![](media/image1.jpeg){width="6.298611111111111in"
height="1.0208333333333333in"}

# Legislative Bulletin..............................................December 7, 2006

**Contents:**

**H.R. 6408**---Tax Relief and Health Care Act

H.R. 6408---Tax Relief and Health Care Act---*as introduced*

(Thomas, R-CA)

**[NOTE]{.underline}: This bill appears to violate the budget by
billions of dollars.**

**[Order of Business]{.underline}**: The bill is scheduled to be
considered on Thursday, December 7^th^, subject to a closed rule, which
itself was subject to H.Res. 1096, which waived clause 6(a) of House
Rule XIII (requiring a two-thirds vote to consider a rule on the same
day it is reported from the Rules Committee).

**[Summary]{.underline}**: H.R. 6408 contains the following provisions:

-   the Abandoned Mine Land Fund language that was the subject of a memo
    distributed in July to all RSC offices (\$4.9 billion in
    [new]{.underline} mandatory spending over ten years);

-   an increase in payments to Medicare physician payments (the "doc
    fix");

-   other health provisions;

-   the Senate-passed bill (S. 3711) slightly expanding oil and gas
    drilling on the Outer Continental Shelf (OCS);

-   the tax extenders pulled from the tax reconciliation bill before
    passage (such as the state sales tax deduction and R&D tax credit)
    and passed as part of H.R. 5970 ("the trifecta" in July); and

-   a variety of other tax and miscellaneous provisions.

**[Abandoned Mine Land Fund]{.underline}**

H.R. 6408 would modify the Abandoned Mine Land Fund, in accordance with
the following details:

[Background]{.underline}**:** The Abandoned Mine Land (AML) fund was
created in 1977 as part of the Surface Mining Control and Reclamation
Act. The purpose of the AML was to provide for reclamation and
environmental cleanup of abandoned mines in place prior to August 3,
1977.

To finance these activities, fees were placed on coal production and the
receipts placed in the AML. Specifically, production fees of 35 cents
per ton of surface mined coal, 15 cents per ton of coal mined
underground and 10 cents per ton of lignite are collected from coal
producers at all active coal mining operations. The authorization to
collect these fees was scheduled to expire at the end of FY 2004, but
has been subsequently extended a number of times, most recently through
FY 2007.

Under current law, AML receipts are split between states and the federal
government. Federal funding is discretionary and subject to annual
appropriations. In recent years, the value of these receipts has not
been fully appropriated. However, a notional "interest" on these AML
receipts is paid from general revenues to the United Mine Workers
Combined Benefit Fund (CBF), to pay the health benefits of retirees of
coal companies who have left the industry or gone bankrupt.

[Proposed AML Fix]{.underline}**:** The AML proposal---championed by
Sen. Rick Santorum and Rep. Barbara Cubin (an RSC Member who distributed
information strongly advocating the fix in an "RSC Item," dated July 26,
2006, that we commend to your attention)---would make a number of
changes to the program. While extending the AML fees for 15 years, it
would *reduce* the fees on coal by 10% in 2008, and by a total of 20% in
2013, and thereafter---meaning that coal companies would be contributing
less to the AML program.

In addition, the program would be converted from discretionary to
mandatory, *costing \$4.9 billion over ten years in new direct spending*
according to CBO. The cost is generated from three new spending items:
(1) a repayment to states *from general revenues* of any unobligated
balances (i.e. the value of the AML fees not appropriated); (2) the
removal of a cap on the amount of general fund "interest" transfers to
the CBF (currently the transfer is capped at \$70 million annually); and
(3) the expansion of the CBF's beneficiaries to include two new health
plans for retired mine workers.

[Budget Implications]{.underline}**:** Since the AML program is
currently discretionary, the proposed conversion to a mandatory program
would add \$4.9 billion in new entitlement spending. Furthermore, CBO
estimates that the proposed fix would increase the deficit by \$3.9
billion over ten years. (CBO credits the fix for bringing in \$1 billion
over ten years by extending the fees, albeit at a lower rate. This
extension offsets the full cost of \$4.9 billion over ten years.) In
addition, by removing these spending items from the appropriations
process, it frees up an equivalent amount under the budget to be spent
on other discretionary items.

Supporters of the AML fix contend that there is no real cost to the
taxpayer---that only coal money is being used to pay for coal problems
("revenue that the federal government receives from the coal industry").
Specifically, supporters contend that receipts currently being collected
under the Mineral Leasing Act (MLA) from coal-related rents, royalties,
bonuses and lease sales should fund the AML program. Under current law
these MLA revenues do not go to the AML but fund other activities.
However, in the proposed AML fix this would not change---MLA revenues
would still not be deposited in the AML or support the AML program.

