Investing in Our Children's Health Act of 1998

Summary: Investing in Our Children's Health Act of 1998 - Amends the Internal Revenue Code to exclude from an individual's gross income any income from dividends paid by a tobacco company which meets specified youth smoking reduction targets. 
Provides for annual child tobacco use surveys.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Investing in Our Children's Health 
Act of 1998''.

SEC. 2. EXCLUSION FROM GROSS INCOME FOR DIVIDENDS FROM TOBACCO 
              COMPANIES WHICH MEET YOUTH SMOKING REDUCTION TARGETS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by inserting after section 115 the 
following new section:

``SEC. 116. DIVIDENDS FROM TOBACCO COMPANIES WHICH ACHIEVE YOUTH 
              SMOKING REDUCTION TARGETS.

    ``(a) In General.--In the case of an individual, gross income does 
not include any dividend paid by a corporation to the extent such 
dividend is attributable to qualifying earnings and profits.
    ``(b) Qualifying Earnings and Profits.--
            ``(1) In general.--For purposes of this section, the term 
        `qualifying earnings and profits' means earnings and profits--
                    ``(A) which are from the manufacture in, or the 
                importation into, the United States of any tobacco 
                product, and
                    ``(B) which are for any taxable year beginning in a 
                calendar year with respect to which there has been a 
                reduction in the underage use of such product of not 
                less than the applicable percentage of the baseline 
                level.
            ``(2) Applicable percentage.--For purposes of subparagraph 
        (A), the applicable percentage for any taxable year is the 
        applicable percentage determined under the following table for 
        the calendar year in which such taxable year begins.
                                                             Applicable
Calendar year:                                              percentage:
    2002..........................................               10    
    2003..........................................               20    
    2004..........................................               30    
    2005..........................................               40    
    2006..........................................               50    
    2007..........................................               60    
    2008..........................................               70    
    2009..........................................               80    
    2010 or thereafter............................              90.    
    ``(c) Youth Smoking Reduction Target.--For purposes of this 
section, the baseline level for any tobacco product manufactured or 
imported by any corporation, and whether the requirement of subsection 
(b)(2) has been met, shall be determined by the Secretary of Health and 
Human Services in accordance with section 3 of the Investing in Our 
Children's Health Act of 1998.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) A dividend from a regulated investment company shall 
        be subject to the limitation prescribed in section 854(c).
            ``(2) The amount of dividends properly allocable to a 
        beneficiary under section 652 or 662 shall be deemed to have 
        been received by the beneficiary ratably on the same date that 
        the dividends were received by the estate or trust.
    ``(e) Certain Nonresident Aliens Ineligible for Exclusion.--In the 
case of a nonresident alien individual, subsection (a) shall apply 
only--
            ``(1) in determining the tax imposed for the taxable year 
        pursuant to section 871(b)(1) and only in respect of dividends 
        which are effectively connected with the conduct of a trade or 
        business within the United States, or
            ``(2) in determining the tax imposed for the taxable year 
        pursuant to section 877(b).''
    (b) Conforming Amendments.--
            (1) Subsection (c) of section 584 of such Code is amended 
        by adding at the end the following new sentence:
``The proportionate share of each participant in the amount of 
dividends received by the common trust fund and to which section 116 
applies shall be considered for purposes of such section as having been 
received by such participant.''
            (2) Subsection (a) of section 643 of such Code is amended 
        by inserting after paragraph (7) the following new paragraph:
            ``(8) Dividends.--There shall be included the amount of any 
        dividends excluded from gross income pursuant to section 116.''
            (3) Section 854 of such Code is amended by adding at the 
        end the following new subsection:
    ``(c) Treatment Under Section 116.--
            ``(1) In general.--For purposes of section 116, in the case 
        of any dividend (other than a dividend described in subsection 
        (a)) received from a regulated investment company which meets 
        the requirements of section 852 for the taxable year in which 
        it paid the dividend, a portion of such dividend shall be 
        treated as excludable under section 116 based on the portion of 
        the company's gross income (determined without regard to gain 
        from the sale or other disposition of stock or securities) 
        which consists of dividends which are so excludable.
            ``(2) Notice to shareholders.--The amount of any 
        distribution by a regulated investment company which may be 
        taken into account as a dividend for purposes of the exclusion 
        under section 116 shall not exceed the amount so designated by 
        the company in a written notice to its shareholders mailed not 
        later than 45 days after the close of its taxable year.''
            (4) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 115 the following new item:

                              ``Sec. 116. Dividends from tobacco 
                                        companies which achieve youth 
                                        smoking reduction targets.''
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to taxable years beginning after the date of the 
enactment of this Act.

SEC. 3. CHILD TOBACCO USE SURVEYS.

