5

would be imposed on both domestic and foreign persons that
insured U.S. insurance risks of the type subject to tax.

Foreign persons not otherwise subject to U.S. income tax
would be subject to an alternative excise tax equal to 0.5
percent of their maximum limit of liability under a covered
insurance policy unless that person entered into a closing
agreement with the Treasury Department electing to be taxed in
the same manner as a U.S. person.

ve _tax.--The prospective tax generally would be
imposed on direct premiums written for any commercial insurance
policy (1) that covers hazards within the United States and (2)
the premiums for which are required to be reported on the NAIC
annual statement as relating to the "commercial multiple peril,"
"fire," "product liability," or "other liability" lines of
business.

vi .7->The EIRF excise taxes would be effective
on the date of the bill’s enactment and generally would expire
only after all funding needs of the EIRF have been satisfied.

The authorizing legislation accompanying this proposal would
provide, however, that the EIRF would not become operative unless
at least 85 percent of the parties potentially eligible for
awards accepted the EIRF’s determination of the percentage
recoveries for which they potentially were eligible within 150
days of the bill’s enactment. Otherwise, taxes collected (less
administrative costs of the EIRF) would be refunded.

B. Possible Jurisdictional and Technical Modifications
to Written Transmittals

1. Current Superfund Taxes and Trust Fund

Include amendments to the Superfund Trust Fund provisions
authorizing expenditures from the Trust Fund for the purposes
provided under the accompanying authorizing legislation (as that
legislation becomes effective on the date of enactment of the
bill).

2. Environmental Insurance Resolution Fund and Excise Taxes

-7-To prevent initial collection of taxes
followed by exte: ve refunds if the EIRF does not become
operational, provide that the EIRF excise taxes will be imposed
starting with the first calendar quarter that begins at least 45
days after the Chairperson of the EIRF certifies that the
requisite 85 percent acceptance rate for the EIRF to commence has
been satisfied. .



4

insurance risks. Seventy percent of the revenues would be raised
by a "retrospective tax", imposed as an ongoing "doing business"
tax, but calculated with respect to certain commercial insurance
policies (including reinsurance policies) written during the
period 1971-1985. Thirty percent of the revenues would be raised
from a Federal excise tax on premiums for certain commercial
insurance written during a five-year prospective period (the
"prospective tax").

As originally proposed by the Administration, the rate for
the retrospective tax would be .20 percent of the base as
described below for the first two years of its imposition, after
which time the rate would increase to .27 percent. The rate for
the prospective tax would be .34 percent during the first two
years of its imposition, after which time the rate would increase
to .44 percent. After the fifth year, the taxes would terminate.

In its subsequent transmittal to the Senate Committee on
Environment and Public Works, the Administration suggested that,
if revenues in addition to those produced by its five-year tax
Proposal were needed, the EIRF taxes could be imposed until all
funding needs of the EIRF were satisfied. [In this transmittal,
the following rates were suggested:

Retrospective Prospective
Time Period Tax Tax
Years 1 and 2 0.20% 0.34%
Years 3 through 5 0.27% 0.44%
Years 6 through 10 0.38% 0.54%
Years 11 and thereafter 0.46% 0.59%

The Treasury Department would be authorized to adjust
(upward or downward) the rates for both taxes to ensure (a) that
the $8.1 billion revenue target is met over the first 10 years of
the tax; (b) that no more than $1.2 billion per year is raised
beginning in Year 11; and (c) that the relative shares of the
retrospective and prospective taxes remain constant. The
Treasury Department further would be authorized to reduce tax
rates to meet any reduced revenue target that it determined
sufficient to meet the funding requirements of the EIRF.

---The retrospective tax would be measured
by reference to "adjusted base-period commercial premiums,"
generally defined as net written premiums from any commercial
insurance (including reinsurance) policy (1) written during the
period from 1971 to 1985 with respect to hazards within the
United States and (2) the premiums for which were required to be
reported in the National Association of Insurance Commissioners
("NAIC") annual statement under the. "commercial multiple peril"
or "other liability" lines of business. The retrospective tax



Authorize the EIRF Board to assess fees on insurers to fund
administrative costs of the EIRF incurred prior to the effective
date of the excise taxes.

T x hori t djust rates.--Delete the Treasury
Department authority to increase or reduce tax rates.

i i is of £ ---Clarify in
the statutory language that the EIRF excises are "taxes" rather
than "fees."

Authorize deposit of amounts equal to net revenues from the
excise taxes ina newly established trust fund in the Trust Fund
Code of the Internal Revenue Code which would be administered by
the Federal Agency represented by the BIRF Chairperson. Provide
for management of these revenues in a Manner similar to that
provided for present-law Code trust funds, including expenditure
authority provisions consistent with the accompanying authorizing
legislation, as effective on the date of the bill’s enactment.
Also include a limitation on the Federal Government’s liability
to amounts equal to net revenues collected from the EIRF excise
taxes and deposited in the Trust Fund.

T ifi i 1 i x

ti -7- Permit the Treasury Department to accept a
preliminary agreement where a foreign person seeks to enter into
a closing agreement under which it would be subject to the
retrospective tax. Under such an agreement, in place of
requiring immediate payment and withholding of the 0.5 percent of
the maximum limit of liability under the policy, the Treasury
could accept adequate security for the payment of that
alternative excise tax liability pending completion of the
closing agreement. Such a preliminary agreement would be
effective only for a limited period, and if no closing agreement
were executed before the end of the period, the Treasury would be
entitled to collect the full amount of the alternative tax
(including the retention of any security previously given) .

Clarify that where premiums are paid for a policy that
covers hazards, risks, losses, or liabilities that are only
partly within the United States (defined to include Puerto Rico
and possessions and territories), then only the portion of the
premiums properly attributable to hazards, risks, losses, or
liabilities within the united States is subject to the excise
taxes.

