    [Public Papers of the Presidents of the United States: William J. Clinton (1997, Book II)]
    [August 5, 1997]
    [Pages 1054-1058]
    [From the U.S. Government Publishing Office www.gpo.gov]

    Statement on Signing the Taxpayer Relief Act of 1997
    August 5, 1997

        I have today approved H.R. 2014, the ``Taxpayer Relief Act of
    1997.'' Together with the Balanced Budget Act of 1997, this legislation
    implements the bipartisan budget agreement.
        I have long considered tax cuts for middle-income Americans and
    small businesses a top priority. In 1993, I worked with the Congress to
    cut taxes for 15 million working families by expanding the Earned Income
    Tax Credit, and by providing investment incentives for small businesses.
    A year later, I proposed my Middle Class Bill of Rights, including child
    tax credits, deductions for higher education, and expanded Individual
    Retirement Accounts. Then, in 1996, I signed into law a number of other
    tax benefits for small businesses and their employees--including greater
    expensing for small-business investments, greater deductibility of
    health insurance premiums for small businesses and their employees, and
    expanded and simplified opportunities for retirement savings. Also in
    1996, I signed into law a $5,000 tax credit for adoption expenses
    ($6,000 for adopting children with special needs) and higher limits for
    tax-deductible contributions by spouses to Individual Retirement
    Accounts.
        This year, I once again proposed my Middle Class Bill of Rights. On
    May 2, 1997, the congressional leadership and I reached a historic
    bipartisan budget agreement that included the broad outlines of key
    elements of my tax-cut plan.
        As my Administration has worked with the Congress over the last few
    months to develop the details of the balanced budget agreement, I have
    insisted that the tax-cut package meet four basic tests. First, the tax
    cuts must be fiscally responsible by avoiding an explosion in revenue
    costs in years outside the budget windows. Second, the tax cuts must
    provide a fair balance of benefits for working Americans. Third, the tax
    cuts must encourage economic growth.

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    Fourth, the tax package must reflect the terms of the bipartisan budget
    agreement, including a significant expansion of opportunities for higher
    education for Americans of all ages.
        I believe that H.R. 2014 meets these tests. It will provide an
    estimated $95 billion in net tax cuts over the next 5 years. It is a
    fair plan that places a priority on education tax cuts and provides a
    child tax credit to families who work hard and pay taxes. It also
    incorporates Republican priorities in a good-faith effort to honor the
    budget accord and to reach final agreement on a tax cut the American
    people deserve. This legislation will not only provide needed tax relief
    for middle-class Americans, but will also encourage economic growth. It
    is also fiscally responsible: the costs of these tax cuts are fully
    offset in accordance with the balanced budget agreement.
        I am especially pleased that the legislation includes, with certain
    modifications, the key features of my Middle Class Bill of Rights
    designed to give middle-income families the tax relief they need to help
    them raise their children, save for the future, and pay for
    postsecondary education.

    Education

        I have long believed that the tax system should better encourage
    investment in college education and job training. This legislation
    incorporates the key aspects of my proposals for a $1,500 HOPE
    Scholarship to make 2 years of college universally available and a 20
    percent tuition credit to make the third and fourth years of college
    more affordable and to promote lifelong learning.
        The legislation also contains a number of other education
    initiatives that my Administration has strongly supported. These include
    tax incentives for public school repair, renovation, and educational
    enhancement in poor neighborhoods through Education Zone Academy Bonds;
    student-loan forgiveness exemptions similar to those that I have
    previously proposed; tax incentives to help public elementary and
    secondary schools obtain up-to-date computer technology; increased
    availability of tax-exempt financing for new capital expenditures by
    private colleges and universities; and a special tax-favored savings
    vehicle to help families save for higher education.
        The bill also includes a 3-year extension of the exclusion of
    employer-provided educational assistance from taxable income. While I am
    disappointed that the Congress did not adopt my proposal to extend this
    exclusion permanently or to include graduate education, I intend to
    continue to work with the Congress to achieve these important goals.

    Child Credit

        I have long advocated a child tax credit for tax-paying working
    families. Consistent with my proposal, H.R. 2014 will provide $500 per
    child tax credits ($400 in 1998) for families with children under 17. In
    working with the Congress to develop this legislation, I have insisted
    that the group that can benefit from the child credit include working
    families with incomes between $15,000 and $30,000. I am pleased that the
    child credit as contained in H.R. 2014 meets this requirement so that
    these families receive relief from both income and payroll taxes.

