determined under strict insurance principles because of the need to encourage pension plans.

2. A variable-rate premium could have the effect of diverting funds from plans to the PBGC. The cost of paying premiums could force the premature termination of a plan and benefit loss for participants.

3. The premium proposed by the President does not appropriately measure the PBGC's risk with respect to a plan because it does not measure the financial condition of the employer who maintains the plan. Further, it fails to measure appropriately the PBGC's risk because it reflects a plan's termination liability, rather than its liability for benefits guaranteed by the PBGC. Under the proposal, a plan with assets that are more than sufficient to pay for all guaranteed benefits could, nevertheless, be required to pay an additional premium charge based on the plan's funding level.

4. The premium paid to the PBGC should be regarded as a tax because benefits under a plan are guaranteed by the PBGC whether or not the premium has been paid. It is not appropriate for the Congress to delegate to an administrative agency the determination of tax rates.

D. Certain New User Fees

1. Internal Revenue Service

Present Law

The Internal Revenue Service (IRS) currently does not charge taxpayers for issuing determination letters or private ruling letters. In 1984, the IRS issued 106,353 advance determination letters on the qualification of corporate and self-employed pension plans, and acted on 69,613 applications and ruling requests from taxexempt organizations. The IRS also issued 34,246 private ruling letters in response to taxpayers' requests during 1984.

President's Budget Proposal

The President's budget proposes to impose user fees for each determination letter and private ruling letter issued by the IRS. The level of the fees is not specified. These fees are proposed to become effective on October 1, 1987.

Argument for the proposal

Pros and Cons

The Federal Government in recent years has expanded its revenue base by imposing so-called "user fees" for many government services. Currently, the IRS devotes considerable time and manpower to the preparation of determination letters and private letter rulings. The relatively small number of taxpayers who utilize these services should more directly pay these costs.

Argument against the proposal

It is inappropriate to impose a user fee on a taxpayer seeking an IRS determination or private letter ruling to adequately fulfill his legal responsibility to pay taxes. This situation is to be contrasted with an individual paying a user fee to visit a national park is generally acting voluntarily, rather than seeking to fulfill his legal responsibilities.

'The amount of revenues to be collected is directly linked to the level of the user fees. Because no level of user fees has yet been specified, it is assumed that the level will be set to collect approximately $0.1 billion annually (as indicated in the President's fiscal year 1988 budget).

2. Bureau of Alcohol, Tobacco, and Firearms

Present Law

The Treasury Department's Bureau of Alcohol, Tobacco, and Firearms (BATF) collects licensing fees and excise taxes on various types of firearms, pursuant to the Federal Gun Control Act (19 U.S.C. sec. 921 et seq.) and the Internal Revenue Code.

The Code imposes occupational taxes on brewers and on wholesale and retail dealers in liquor, wine and beer. The amount of these taxes ranges from $24 per year for retail beer dealers to $255 per year for wholesale liquor and wine dealers. BATF generally does not charge fees for permits related to alcohol and tobacco products.

President's Budget Proposal

The President's budget proposes increasing fees for services provided by BATF. These may include an increase in firearms licensing fees; imposition of fees for permits to produce alcoholic beverages (pursuant to the Federal Alcohol Administration Act), to engage in certain industrial uses of alcohol and to procure or use certain tax-free2 or specially denatured distilled spirits; and imposition of licensing fees for occupations presently covered by alcohol occupational taxes. Similar fees would also be imposed on tobaccorelated permits.

This proposal would be effective October 1, 1987.

Argument for the proposal

Pros and Cons

It is appropriate for BATF to charge special fees for firearms licensing, permission to produce alcoholic beverages, engage in certain industrial uses of alcohol, procuring or using certain tax-free or specially denatured distilled spirits, as well as charging fees for tobacco-related permits. Such fees would help offset the BATF cost of providing these regulatory services.

Argument against the proposal

Regulatory functions performed by BATF should continue to be funded from general revenues rather than specific fees. Revenues from the alcohol and tobacco excise taxes go into the general fund and therefore help support general governmental functions, including BATF administrative and regulatory efforts.

2 Tax-free uses covered by this provision include certain uses by State or local governments or for specified nonbeverage purposes (including laboratory and hospital uses).

3. Customs Service

Present Law

As enacted in the Omnibus Budget Reconciliation Act of 1986, an ad valorem user fee is applied to all formal entries of merchandise imported for consumption in the amount of 0.22 percent during fiscal year 1987, dropping to 0.17 percent in fiscal year 1988, and expiring after September 30, 1989. The fee does not apply to articles classifiable in schedule 8 of the Tariff Schedules (including products containing U.S. components which are classifiable in item 807.00 of the Schedules).

President's Budget Proposal

The President's budget proposal would eliminate the exemption for articles containing U.S. components and would extend the fee beyond its scheduled expiration date.

The proposal would be effective July 1, 1986.

Arguments for the proposal

Pros and Cons

1. As a user fee, the customs ad valorem fee should be applied to all merchandise imported into the United States, rather than exempting certain articles.

2. Removal of the exemption would lessen the administrative burden of determining and valuing such exemption.

3. Making the Customs user fee permanent would remove uncertainty concerning its future application.

4. Elimination of the exemption would close off an avenue for a potentially significant loss of revenues.

5. Extension of the fee beyond fiscal year 1989 would help to reduce the out-year budget deficits by ensuring that the costs of customs operations are offset.

Arguments against the proposal

1. Applying the user fee to products containing U.S. components would increase the cost of such U.S. components.

2. The Customs user fee should not be made permanent at this time, to give the Congress sufficient time to review its impact and the appropriate level of the fee.

3. Importers who take advantage of the schedule 8 exemption be adversely affected by the administrative burden imposed by this change.

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