membership is to be increased from six to seven members, and certain other procedural and organizational changes are to be made with respect to the Commission. Miscellaneous Amendments (Title XXV) 1. Disability payments exclusion.-An exclusion from gross income is provided for disability payments received by U.S. Government employees on account of personal injuries occurring outside of the United States as a result of a terrorist attack. 2. Changes in treatment of foreign income.-The foreign tax credits which are to be allowed an additional 2-year carryover under the committee's amendment to H.R. 10612, as reported, are to be applied on a first-in-first-out (FIFO) basis. Individuals are to have the option of claiming a foreign tax credit on income earned abroad in lieu of the $20,000 (or $25,000) exclusion from income. In addition, any loss from a foreign subsidiary is not to be subject to foreign loss recapture to the extent that it is attributable to a deficit in earnings and profits as of December 31, 1976, where the loss is sustained prior to January 1, 1979. T Further, foreign source income derived by a possessions corporation is entitled to the possessions tax credit if earned before October 1, 1976, without regard to the requirement of its being earned in the possession in which the trade or business providing the funds is being conducted. 3. Treatment of certain individuals employed in fishing as selfemployed. Crewmen on boats engaged in taking fish (or other forms of aquatic animal life) with an operating crew of fewer than 10 are to be treated as self-employed for Federal tax purposes in certain instances. (This modifies an earlier committee provision pertaining to boat crewmen.) 4. Energy-related provisions. A special credit for wind-related residential energy equipment is provided where it is installed to generate electricity to heat or cool residences or to provide hot water for them. A special investment credit is provided for wind-related energy equipment installed for use in the trade or business of producing the electricity or the generation of electricity for use in a trade or business. 5. Sliding-scale inclusion ratio for capital gains.-The 50-percent capital gains exclusion for capital gains is increased for assets held more than 5 years by one percentage point for each year an asset is held in excess of 5 years, but with a minimum inclusion of 30 percent (after 25 years). 6. Pensions, ESOP's and related items.--The Pension Benefit Guaranty Corporation is to be exempt from all Federal taxation except taxes imposed under the Federal Insurance Contributions Act (social security taxes) and the Federal Unemployment Tax Act (unemployment taxes). In addition, unincorporated businesses are to be allowed to make contributions to tax-qualified pension plans (an H.R. 10 plan) on behalf of an owner of a business, under the usual H.R. 10 rules for plans funded with annuity contracts, without disqualifying the plan under the overall limitations on benefits and contributions under taxqualified plans. With respect to Employee Stock Ownership Plans (ESOP's), two provisions previously agreed to by the committee are to be deleted. These (1) would require ESOP's funded with investment tax credits to provide for broader employee participation, and (2) would end the treatment of ESOP's as employee pension or welfare plans under Federal law (other than tax law). In addition, an amendment was adopted permitting employees to elect out of an ESOP funded with investment tax credits. 7. Tax-exempt organizations and charitable contributions.-Taxexempt hospitals are to be permitted to provide laundry services to small tax-exempt hospitals for a fee without the income from these services being subject to the unrelated business income tax. Laundry and clinical services are to be tax-exempt when cooperatively operated by a service organization created by tax-exempt hospitals. United States Government publications received by taxpayers without charge or at a reduced price are no longer treated as capital assets and as a result a charitable contributions deduction will no longer be available when they are contributed to charity. Corporations (other than a subchapter S corporation) are to be allowed a deduction for up to one-half of the appreciation on certain types of ordinary income property contributed to a public charity or private operating foundation for use in carrying on its exempt purpose. Public charities (other than a church, an organization affiliated with a church, or certain support organizations), are to be permitted to elect to have their lobbying activities measured by an "expenditures" test rather than the "substantiality" test of present law. In taxing the income of an exempt organization, to the extent the income is derived from "debt-financed property", the term "acquisition indebtedness" is not to include taxes and special assessments imposed by State or local governmental units until those taxes or special assessments become due and payable and the organization has had an opportunity to pay them in accordance with State law. The expiration date of a private foundation transitional rule contained in the Tax Reform Act of 1969 is extended to January 1, 1977. In general, this extension applies to a rule which exempts from the self-dealing rules, certain sales, exchanges, or other dispositions of certain "nonexcess" business holdings by a private foundation to a disqualified person so long as the private foundation receives at least fair market value. The minimum distribution requirement for private operating foundations is generally reduced to 3 percent. Also imputed interest income on pre-1970 installment payments is excluded from the distribution requirements applicable to private foundations. Finally, this amendment exempts libraries and museums, where they elect this general 5 percent payout rule from the net tax on investment income applicable to private foundations. 