AML supporters propose to spend an equivalent amount of general fund tax
dollars *as if the MLA receipts had been credited to the AML trust
fund*. Unfortunately, these MLA receipts are already accounted for, and
the fix neither brings in sufficient new revenues nor redirects the
existing MLA revenues to the AML program. However, this does not change
the fact that if enacted, the fix would cause the federal government to
spend more than it would before---all at the same time that the AML coal
fees are being reduced.

In a letter to Senator Enzi, the Administration concurred with the
analysis above, stating:

> The Administration opposes the proposed amendments to SMCRA because
> they would create new mandatory spending and extend health benefits to
> new groups of former coal industry employees at the taxpayer's
> expense. In addition, the amendments do not substantially contribute
> to the reclamation of abandoned coal sites.

[Bottom Line]{.underline}: **In short, the AML proposal would require
coal companies to pay less in fees, states and retired workers to
receive more in benefits, and the federal government to cover the
difference.** Some conservatives may be concerned that this is not a
good deal for the American taxpayer. CBO estimates that it will cost
taxpayers \$4.9 billion over ten years, and the House Budget Committee
has confirmed that without offsets, it will violate the FY 2007 budget
resolution.

**[Doc Fix and Other Health Provisions]{.underline}**

**Update for Medicare Physicians' Services for 2007.** H.R. 6408 would
provide a 0% update to the conversation factor for 2007. In November,
CMS announced that the annual update to the conversion factor for 2007
is negative 5.1%, stating that "the negative update is projected for
2007 because spending on physicians' services and other Part B services
has been growing at a much faster rate than target spending." Providing
a 0% update to the conversion factor would ensure that the -5.1% update
does not go into effect. CBO estimates that this provision will cost
\$3.1 billion over ten years. H.R. 6408 also provides that the update to
the conversion factor could range up to -13% (current law allows up to a
-7% update). To learn more on the background of this provision and
details of the Sustainable Growth Rate (SGR), please read the section
below entitled *"Background Information on Medicare Physician's
Payments."*

**Bonus Payments and Quality of Care Reporting.** The bill directs HHS
to implement a system for reporting on quality of care and would provide
a 1.5% update bonus payment from July to December 2007, for physicians
that participate in this reporting. In recent years there has been a
large government push to require pay for performance standards to be
tied to physicians Medicare reimbursement payments to control spiraling
medical costs. This would require physicians to report on every aspect
of their doctor patient interaction so the government could review and
then measure quality of care to reimburse the physicians. This issue is
a highly controversial issue, as there has been no discussion on who
sets the "quality standards" and who would define what quality looks
like under such a system. Opponents of quality reporting provisions
would argue that quality of care can only be determined by the patient
and their doctor.

**Update Not Included in SGR for 2008.** H.R. 6408 would provide that
the 0% update for 2007 is not to be included in the calculation of SGR
for 2008. Established in 1998, SGR is a target for aggregate growth in
Medicare spending on physician services, designed to control overall
Medicare spending in this category. SGR is generated by a complex
formula which takes into account the previous year's physician
reimbursement spending. As such, if spending is higher in 2007 than is
allowed by SGR, then in 2008, the SGR calculation would provide for a
reduction in spending in order to contain growth. This provision would
prohibit the inclusion of the 0% update in the calculation of SGR for
2008, and therefore, likely increase spending next year, as SGR would
not reflect the need to reduce spending in 2008 because of increased
spending in 2007.

**Administrative Funding.** H.R. 6408 would direct HHS to transfer
**\$60 million** from the Federal Supplementary Medical Insurance Trust
Fund (the Part B Trust Fund) to the CMS Program Management Account for
FY07, FY08, and FY09. This funding would be primarily used to implement
the quality reporting requirements in the legislation.

**New \$1.35 Billion Fund.** H.R. 6408 would direct HHS to establish a
Physician Assistance and Quality Initiative Fund, and **authorizes
\$1.35 billion** for the fund. According to the text, this \$1.35
billion fund can be used "for physician payment and quality improvement
initiatives, which may include application of an adjustment to the
update of the conversation factor." Essentially, this fund may be used
for virtually anything, including updating the conversion factor.

**Medicare Stabilization Fund.** H.R. 6408 would eliminate the Medicare
Advantage Stabilization Fund, which was created by the Medicare
Modernization Act as an incentive mechanism. According to CBO, this
provision would save \$6.5 billion over 10 years, and would be used to
partially offset the cost of the bill's spending provisions.

**Renal Disease Facilities.** Directs HHS to increase by 1.6%, the
update for end stage renal disease (kidney disease) facilities for 2007.

