[Weekly Compilation of Presidential Documents Volume 33, Number 32 (Monday, August 11, 1997)]
[Pages 1192-1195]
[Online from the Government Publishing Office, www.gpo.gov]
<R04>
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. 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 balance 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 ex
[[Page 1193]]
emptions 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 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.
[[Page 1194]]
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 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 sup
[[Page 1195]]
port 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 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.