79–006

106TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 106–780

SOCIAL SECURITY BENEFITS TAX RELIEF ACT OF 2000

JULY 24, 2000.—Committed to the Committee of the Whole House on the State of

the Union and ordered to be printed

Mr. ARCHER, from the Committee on Ways and Means,

submitted the following

R E P O R T

together with

DISSENTING VIEWS

[To accompany H.R. 4865]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the

bill (H.R. 4865) to amend the Internal Revenue Code of 1986 to repeal the 1993 income tax increase on Social Security benefits, having considered the same, report favorably thereon with an amendment and recommend that the bill as amended do pass.

CONTENTS

Page

I. Summary and Background ........................................................................... 3

A. Purpose and Summary .................................................................... 3

B. Background and Need for Legislation ............................................ 3

C. Legislative History ........................................................................... 3

II. Explanation of the Bill .................................................................................. 4

A. Repeal of Second-Tier Tax on 85 Percent of Social Security

Benefits ............................................................................................ 4

III. Votes of the Committee ................................................................................. 6

IV. Budget Effects of the Bill .............................................................................. 6

A. Committee Estimates of Budgetary Effects ................................... 6

B. Budget Authority and Tax Expenditures ....................................... 8

C. Cost Estimate Prepared by the Congressional Budget Office ...... 8

V. Other Matters To Be Discussed Under the Rules of the House ................ 9

A. Committee Oversight Findings and Recommendations ................ 9

B. Summary of Findings and Recommendations of the Committee

on Government Reform and Oversight ......................................... 10

C. Constitutional Authority Statement ............................................... 10

D. Information Relating to Unfunded Mandates ............................... 10

E. Applicability of House Rule XXI5(b) ............................................... 10

2

F. Tax Complexity Analysis ................................................................. 10

VI. Changes in Existing Law Made by the Bill as Reported ............................ 11

VII. Dissenting Views ........................................................................................... 15

The amendment is as follows:

Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘‘Social Security Benefits Tax Relief Act of 2000’’.

SEC. 2. REPEAL OF 1993 INCOME TAX INCREASE ON SOCIAL SECURITY BENEFITS.

(a) RESTORATION OF PRIOR LAW FORMULA.—Subsection (a) of section 86 of the Internal Revenue Code of 1986 is amended to read as follows:

‘‘(a) IN GENERAL.—Gross income for the taxable year of any taxpayer described

in subsection (b) (notwithstanding section 207 of the Social Security Act) includes

social security benefits in an amount equal to the lesser of—

‘‘(1) one-half of the social security benefits received during the taxable year,

or

‘‘(2) one-half of the excess described in subsection (b)(1).’’

(b) REPEAL OF ADJUSTED BASE AMOUNT.—Subsection (c) of section 86 of such Code

is amended to read as follows:

‘‘(c) BASE AMOUNT.—For purposes of this section, the term ‘base amount’ means—

‘‘(1) except as otherwise provided in this subsection, $25,000,

‘‘(2) $32,000 in the case of a joint return, and

‘‘(3) zero in the case of a taxpayer who—

‘‘(A) is married as of the close of the taxable year (within the meaning

of section 7703) but does not file a joint return for such year, and

‘‘(B) does not live apart from his spouse at all times during the taxable

year.’’

(c) CONFORMING AMENDMENTS.—

(1) Subparagraph (A) of section 871(a)(3) of such Code is amended by striking

‘‘85 percent’’ and inserting ‘‘50 percent’’.

(2)(A) Subparagraph (A) of section 121(e)(1) of the Social Security Amendments of 1983 (Public Law 98–21) is amended—

(i) by striking ‘‘(A) There’’ and inserting ‘‘There’’;

(ii) by striking ‘‘(i)’’ immediately following ‘‘amounts equivalent to’’; and

(iii) by striking ‘‘, less (ii)’’ and all that follows and inserting a period.

(B) Paragraph (1) of section 121(e) of such Act is amended by striking subparagraph (B).

(C) Paragraph (3) of section 121(e) of such Act is amended by striking subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B).

(D) Paragraph (2) of section 121(e) of such Act is amended in the first sentence by striking ‘‘paragraph (1)(A)’’ and inserting ‘‘paragraph (1)’’.

(d) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2000.

(2) SUBSECTION (c)(1).—The amendment made by subsection (c)(1) shall apply

to benefits paid after December 31, 2000.

(3) SUBSECTION (c)(2).—The amendments made by subsection (c)(2) shall

apply to tax liabilities for taxable years beginning after December 31, 2000.

SEC. 3. MAINTENANCE OF TRANSFERS TO HOSPITAL INSURANCE TRUST FUND.