**Medicare Medical Home Demonstration Project.** Directs HHS to
**establish a medical home demonstration project** to redesign the
health care delivery system to provide targeted, accessible, continuous
and coordinated, family-centered care to high-need populations.

**TMA and Title V Extension.** H.R. 6408 would extend for six months
(until June 30, 2007), both the authorization for Title V programs
(abstinence education programs), and the authorization for Transitional
Medical Assistance (Medicaid benefits for low-income families
transitioning from welfare to work)**.**

**New Grants for Vaccine Against Valley Fever.** Authorizes \$40 million
for HHS to make grants for the purpose of conducting research toward the
development of a vaccine against coccidioidomycosis (Valley Fever).

**Background Information on Medicare Physician's Payments.** Under
current Medicare law, doctors providing health care services to Part B
enrollees are compensated through a "fee-for-service" system, in which
physician payments are distributed on a per-service basis, as determined
by a fee schedule and an annual conversion factor (a formula dollar
amount). The fee schedule assigns "relative values" to each type of
provided service. Relative value reflects physicians' work time and
skill, average medical practice expenses, and geographical adjustments.
In order to determine the physician payment for a specific service, the
conversion factor (\$37.8975 in 2006) is multiplied by the relative
value for that service. For example, if a routine office visit is
assigned a relative value of 2.1, then Medicare would provide the
physician with a payment of \$79.58 for that service. (\$37.8975 x 2.1)

Medicare law requires that the conversion factor be updated each year.
The formula used to determine the annual update takes into consideration
of the following factors:

-   Medicare economic index (MEI) -- cost of providing medical care;

-   Sustainable Growth Rate (SGR) -- target for aggregate growth in
    Medicare physician payments; and

-   Performance Adjustment -- an adjustment ranging from -7% to +3%, to
    bring the MEI change in line with what is allowed under SGR, in
    order to restrain overall spending.

Every November, CMS announces the statutory annual update to the
conversion factor for the subsequent year. The new conversion factor is
calculated by increasing or decreasing the previous year's factor by the
annual update. For example, if the 2006 conversion factor was \$5.00,
and the annual update announced by CMS is +1.5%, then the 2007
conversion factor would be \$5.08. However, if annual update was -1.5%,
then the 2007 conversion factor would be \$4.92. (5.00 +/- \[5.00 x
.015\])

From 2002 to 2006, the statutory formula calculation resulted in a
negative update, which would have reduced physician payments, but not
overall physician spending. The negative updates occurred because
Medicare spending on physician payments increased the previous year
beyond what is allowed by SGR. The SGR mechanism is designed to balance
the previous year's increase in physician spending, with a decrease in
the next year, in order to maintain the aggregate growth targets. Thus,
in light of increased Medicare spending in recent years, the statutory
formula has resulted in negative annual updates. However, since 2003,
Congress has chosen to override current law, providing doctors with
increases each year, and level funding in 2006. The specific data for
each year is outlined in the following table.

+---------+-----------------+-----------------------+-----------------+
| *       | **Statutory**   | **Congressional "Fix" | **Conversion    |
| *Year** |                 | to the Update (%)\*** | Factor**        |
|         | **Annual**      |                       |                 |
|         |                 |                       |                 |
|         | **Update (%)**  |                       |                 |
+---------+-----------------+-----------------------+-----------------+
| 2002    | -5.4            | -5.4\*\*              | \$36.1992       |
+---------+-----------------+-----------------------+-----------------+
| 2003    | -4.4            | +1.6                  | \$36.7856       |
+---------+-----------------+-----------------------+-----------------+
| 2004    | -4.5            | +1.5                  | \$37.3374       |
+---------+-----------------+-----------------------+-----------------+
| 2005    | -3.3            | +1.5                  | \$37.8975       |
+---------+-----------------+-----------------------+-----------------+
| 2006    | -4.4            | 0                     | \$37.8975       |
+---------+-----------------+-----------------------+-----------------+

\*The annual update that *actually went into effect* for that year

> \*\* CMS made other adjustments, as provided by law, which resulted in
> a net update of - 4.8%, however Congress did not act to override the
> -5.4% statutory update.

**[OCS Drilling]{.underline}**

H.R. 6408 would provide for expanded oil and gas leasing on the Outer
Continental Shelf (OCS), the underwater lands adjacent to the coastal
areas of the United States. That is, under S. 3711, the Secretary of the
Interior would offer some OCS areas for leasing that otherwise could not
be leased over the next 10 years under current law. Highlights of the
bill are as follows:

-   Allows OCS oil and gas leasing in two areas of the Gulf of Mexico
    ("181 area" and "181 south area") not currently available for such
    leasing.

