House Report 106-780 - SOCIAL SECURITY BENEFITS TAX RELIEF ACT OF 2000

[House Report 106-780]
[From the U.S. Government Publishing Office]

106th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 106-780

======================================================================

SOCIAL SECURITY BENEFITS TAX RELIEF ACT OF 2000

_______

July 24, 2000.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Archer, from the Committee on Ways and Means, submitted the
following

R E P O R T

together with

DISSENTING VIEWS

[To accompany H.R. 4865]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the
bill (H.R. 4865) to amend the Internal Revenue Code of 1986 to
repeal the 1993 income tax increase on Social Security
benefits, having considered the same, report favorably thereon
with an amendment and recommend that the bill as amended do
pass.

CONTENTS

Page
I. Summary and Background...........................................3
A. Purpose and Summary................................. 3
B. Background and Need for Legislation................. 3
C. Legislative History................................. 3
II. Explanation of the Bill..........................................4
A. Repeal of Second-Tier Tax on 85 Percent of Social
Security Benefits.................................. 4
III. Votes of the Committee...........................................6
IV. Budget Effects of the Bill.......................................6
A. Committee Estimates of Budgetary Effects............ 6
B. Budget Authority and Tax Expenditures............... 8
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 8
V. Other Matters To Be Discussed Under the Rules of the House.......9
A. Committee Oversight Findings and Recommendations.... 9
B. Summary of Findings and Recommendations of the
Committee on Government Reform and Oversight....... 10
C. Constitutional Authority Statement.................. 10
D. Information Relating to Unfunded Mandates........... 10
E. Applicability of House Rule XXI5(b)................. 10
F. Tax Complexity Analysis............................. 10
VI. Changes in Existing Law Made by the Bill as Reported............11
VII. Dissenting Views................................................15

The amendment is as follows:
Strike all after the enacting clause and insert the
following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Social Security Benefits Tax Relief
Act of 2000''.

SEC. 2. REPEAL OF 1993 INCOME TAX INCREASE ON SOCIAL SECURITY BENEFITS.

(a) Restoration of Prior Law Formula.--Subsection (a) of section 86
of the Internal Revenue Code of 1986 is amended to read as follows:
``(a) In General.--Gross income for the taxable year of any
taxpayer described in subsection (b) (notwithstanding section 207 of
the Social Security Act) includes social security benefits in an amount
equal to the lesser of--
``(1) one-half of the social security benefits received
during the taxable year, or
``(2) one-half of the excess described in subsection
(b)(1).''
(b) Repeal of Adjusted Base Amount.--Subsection (c) of section 86
of such Code is amended to read as follows:
``(c) Base Amount.--For purposes of this section, the term `base
amount' means--
``(1) except as otherwise provided in this subsection,
$25,000,
``(2) $32,000 in the case of a joint return, and
``(3) zero in the case of a taxpayer who--
``(A) is married as of the close of the taxable year
(within the meaning of section 7703) but does not file
a joint return for such year, and
``(B) does not live apart from his spouse at all
times during the taxable year.''
(c) Conforming Amendments.--
(1) Subparagraph (A) of section 871(a)(3) of such Code is
amended by striking ``85 percent'' and inserting ``50
percent''.
(2)(A) Subparagraph (A) of section 121(e)(1) of the Social
Security Amendments of 1983 (Public Law 98-21) is amended--
(i) by striking ``(A) There'' and inserting
``There'';
(ii) by striking ``(i)'' immediately following
``amounts equivalent to''; and
(iii) by striking ``, less (ii)'' and all that
follows and inserting a period.
(B) Paragraph (1) of section 121(e) of such Act is amended by
striking subparagraph (B).
(C) Paragraph (3) of section 121(e) of such Act is amended by
striking subparagraph (B) and by redesignating subparagraph (C)
as subparagraph (B).
(D) Paragraph (2) of section 121(e) of such Act is amended in
the first sentence by striking ``paragraph (1)(A)'' and
inserting ``paragraph (1)''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years beginning after December 31, 2000.
(2) Subsection (c)(1).--The amendment made by subsection
(c)(1) shall apply to benefits paid after December 31, 2000.
(3) Subsection (c)(2).--The amendments made by subsection
(c)(2) shall apply to tax liabilities for taxable years
beginning after December 31, 2000.