(a) IN GENERAL.—There are hereby appropriated to the Hospital Insurance Trust

Fund established under section 1817 of the Social Security Act amounts equal to

the reduction in revenues to the Treasury by reason of the enactment of this Act.

Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible

the transfers which would have occurred to such Trust Fund had this Act not been

enacted.

(b) REPORTS.—The Secretary of the Treasury or the Secretary’s delegate shall annually report to the Committee on Ways and Means of the House of Representatives

and the Committee on Finance of the Senate the amounts and timing of the transfers under this section.

3

1This provision of the bill also applies to the taxation of railroad retirement tier 1 benefits,

which are equivalent to Social Security benefits.

I. SUMMARY AND BACKGROUND

A. PURPOSE AND SUMMARY

PURPOSE

The bill, H.R. 4865, the ‘‘Social Security Benefits Tax Relief Act

of 2000,’’ as amended, provides much needed tax relief to recipients

of Social Security benefits, while maintaining the fiscal integrity of

the Medicare Hospital Insurance (‘‘HI’’) Trust Fund.

SUMMARY

Reduction of tax.—The bill repeals the second-tier tax on up to

85 percent of Social Security benefits.1 Thus, as under the law in

effect prior to the enactment of the Revenue Reconciliation Act of

1993 (the ‘‘1993 Act’’), no more than 50 percent of Social Security

benefits are includible in gross income. Similarly, in the case of a

nonresident individual who is not a U.S. citizen, 50 percent of Social Security benefits are includible in gross income and subject to

the applicable withholding tax.

Trust funds.—An amount equal to the revenues from the income

taxation of Social Security benefits which would have been credited

to the HI Trust Fund under the 1993 Act (but for this bill) is to

be transferred to the HI Trust Fund from the general fund in the

Treasury at such times and in such manner as to replicate the

present-law transfers.

B. BACKGROUND AND NEED FOR LEGISLATION

The bill approved by the Committee reflects the need for tax relief for recipients of Social Security benefits. The bill also maintains the same balance in the HI Trust Fund that would have occurred under present law.

C. LEGISLATIVE HISTORY

Committee action

The Committee on Ways and Means marked up the provisions of

the bill on July 19, 2000, and approved the provisions, as amended,

on July 19, 2000, by a rollcall vote of 22 yeas and 15 nays, with

a quorum present.

Committee hearings

The following Committee and Subcommittee hearings related to

provisions in the bill were held during the 106th Congress.

Full committee hearings

Tax-related hearings were held by the full Committee as follows:

• Reducing the tax burden: Providing tax relief to strengthen the

family and sustain a strong economy (June 23, 1999).

Subcommittee hearings

The Oversight Subcommittee held tax-related hearings as follows:

4

2Similar rules apply to the taxation of railroad retirement tier 1 benefits.

3The threshold amount is zero in the case of a taxpayer who is married at the end of the

year, who files a separate return, and who does not live apart from his or her spouse for the

entire taxable year.

• Impact of complexity in the Tax Code on individual taxpayers

and small businesses (May 25, 1999).

II. EXPLANATION OF THE BILL

A. REPEAL OF SECOND-TIER TAX ON 85 PERCENT OF SOCIAL SECU- RITY BENEFITS (SECS. 2 AND 3 OF THE BILL AND SECS. 86 AND 871

OF THE CODE)

PRESENT LAW

In general

Under present law, the amount of Social Security benefits that

is taxable depends on the taxpayer’s income.2 Social Security benefits are not taxable in the case of a married taxpayer filing a joint

return with income less than or equal to $32,000 ($25,000 in the

case of a single taxpayer). Up to 50 percent of Social Security benefits are taxable in the case of a married taxpayer filing a joint return with income over $32,000 but not more than $44,000 (over

$25,000 but not more than $34,000 for single taxpayers). Up to 85

percent of Social Security benefits are taxable in the case of a married taxpayer filing a joint return with income over $44,000 (over

$34,000 in the case of a single taxpayer).3 The tax on 85 percent

of Social Security benefits (second-tier tax) was added by the Revenue Reconciliation Act of 1993 (the ‘‘1993 Act’’), effective for taxable years beginning after December 31, 1993.

If a taxpayer’s income exceeds the lower threshold but does not

exceed the second-tier threshold, then the amount of taxable Social

Security benefits is the lesser of (1) 50 percent of the taxpayer’s Social Security benefits, or (2) 50 percent of the excess of the taxpayer’s income over the lower threshold.

If a taxpayer’s income exceeds the second-tier threshold, then the

amount of taxable Social Security benefits is the lesser of: (1) 85

percent of the taxpayer’s Social Security benefits or (2) the sum of:

(a) 85 percent of the excess of the taxpayer’s income over the second-tier threshold, plus (b) the smaller of (i) the amount of benefits

that would have been included if the 50-percent inclusion rule were

applied, or (ii) one-half of the difference between the taxpayer’s second-tier threshold and lower threshold.