Clarify that the $50 million exemption amount under the
retrospective tax is not applied on a per-"Name" basis.



Joint Committee on Taxation
August 5, 1994
JCX-15-94

REVENUE-RELATED PROVISIONS OF E.R. 3800
(SUPERFUND REFORM ACT OF 1994)

Scheduled for Markup by the Committee on Ways and Means
on August 9, 1994

I. LEGISLATIVE BACKGROUND

H.R. 3800 ("Superfund Reform Act of 1994"), the
Administration's Superfund reauthorization proposal, was
introduced (by request) by Messrs. Swift, Dingell, Mineta,
Rostenkowski, and Applegate on February 3, 1994. Titles I-VIII
of the bill were referred jointly to the Committee on Energy and
Commerce and the Committee on Public Works and Transportation.
Title IX ("Taxes") was referred to the Committee on Ways and
Means.

H.R. 3800 was ordered favorably reported, with an amendment,
by Energy and Commerce on May 18, 1994, and the report was filed
on June 30, 1994 (H. Rept. 103-582, Part I). Public Works and
Transportation marked up H.R. 3800 on July 28, 1994, and ordered
the bill favorably reported with amendments.

On May 20, 1994, the Administration separately submitted a
proposal for the imposition of two new insurance-related "fees"
(drafted to be excise taxes in the Internal Revenue Code --
hereinafter, referred to as excise taxes) on persons issuing or
bearing risks under certain commercial insurance policies. This
proposal subsequently was modified in a separate transmittal to
the Senate Committee on Environment and Public Works. The
Administration intended that these new excise taxes, as modified,
be incorporated in Title IX of H.R. 3800 as the financing source
for a new environmental insurance resolution program created by
the bill.

The Committee on Ways and Means held a public hearing on the
Superfund revenue proposals on July 25, 1994,

' For a more complete description of the Administration
proposal, see Joint Committee on Taxation, "Revenue Related
Provisions of H.R.3800", July 22, 1994, JCX-9-94,.



II. DESCRIPTION OF PRESENT LAW
1. Current Superfund Taxes and Trust Fund

Four different taxes are imposed under present law to fund
the Hazardous Substance Superfund (the "Superfund") program --

(1) A 9.7-cents-per-barrel excise tax on domestic or
imported crude oil or refined products;

(2) An excise tax on certain hazardous chemicals, imposed
at rates of from $0.22 to $4.87 per ton;

{3) An excise tax on imported substances for which one or
more of the hazardous chemicals subject to tax in (2), above have
been used as materials in their manufacture or production;? and

(4) A corporate environmental income tax equal to 0.12
percent of the amount of modified alternative minimum taxable
income in excess of $2 million.

Amounts equivalent to the revenues from these taxes are
dedicated to the Superfund Trust Fund, established in the Trust
Fund Code of the Internal Revenue Code. Amounts in the Superfund
Trust Fund are available for expenditure for the purposes
provided in present-law authorizing legislation, as that
legislation was enacted in 1986.

These Superfund taxes are scheduled to expire generally
after December 31, 1995. Present law provides for an earlier
expiration, however, if either of two "dollar caps" is exceeded:
(1) if the unobligated balance in the Superfund exceeds $3.5
billion on December 31, 1994, or (2) if the Treasury Department
estimates that more than $11.97 billion of revenues from these
taxes will be credited to the Superfund before January 1, 1996.

2. Environmental Insurance Resolution Fund and Excise Taxes
Present law does not include any provisions for Federal

resolution or funding of claims against insurers by parties
potentially responsible for Superfund site cleanup.

2? For a complete list of the chemicals and imported
substances subject to the taxes described in items (2) and €3),
see JCX-9-94,



III. ADMINISTRATION PROPOSALS AND POSSIBLE JURISDICTIONAL
AND TECHNICAL MODIFICATIONS

A. Written Transmittals from the Administration
1. Current Superfund Taxes and Trust Fund

The Administration proposal would extend the present -law
Superfund excise taxes through December 31, 2000, and the
Corporate environmental income tax through taxable years
beginning before January 1, 2001. Conforming amendments would be
made to the present-law "dollar caps" to permit collection of
these taxes at projected levels during the five-year extension
period.

The Administration proposal does not include conforming
amendments to the Superfund Trust Fund expenditure authority
provisions to reflect proposed authorizing legislation.

2. Environmental Insurance Resolution Fund and Excise Taxes

The Administration proposal would establish a new
Environmental Insurance Resolution Fund (the "EIRF") to resolve
private litigation about insurance coverage related to cleanup of
Superfund sites. The EIRF would Process claims against private
insurance companies by parties that are potentially liable for
cleanup of these sites, and would Pay monetary awards to the
parties. Upon acceptance of an award, insurance claims would be
extinguished. EIRF awards would equal statutory percentages
(determined generally by reference to the State in which the
sites giving rise to liability are located) of potential claims
against insurers.

Awards to parties potentially responsible for cleanup of
Superfund sites would cover all sites (past, present, and future)
with respect to which the Party was found liable. Past
unreimbursed costs would be paid in 10 annual installments.
Present and future costs would be paid by the EIRF as the costs
were incurred.

The EIRF would be established as a new tax-exempt
organization, whose members would be appointed by the President.
As originally proposed by the Administration, the EIRF would
review and process awards for a five-year period, beginning on
the date of the bill’s enactment. (This five-year period was
extended to 10 years in H.R. 3800, as reported by the Committees
on Energy and Commerce and Public Works and Transportation.)

The EIRF would be funded with two new Federal excise taxes.
These taxes would be imposed on persons having certain commercial