8. Low-income allowance.-An amendment was adopted increasing the low-income allowance to $1,850 for single returns and $2,400 for joint returns for the calendar year 1977, with the increase to be reflected in lower withholding during the last 6 months of 1977. For 1978 and future years, the low-income allowance is to be $2,000 for single returns and $2,700 for joint returns. (Without this change the low income allowance would be $1,700 for single returns and $2,100 for joint returns.) 9. Equipment leasing-transitional rule for "at risk" limitation.A transitional rule to the committee's "at risk" provision was provided for equipment leasing so that this rule will not apply to losses incurred under a lease in effect on December 31, 1975. 10. Architectural, etc., barriers to handicapped persons-to include the deaf and blind.-A clarification of the previous committee provisions provides that the current deduction for the removal of barriers to handicapped and elderly persons is to include the removal of barriers provided for blind and deaf people within the definition of handicapped persons. II. REVENUE ESTIMATES As indicated in Table 1, the revenue raising provisions of the committee floor amendments to H.R. 10612 are estimated to generate less than $5 million in fiscal years 1977 and 1978, $5 million in 1979, $8 million in 1980, and $13 million in 1981. The primary source of this increase in receipts is the "exchange funds" provision. The liberalized standard deduction provision, the chief revenue reducing floor amendment, is estimated to result in a decrease in receipts of $597 million in fiscal year 1977, $2.9 billion in 1978, $3.2 billion in 1979, $3.4 billion in 1980, and $3.6 billion in 1981. Revision of the estate and gift taxes is estimated to result in a decrease in receipts of $1 billion in fiscal year 1978, $1.4 billion in 1979, $1.7 billion in 1980, and $2 billion in 1981. Other revenue reducing floor amendments are estimated to result in a decrease in receipts of $54 million in fiscal year 1977, $525 million in 1978, $1.5 billion in 1979, $1.8 billion in 1980, and $2.1 billion in 1981. The total estimated effect of all the revenue reducing provisions combined is a reduction in receipts of $651 million in fiscal year 1977, $4.5 billion in 1978, $6.1 billion in 1979, $6.9 billion in 1980, and $7.6 billion in 1981. Table 2 shows the impact on tax receipts of each of the committee floor amendments in the transition quarter and in each of the fiscal years 1977 through 1981. As indicated in this table, the contributors to revenue raising are the "exchange funds" provision and (for one fiscal year, 1981) the equipment leasing “at risk” provision. The principal categories of revenue reducing provisions are the liberalized minimum standard deduction, $597 million for fiscal year 1977, $2.9 billion for 1978, and $3.6 billion for 1981; the revised estate and gift taxes, $1 billion for fiscal year 1978 rising to $2 billion by 1981; the liberalized inclusion ratio for capital gains, $719 million for fiscal year 1979, $791 million for 1980, and $870 million for 1981; and the phased-in credit for expenses of postsecondary education, $467 million for fiscal year 1978, $711 million for 1979, and $1.1 billion for 1981. Table 2 also breaks down the net effect of the floor amendments between individuals and corporations. Almost all of the net tax decrease is accounted for by revenue reducing floor amendments affecting individuals. Table 3 shows at 1975 levels, by adjusted gross income class, the full-year estimated decrease in individual income tax liability resulting from liberalization of the minimum standard deduction. This table shows that 62.1 percent of the $2.7 billion reduction goes to returns with less than $10,000 of adjusted gross income and 35.6 percent goes to returns with between $10,000 and $15,000 of adjusted gross income. This table also indicates that 39.2 million returns show a decrease in tax liability, of which 2.2 million become nontaxable. Also, as indicated in this table, 3.8 million returns are estimated to shift to the standard deduction. Table 4 shows, for selected tax returns, representing different marital status, different numbers of exemptions, and different levels of adjusted gross income, the tax burden under the standard deduction provision in the bill reported by the Senate Finance Committee and the tax burden under the standard deduction provision in the committee floor amendment. TABLE 1.-SENATE FINANCE COMMITTEE FLOOR AMENDMENTS TO H.R. 10612 1: Additional amendments agreed to by the committee after the bill was ordered reported. These amendments are to be offered on the floor. Less than $5,000,000. TABLE 2.-SENATE FINANCE COMMITTEE FLOOR AMENDMENTS TO H.R. 106121: ESTIMATED EFFECT ON FISCAL A. Title XXII-Estate and gift taxes: Phased-in credit in lieu of the exemption; liberalized marital deduction; current use valuation and liberalized deferral in the case of farms, etc.; elimination of the tax advantages of generation skipping; etc.. B. Title XXIII-Other amendments: 1. Outdoor advertising displays. 3. Treatment of gain from sales or ex- 5. Tax counseling for the elderly. 6. Credit for certain expenses incurred in 7. Commission on value added taxation. 8. Interest on certain governmental obli- 9. Group legal services plans.... 10. Exchange funds. 11. Distributions by subch. S corporations... Total, title XXIII.... C. Title XXIV-International Trade Commission.. |