In determining whether a taxpayer’s income exceeds the threshold amounts described above, income includes adjusted gross income (‘‘AGI’’), plus one-half of Social Security benefits, plus the following nontaxable items: (1) tax-exempt interest; (2) interest on

education savings bonds; (3) employer-provided adoption assistance; (4) deductible student loan interest; (5) foreign earned income; and (6) income earned in Puerto Rico, Guam, American

Samoa, or the Northern Mariana Islands.

Special rules apply to a nonresident who is not a U.S. citizen. In

general, such individuals are subject to a 30-percent withholding

tax on income from sources within the United States. For purposes

of taxing the income of nonresident individuals who are not U.S.

citizens, the income thresholds for including Social Security beneVerDate 11-MAY-2000 08:42 Jul 25, 2000 Jkt 079006 PO 00000 Frm 00004 Fmt 6659 Sfmt 6602 E:\HR\OC\HR780.XXX pfrm02 PsN: HR780
5

4The implementing legislation for the General Agreement on Tariffs and Trade (P.L. 103–465)

increased from 50 percent to 85 percent the amount of Social Security benefits included in the

gross income of a nonresident alien individual, effective for benefits paid after December 31,

1994, in taxable years ending after such date. 5The remainder of the proceeds from the income taxation of Social Security benefits are credited quarterly to the Old-Age and Survivors Insurance Trust Fund or the Disability Insurance

Trust Fund, as appropriate. 6This provision of the bill also applies to the taxation of railroad retirement tier 1 benefits.

fits do not apply. Instead, 85 percent of Social Security benefits are

included in gross income and subject to the 30-percent withholding

tax. Prior to 1995, 50 percent of Social Security benefits were subject to the withholding tax.4

Trust funds

Revenues from the second-tier tax on Social Security benefits are

credited quarterly to the Medicare Hospital Insurance (‘‘HI’’) Trust

Fund.5

REASONS FOR CHANGE

The Committee believes that the provision in the 1993 Act that

increased the amount of Social Security benefits subject to tax resulted in complex and burdensome taxation of certain senior citizens. The rationale of the 1993 Act provision was to more closely

conform the income tax treatment of Social Security benefits and

private pension benefits. The Committee believes this rationale is

flawed and does not merit continuation of the second-tier tax because Social Security is a social insurance program, not a retirement benefit. Furthermore, the Committee believes that the second-tier tax on Social Security benefits is a disincentive to earnings, savings, and investment by certain Social Security recipients.

Finally, the Committee believes that budget surpluses eliminate

the need for the provision in the 1993 Act which was enacted to

reduce the federal budget deficit. For these reasons, the Committee

believes that repeal of the 1993 Act provision is necessary to restore equity.

EXPLANATION OF PROVISION

Reduction of tax

The bill repeals the second-tier tax on up to 85 percent of Social

Security benefits.6 Thus, as under the law in effect prior to the

1993 Act, no more than 50 percent of Social Security benefits are

includible in gross income. Similarly, in the case of a nonresident

individual who is not a U.S. citizen, 50 percent of Social Security

benefits are includible in gross income and subject to the withholding tax.

Trust funds

An amount equal to the revenues from the second-tier tax on Social Security benefits which would have been credited to the HI

Trust Fund under the 1993 Act (but for this bill) is transferred to

the HI Trust Fund from the general fund in the Treasury at such

times and in such manner as to replicate the present-law transfers.

The Secretary of the Treasury or his delegate is also required to

make an annual report to the House Committee on Ways and

6

Means and the Senate Committee on Finance regarding the

amount and timing of such transfers.

EFFECTIVE DATE

The bill is generally effective for taxable years beginning after

December 31, 2000. The reduction in the taxation of Social Security

benefits and the amount of such benefits applicable to nonresident

individuals who are not U.S. citizens is effective for benefits paid

after December 31, 2000.

III. VOTES OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of the

House of Representatives, the following statements are made concerning the votes of the Committee on Ways and Means in its consideration of the bill, H.R. 4865.

MOTION TO REPORT THE BILL

The bill, H.R. 4865, as amended, was ordered favorably reported

by a rollcall vote of 22 yeas to 15 nays (with a quorum being

present). The vote was as follows:

Representatives Yea Nay Present Representatives Yea Nay Present

Mr. Archer ............................. X ........... ............. Mr. Rangel ........................... ........... X .............

Mr. Crane .............................. X ........... ............. Mr. Stark .............................. ........... X .............

Mr. Thomas ........................... X ........... ............. Mr. Matsui ............................ ........... X .............