-   Places certain OCS areas off the coast of Florida under moratorium
    for oil and gas leasing through June 30, 2022. Entities that
    currently have leases in certain of these newly off-limits areas
    would be eligible to receive royalty and bonus credits equal to the
    value of the bonus bid plus any rental paid for the lease as of the
    date the lessee notifies the Secretary of the decision to exchange
    the lease. Such credits could only be used for new leases in the
    Gulf of Mexico.

-   Reserves the United States' right to designate national defense
    areas on the Outer Continental Shelf.

-   Allocates revenues from the newly-allowed OCS leasing, as follows:

> \--50% to the general fund of the U.S. Treasury
>
> \--50% to a special fund in the U.S. Treasury (capped at \$500 million
> for each of fiscal years 2016 through 2055), for distribution as
> mandatory spending without further appropriation (and
> [not]{.underline} in place of any existing funds), as follows:
>
> \--75% to the states of Alabama, Louisiana, Mississippi, and Texas
>
> \--25% to provide financial assistance to states in accordance with
> Section 6 of the Land and Water Conservation Fund Act of 1965 (16
> U.S.C. 460L-8) \[funds for land and water conservation programs\]

-   Allocates the funds from the "75%" line above to each of the four
    states in amounts (based on a formula established by the Secretary
    by regulation) that are inversely proportional to the respective
    distances between the point on the coastline of each state that is
    closest to the geographic center of the applicable leased tract
    (with no state receiving less than 10% of the funds allocated to the
    four states under this section). 20% of each state's share under
    this section would have to go to coastal political subdivisions (as
    defined in current law). Up to and including fiscal years 2016, this
    revenue-sharing could be on new leases in presently accessible
    areas. After 2016, the revenue-sharing would be just in the areas
    made accessible by this legislation.

-   Requires that the funds from the "75%" line above be used only for:

> \--Projects and activities for the purposes of coastal protection,
> including conservation, coastal restoration, hurricane protection, and
> infrastructure directly affected by coastal wetland losses;
>
> \--Mitigation of damage to fish, wildlife, or natural resources;
>
> \--Implementation of a federally-approved marine, coastal, or
> comprehensive conservation management plan;
>
> \--Mitigation of the impact of OCS activities through the funding of
> onshore infrastructure projects; and
>
> \--Planning assistance and the administrative costs of complying with
> this section (administrative costs limited to 3% of funds received
> under this section).

[Additional Background]{.underline}: The House passed a related bill,
H.R. 4761, on June 29, 2006, by a vote of 232-187:
<http://clerk.house.gov/cgi-bin/vote.asp?year=2006&rollnumber=356>. The
House bill would allow for considerably more leasing on the OCS, but
also contains some new programs and extraneous provisions (such as
funding for the DC metro).

To read the RSC Legislative Bulletin on H.R. 4761, visit this webpage:
<http://www.house.gov/pence/rsc/doc/LB_062906_OCS.doc>. To read the RSC
document on the amendments to H.R. 4761 (amendment numbers 1, 2, and 3
passed; amendment numbers 4 and 5 failed), visit this webpage:
<http://www.house.gov/pence/rsc/doc/LB_062906_OCSAmdts.doc>. The
amendments document also indicates the results of RSC negotiations to
bring the cost of the bill down so that it saves money over ten years.

According to the House Resources Committee, "the U.S. is more than 60
percent dependent on foreign sources of oil to meet our domestic energy
requirements." The committee also points out that we are nearly 100%
dependent on crude oil for our transportation fuel, and population
increases continue to strain our energy needs.

Under current law, moratoria through June 2012 generally prohibit new
leasing and pre-leasing activities in most OCS areas outside of the
western and central Gulf of Mexico (though leasing occurs in small parts
of the eastern Gulf of Mexico and the Alaskan OCS).

The House bill (H.R. 4761) has some of the same language that was
originally part of the House's Deficit Reduction Act (H.R. 4241) last
year. To see the RSC Legislative Bulletin on last year's OCS language,
which was not included in the final spending reconciliation bill signed
into law, visit this webpage and scroll to page 4:

[http://www.house.gov/pence/rsc/doc/LB%2011-08-05\--Resources%20Reconciliation.doc](http://www.house.gov/pence/rsc/doc/LB 11-08-05--Resources Reconciliation.doc).

[Possible Conservative Concerns]{.underline}: Some conservatives may be
concerned about the mandatory spending nature of the revenue-sharing
provisions with the states. Other conservatives may feel that this
legislation does not open up the OCS for leasing the way the House bill
would have. However, because the Senate bill saves money over ten years
(within the budget window) and expands *some* OCS leasing, any
conservative opposition to the Senate bill is not expected to be
widespread.

