November 13, 1997
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. 2513.
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.