    IRAs and Other Savings Incentives

        Since 1994, my budget has contained proposals to provide greater tax
    incentives for long-term savings for retirement and other important
    purposes. I am pleased that, consistent with my budget proposals, H.R.
    2014 permits penalty-free withdrawals from existing IRAs to finance
    higher education expenses and for first-time home purchases, makes
    deductible IRAs more widely available, and gives taxpayers the choice of
    a new backloaded IRA. I am pleased that the Congress moved from its
    original position so that the IRAs contained in H.R. 2014 are more
    targeted to lower- and middle-income families. I am concerned, however,
    that the Congress did not move far enough, and that the bill contains
    other features that will provide a windfall to high-income individuals
    who will merely shift savings from taxable vehicles into IRAs, rather
    than create new savings.

    Distressed Areas and Urban Tax Initiatives

        Revitalizing distressed urban and rural areas throughout the country
    is a high priority of my Administration. I have proposed a number of
    initiatives to increase investment in disadvantaged areas. I am pleased
    that H.R. 2014 includes versions of most of these initiatives. As I have
    earlier proposed, the bill would encourage the cleanup of polluted urban
    and rural areas, known as brownfields, by allowing a current deduction
    for certain costs incurred by

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    businesses to remediate environmentally contaminated land in certain
    areas. I am disappointed, however, that this provision is scheduled to
    sunset after 3 years.
        My 1993 tax plan included certain tax incentives for nine
    empowerment zones and 95 enterprise communities. Over 500 communities
    submitted applications for these 104 designations. The final
    designations were announced in December 1994. To build upon the success
    of this program, and to mobilize more communities to promote business
    development and to create jobs, I proposed two additional urban
    empowerment zones as defined by the 1993 legislation, and proposed a
    second round of competition to designate 20 additional empowerment
    zones, with a different mix of tax incentives, and 80 additional
    enterprise communities. I am pleased that H.R. 2014 provides for the
    designation of the additional empowerment zones, but disappointed that
    it does not make provision for the new enterprise communities.
        It has been an important goal of my Administration to encourage
    employment of disadvantaged residents of the District of Columbia and to
    revitalize those areas of the District where development has lagged. I
    am pleased that H.R. 2014 includes tax incentives for the District of
    Columbia. I am disappointed, however, that it does not include my
    proposals to create an Economic Development Corporation for the
    District, stimulate investments in Community Development Financial
    Institutions, or facilitate the restructuring of our Nation's affordable
    housing portfolio.

    Welfare-to-Work

        I am pleased that H.R. 2014 includes a modified version of my
    welfare-to-work tax credit proposal, which is designed to generate new
    job opportunities for long-term welfare recipients. I am also pleased
    that the bill extends the Work Opportunity Tax Credit (WOTC), but I am
    disappointed that it modifies the structure to allow employers to claim
    the WOTC for hiring workers for a very short period of time and does not
    expand the program to cover childless, able-bodied adults ages 18-50 who
    are subject to the Food Stamp time limit and work requirements.

    Small Business Tax Cuts

        I am pleased that H.R. 2014 enacts many of the recommendations of
    the 1995 White House Conference on Small Business. For example, it
    includes my proposal to exempt from the alternative minimum tax (AMT)
    corporations with gross receipts of less than $5 million. Under this
    proposal, roughly 95 percent of all corporations (more than two million)
    would be spared the complication of calculating the AMT.
        Earlier this year, my Administration announced its support for
    expansion of the home office deduction and the small business capital
    gains incentive. These proposals were intended to help high-tech and
    bio-tech entrepreneurs, start-up companies, parents who work out of
    their homes, and other Americans who are seizing the opportunities of
    the new economy. I am pleased that H.R. 2014 expands the home office
    deduction, but disappointed that it contains only limited modification
    of the small business capital gains incentive.

    Capital Gains Relief

        I am pleased that H.R. 2014 includes my proposal to exempt up to
    $500,000 in capital gains on the sale of a home from all capital gains
    taxes. This encompasses over 99 percent of homes sold in the U.S. and
    will dramatically simplify taxes and record keeping for over 60 million
    homeowners.
        I had also proposed a 30 percent exclusion for capital gains. I
    continue to have concerns that the across-the-board capital gains relief
    in H.R. 2014 is too complex and will disproportionately benefit the
    wealthy over lower- and middle-income wage earners. I am pleased,
    however, that H.R. 2014 does not contain the House provision to index
    capital gains, which would have caused even greater complexity and would
    have contributed to an explosive revenue cost after 2007.