Mr. Shaw ............................... X ........... ............. Mr. Coyne ............................. ........... X .............

Mrs. Johnson ......................... X ........... ............. Mr. Levin .............................. ........... X .............

Mr. Houghton ........................ X ........... ............. Mr. Cardin ............................ ........... X .............

Mr. Herger ............................. ........... ........... ............. Mr. McDermott ..................... ........... X .............

Mr. McCrery ........................... X ........... ............. Mr. Kleczka ........................... X ........... .............

Mr. Camp .............................. X ........... ............. Mr. Lewis (GA) ..................... ........... X .............

Mr. Ramstad ......................... X ........... ............. Mr. Neal ............................... ........... X .............

Mr. Nussle ............................. X ........... ............. Mr. McNulty .......................... ........... X .............

Mr. Johnson ........................... X ........... ............. Mr. Jefferson ........................ ........... X .............

Ms. Dunn .............................. X ........... ............. Mr. Tanner ............................ ........... X .............

Mr. Collins ............................ X ........... ............. Mr. Becerra .......................... ........... X .............

Mr. Portman .......................... ........... ........... ............. Mrs. Thurman ....................... ........... X .............

Mr. English ........................... X ........... ............. Mr. Doggett .......................... ........... X .............

Mr. Watkins ........................... X ........... ............. .

Mr. Hayworth ......................... X ........... .............

Mr. Weller .............................. X ........... .............

Mr. Hulshof ........................... X ........... .............

Mr. McInnis ........................... X ........... .............

Mr. Lewis (KY) ...................... X ........... .............

Mr. Foley ............................... X ........... ............. .

IV. BUDGET EFFECTS OF THE BILL

A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS

In compliance with clause 3(d)(2) of rule XIII of the Rules of the

House of Representatives, the following statement is made concerning the effects on the budget of the revenue provisions of the

bill, H. R. 4865, as reported.

The bill is estimated to have the following effects on budget receipts for fiscal years 2001–2005:

ESTIMATED BUDGET EFFECTS OF H.R. 4865, THE ‘‘SOCIAL SECURITY BENEFITS TAX RELIEF ACT OF 2000,’’ AS REPORTED BY THE COMMITTEE ON WAYS AND 

[Fiscal years 2001–2005, in millions of dollars]

Provision Effective 2001 2002 2003 2004 2005 

Repeal the 85% Second Tier Taxation of Social Security and Railroad Retirement Benefits.1 tyba 12/31/00 ¥3,584 ¥9,149 9,816 ¥10,609 ¥11,499 

1 The bill provides for appropriations from the general fund to the Hospital Insurance (‘‘HI’’) Trust Fund to replace lost revenues.

Legend for ‘‘Effective’’ column: tyba=taxable years beginning after.Note.—Details may not add to totals due to rounding.Source: Joint Committee on Taxation.

8

B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX

EXPENDITURES

Budget authority

In compliance with clause 3(c)(2) of rule XIII of the Rules of the

House of Representatives, the Committee states that the bill involves no new or increased budget authority.

Tax expenditures

In compliance with clause 2(c)(2) of rule XIII of the Rules of the

House of Representatives, the Committee states that the revenuereducing income tax provisions involve increased tax expenditures.

(See amounts in table in Part IV.A., above.)

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET

OFFICE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the

House of Representatives, requiring a cost estimate prepared by

the Congressional Budget Office (‘‘CBO’’), the following statement

by CBO is provided.

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, July 21, 2000.

Hon. BILL ARCHER, Chairman, Committee on Ways and Means,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 4865, the Social Security

Benefits Tax Relief Act of 2000.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contacts are Hester Grippando and

Erin Whitaker.

Sincerely,

STEVEN LIEBERMAN

(For Dan L. Crippen, Director).

Enclosure.

H.R. 4865—Social Security Benefits Tax Relief Act of 2000

Summary: Under current law, up to 50 percent of Social Security

and Railroad Retirement benefits are subject to taxation in the

case of married taxpayers filing a joint return with certain income

above $32,000 (or $25,000 for single taxpayers). Up to 85 percent

of benefits received by married taxpayers filing a joint return with

certain income exceeding $44,000 (or $34,000 for single taxpayers)

are subject to taxation. H.R. 4865 would repeal the 85-percent (second tier) taxation of Social Security and Railroad Retirement benefits, thereby reducing the proportion of benefits subject to taxation

at all incomes above $32,000 for married taxpayers filing a joint return and above $25,000 for single taxpayers. In addition, the bill

provides appropriations from the general fund to the Hospital Insurance Trust Fund to replace lost revenues. The bill would take

effect in the first taxable year after December 31, 2000.

