1985, and is in effect for any year if on September 30 of the prior year any principal or interest from a loan after September 30, 1985 remains unpaid. As mentioned above, the Railroad Retirement Board issued a report on finances on June 16, 1987. As part of this report, the Chairman of the Board recommended an extension of the special repayment tax required to retire the debts of the Railroad Unemployment and Sickness Insurance Account. Similar recommendations were made by the Chief Actuary and the Labor Member of the Board. President's Budget Proposal The President's budget proposal would extend coverage under the Federal-State unemployment insurance system to railroad employment. In addition, a transitional program would be developed to guarantee certain levels of benefits for rail workers who became unemployed after September 30, 1987. The Railroad Sickness and Unemployment Insurance Fund would continue to finance sickness payments and to repay the Fund's debt to the rail industry pension fund. This proposal would be effective October 1, 1987. Argument for the proposal Pros and Cons Currently, the Railroad Sickness and Unemployment Insurance Fund is experiencing financial difficulty and has required loans from the Railroad Industry Pension Fund in the past to avoid insolvency. Given these circumstances, the more financially sound Federal/State unemployment insurance system should assume coverage of railroad workers. Argument against the proposal The railroad industry historically has maintained separate funds for its retirees and unemployed. Levels of contributions mandated by recent legislation have moved these funds closer to financial stability and therefore integration with the Federal-State unemployment system is unnecessary. B. Excise Tax Provisions 1. Proposals Relating to Black Lung Benefits a. Increase in coal excise tax Present Law A manufacturers excise tax is imposed on the sale or use of domestically mined coal (other than lignite) by the producer (secs. 4121, 4218). The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) increased the rate of the tax by 10 percent, effective April 1, 1986, to $1.10 per ton of coal from underground mines, and 55 cents per ton of coal from surface mines. However, the amount of tax may not exceed 4.4 percent of the sales price. Amounts equal to the revenues collected from the coal excise tax are appropriated automatically to the Black Lung Disability Trust Fund. The Trust Fund pays certain black lung disability benefits to coal miners (or their survivors) who have been disabled by black lung disease in cases where no coal mine operator is found specifically responsible for the individual miner's disease. Present law includes an unlimited authorization for advances, generally repayable with interest, from the general fund to the Trust Fund. However, COBRA provided a five-year moratorium on interest accruals (from September 30, 1985 to October 1, 1990) with respect to repayable advances to the Trust Fund. Under present law, the tax will revert to 50 cents on underground coal and 25 cents on surface coal (subject to a limit of two percent of price) on the earlier of January 1, 1996, or the first January 1 as of which there is (1) no balance of repayable advances made to the Trust Fund, and (2) no unpaid interest on such ad vances. President's Budget Proposal The President's budget proposal would increase the excise tax to $1.70 per ton for coal from underground mines and $0.85 per ton for coal from surface mines, subject to a cap of 6.8 percent of the sales price. This rate would apply through 1990, with decreasing rates thereafter. In addition, the proposal would repeal the fiveyear moratorium on interest accruals on repayable advances to the Trust Fund. The Administration also has proposed certain changes to slow the growth of black lung benefit payments, including a one-year freeze on cost-of-living adjustments for benefits. The Administration estimates that its excise tax and related benefit proposals would eliminate the Trust Fund deficit by the year 2007. As of the beginning of fiscal year 1987, the deficit (i.e., the amount of advances repayable to the general fund) was $2.9 billion. Arguments for the proposal Pros and Cons 1. The Black Lung Trust Fund should be placed on an actuarially sound basis by increasing the coal excise tax and adopting other parts of the Administration proposal. While the 10-percent increase enacted in COBRA may allow the Trust Fund to achieve operational solvency, that increase will not be sufficient to achieve retirement of the Trust Fund's indebtedness to the general fund. 2. The Administration proposal is intended to carry out the intent of the Congress that full financial responsibility for the black lung benefits program should be borne by the coal industry for post-1973 claimants. The general fund would continue to fund approximately $1 billion annually in black lung benefits to certain pre-1974 claimants. Arguments against the proposal 1. When COBRA was enacted in 1986, the Congress carefully balanced the financial needs of the Trust Fund and the depressed state of the coal industry. The further tax increases proposed by the Administration would adversely affect the ability of U.S. coal companies to compete with foreign coal in international markets and with other fuel sources in the domestic market. 