**[Tax Extenders and Other Tax Provisions]{.underline}**

H.R. 6408 would extend [through the end of 2007]{.underline} (except
where noted) the following provisions that have expired or are about to
expire:

[]{.mark}

-   **[Higher Education Expenses]{.underline}**. Allows taxpayers
    (including non-itemizers) to deduct up to \$4,000 (depending on
    income) of tuition and other higher education enrollment expenses,
    in lieu of claiming the HOPE or Lifetime Learning tax credits.

-   **[New Markets Tax Credit]{.underline}**. Extends thru 2008 the New
    Markets Tax Credit (a credit to taxpayers who invest in businesses
    located in qualified low-income neighborhoods). The bill also
    requires that the Secretary of the Treasury prescribe regulations to
    ensure that non-metropolitan counties receive a proportional
    allocation of qualified equity investments.

-   **[State and Local Sales Taxes]{.underline}.** Allows all taxpayers
    to deduct either their applicable state and local *sales* taxes
    (actual or estimated) [or]{.underline} their applicable state and
    local *income* taxes.

[]{.mark}

-   **[Research and Development (R&D) Tax Credit]{.underline}**. Extends
    the R&D tax credit. Effective January 1, 2007, the value of the
    alternative incremental credit would increase. Adds a new
    alternative simplified credit.

-   **[WOTC]{.underline}.** Allows employers to claim the maximum
    \$2,400 Work Opportunity Tax Credit (WOTC) when they hire
    individuals from eight "target" groups (such as families receiving
    public assistance, high-risk youths, ex-felons, qualified veterans,
    and food stamp recipients under the age of 35 \[up from age 25 in
    current law\]). The credit applies only to cash wages. Combines the
    WOTC with the WTW credit in 2007 (see subsequent paragraph). Key
    modifications of the combined credit include expanded eligibility
    for WOTC (raised age ceiling for food stamp recipients from 25 to
    40), revised eligibility requirements for ex-felons (without regard
    to family income), and a modification of the filing deadline for
    WOTC claimants from 21 to 28 days.

### [WTW]{.underline}. Allows employers to claim the Welfare to Work (WTW) tax credit when they hire individuals who have received public assistance for 18 months or who have exhausted their benefits. The maximum credit is \$3,500 during the employee's first year of employment and \$5,000 during the second year. The credit applies to cash wages and to certain non-cash benefits paid to qualified employees. Combines the WOTC with the WTW credit in 2007 (see previous paragraph). 

-   **[Combat Pay]{.underline}**. Gives military personnel the option of
    including combat pay in the earned income credit calculation.

-   **[Qualified Zone Academy Bonds]{.underline}**. Allows for the
    issuance of Qualified Zone Academy Bonds (QZABs), which are
    tax-credit bonds issued by states and local governments to help
    repair schools, purchase school equipment, and train teachers in
    economically distressed areas. Unlike typical tax-exempt bonds, QZAB
    holders may claim a federal income tax credit in lieu of receiving
    tax-free interest payments. The bond issuer must secure
    private-sector contributions of cash, equipment, training, or other
    property and services equal to 10% of the bond proceeds. No more
    than \$400 million in QZABs can be issued nationwide each year
    (distributed in proportion to each state's population in poverty).
    Issuers would have to reasonably expect to, and actually spend, 95%
    of the proceeds from the sale of QZABs on QZAB property within five
    years of the date of issuance.

[]{.mark}

-   **[Teacher Classroom Expenses]{.underline}**. Allows qualified
    teachers (including those who do not itemize their deductions) to
    deduct up to \$250 of out-of-pocket expenses incurred to purchase
    books, supplies, computers, and other classroom equipment.

```{=html}
<!-- -->
```
-   **[Brownfield Expensing]{.underline}.** Allows taxpayers to
    immediately deduct (against the AMT and regular tax calculations)
    all the costs incurred in cleaning up certain contaminated sites
    ("brownfields") not included on the national priorities list. The
    bill also expands the definition of an eligible contaminated site to
    include sites contaminated by petroleum products.

```{=html}
<!-- -->
```
-   **[District of Columbia]{.underline}**. Allows certain District of
    Columbia businesses in economically depressed zones to claim certain
    tax benefits (such as a 20% wage credit, an additional \$35,000 of
    small business expensing for qualified property, expanded
    tax-exempt-bond financing for certain facilities, and a zero capital
    gains rate for the sale of certain qualified assets). In addition,
    the bill allows first-time homebuyers in the District to claim a
    maximum \$5,000 (phased-down for higher-income individuals)
    nonrefundable tax credit for the purchase of a principal residence.