SEC. 3. MAINTENANCE OF TRANSFERS TO HOSPITAL INSURANCE TRUST FUND.

(a) In General.--There are hereby appropriated to the Hospital
Insurance Trust Fund established under section 1817 of the Social
Security Act amounts equal to the reduction in revenues to the Treasury
by reason of the enactment of this Act. Amounts appropriated by the
preceding sentence shall be transferred from the general fund at such
times and in such manner as to replicate to the extent possible the
transfers which would have occurred to such Trust Fund had this Act not
been enacted.
(b) Reports.--The Secretary of the Treasury or the Secretary's
delegate shall annually report to the Committee on Ways and Means of
the House of Representatives and the Committee on Finance of the Senate
the amounts and timing of the transfers under this section.

I. SUMMARY AND BACKGROUND

A. Purpose and Summary

Purpose

The bill, H.R. 4865, the ``Social Security Benefits Tax
Relief Act of 2000,'' as amended, provides much needed tax
relief to recipients of Social Security benefits, while
maintaining the fiscal integrity of the Medicare Hospital
Insurance (``HI'') Trust Fund.

Summary

Reduction of tax.--The bill repeals the second-tier tax on
up to 85 percent of Social Security benefits.¹ Thus,
as under the law in effect prior to the enactment of the
Revenue Reconciliation Act of 1993 (the ``1993 Act''), no more
than 50 percent of Social Security benefits are includible in
gross income. Similarly, in the case of a nonresident
individual who is not a U.S. citizen, 50 percent of Social
Security benefits are includible in gross income and subject to
the applicable withholding tax.
---------------------------------------------------------------------------
\1\ This provision of the bill also applies to the taxation of
railroad retirement tier 1 benefits, which are equivalent to Social
Security benefits.
---------------------------------------------------------------------------
Trust funds.--An amount equal to the revenues from the
income taxation of Social Security benefits which would have
been credited to the HI Trust Fund under the 1993 Act (but for
this bill) is to be transferred to the HI Trust Fund from the
general fund in the Treasury at such times and in such manner
as to replicate the present-law transfers.

B. Background and Need for Legislation

The bill approved by the Committee reflects the need for
tax relief for recipients of Social Security benefits. The bill
also maintains the same balance in the HI Trust Fund that would
have occurred under present law.

C. Legislative History

Committee action

The Committee on Ways and Means marked up the provisions of
the bill on July 19, 2000, and approved the provisions, as
amended, on July 19, 2000, by a rollcall vote of 22 yeas and 15
nays, with a quorum present.

Committee hearings

The following Committee and Subcommittee hearings related
to provisions in the bill were held during the 106th Congress.
Full committee hearings
Tax-related hearings were held by the full Committee as
follows:
Reducing the tax burden: Providing tax relief to
strengthen the family and sustain a strong economy (June 23,
1999).
Subcommittee hearings
The Oversight Subcommittee held tax-related hearings as
follows:
Impact of complexity in the Tax Code on individual
taxpayers and small businesses (May 25, 1999).

II. EXPLANATION OF THE BILL

A. Repeal of Second-Tier Tax on 85 Percent of Social Security Benefits
(Secs. 2 and 3 of the Bill and Secs. 86 and 871 of the Code)