    (a) Annual Performance Survey.--Not later than October 1, 1999, and 
annually thereafter, the Secretary of Health and Human Services 
(hereafter in this section referred to as the ``Secretary'') shall 
conduct a survey to determine--
            (1) the percentage of all young individuals who used a type 
        of tobacco product within the 30-day period prior to the 
        conduct of the survey; and
            (2) the percentage of young individuals who identify each 
        brand of each type of tobacco product as the usual brand smoked 
        or used within such 30-day period.
    (b) Young Individuals.--For the purposes of this section, the term 
``young individuals'' means individuals who are under 18 years of age.
    (c) Baseline Level.--
            (1) In general.--For the purposes of this section, the term 
        ``baseline level'' means, with respect to each type of tobacco 
        product, the percentage of young individuals determined to have 
        used such tobacco products in the annual performance survey 
        described in subsection (a) completed by October 1, 1999.
            (2) Manufacturer's baseline level.--For the purposes of 
        this section, the term ``manufacturer's baseline level'' means, 
        with respect to each type of tobacco product, the percentage of 
        young individuals determined to have identified a brand of each 
        such tobacco product of such manufacturer as the usual brand 
        smoked or used in the annual performance survey described in 
        subsection (a) completed by October 1, 1999.
            (3) Use of certain data or methodology.--
                    (A) In general.--For purposes of determining the 
                percentages under paragraphs (1) and (2), the Secretary 
                may use the data collected through national surveys of 
                young individuals. Such surveys shall--
                            (i) be based on a nationally representative 
                        sample of at least 20,000 completed interviews 
                        of young individuals;
                            (ii) be on a household-based in person 
                        survey;
                            (iii) measure the use of tobacco product 
                        within the past 30 days;
                            (iv) identify the usual brand of each type 
                        of tobacco product used within the past 30 
                        days; and
                            (v) calculate the actual percentage 
                        reductions in the underage use of a type of 
                        tobacco product (or, in the case of the 
                        manufacturer-specific surcharge, the use of a 
                        type of tobacco product of a manufacturer) 
                        based on the point estimates from the annual 
                        performance survey.
                For purposes of clause (iv), point estimates shall be 
                deemed acceptable for measuring compliance with 
                percentage reduction targets and for calculating 
                surcharges if the precision of estimates of the 
                proportion of young individuals reporting the use of a 
                type of tobacco product (or, in the case of the 
                manufacturer-specific surcharge, the use of a type of 
                tobacco product of a manufacturer) for the purpose of 
measuring compliance with percentage reduction targets and calculating 
surcharges without regard to the 95 percent confidence interval around 
such point estimates if the precision of estimates of the percentage of 
young individuals reporting use of a type of tobacco product (or, in 
the case of the manufacturer-specific surcharge, the use of a type of 
tobacco product of a manufacturer) is such that the 95 percent 
confidence interval around such point estimates is no more than plus or 
minus 1 percent.
                    (B) Conclusive accurateness.--A survey using the 
                methodology described in subparagraph (A) shall be 
                deemed conclusively proper, correct, and accurate for 
                purposes of this Act. The Secretary may, by notice and 
                comment rulemaking, subsequently adopt a different 
                survey methodology.
                    (C) Final determination.--The determination of the 
                Secretary as to the amount and allocation of the 
                surcharge under this section shall be final and the 
                manufacturer shall pay such surcharge within 30 days of 
                the date on which the manufacturer is assessed. Such 
                payment shall be retained by the Secretary pending 
                final judicial review of what, if any, change in the 
                surcharge is appropriate.
                    (D) Review.--The amount of any surcharge paid under 
                this section shall be subject to judicial review by the 
                United States Court of Appeals for the District of 
                Columbia Circuit, based on the arbitrary and capricious 
                standard of section 706 of title 5, United States Code. 
                Notwithstanding any other provision of law, no court 
                shall have the authority to stay any surcharge payment 
                due to the Secretary under this section pending 
                judicial review until the Secretary has made or failed 
                to make a compliance determination, as described under 
                this section, that has adversely affected the person 
                seeking the review.
                    (E) Nonapplicability.--Chapter 35 of title 44, 
                United States Code, shall not apply to information 
                required for the purposes of carrying out this 
                subsection.
                    (F) Amendment to public health service act.--
                Section 308(d) of the Public Health Service Act (42 
                U.S.C. 242m(d)) is amended--
                            (i) by inserting after ``or 307'' the 
                        following: ``, or a survey conducted under 
                        section 132 of the KIDS Act,''; and
                            (ii) by inserting after ``or 306'' the 
                        following: ``, or in the course of a survey 
                        conducted under section 132 of the KIDS Act,''.
    (d) Administration.--
            (1) Technical adjustments.--The Secretary may make 
        technical changes in the manner in which the surveys are 
        conducted under this section to reflect improved methodology so 
        long as adjustments are made to ensure that the results of the 
        surveys are comparable from year to year.
            (2) Participation in survey.--Notwithstanding any other 
        provision of law, the Secretary may conduct a survey under this 
        section involving minors if the results of such survey with 
        respect to such minors are kept confidential and not disclosed.
    (e) Tobacco Product.--For the purposes of this section, cigarettes, 
cigars, little cigars, snuff, chewing tobacco, pipe tobacco, and roll-
your-own tobacco shall each be considered as a separate type of tobacco 
product.