Distorting Subsidies Limitation Act of 1997

Summary: Distorting Subsidies Limitation Act of 1997 - Amends the Internal Revenue Code to impose an excise tax on any person engaged in a trade or business who derives any benefit from any targeted subsidy provided by a State or local government.  Defines such a subsidy as one which is designed to encourage a business to locate or remain in a particular jurisdiction.  Denies a tax exemption for any interest earned on bonds which provide such subsidies.  Prohibits the use of Federal funds to provide such a subsidy.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Distorting Subsidies Limitation Act 
of 1997''.

SEC. 2. FINDINGS.

    Congress finds the following:
            (1) Competition among State and local governments for new 
        and existing businesses has become the rule rather than the 
        exception.
            (2) State and local governments are being forced to compete 
        against each other for businesses with scarce tax dollars that 
        would otherwise be used for essential public goods and 
        services.
            (3) When State and local government competition takes the 
        form of preferential treatment for specific businesses, it 
        undermines our national economic union by distorting the 
        allocation of resources.
            (4) There is a role for competition between States and 
        localities when it takes the form of general tax policies, 
        regulation structures, and public services because such 
        competition leads States and localities to provide better 
        service, cost effective regulation, sound tax policies, and 
        more efficient allocation of public and private goods.
            (5) Federal program grants have been used by State and 
        local governments to subsidize business location decisions to 
        attract businesses from other States and localities.
            (6) Proceeds from tax-exempt municipal bonds have been used 
        by one State or locality to attract business from other States 
        and localities.
            (7) No single State or local government can unilaterally 
        withdraw from this competition. Only Congress with its 
        enumerated powers can end the economic distortions and the 
        public costs caused by economic distortions.

SEC. 3. TAXATION OF VALUE OF TARGETED SUBSIDIES PROVIDED BY STATE AND 
              LOCAL GOVERNMENTS.

    (a) In General.--Subtitle D of the Internal Revenue Code of 1986 
(relating to miscellaneous excise taxes) is amended by inserting after 
chapter 44 the following new chapter:

    ``CHAPTER 45--EXCISE TAX ON TARGETED STATE OR LOCAL GOVERNMENT 
                         DEVELOPMENT SUBSIDIES

                              ``Sec. 4986. Targeted State or local 
                                        government development 
                                        subsidies.

``SEC. 4986. TARGETED STATE OR LOCAL GOVERNMENT DEVELOPMENT SUBSIDIES.