Present Law

In general

Under present law, the amount of Social Security benefits
that is taxable depends on the taxpayer's income.²
Social Security benefits are not taxable in the case of a
married taxpayer filing a joint return with income less than or
equal to $32,000 ($25,000 in the case of a single taxpayer). Up
to 50 percent of Social Security benefits are taxable in the
case of a married taxpayer filing a joint return with income
over $32,000 but not more than $44,000 (over $25,000 but not
more than $34,000 for single taxpayers). Up to 85 percent of
Social Security benefits are taxable in the case of a married
taxpayer filing a joint return with income over $44,000 (over
$34,000 in the case of a single taxpayer).³ The tax
on 85 percent of Social Security benefits (second-tier tax) was
added by the Revenue Reconciliation Act of 1993 (the ``1993
Act''), effective for taxable years beginning after December
31, 1993.
---------------------------------------------------------------------------
\2\ Similar rules apply to the taxation of railroad retirement tier
1 benefits.
\3\ The threshold amount is zero in the case of a taxpayer who is
married at the end of the year, who files a separate return, and who
does not live apart from his or her spouse for the entire taxable year.
---------------------------------------------------------------------------
If a taxpayer's income exceeds the lower threshold but does
not exceed the second-tier threshold, then the amount of
taxable Social Security benefits is the lesser of (1) 50
percent of the taxpayer's Social Security benefits, or (2) 50
percent of the excess of the taxpayer's income over the lower
threshold.
If a taxpayer's income exceeds the second-tier threshold,
then the amount of taxable Social Security benefits is the
lesser of: (1) 85 percent of the taxpayer's Social Security
benefits or (2) the sum of: (a) 85 percent of the excess of the
taxpayer's income over the second-tier threshold, plus (b) the
smaller of (i) the amount of benefits that would have been
included if the 50-percent inclusion rule were applied, or (ii)
one-half of the difference between the taxpayer's second-tier
threshold and lower threshold.
In determining whether a taxpayer's income exceeds the
threshold amounts described above, income includes adjusted
gross income (``AGI''), plus one-half of Social Security
benefits, plus the following nontaxable items: (1) tax-exempt
interest; (2) interest on education savings bonds; (3)
employer-provided adoption assistance; (4) deductible student
loan interest; (5)foreign earned income; and (6) income earned
in Puerto Rico, Guam, American Samoa, or the Northern Mariana Islands.
Special rules apply to a nonresident who is not a U.S.
citizen. In general, such individuals are subject to a 30-
percent withholding tax on income from sources within the
United States. For purposes of taxing the income of nonresident
individuals who are not U.S. citizens, the income thresholds
for including Social Security benefits do not apply. Instead,
85 percent of Social Security benefits are included in gross
income and subject to the 30-percent withholding tax. Prior to
1995, 50 percent of Social Security benefits were subject to
the withholding tax.⁴
---------------------------------------------------------------------------
\4\ The implementing legislation for the General Agreement on
Tariffs and Trade (P.L. 103-465) increased from 50 percent to 85
percent the amount of Social Security benefits included in the gross
income of a nonresident alien individual, effective for benefits paid
after December 31, 1994, in taxable years ending after such date.
---------------------------------------------------------------------------

Trust funds

Revenues from the second-tier tax on Social Security
benefits are credited quarterly to the Medicare Hospital
Insurance (``HI'') Trust Fund.⁵
---------------------------------------------------------------------------
\5\ The remainder of the proceeds from the income taxation of
Social Security benefits are credited quarterly to the Old-Age and
Survivors Insurance Trust Fund or the Disability Insurance Trust Fund,
as appropriate.
---------------------------------------------------------------------------

Reasons for Change

The Committee believes that the provision in the 1993 Act
that increased the amount of Social Security benefits subject
to tax resulted in complex and burdensome taxation of certain
senior citizens. The rationale of the 1993 Act provision was to
more closely conform the income tax treatment of Social
Security benefits and private pension benefits. The Committee
believes this rationale is flawed and does not merit
continuation of the second-tier tax because Social Security is
a social insurance program, not a retirement benefit.
Furthermore, the Committee believes that the second-tier tax on
Social Security benefits is a disincentive to earnings,
savings, and investment by certain Social Security recipients.
Finally, the Committee believes that budget surpluses eliminate
the need for the provision in the 1993 Act which was enacted to
reduce the federal budget deficit. For these reasons, the
Committee believes that repeal of the 1993 Act provision is
necessary to restore equity.

Explanation of Provision

Reduction of tax

The bill repeals the second-tier tax on up to 85 percent of
Social Security benefits.⁶ Thus, as under the law in
effect prior to the 1993 Act, no more than 50 percent of Social
Security benefits are includible in gross income. Similarly, in
the case of a nonresident individual who is not a U.S. citizen,
50 percent of Social Security benefits are includible in gross
income and subject to the withholding tax.
---------------------------------------------------------------------------
\6\ This provision of the bill also applies to the taxation of
railroad retirement tier 1 benefits.
---------------------------------------------------------------------------

Trust funds

An amount equal to the revenues from the second-tier tax on
Social Security benefits which would have been credited to the
HI Trust Fund under the 1993 Act (but for this bill) is
transferred to the HI Trust Fund from the general fund in the
Treasury at such times and in such manner as to replicate the
present-law transfers. The Secretary of the Treasury or his
delegate is also required to make an annual report to the House
Committee on Ways and Means and the Senate Committee on Finance
regarding the amount and timing of such transfers.