9

The Joint Committee on Taxation (JCT) estimates that this bill

would reduce governmental receipts (revenues) from personal income taxes by $4 billion in fiscal year 2001, $45 billion over the

2001–2005 period, and $117 billion over the 2001–2010 period. Because the bill would affect governmental receipts, pay-as-you-go

procedures would apply.

H.R. 4865 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA).

Estimated cost to the Federal Government: The estimated budgetary impact of H.R. 4865 is shown in the following table.

By fiscal year, in millions of dollars—

2001 2002 2003 2004 2005

CHANGES IN REVENUES

Estimated Revenues .................................................................. ¥3,584 ¥9,149 ¥9,816 ¥10,609 ¥11,499

Basis of estimate: All estimates were provided by JCT. Under

current law, the revenues affected by the bill are credited to Medicare’s Hospital Insurance Trust Fund. The bill would maintain

those intragovernmental transfers, which would have no net effect

on the budget.

Pay-as-you-go considerations: The Balanced Budget and Emergency Deficit Control Act sets up pay-as-you-go procedures for legislation affecting direct spending or receipts. The net changes in

outlays and governmental receipts that are subject to pay-as-yougo procedures are shown in the following table. For the purposes

of enforcing pay-as-you-go procedures, only the effects in the current year, the budget year, and the succeeding four years are

counted.

By fiscal year, in millions of dollars—

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Changes in outlays .................................. not applicable

Changes in receipts ................................. 0 ¥3,584 ¥9,149 ¥9,816 ¥10,609 ¥11,499 ¥12,433 ¥13,397 ¥14,445 ¥15,590 ¥16,286

Intergovernmental and private-sector impact: JCT has determined that H.R. 4865 contains no intergovernmental or private-sector mandates as defined in UMRA.

Estimate prepared by: Hester Grippando and Erin Whitaker.

Estimate approved by: G. Thomas Woodward, Assistant Director

for Tax Analysis. Robert A. Sunshine, Assistant Director for Budget

Analysis.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE

RULES OF THE HOUSE

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

With respect to clause 3(c)(1) of rule XIII of the Rules of the

House of Representatives (relating to oversight findings), the Committee advises that it was a result of the Committee’s oversight review concerning the tax burden on individual taxpayers that the

Committee concluded that it is appropriate and timely to enact the

revenue provisions included in the bill as reported.

10

B. SUMMARY OF FINDINGS AND RECOMMENDATIONS OF THE

COMMITTEE ON GOVERNMENT REFORM

With respect to clause 3(c)(4) of rule XII of the Rules of the

House of Representatives, the Committee advises that no oversight

findings or recommendations have been submitted to this Committee by the Committee on Government Reform with respect to

the provisions contained in the bill.

C. CONSTITUTIONAL AUTHORITY STATEMENT

With respect to clause 3(d)(1) of rule XIII of the Rules of the

House of Representatives (relating to Constitutional Authority), the

Committee states that the Committee’s action in reporting this bill

is derived from Article I of the Constitution, Section 8 (‘‘The Congress shall have Power To lay and collect Taxes, Duties, Imposts

and Excises * * *’’), and from the 16th Amendment to the Constitution.

D. INFORMATION RELATING TO UNFUNDED MANDATES

This information is provided in accordance with section 423 of

the Unfunded Mandates Act of 1995 (P.L. 104–4).

The Committee has determined that the bill does not contain

Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental

mandate on State, local, or tribal governments.

E. APPLICABILITY OF HOUSE RULE XXI5(b)

Rule XXI5(b) of the Rules of the House of Representatives provides, in part, that ‘‘No bill or joint resolution, amendment, or conference report carrying a Federal income tax rate increase shall be

considered as passed or agreed to unless determined by a vote of

not less than three-fifths of the Members.’’ The Committee has

carefully reviewed the provisions of the bill, and states that the

provisions of the bill do not involve any Federal income tax rate increase within the meaning of the rule.

F. TAX COMPLEXITY ANALYSIS

Section 4022(b) of the Internal Revenue Service Reform and Restructuring Act of 1998 (the ‘‘IRS Reform Act’’) requires the Joint

Committee on Taxation (in consultation with the Internal Revenue

Service and the Department of the Treasury) to provide a tax complexity analysis. The complexity analysis is required for all legislation reported by the House Committee on Ways and Means, the

Senate Committee on Finance, or any committee of conference if

the legislation includes a provision that directly or indirectly

amends the Internal Revenue Code and has widespread applicability to individuals or small businesses.

The staff of the Joint Committee on Taxation has determined

that a complexity analysis is not required under section 4022(b) of

the IRS Reform Act because the bill contains no provisions that

amend the Internal Revenue Code and that have ‘‘widespread applicability’’ to individuals or small businesses.

