[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.

[[Page 1055]]

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

[[Page 1056]]

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.