Effective Date

The bill is generally effective for taxable years beginning
after December 31, 2000. The reduction in the taxation of
Social Security benefits and the amount of such benefits
applicable to nonresident individuals who are not U.S. citizens
is effective for benefits paid after December 31, 2000.

III. VOTES OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in its
consideration of the bill, H.R. 4865.

motion to report the bill

The bill, H.R. 4865, as amended, was ordered favorably
reported by a rollcall vote of 22 yeas to 15 nays (with a
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer..................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Crane...................... X ........ ......... Mr. Stark........ ........ X .........
Mr. Thomas..................... X ........ ......... Mr. Matsui....... ........ X .........
Mr. Shaw....................... X ........ ......... Mr. Coyne........ ........ X .........
Mrs. Johnson................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Houghton................... X ........ ......... Mr. Cardin....... ........ X .........
Mr. Herger..................... ........ ........ ......... Mr. McDermott.... ........ X .........
Mr. McCrery.................... X ........ ......... Mr. Kleczka...... X ........ .........
Mr. Camp....................... X ........ ......... Mr. Lewis (GA)... ........ X .........
Mr. Ramstad.................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Nussle..................... X ........ ......... Mr. McNulty...... ........ X .........
Mr. Johnson.................... X ........ ......... Mr. Jefferson.... ........ X .........
Ms. Dunn....................... X ........ ......... Mr. Tanner....... ........ X .........
Mr. Collins.................... X ........ ......... Mr. Becerra...... ........ X .........
Mr. Portman.................... ........ ........ ......... Mrs. Thurman..... ........ X .........
Mr. English.................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Watkins.................... X ........ ......... .................
Mr. Hayworth................... X ........ .........
Mr. Weller..................... X ........ .........
Mr. Hulshof.................... X ........ .........
Mr. McInnis.................... X ........ .........
Mr. Lewis (KY)................. X ........ .........
Mr. Foley...................... X ........ ......... .................
----------------------------------------------------------------------------------------------------------------

IV. BUDGET EFFECTS OF THE BILL

A. Committee Estimate of Budgetary Effects

In compliance with clause 3(d)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made concerning the effects on the budget of the revenue
provisions of the bill, H. R. 4865, as reported.
The bill is estimated to have the following effects on
budget receipts for fiscal years 2001-2005:

ESTIMATED BUDGET EFFECTS OF H.R. 4865, THE ``SOCIAL SECURITY BENEFITS TAX RELIEF ACT OF 2000,'' AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS
[Fiscal years 2001-2005, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Provision Effective 2001 2002 2003 2004 2005 2001-05
--------------------------------------------------------------------------------------------------------------------------------------------------------
Repeal the 85% Second Tier Taxation of Social tyba 12/31/00.......................... -3,584 -9,149 9,816 -10,609 -11,499 -44,657
Security and Railroad Retirement Benefits.\1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The bill provides for appropriations from the general fund to the Hospital Insurance (``HI'') Trust Fund to replace lost revenues.

Legend for ``Effective'' column: tyba=taxable years beginning after.

Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures

Budget authority

In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority.

Tax expenditures

In compliance with clause 2(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
revenue-reducing income tax provisions involve increased tax
expenditures. (See amounts in table in Part IV.A., above.)

C. Cost Estimate Prepared by the Congressional Budget Office

In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the Congressional Budget Office (``CBO''), the
following statement by CBO is provided.

U.S. Congress,
Congressional Budget Office,
Washington, DC, July 21, 2000.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4865, the Social
Security Benefits Tax Relief Act of 2000.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Hester
Grippando and Erin Whitaker.
Sincerely,
Steven Lieberman
(For Dan L. Crippen, Director).
Enclosure.