11

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS

REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic,

existing law in which no change is proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

Subtitle A—Income Taxes

* * * * * * *

CHAPTER 1—NORMAL TAXES AND SURTAXES

* * * * * * *

Subchapter B—Computation of Taxable Income

* * * * * * *

PART II—ITEMS SPECIFICALLY INCLUDED IN GROSS

INCOME

* * * * * * *

SEC. 86. SOCIAL SECURITY AND TIER 1 RAILROAD RETIREMENT BENEFITS.

ø(a) IN GENERAL.— ø(1) IN GENERAL.—Except as provided in paragraph (2), gross

income for the taxable year of any taxpayer described in subsection (b) (notwithstanding section 207 of the Social Security

Act) includes social security benefits in an amount equal to the

lesser of—

ø(A) one-half of the social security benefits received during the taxable year, or

ø(B) one-half of the excess described in subsection (b)(1).

ø(2) ADDITIONAL AMOUNT.—In the case of a taxpayer with respect to whom the amount determined under subsection

(b)(1)(A) exceeds the adjusted base amount, the amount included in gross income under this section shall be equal to the

lesser of—

ø(A) the sum of—

ø(i) 85 percent of such excess, plus

ø(ii) the lesser of the amount determined under

paragraph (1) or an amount equal to one-half of the

difference between the adjusted base amount and the

base amount of the taxpayer, or

ø(B) 85 percent of the social security benefits received

during the taxable year.¿

(a) IN GENERAL.—Gross income for the taxable year of any taxpayer described in subsection (b) (notwithstanding section 207 of the

Social Security Act) includes social security benefits in an amount

equal to the lesser of—

12

(1) one-half of the social security benefits received during the

taxable year, or

(2) one-half of the excess described in subsection (b)(1).

* * * * * * *

ø(c) BASE AMOUNT AND ADJUSTED BASE AMOUNT.—For purposes

of this section—

ø(1) BASE AMOUNT.— The term ‘‘base amount’’ means—

ø(A) except as otherwise provided in this paragraph, $25,000,

ø(B) $32,000 in the case of a joint return, and

ø(C) zero in the case of a taxpayer who—

ø(i) is married as of the close of the taxable year

(within the meaning of section 7703) but does not file

a joint return for such year, and

ø(ii) does not live apart from his spouse at all times

during the taxable year.

ø(2) ADJUSTED BASE AMOUNT.—The term ‘‘adjusted base

amount’’ means—

ø(A) except as otherwise provided in this paragraph, $34,000,

ø(B) $44,000 in the case of a joint return, and

ø(C) zero in the case of a taxpayer described in paragraph (1)(C).¿

(c) BASE AMOUNT.—For purposes of this section, the term ‘‘base

amount’’ means—

(1) except as otherwise provided in this subsection, $25,000,

(2) $32,000 in the case of a joint return, and

(3) zero in the case of a taxpayer who—

(A) is married as of the close of the taxable year (within

the meaning of section 7703) but does not file a joint return

for such year, and

(B) does not live apart from his spouse at all times during the taxable year.

* * * * * * *

Subchapter N—Tax Based on Income From

Sources Within or Without the United States

* * * * * * *

PART II—NONRESIDENT ALIENS AND FOREIGN

CORPORATIONS

* * * * * * *

Subpart A—Nonresident Alien Individuals

* * * * * * *

SEC. 871. TAX ON NONRESIDENT ALIEN INDIVIDUALS

(a) INCOME NOT CONNECTED WITH UNITED STATES BUSINESS—30

PERCENT TAX

(1) * * *

* * * * * * *

13

(3) TAXATION OF SOCIAL SECURITY BENEFITS.—For purposes of

this section and section 1441—

(A) ø85¿ 50 percent of any social security benefit (as defined in section 86(d) shall be included in gross income

(notwithstanding section 207 of the Social Security Act),

and

* * * * * * *

SECTION 121 OF THE SOCIAL SECURITY AMENDMENTS

OF 1983

SEC. 121. TAXATION OF SOCIAL SECURITY AND TIER 1 RAILROAD RETIREMENT BENEFITS.

(a) * * *

* * * * * * *

(e) TRANSFERS TO TRUST FUNDS.—

(1) IN GENERAL.—

ø(A) There¿ There are hereby appropriated to each payor

fund amounts equivalent to ø(i)¿ the aggregate increase in

tax liabilities under chapter 1 of the Internal Revenue

Code of 1986 which is attributable to the applications of

sections 86 and 871(a)(3) of such Code (as added by this

section) to payments from such payor fundø, less (ii) the

amounts equivalent to the aggregate increase in tax liabilities under chapter 1 of the Internal Revenue Code of 1986

which is attributable to the amendments to section 86 of

such Code made by section 13215 of the Revenue Reconciliation Act of 1993¿.