-   **[Indian Reservations]{.underline}**. Allows employers on Indian
    reservations to receive a 20% tax credit on the first \$20,000 of
    wages and employee health insurance costs to the extent these costs
    exceed the amount paid by the employer in 1993. Also allows
    businesses located on Indian reservations to accelerate their
    depreciation schedules for property that is primarily used to
    conduct business on the reservation.

-   **[Leasehold Improvements]{.underline}**. Reduces the depreciation
    period for certain interior improvements to nonresidential property
    being leased by tenants from 39 years to 15 years.

-   **[Restaurant Improvements and Construction]{.underline}**. Reduces
    the depreciation period for certain improvements to restaurants AND
    new restaurant construction from 39 years to 15 years.

-   **[Rum Excuse Tax Transfers]{.underline}**. Distilled spirits are
    subject to an excise tax equal to \$13.50 per-proof-gallon. Of the
    total amount collected on imported rum, \$13.25 per-proof-gallon is
    transferred to Puerto Rico and the Virgin Islands.

-   **[Mental Health Parity]{.underline}**. Imposes a \$100 per day
    excise tax penalty (up to a cap) on group health plans that fail to
    implement mental health parity (i.e. on plans that impose dollar
    limits for mental health benefits that are different from the limits
    on other medical benefits).

-   **[Computer Equipment]{.underline}**. Allows for an enhanced tax
    deduction for corporate donations of certain computer equipment to
    schools or public libraries (within three years of the equipment's
    purchase or construction). "Enhanced" means higher than the price
    the corporation paid for the equipment (calculated by a specific
    formula).

-   **[Archer MSAs]{.underline}**. Allows individuals and employers to
    make tax-deductible contributions to an Archer MSA (medical savings
    account) to pay for health care expenses. The distributions are
    tax-free when used to pay for eligible medical expenses and are
    subject to a penalty when not used for medical expenses before age
    65.

-   **[Oil And Gas from Marginal Wells]{.underline}**. Allows
    independent oil and gas producers to use the "percentage depletion"
    method of accounting (without a cap) when filing their tax returns.
    Under this method of accounting, 15% of the taxpayer's gross income
    from an oil- or gas-producing property can be deducted each year.

-   **[American Samoa]{.underline}**. Allows certain domestic
    corporations to claim tax credits (determined by a formula) for
    their investment and business activities in American Samoa.

-   **[IRS Undercover Operations and Disclosure]{.underline}**. Extends
    the IRS' authority to use income earned by an undercover operation
    to pay additional expenses incurred in such undercover operation.
    Also extends the IRS' authority to share certain tax information
    with certain other federal and/or state authorities in order to: (1)
    facilitate combined employment tax reporting, (2) investigate
    terrorist activities, and (3) facilitate the repayment of student
    loans that are contingent on income.

-   **[Energy Tax Provisions]{.underline}**. Extends through 2008
    numerous energy provisions that will expire at the end of 2007.
    Highlights include extensions of the:

> \--credit for electricity produced from certain renewable resources
>
> \--credit to holders of clean renewable energy bonds
>
> \--deduction for energy efficient commercial buildings
>
> \--credit for new energy efficient homes
>
> \--credit for residential energy efficient property
>
> \--credit for businesses producing electricity from solar energy, fuel
> cells or microturbines
>
> \--reduced excise tax rate for qualified methanol or ethanol fuel
> produced from coal.

-   **[Health Savings Accounts]{.underline}**. Includes Rep. Eric
    Cantor's health savings account (HSA) legislation (H.R. 6134), which
    would make a variety of changes to rules regarding HSAs. For
    example, the bill would allow rollovers of health flexible spending
    arrangements (FSAs) or health reimbursement arrangements (HRAs) into
    HSAs, repeal the annual plan deductible limitation on HSA
    contributions, increase the HSA contribution limit for individuals
    becoming eligible after the beginning of the year, and permit
    one-time rollovers from Individual Retirement Accounts (IRAs) into
    HSAs.

Other Provisions (highlights):

-   **[Incentive Stock Options---AMT]{.underline}**. Allows individuals
    to take advantage of a refundable credit with respect to certain
    long-term unused AMT credits existing prior to January 1, 2013. The
    annual credit amount, subject to a phase-out, is the greater of (1)
    the lesser of \$5,000 or the amount of the long-term unused AMT
    credit, or (2) 20% of the amount of the long-term unused AMT credit.