H.R. 4865--Social Security Benefits Tax Relief Act of 2000

Summary: Under current law, up to 50 percent of Social
Security and Railroad Retirement benefits are subject to
taxation in the case of married taxpayers filing a joint return
with certain income above $32,000 (or $25,000 for single
taxpayers). Up to 85 percent of benefits received by married
taxpayers filing a joint return with certain income exceeding
$44,000 (or $34,000 for single taxpayers) are subject to
taxation. H.R. 4865 would repeal the 85-percent (second tier)
taxation of Social Security and Railroad Retirement benefits,
thereby reducing the proportion of benefits subject to taxation
at all incomes above $32,000 for married taxpayers filing a
joint return and above $25,000 for single taxpayers. In
addition, the bill provides appropriations from the general
fund to the Hospital Insurance Trust Fund to replace lost
revenues. The bill would take effect in the first taxable year
after December 31, 2000.
The Joint Committee on Taxation (JCT) estimates that this
bill would reduce governmental receipts (revenues) from
personal income taxes by $4 billion in fiscal year 2001, $45
billion over the 2001-2005 period, and $117 billion over the
2001-2010 period. Because the bill would affect governmental
receipts, pay-as-you-go procedures would apply.
H.R. 4865 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 4865 is shown in the following table.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------
2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES

Estimated Revenues....................................... -3,584 -9,149 -9,816 -10,609 -11,499
----------------------------------------------------------------------------------------------------------------

Basis of estimate: All estimates were provided by JCT.
Under current law, the revenues affected by the bill are
credited to Medicare's Hospital Insurance Trust Fund. The bill
would maintain those intragovernmental transfers, which would
have no net effect on the budget.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in outlays and governmental receipts that are subject
to pay-as-you-go procedures are shown in the following table.
For the purposes of enforcing pay-as-you-go procedures, only
the effects in the current year, the budget year, and the
succeeding four years are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays.............. not applicable
Changes in receipts............. 0 -3,584 -9,149 -9,816 -10,609 -11,499 -12,433 -13,397 -14,445 -15,590 -16,286
--------------------------------------------------------------------------------------------------------------------------------------------------------

Intergovernmental and private-sector impact: JCT has
determined that H.R. 4865 contains no intergovernmental or
private-sector mandates as defined in UMRA.
Estimate prepared by: Hester Grippando and Erin Whitaker.
Estimate approved by: G. Thomas Woodward, Assistant
Director for Tax Analysis. Robert A. Sunshine, Assistant
Director for Budget Analysis.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

A. Committee Oversight Findings and Recommendations

With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was a result of the Committee's
oversight review concerning the tax burden on individual
taxpayers that the Committee concluded that it is appropriate
and timely to enact the revenue provisions included in the bill
as reported.

B. Summary of Findings and Recommendations of the Committee on
Government Reform

With respect to clause 3(c)(4) of rule XII of the Rules of
the House of Representatives, the Committee advises that no
oversight findings or recommendations have been submitted to
this Committee by the Committee on Government Reform with
respect to the provisions contained in the bill.

C. Constitutional Authority Statement

With respect to clause 3(d)(1) of rule XIII of the Rules of
the House of Representatives (relating to Constitutional
Authority), the Committee states that the Committee's action in
reporting this bill is derived from Article I of the
Constitution, Section 8 (``The Congress shall have Power To lay
and collect Taxes, Duties, Imposts and Excises * * *''), and
from the 16th Amendment to the Constitution.

D. Information Relating to Unfunded Mandates

This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.

E. Applicability of House Rule XXI5(b)

Rule XXI5(b) of the Rules of the House of Representatives
provides, in part, that ``No bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase shall be considered as passed or agreed to unless
determined by a vote of not less than three-fifths of the
Members.'' The Committee has carefully reviewed the provisions
of the bill, and states that the provisions of the bill do not
involve any Federal income tax rate increase within the meaning
of the rule.

F. Tax Complexity Analysis

Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service and the Department of the Treasury) to provide
a tax complexity analysis. The complexity analysis is required
for all legislation reported by the House Committee on Ways and
Means, the Senate Committee on Finance, or any committee of
conference if the legislation includes a provision that
directly or indirectly amends the Internal Revenue Code and has
widespread applicability to individuals or small businesses.
The staff of the Joint Committee on Taxation has determined
that a complexity analysis is not required under section
4022(b) of the IRS Reform Act because the bill contains no
provisions that amend the Internal Revenue Code and that have
``widespread applicability'' to individuals or small
businesses.

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

Subtitle A--Income Taxes

* * * * * * *

CHAPTER 1--NORMAL TAXES AND SURTAXES

* * * * * * *

Subchapter B--Computation of Taxable Income

* * * * * * *

PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

* * * * * * *

SEC. 86. SOCIAL SECURITY AND TIER 1 RAILROAD RETIREMENT BENEFITS.

