June 17, 1998
The Administration strongly opposes H.R. 3097 because it would create
substantial risks for the Nation's economy and the American people. At a
time when our country enjoys the strongest economy in a generation, it
would be irresponsible to put that economy, our country's fiscal
discipline, and the well-being of its families at risk. If H.R. 3097
were presented to the President, his senior advisors would recommend that
he veto the bill.
The Administration is already working to reduce unwarranted complexity in the tax laws, to protect taxpayer rights, to enact legislation restructuring the Internal Revenue Service (IRS), and to continue to refocus the IRS on customer service, fairness and efficiency. The Administration urges the Congress to complete action on H.R. 2676, the Internal Revenue Service Restructuring and Reform Act, which passed the House of Representatives on November 5, 1997.
The Administration also stands ready to consider carefully all proposals to reform the tax system comprehensively. The proposal contained in H.R. 3097, however, provides no reform plan. Moreover, none of the reform plans currently being discussed meets the criteria set forth by the President to evaluate tax reform proposals: fairness; fiscal responsibility; positive impact on economic growth; and simplification.
As Secretary Rubin has indicated in the attached letter to the Congressional leadership, the proposal in H.R. 3097 to sunset the tax code is a deeply flawed idea that, if enacted, would harm the Nation's strong economy. For example, some families would likely refrain from buying homes due to the uncertain future tax treatment of mortgage interest and property taxes (as well as all other State and local taxes), which would harm current homeowners. Many businesses would hire fewer workers and make fewer capital investments because of uncertainty about how taxes would affect the return on productive assets. Furthermore, the uncertainty of the bill's effect on future receipts would raise the specter of massive Federal deficits which, in turn, would increase interest rates and weaken or destroy economic growth.
H.R. 3097 would have many other harmful effects on the well-being of families. A family's health insurance would be threatened because the tax status of employer-provided health benefits would be uncertain. Hope Scholarships, which make higher education more affordable for students, would be in jeopardy, as would the child tax credits that help families with the costs of child-rearing. The structure of the employer-provided pensions and tax incentives for retirement could be altered in ways that could harm retirement income security.
H.R. 3097 would affect receipts; therefore, it is subject to the pay-as-you-go requirement of the Omnibus Budget Reconciliation Act of 1990. Beginning after 2002, the bill (as amended) would terminate both federal income taxes -- corporate and individual -- in addition to eliminating most other sources of Federal revenue. Because the bill establishes no alternative federal tax system and contains no offsets, it would reduce Federal receipts by hundreds of billions of dollars beginning after FY 2002. Under the Budget Enforcement Act, this would trigger a massive sequester of Federal programs with a broad range of unacceptable consequences.