ø(B) There are hereby appropriated to the hospital insurance trust fund amounts equal to the increase in tax liabilities described in subparagraph (A)(ii). Such appropriated amounts shall be transferred from the general

fund of the Treasury on the basis of estimates of such tax

liabilities made by the Secretary of the Treasury. Transfers shall be made pursuant to a schedule made by the

Secretary of the Treasury that takes into account estimated timing of collection of such liabilities.¿

(2) TRANSFERS.—The amounts appropriated by paragraph

(1)ø(A)¿ to any payor fund shall be transferred from time to

time (but not less frequently than quarterly) from the general

fund of the Treasury on the basis of estimates made by the

Secretary of the Treasury of the amounts referred to in such

paragraph. Any such quarterly payment shall be made on the

first day of such quarter and shall take into account social security benefits estimated to be received during such quarter.

Proper adjustments shall be made in the amounts subsequently transferred to the extent prior estimates were in excess of or less than the amounts required to be transferred.

(3) DEFINITIONS.—For purposes of this subsection—

(A) PAYOR FUND.—The term ‘‘payor fund’’ means any

trust fund or account from which payments of social security benefits are made.

14

ø(B) HOSPITAL INSURANCE TRUST FUND.—The term ‘‘hospital insurance trust fund’’ means the fund established

pursuant to section 1817 of the Social Security Act.¿

ø(C)¿ (B) SOCIAL SECURITY BENEFITS.—The term ‘‘social

security benefits’’ has the meaning given such term by section 86(d)(1) of the Internal Revenue Code of 1954.

* * * * * * *

(15)

VII. DISSENTING VIEWS

We, the undersigned members oppose the bill, H.R. 4865, as reported by the Committee on Ways and Means on May 19, 2000,

and respectfully submit these dissenting views.

We believe H.R. 4865 is part of the Republican strategy to enact,

in pieces, their vetoed $792 billion tax bill. That strategy is designed to hide the overall cost of the Republican tax program and

to divert attention from this Congress’ failure to address the priorities of the American public—saving Social Security and Medicare,

paying down the national debt, and providing a Medicare prescription drug benefit.

Like all of the other tax cuts they have passed this year, this tax

cut is being pushed through without any consideration of the overall budgetary consequences. The fact is that, based on actual legislation, the Republican tax agenda so far adds up to more than $900

billion over 10 years (including debt service). This amount does not

include candidate Bush’s additional proposed tax cuts or the Archer-Shaw Social Security plan which would reduce surpluses by

more than a trillion dollars. Republicans also say that they are for

Social Security and Medicare lock boxes that reserve these trust

fund surpluses. Simultaneously, their appropriations spending has

gone up at 5.9 percent per year for the last two years. And they

say they are for a prescription drug benefit.

The projected budget surpluses may seem large but they are

more than used up by all of these Republican promises. Furthermore, these surpluses are based on projections that are more and

more uncertain as they extend for 10 years into the unpredictable

future. Under the circumstances, the Republican tax agenda is irresponsible because it forces indefinite postponement of so many

other pressing priorities. Now, the Republicans want America to

take a particular big risk by shutting off guaranteed Medicare

funding without an overall plan to strengthen Social Security and

Medicare and pay down the debt.

The bill as reported would repeal the provision enacted in 1993

that increased the portion of Social Security benefits included in income from 50 percent to 85 percent for upper-income retired individuals. The 85 percent inclusion rule is approximately the same

amount that would be included in income if the Social Security

benefit were a private employer retirement benefit and if the employee made contributions for the benefit equal to the employee’s

share of the payroll tax. Approximately 20 percent of elderly individuals are subject to the 85 percent inclusion rule.

At first glance, H.R. 4865 may appear to be a straightforward tax

cut for some Social Security beneficiaries. However, after a full examination including extensive questioning of experts from both the

Administration and the Joint Committee on Taxation, we have serious concerns about the effects of the bill on Medicare financing.

16

Specifically, H.R. 4865 would threaten the Medicare Trust Fund by

eliminating a dedicated tax source and replacing it with a promise

to make payments to Medicare from the General Fund. The size of the promise is enormous, totaling $13.7 trillion over

the 75-year period used to measure long-term Medicare solvency.

If all of the Republicans tax cuts already passed were to be signed

into law, there would be insufficient General Fund resources available to fund those promises. Furthermore, since the Republican

leadership already has backed a budget that breaks the so-called

Medicare lock-box, we are compelled to approach these promises

with intense skepticism.