[(a) In General.--
[(1) In general.--Except as provided in paragraph
(2), gross income for the taxable year of any taxpayer
described in subsection (b) (notwithstanding section
207 of the Social Security Act) includes social
security benefits in an amount equal to the lesser of--
[(A) one-half of the social security benefits
received during the taxable year, or
[(B) one-half of the excess described in
subsection (b)(1).
[(2) Additional amount.--In the case of a taxpayer
with respect to whom the amount determined under
subsection (b)(1)(A) exceeds the adjusted base amount,
the amount included in gross income under this section
shall be equal to the lesser of--
[(A) the sum of--
[(i) 85 percent of such excess, plus
[(ii) the lesser of the amount
determined under paragraph (1) or an
amount equal to one-half of the
difference between the adjusted base
amount and the base amount of the
taxpayer, or
[(B) 85 percent of the social security
benefits received during the taxable year.]
(a) In General.--Gross income for the taxable year of any
taxpayer described in subsection (b) (notwithstanding section
207 of the Social Security Act) includes social security
benefits in an amount equal to the lesser of--
(1) one-half of the social security benefits received
during the taxable year, or
(2) one-half of the excess described in subsection
(b)(1).

* * * * * * *

[(c) Base Amount and Adjusted Base amount.--For purposes of
this section--
[(1) Base amount.--
The term ``base amount'' means--
[(A) except as otherwise provided in this
paragraph, $25,000,
[(B) $32,000 in the case of a joint return,
and
[(C) zero in the case of a taxpayer who--
[(i) is married as of the close of
the taxable year (within the meaning of
section 7703) but does not file a joint
return for such year, and
[(ii) does not live apart from his
spouse at all times during the taxable
year.
[(2) Adjusted base amount.--The term ``adjusted base
amount'' means--
[(A) except as otherwise provided in this
paragraph, $34,000,
[(B) $44,000 in the case of a joint return,
and
[(C) zero in the case of a taxpayer described
in paragraph (1)(C).]
(c) Base Amount.--For purposes of this section, the term
``base amount'' means--
(1) except as otherwise provided in this subsection,
$25,000,
(2) $32,000 in the case of a joint return, and
(3) zero in the case of a taxpayer who--
(A) is married as of the close of the taxable
year (within the meaning of section 7703) but
does not file a joint return for such year, and
(B) does not live apart from his spouse at
all times during the taxable year.

* * * * * * *

Subchapter N--Tax Based on Income From Sources Within or Without the
United States

* * * * * * *

PART II--NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

* * * * * * *

Subpart A--Nonresident Alien Individuals

* * * * * * *

SEC. 871. TAX ON NONRESIDENT ALIEN INDIVIDUALS

(a) Income not connected with United States business--30
percent tax
(1) * * *

* * * * * * *

(3) Taxation of social security benefits.--For
purposes of this section and section 1441--
(A) [85] 50 percent of any social security
benefit (as defined in section 86(d) shall be
included in gross income (notwithstanding
section 207 of the Social Security Act), and

* * * * * * *

----------

SECTION 121 OF THE SOCIAL SECURITY AMENDMENTS OF 1983

SEC. 121. TAXATION OF SOCIAL SECURITY AND TIER 1 RAILROAD RETIREMENT
BENEFITS.