    Estate Tax Relief

        I am pleased that, consistent with my proposal, H.R. 2014 contains a
    special exemption for interests in qualified farms or small businesses
    that, when combined with the unified credit, will exempt up to $1.3
    million in value. I am also pleased that the bill includes a version of
    my proposal to provide liquidity relief for estates containing small
    businesses and farms. The bill also increases the unified estate and
    gift tax credit on a phased-in basis to reach $1 million in 2006. I
    continue to have concerns that this provision is too expensive and will
    be

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    of no benefit to the vast majority of American families.

    Tobacco Taxes

        Earlier this year I proposed an increase in tobacco taxes that would
    be separated into a trust fund and dedicated entirely to expanding
    health coverage for children, addressing other children's development
    issues, and improving the overall public health. I am pleased that such
    a provision has been included in H.R. 2015. I am seriously concerned,
    however, that H.R. 2014 provides that the increase in tobacco taxes
    collected is to be credited against the total payments made by parties
    pursuant to the tobacco industry settlement agreement of June 20, 1997.

    Simplification

        I am pleased that H.R. 2014 includes many of the items previously
    contained in my April package of some 60 measures designed to simplify
    the tax laws and enhance taxpayers' rights. I am concerned, however,
    that the sheer multitude of miscellaneous tax code amendments contained
    in H.R. 2014, will contribute significantly to complexity for taxpayers
    and tax planners. I am also concerned that some of the provisions that
    will affect many taxpayers, such as the capital gains provision, are
    unduly complex. I continue to support revenue-neutral initiatives to
    simplify the tax laws and to promote sensible and equitable
    administration of the tax laws. I urge the Congress to continue to work
    with me to achieve these goals. In addition to supporting legislative
    initiatives, my Administration is committed to taking appropriate
    administrative action to implement this tax legislation in a manner that
    minimizes taxpayer burdens, and further, that simplifies the tax laws
    and enhances procedural safeguards for taxpayers.

    Other Presidential Initiatives

        My tax plan included extensions of the research tax credit, the
    orphan drug credit, and the tax incentive for contributions of
    appreciated stock to private foundations. I am pleased that H.R. 2014
    includes such extensions. I am also pleased that H.R. 2014 includes my
    proposal to extend the foreign sales corporation benefit, which exempts
    a portion of income for tax purposes, to include computer software
    licensed for reproduction abroad.
        I am disappointed, however, that H.R. 2014 omits a number of my
    important initiatives, including my proposal to protect the rights of
    disabled persons by extending the time such people are allowed to claim
    a tax refund to include the period during which they are mentally or
    physically impaired.
        The bill also omits my proposal to restore the wage-based tax
    incentive for new investments in Puerto Rico. While I agreed last year
    to ending the credit not directly based on economic activity, I opposed
    phasing out the wage-based incentive. It is a mistake not to continue
    this credit and open it to new investments in Puerto Rico, which has a
    jobless rate three times the national rate.
        I am also very disappointed that the tax incentives for renewable
    fuels were not extended in this budget. Earlier this year, I proposed
    extension of the excise tax exemption for ethanol in our surface
    transportation reauthorization proposal. I urge the Congress to extend
    the ethanol subsidy when it considers the reauthorization bill later
    this year.

    Other Issues of Concern

        The bill extends the Airport and Airways Trust Fund taxes and sets
    new fee structures without the benefit of the pending study by the
    National Civil Aviation Review Commission. The Administration may
    propose changes to these provisions after it reviews the Commission's
    recommendations.
        The bill also transfers the 4.3 cents per gallon in fuel taxes
    currently dedicated to deficit reduction from the General Fund to
    transportation trust funds. While the transfer provision itself has no
    revenue or spending effect, I am concerned that transferring the revenue
    may spur efforts to move the trust funds off-budget and create pressure
    to increase ground transportation spending to levels significantly
    higher than contemplated by the bipartisan budget agreement.
        Finally, H.R. 2014 contains a provision that is intended to address
    the capital needs of Amtrak. The provision is contingent on the
    enactment of subsequent Amtrak reform legislation. Although the
    provision is highly problematic in terms of tax policy, my
    Administration looks forward to working with the Congress to secure the
    enactment of Amtrak reform legislation that is fair to all parties.

    Conclusion

        Despite my reservations, H.R. 2014 meets the basic tests established
    by my Administration and

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    provides needed tax relief for working Americans. I am grateful for the
    bipartisan support that this measure received in the Congress, and I am
    pleased to have signed it into law.

                                                          William J. Clinton

    The White House,

    August 5, 1997.

    Note: H.R. 2014, approved August 5, was assigned Public Law No. 105-34.