By depriving Medicare of this dedicated tax, H.R. 4865 would

create a massive unfunded promise estimated (by the Medicare actuaries) at roughly $13.7 trillion over the next 75 years. Five years

would be stripped off the life of the trust fund immediately with

no guarantee that Congress will find the funds needed to make up

the shortfall by cutting elsewhere in the budget or curtailing other

tax cuts.

Ironically, when Democrats proposed strengthening Social Security by supplementing automatic payroll tax transfers with some of

the money saved, due to lower interest payments on the debt, the

Republicans criticized such ‘‘general revenue transfers.’’ Now, the

sponsors of H.R. 4865 are asking the American people to accept a

scheme where they replace a vital source of Medicare financing

with a promise that they will support future general revenue transfers to Medicare.

Some wrongly have stated that the fiscal crisis which resulted in

the 1993 legislation has fully passed. We do affirm that the Congress and the President acted responsibly in 1993 to reduce deficits

and turn them into the large budget surpluses we have today.

However, the revenue lost in H.R. 4865 does not reduce General

Fund deficits or increase General Fund surpluses; it is devoted specifically to the Medicare Hospital Insurance Trust Fund. Enacting

H.R. 4865 would remove this dedicated revenue stream.

Although Medicare financing is secure in the short run, its longterm financing must be strengthened. Congress should be acting to

increase the strength of the Medicare Trust Fund, not weaken it

and put the future of Medicare in doubt. Yet, H.R. 4865 would

gamble with Medicare’s finances at the worst time, when the imminent retirement of the baby-boom generation will cause the number

of people using Medicare to double, from 40 million to 80 million,

between now and 2030.

Only the top-earning one-fifth of Social Security beneficiaries

would get any benefit from this bill. This regressive distribution of

the benefits from the Chairman’s bill is consistent with the generous treatment of wealthy taxpayers in the other Republican tax

bills. According to the Treasury Department, approximately 50 percent of the tax benefits passed by the House this year would go to

the wealthiest 5 percent of households. The other 95 percent of

household would share the other 50 percent.

We are not blind to the election-year politics surrounding H.R.

4865. By presenting members with a tax cut for some senior citizens, the Republican leadership intentionally may be placing members in the awkward situation of choosing whether to be perceived

17

as opposing a tax cut for some seniors or risking the financing of

Medicare for seniors. We strongly support tax cuts that are fiscally

responsible and are targeted to help lower- and middle-income families, and not mainly the very wealthy.

Moreover, this Congress must pass a true Medicare prescription

drug benefit to make vital medications more affordable for all

senors. H.R. 4865 is an attempt to distract seniors from the House

Republican leadership’s unwillingness to enact a bipartisan Medicare prescription drug plan or pass legislation to strengthen Social

Security and Medicare.

Like a kind of Trojan Horse, the bill may appear as a gift for seniors, but it is far more dangerous for all seniors than it is beneficial

to some. If it is possible to replace the revenue stream cut off by

H.R. 4865, then legislation should be possible that builds up the

life of Medicare and improves Medicare benefits. We believe

Congress’s priority should be to develop such legislation benefitting

all seniors. H.R. 4865 cuts taxes for some while refusing to provide

all elderly individuals with a true Medicare prescription drug ben- efit. The Republican bill uses $100 billion over 10 years that could

be used to extend Medicare solvency or offset Medicare reductions

made in 1997.

While we might be assured by our Republican colleagues on the

Committee on Ways and means that they intend to make Medicare

whole after the loss of this dedicated revenue stream, we also must

not forget the history of Republican attitudes toward Medicare.

Former Senate Majority Leader and Republican nominee for President Robert Dole admitted, ‘‘I was there, fighting the fight, one of

twelve, voting against Medicare in 1965 because we knew it

wouldn’t work.’’ Former Speaker Newt Gingrich once pledged the

would let Medicare ‘‘wither on the vine.’’ Majority Leader Richard

Armey once called Medicare, ‘‘a program I would have no part of

in a free world.’’

18

With statements like these from Republican leaders, we must be

skeptical of Republican pledges. We believe that as Members of

Congress, it is our duty to strengthen and secure the Medicare and

Social Security programs that have been entrusted to us, for current beneficiaries and for future beneficiaries. We therefore oppose

the Committee action to report H.R. 4865.

SANDER M. LEVIN.

BEN CARDIN.

WILLIAM J. COYNE.

XAVIER BECERRA.

JIM MCDERMOTT.

KAREN L. THURMAN.

JOHN S. TANNER.

CHARLES B. RANGEL.

ROBERT T. MATSUI.

PETE STARK.

JOHN LEWIS.

RICHARD E. NEAL.

WILLIAM J. JEFFERSON.

LLOYD DOGGETT.

Æ