-   **[Mine Safety]{.underline}**. Extends through the end of 2008 the
    50% expensing for certain equipment expenditures related to safety
    equipment for underground U.S. mines and the tax credits for certain
    mine rescue team training programs.

-   **[Whistleblowers]{.underline}**. Reforms the reward program for
    individuals who provide information to the Secretary of the Treasury
    regarding violations of the tax laws. The provision establishes a
    reward range for such "whistleblowers" of 15% to 30% of proceeds
    collected by the IRS (subject to certain exceptions) where the
    amount in dispute exceeds \$2 million. The bill would also provide
    the Secretary with regulatory authority to create a Whistleblower
    Office within the IRS to administer the reward program.

-   **[Vaccines]{.underline}**. Adds the meningococcal and human
    papillomavirus vaccines to the list of taxable vaccines.

-   **[Permanency of Reconciliation Provisions]{.underline}**. Makes
    [permanent]{.underline} a variety of provisions in the *Tax Increase
    Prevention and Reconciliation Act of 2005* that were temporary:

```{=html}
<!-- -->
```
-   **[Environmental Cleanup Funds]{.underline}**. Exempts environment
    cleanup settlement funds, escrow accounts, and similar funds from
    federal taxation, if certain standards and requirements are met (as
    detailed in the legislation).

-   **[Active Trade or Business Test]{.underline}**. Modifies the
    definition of "active conduct of a trade or business" (as it relates
    to certain corporate distributions) to treat a corporation and the
    corporation's separate affiliated group (i.e. holding company) as
    one corporation. The Ways & Means Committee asserts that this
    provision has the effect of, "allow\[ing\] corporations to avoid
    costly and inefficient internal restructurings prior to engaging in
    certain corporate distributions to their shareholders."

-   **[Veterans' Mortgages]{.underline}**. Makes all veterans (not just
    ones who served prior to 1977, as in current law) eligible to
    participate in state home mortgage programs funded by Qualified
    Veterans' Mortgage Bonds (which are aimed at financing affordable
    mortgages for veterans). Veterans would have to apply for financing
    under such a program within 25 years of the last day of active
    military service. The bill also alters the caps on bond issues so
    that the current-law formula is replaced with phased-in hard-dollar
    limits for participating states and removes the cap altogether in
    2011 and thereafter.

-   **[Self-Created Musical Works]{.underline}**. Treats the sale or
    exchange of self-created musical works as capital gains (rather than
    as regular income, as under current law).

-   **[Tonnage Tax]{.underline}**. Reduces from 10,000 to 6,000 the
    minimum deadweight tons required for U.S.-flagged vessels (that
    participate in commercial foreign trade) to opt into the alternative
    tonnage tax regime. The Ways & Means Committee reports that this
    regime is generally more favorable for vessels (i.e. offers them
    lower tax assessments). This tonnage revision would expire at the
    end of 2010.

-   **[Permanent University Fund]{.underline}**. Codifies and makes more
    favorable the IRS regulations that govern the tax treatment of
    tax-exempt bonds issued by the Permanent University Fund (which is
    used to finance the activities of certain state universities).

```{=html}
<!-- -->
```
-   **[Great Lakes Shipping]{.underline}**. Permanently modifies the
    treatment of shipping within the Great Lakes to ensure that vessel
    operators in this region can qualify for the alternative tonnage tax
    regime.

-   **[Veterans Mortgages]{.underline}**. Makes affordable mortgages
    more accessible to veterans by providing them with a one-time
    exception (thru December 31, 2007) from the mortgage revenue bond
    first-time homebuyer requirement.

-   **[Intelligence Community Home Sales]{.underline}**. Excludes the
    gain from the sale of a principal residence by certain intelligence
    community employees.

-   **[Judge Property Sales]{.underline}**. Eliminates capital gains tax
    on property sold by federal judges to avoid conflicts of interest.

-   **[Mortgage Insurance Premiums]{.underline}**. Establishes an
    itemized deduction for the cost of premiums for mortgage insurance
    on a qualified personal residence, phased-out ratably by 10% for
    each \$1,000 by which the taxpayer's adjusted gross income exceeds
    \$100,000.

[Additional Background]{.underline}: To read the RSC Legislative
Bulletin on the tax reconciliation bill, as it first passed the House,
visit this webpage:
<http://www.house.gov/pence/rsc/doc/LB_120805_taxreconcil.pdf>.

To read the RSC Legislative Bulletin on the tax reconciliation bill, as
it was signed into law, visit this webpage:
<http://www.house.gov/pence/rsc/doc/LB_051006_taxreconcilconfrpt.doc>.

