The Administration supports the carefully negotiated provisions of H.R. 2513,
which would restore and modify two provisions of the Taxpayer Relief Act of
1997 that were canceled by the President pursuant to the Line Item Veto Act.
Tax provisions. One provision would establish a one-year rule that
would allow deferral of U.S. tax on certain financial services income from
active overseas operations in the insurance, banking, financing or similar
business. The provision was canceled by the President because, as originally
drafted, it would have permitted abuse and created loopholes. Modifications
(along the lines proposed by the Treasury Department before the original
legislation was passed) address these problems in the revised provision of H.R.
The other provision would allow a taxpayer to defer recognition of gain on the
sale of stock of a qualified refiner or processor to an eligible farmer's
cooperative. The provision was canceled by the President because, as
originally drafted, it was poorly targeted and susceptible to abuse. The
revised provision in H.R. 2513 contains a number of safeguards and limitations
that would prevent abuse and help target the benefits to small- and medium-size
farms and cooperatives.
Pay-As-You-Go Issues. The Balanced Budget Act of 1997 reduced the
PAYGO balances to zero. Consequently, any bill that would increase mandatory
spending or result in a net revenue loss could cause a sequester of mandatory
programs as called for in the Budget Enforcement Act. In the case of H.R.
2513, the House-passed bill contains offsets that would direct the sale of
excess stockpiles of platinum and palladium from the Department of Defense and
end the reimbursement of certain health care costs for overseas employees of the
State Department. While these provisions appear sufficient to offset the
costs of the bill as estimated by the Joint Committee on Taxation, the
Administration is concerned that the provisions may not be sufficient to offset
the costs of the bill as estimated by the Department of the Treasury. Because
pay-as-you-go scoring is based upon Administration estimates, this problem
could result in a sequester of mandatory spending. In addition, a provision
(which we understand may be offered as an amendment to the bill) would shift
the PAYGO problem to a later year, and raises administrative concerns. The
Administration supports H.R. 2513, but will work with the Congress to avoid
both an unintended sequester and unnecessary administrative difficulties.