(a) * * *

* * * * * * *

(e) Transfers to Trust Funds.--
(1) In general.--
[(A) There] There are hereby appropriated to
each payor fund amounts equivalent to [(i)] the
aggregate increase in tax liabilities under
chapter 1 of the Internal Revenue Code of 1986
which is attributable to the applications of
sections 86 and 871(a)(3) of such Code (as
added by this section) to payments from such
payor fund[, less (ii) the amounts equivalent
to the aggregate increase in tax liabilities
under chapter 1 of the Internal Revenue Code of
1986 which is attributable to the amendments to
section 86 of such Code made by section 13215
of the Revenue Reconciliation Act of 1993].
[(B) There are hereby appropriated to the
hospital insurance trust fund amounts equal to
the increase in tax liabilities described in
subparagraph (A)(ii). Such appropriated amounts
shall be transferred from the general fund of
the Treasury on the basis of estimates of such
tax liabilities made by the Secretary of the
Treasury. Transfers shall be made pursuant to a
schedule made by the Secretary of the Treasury
that takes into account estimated timing of
collection of such liabilities.]
(2) Transfers.--The amounts appropriated by paragraph
(1)[(A)] to any payor fund shall be transferred from
time to time (but not less frequently than quarterly)
from the general fund of the Treasury on the basis of
estimates made by the Secretary of the Treasury of the
amounts referred to in such paragraph. Any such
quarterly payment shall be made on the first day of
such quarter and shall take into account social
security benefits estimated to be received during such
quarter. Proper adjustments shall be made in the
amounts subsequently transferred to the extent prior
estimates were in excess of or less than the amounts
required to be transferred.
(3) Definitions.--For purposes of this subsection--
(A) Payor fund.--The term ``payor fund''
means any trust fund or account from which
payments of social security benefits are made.
[(B) Hospital insurance trust fund.--The term
``hospital insurance trust fund'' means the
fund established pursuant to section 1817 of
the Social Security Act.]
[(C)] (B) Social security benefits.--The term
``social security benefits'' has the meaning
given such term by section 86(d)(1) of the
Internal Revenue Code of 1954.