To read the RSC Legislative Bulletin on "the trifecta" (H.R. 5970), as
it passed the House this past summer, visit this webpage:
<http://www.house.gov/pence/rsc/doc/LB_072806--minwageAMLdeathtaxextenders.doc>.

To read an RSC document on impending tax increases that will happen
without legislative action, visit this webpage:
<http://www.house.gov/pence/rsc/doc/082306_impendingtaxincreasesNEW.doc>.

**[Miscellaneous Provisions]{.underline}**

-   **[Imported Tobacco]{.underline}**. Stipulates that the quantity
    exception allowed for cigarettes purchased for "personal use" does
    not apply to cigarettes imported via "delivery sale" (ordered by
    phone, mail, or on the internet). Also subjects imported smokeless
    tobacco products to the same provisions and regulations as imported
    cigarettes (such as packaging, label warnings, advertising, etc.).
    Provides a personal use exception to the general quantity
    restrictions for imported tobacco products for individuals who
    reland or receive tobacco in the quantity allowed to enter free of
    tax and duty under the Harmonized Tariff Schedule of the U.S.

-   **[Federal Land Withdrawals]{.underline}**. Withdraws certain
    specified federal land, and interests in certain federal land, from
    location, entry, and patent under the mining laws, including certain
    lands within the Lewis and Clark National Forest, the Flathead
    National Forest, and the Rocky Mountain Front Mineral withdrawal
    area.

-   **[Sales of Mineral Interests]{.underline}**. Provides additional
    tax incentives on a conservation sale of a qualifying mineral or
    geothermal interest, stating that gross income does not include 25%
    of the qualifying gain. Stipulates that a tax will be imposed on any
    subsequent transfer (by sale or other transfer) by an eligible owner
    of an interest (land) acquired from a conservation sale, and states
    the tax will consist of 20% of the fair market value plus the
    highest rate specified in the relevant Code times any gain realized
    by the transfer.

-   **[DC School Choice]{.underline}**. Increases the allowable
    scholarship under the DC School Choice Program to a student from a
    household whose income does not exceed 200% of the poverty line up
    to 300% of the poverty line, if the student's first academic year of
    participation ends in June 2005 or June 2006, or whose second year
    ends on or before June 2009.

-   **[Elder Abuse]{.underline}**. Directs the Secretary of Health and
    Human Services to conduct a study on establishing a uniform national
    database on elder abuse, and submit a report to Congress on the
    completion of the study; authorizes \$1 million over the FY07-FY08
    period.

**[Committee Action]{.underline}**: H.R. 6408 was introduced on
Thursday, December 7, 2006, and referred to a variety of committees,
neither of which took any subsequent official action.

**[Possible Conservative Concerns]{.underline}**: Conservatives may be
concerned that this bill appears to violate the FY2007 budget resolution
by billions of dollars (the mine fund language and the doc fix/health
care language).

**[Cost to Taxpayers]{.underline}**: A unified cost and revenue estimate
for the bill in its entirety is unavailable.

However, CBO estimates that the Abandoned Mine Fund language would
increase mandatory spending by \$4.9 billion over ten years.

Furthermore, CBO estimates that the health care provisions would
increase mandatory spending by a net \$1.7 billion over five years, and
\$4.9 billion over ten years. Press reports have indicated that the 0%
update to the payments for physicians is fully offset by the elimination
of the Medicare Stabilization Fund. Although this particular provision
is offset, there are other large spending items in the health care
provisions, which are not fully offset.

The Joint Committee on Taxation estimates that the revenue portions of
this bill would reduce revenues by \$15.5 billion in FY2007, by \$38.1
billion over the FY2007-FY2011 period, and by \$45.1 billion over the
FY2007-FY2016 period.

Lastly, CBO estimates that the OCS drilling portion of this bill would
have no effect on spending in FY2007, would reduce mandatory spending by
\$140 million in FY2008, would reduce mandatory spending by \$241
million over the FY2007-FY2011 period, and would reduce mandatory
spending by \$926 million over the FY2007-FY2016 period.

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}**: Yes---new programs, new taxpayer
liabilities, etc.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}**: Although a formal analysis of
the mandates is unavailable, the bill does not appear to contain any.

**[Constitutional Authority]{.underline}**: A committee report citing
constitutional authority is unavailable.

**[RSC Staff Contacts]{.underline}**:

Abandoned Mine Fund: Russ Vought, <russell.vought@mail.house.gov>, (202)
226-8581

Health Care: Joelle Cannon, <joelle.cannon@mail.house.gov>, (202)
226-0718

Tax and OCS: Paul S. Teller, <paul.teller@mail.house.gov>, (202)
226-9718

\###