2. Since the Trust Fund deficit can be viewed as attributable to the excessively liberal eligibility requirements for benefits that applied under prior law, it would be unfair to impose additional tax increases on the coal industry to fund retroactively claim payments that were not based on adequate medical evidence establishing disability from black lung disease. b. Inclusion of black lung cash benefits in gross income Present Law Title IV of the Federal Coal Mine Health and Safety Act provides for payment of monthly cash benefits to eligible coal miners who are totally disabled by black lung disease and to their survivors. Also, a coal miner receiving black lung cash benefits is eligible for related medical and rehabilitation benefits. Under present law, black lung disability benefits are excludable from gross income as workers' compensation benefits (Rev. Rul. 72400, 1972-2 C.B. 75). President's Budget Proposal Under the President's budget proposal, black lung cash benefits would be includible in the recipient's gross income. (The value of medical and rehabilitation benefits received by a disabled miner would continue to be excludable from income.) This proposal would be effective January 1, 1988. Arguments for the proposal Pros and Cons 1. Black lung cash benefits can be viewed essentially as wage replacement payments and therefore should be included in the recipient's gross income. For similar reasons, disability payments under employer-provided plans generally are includible in the recipient's gross income, as are all unemployment compensation benefits. The treatment of wage replacement payments in the same manner as wages or similar compensation (such as sick pay) contributes to more equal tax treatment of individuals with the same economic income. 2. Recipients of black lung benefits who are low-income individuals would receive tax relief through the increased standard deduction and personal exemption amounts and the lower tax rates enacted in the 1986 Act. This represents a more appropriate approach to providing tax relief to low-income individuals than using a special preference for one type of wage replacement payments available only to workers in one industry. The Administration proposal would continue to exclude from income the value of black-lung medical and rehabilitation benefits; this approach is consistent with the general exclusion of employer-provided health care. Arguments against the proposal 1. Black lung benefits can be viewed as essentially similar to personal injury damages and hence should not be taxed to the recipient. This approach is consistent with the general present-law exclusions for amounts (1) received under workers' compensation acts as compensation for personal injuries or sickness, or as benefits to a survivor of a deceased employee; (2) received for personal injuries under an employer-provided accident and health plan, if determined without regard to the period of the employee's absence from work; and (3) for damage payments under tort law for personal injuries or sickness. 2. The present-law exclusion appropriately recognizes that many recipients of black lung benefits need the full amount of the payments, unreduced by taxes, to maintain a subsistence standard of living. 2. Repeal of Current Gasohol, Bus, and State and Local Government Highway Excise Tax Exemptions Present Law Revenues from excise taxes on motor fuels, tires, and trucks and trailers, and a use tax on heavy highway vehicles are deposited in the Highway Trust Fund. Trust Fund monies are used to finance authorized expenditures from the Highway Trust Fund. These Highway Trust Fund excise taxes are scheduled to expire after September 30, 1993. Exemptions from all or part of some of these excise taxes are provided for fuels containing alcohol, for private and public bus operators, and for State and local governments. Alcohol fuels.-An exemption of 6 cents per gallon is provided for gasohol blends (i.e., 10 percent pure alcohol) of diesel, gasoline, and special motor fuels. (The current Highway Trust Fund tax rate is 15 cents per gallon for highway diesel fuel and 9 cents per gallon for gasoline and special motor fuels.) A 6-cents-per-gallon exemption also is provided for neat methanol and ethanol fuels which contain at least 85-percent alcohol produced from a substance other than petroleum or natural gas. A 4-1/2-cents-per-gallon exemption is available for such alcohol blends produced from natural gas. These alcohol fuels exemptions are scheduled to expire after September 30, 1993. Buses.-Private and public bus operators generally are exempt from the excise tax on tires. Intercity common carrier buses, school buses, and qualified local buses are exempt from the 9-cents-pergallon highway taxes on gasoline and special motor fuels. School buses and qualified local buses are also exempt from the 15-centsper-gallon diesel fuel tax. In addition, private intercity buses receive a 3-cents-per-gallon refund (or credit) of the 15-cents-pergallon highway diesel fuel tax. No exemption is available for buses engaged in transportation that is not scheduled and is not along regular routes, unless the seating capacity of the bus is at least 20 adults (not including the driver). State and local governments.-Otherwise taxable products or articles used by States and local governments are exempt from all Highway Trust Fund excise taxes. President's Budget Proposal Under the President's budget proposal, the exemptions from Highway Trust Fund excise taxes for alcohol fuels, buses, and State and local governments would be repealed. This proposal would be effective October 1, 1987. |