    ``(a) General Rule.--There is hereby imposed for each calendar year 
an excise tax on any person engaged in a trade or business who derives 
any benefit during such year from any targeted subsidy provided by any 
State or local governmental unit.
    ``(b) Amount of Tax.--The tax imposed by subsection (a) shall 
consist of a tax computed as provided in section 11(b) as though the 
aggregate value (determined under regulations prescribed by the 
Secretary) of benefits referred to in subsection (a) accruing during 
the calendar year were the taxable income referred to in section 11.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Targeted subsidy.--
                    ``(A) In general.--The term `targeted subsidy' 
                means, with respect to any person, any subsidy--
                            ``(i) which is designed to encourage any 
                        trade or business operation of such person to 
                        locate in a particular governmental 
                        jurisdiction or to remain in a particular 
                        governmental jurisdiction, or
                            ``(ii) which is reasonably expected to have 
                        the effect of a subsidy described in clause 
                        (i).
                    ``(B) Certain more broadly available subsidies 
                treated as targeted subsidies.--
                            ``(i) In general.--A subsidy shall not fail 
                        to be a targeted subsidy by reason of applying 
                        to (or being available to) more than 1 trade or 
                        business operation if such subsidy is 
                        determined (under regulations prescribed by the 
Secretary) not to be part of the general long-term taxing or spending 
policies of the governmental unit.
                            ``(ii) General long-term policies.--A 
                        subsidy shall be treated as part of the general 
                        long-term taxing or spending policies of the 
                        governmental unit only if the subsidy is 
                        available to all trade or business operations 
                        within the jurisdiction of such governmental 
                        unit without regard to the period during which 
                        any operation has been conducted within such 
                        jurisdiction.
            ``(2) Subsidy.--The term `subsidy' includes--
                    ``(A) any grant,
                    ``(B) any contribution of property or services,
                    ``(C) any right to use property or services, or any 
                loan, at rates below those commercially available to 
                the taxpayer,
                    ``(D) any reduction or deferral of any tax or any 
                fee (including any payment by any State or local 
                governmental unit of any tax or fee),
                    ``(E) any guarantee of any payment under any loan, 
                lease, or other obligation,
                    ``(F) any use of governmental facilities (including 
                roads, facilities for the furnishing of water, sewage 
                facilities, and solid waste disposal facilities) to the 
                extent that the amount paid by (or assessed against the 
                property of) the trade or business for such use is less 
                than the amount it would pay were the charge for its 
                use (or the assessment) determined under the same 
                formula or other basis as is used by the State or local 
                government with respect to other comparable facilities 
                used by other trades or businesses, and
                    ``(G) any other benefit specified in regulations 
                prescribed by the Secretary.
    ``(d) Exception for Subsidies for Employee Training and 
Education.--No tax shall be imposed by this section on the value of any 
subsidy provided for employee training or for other education programs.
    ``(e) Special Rules.--
            ``(1) Exception for subsidies provided to governmental 
        entities.--No tax shall be imposed by this section on the value 
        of any subsidy provided to--
                    ``(A) an agency or instrumentality of any 
                government or any political subdivision thereof, or
                    ``(B) any entity which is owned and operated by a 
                government or any political subdivision thereof or by 
                any agency or instrumentality of one or more 
                governments or political subdivisions.
            ``(2) Avoidance of double tax.--No amount shall be 
        includible in gross income for purposes of subtitle A by reason 
        of any targeted subsidy on which tax is imposed under this 
        section.
            ``(3) Administrative provisions.--For purposes of subtitle 
        F, any tax imposed by this section shall be treated as a tax 
        imposed by subtitle A.''
    (b) Denial of Income Tax Deduction for Tax.--Paragraph (6) of 
section 275(a) of such Code is amended by inserting ``45,'' after 
``44,''.
    (c) Clerical Amendment.--The table of chapters for subtitle D of 
such Code is amended by inserting after the item relating to chapter 44 
the following new item:

                              ``Chapter 45. Excise tax on targeted 
                                        State or local government 
                                        development subsidies.''
    (d) Effective Date.--The amendments made by this section shall 
apply to any subsidy which is provided pursuant to an agreement or 
arrangement entered into more than 30 days after the date of the 
enactment of this Act.

SEC. 4. DENIAL OF EXEMPTION FROM TAX FOR INTEREST ON BONDS PROVIDING 
              TARGETED STATE OR LOCAL GOVERNMENT DEVELOPMENT SUBSIDIES.

    (a) In General.--Subsection (b) of section 103 of the Internal 
Revenue Code of 1986 (relating to interest on State and local bonds) is 
amended by adding at the end the following new paragraph:
            ``(4) Bonds providing targeted development subsidies.--Any 
        bond if any portion of the proceeds of such bond is to be used 
        to provide any targeted subsidy (as defined in section 
        4986(c)).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to obligations issued after the date of the enactment of this 
Act.

SEC. 5. PROHIBITION OF USE OF FEDERAL FUNDS FOR TARGETED SUBSIDIES.

    (a) In General.--Notwithstanding any other provision of law, none 
of the Federal funds provided to any State or local government may be 
used to provide any targeted subsidy (as defined in section 4986(c) of 
the Internal Revenue Code of 1986).
    (b) Recovery of Funds Used To Provide Targeted Subsidies.--If the 
Secretary of the Treasury or the Secretary's delegate finds after 
reasonable notice and opportunity for hearing that any State or local 
government used Federal funds in violation of subsection (a), the 
Secretary or the Secretary's delegate shall take such actions as are 
necessary (including referring the matter to the Attorney General of 
the United States with a recommendation that an appropriate civil 
action be instituted) to recover the amount so used from the State or 
local government or the trade or business, whichever the Secretary 
determines to be appropriate.
    (c) Effective Date.--This section shall apply to funds provided 
after the date of the enactment of this Act.