* * * * * * *

VII. DISSENTING VIEWS

We, the undersigned members oppose the bill, H.R. 4865, as
reported by the Committee on Ways and Means on May 19, 2000,
and respectfully submit these dissenting views.
We believe H.R. 4865 is part of the Republican strategy to
enact, in pieces, their vetoed $792 billion tax bill. That
strategy is designed to hide the overall cost of the Republican
tax program and to divert attention from this Congress' failure
to address the priorities of the American public--saving Social
Security and Medicare, paying down the national debt, and
providing a Medicare prescription drug benefit.
Like all of the other tax cuts they have passed this year,
this tax cut is being pushed through without any consideration
of the overall budgetary consequences. The fact is that, based
on actual legislation, the Republican tax agenda so far adds up
to more than $900 billion over 10 years (including debt
service). This amount does not include candidate Bush's
additional proposed tax cuts or the Archer-Shaw Social Security
plan which would reduce surpluses by more than a trillion
dollars. Republicans also say that they are for Social Security
and Medicare lock boxes that reserve these trust fund
surpluses. Simultaneously, their appropriations spending has
gone up at 5.9 percent per year for the last two years. And
they say they are for a prescription drug benefit.
The projected budget surpluses may seem large but they are
more than used up by all of these Republican promises.
Furthermore, these surpluses are based on projections that are
more and more uncertain as they extend for 10 years into the
unpredictable future. Under the circumstances, the Republican
tax agenda is irresponsible because it forces indefinite
postponement of so many other pressing priorities. Now, the
Republicans want America to take a particular big risk by
shutting off guaranteed Medicare funding without an overall
plan to strengthen Social Security and Medicare and pay down
the debt.
The bill as reported would repeal the provision enacted in
1993 that increased the portion of Social Security benefits
included in income from 50 percent to 85 percent for upper-
income retired individuals. The 85 percent inclusion rule is
approximately the same amount that would be included in income
if the Social Security benefit were a private employer
retirement benefit and if the employee made contributions for
the benefit equal to the employee's share of the payroll tax.
Approximately 20 percent of elderly individuals are subject to
the 85 percent inclusion rule.
At first glance, H.R. 4865 may appear to be a
straightforward tax cut for some Social Security beneficiaries.
However, after a full examination including extensive
questioning of experts from both the Administration and the
Joint Committee on Taxation, we have serious concerns about the
effects of the bill on Medicare financing. Specifically, H.R.
4865 would threaten the Medicare Trust Fund by eliminating a
dedicated tax source and replacing it with a promise to make
payments to Medicare from the General Fund.
The size of the promise is enormous, totaling $13.7
trillion over the 75-year period used to measure long-term
Medicare solvency. If all of the Republicans tax cuts already
passed were to be signed into law, there would be insufficient
General Fund resources available to fund those promises.
Furthermore, since the Republican leadership already has backed
a budget that breaks the so-called Medicare lock-box, we are
compelled to approach these promises with intense skepticism.
By depriving Medicare of this dedicated tax, H.R. 4865
would create a massive unfunded promise estimated (by the
Medicare actuaries) at roughly $13.7 trillion over the next 75
years. Five years would be stripped off the life of the trust
fund immediately with no guarantee that Congress will find the
funds needed to make up the shortfall by cutting elsewhere in
the budget or curtailing other tax cuts.
Ironically, when Democrats proposed strengthening Social
Security by supplementing automatic payroll tax transfers with
some of the money saved, due to lower interest payments on the
debt, the Republicans criticized such ``general revenue
transfers.'' Now, the sponsors of H.R. 4865 are asking the
American people to accept a scheme where they replace a vital
source of Medicare financing with a promise that they will
support future general revenue transfers to Medicare.
Some wrongly have stated that the fiscal crisis which
resulted in the 1993 legislation has fully passed. We do affirm
that the Congress and the President acted responsibly in 1993
to reduce deficits and turn them into the large budget
surpluses we have today. However, the revenue lost in H.R. 4865
does not reduce General Fund deficits or increase General Fund
surpluses; it is devoted specifically to the Medicare Hospital
Insurance Trust Fund. Enacting H.R. 4865 would remove this
dedicated revenue stream.
Although Medicare financing is secure in the short run, its
long-term financing must be strengthened. Congress should be
acting to increase the strength of the Medicare Trust Fund, not
weaken it and put the future of Medicare in doubt. Yet, H.R.
4865 would gamble with Medicare's finances at the worst time,
when the imminent retirement of the baby-boom generation will
cause the number of people using Medicare to double, from 40
million to 80 million, between now and 2030.
Only the top-earning one-fifth of Social Security
beneficiaries would get any benefit from this bill. This
regressive distribution of the benefits from the Chairman's
bill is consistent with the generous treatment of wealthy
taxpayers in the other Republican tax bills. According to the
Treasury Department, approximately 50 percent of the tax
benefits passed by the House this year would go to the
wealthiest 5 percent of households. The other 95 percent of
household would share the other 50 percent.
We are not blind to the election-year politics surrounding
H.R. 4865. By presenting members with a tax cut for some senior
citizens, the Republican leadership intentionally may be
placing members in the awkward situation of choosing whether to
be perceived as opposing a tax cut for some seniors or risking
the financing of Medicare for seniors. We strongly support tax
cuts that are fiscally responsible and are targeted to help
lower- and middle-income families, and not mainly the very
wealthy.
Moreover, this Congress must pass a true Medicare
prescription drug benefit to make vital medications more
affordable for all senors. H.R. 4865 is an attempt to distract
seniors from the House Republican leadership's unwillingness to
enact a bipartisan Medicare prescription drug plan or pass
legislation to strengthen Social Security and Medicare.
Like a kind of Trojan Horse, the bill may appear as a gift
for seniors, but it is far more dangerous for all seniors than
it is beneficial to some. If it is possible to replace the
revenue stream cut off by H.R. 4865, then legislation should be
possible that builds up the life of Medicare and improves
Medicare benefits. We believe Congress's priority should be to
develop such legislation benefitting all seniors. H.R. 4865
cuts taxes for some while refusing to provide all elderly
individuals with a true Medicare prescription drug benefit. The
Republican bill uses $100 billion over 10 years that could be
used to extend Medicare solvency or offset Medicare reductions
made in 1997.
While we might be assured by our Republican colleagues on
the Committee on Ways and means that they intend to make
Medicare whole after the loss of this dedicated revenue stream,
we also must not forget the history of Republican attitudes
toward Medicare. Former Senate Majority Leader and Republican
nominee for President Robert Dole admitted, ``I was there,
fighting the fight, one of twelve, voting against Medicare in
1965 because we knew it wouldn't work.'' Former Speaker Newt
Gingrich once pledged the would let Medicare ``wither on the
vine.'' Majority Leader Richard Armey once called Medicare, ``a
program I would have no part of in a free world.''
With statements like these from Republican leaders, we must
be skeptical of Republican pledges. We believe that as Members
of Congress, it is our duty to strengthen and secure the
Medicare and Social Security programs that have been entrusted
to us, for current beneficiaries and for future beneficiaries.
We therefore oppose the Committee action to report H.R. 4865.

Sander M. Levin.
Ben Cardin.
William J. Coyne.
Xavier Becerra.
Jim McDermott.
Karen L. Thurman.
John S. Tanner.
Charles B. Rangel.
Robert T. Matsui.
Pete Stark.
John Lewis.
Richard E. Neal.
William J. Jefferson.
Lloyd Doggett.