress' silence on the subject has given the parties
incentive to prolong litigation and pursue appeals until they receive a
ruling which is beneficial to them.
To remedy this situation and prevent similar disputes in the future,
we are introducing this legislation to limit FERC's ability to assign
retroactivity in matters pertaining to the Quality Bank. This
legislation is necessary to limit business uncertainty associated with
the use of the Trans Alaska Pipeline System, and to ensure continued
[[Page S3753]]
domestic refinery activity in order to protect national fuel supplies.
____________________