II

105TH CONGRESS

1ST SESSION S. 1040

To promote freedom, fairness, and economic opportunity for families by

reducing the power and reach of the Federal establishment.

IN THE SENATE OF THE UNITED STATES

JULY 21, 1997

Mr. SHELBY (for himself, Mr. CRAIG, and Mr. HELMS) introduced the

following bill; which was read twice and referred to the Committee on Finance

A BILL

To promote freedom, fairness, and economic opportunity for

families by reducing the power and reach of the Federal

establishment.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Freedom and Fairness Restoration Act of 1997’’.

6 (b) TABLE OF CONTENTS.—

Sec. 1. Short title; table of contents

TITLE I—TAX REDUCTION AND SIMPLIFICATION;

SUPERMAJORITY REQUIRED FOR TAX CHANGES

Subtitle A—Tax Reduction and Simplification

Sec. 101. Individual income tax.
2

•S 1040 IS

Sec. 102. Tax on business activities.

Sec. 103. Simplification of rules relating to qualified retirement plans.

Sec. 104. Repeal of alternative minimum tax.

Sec. 105. Repeal of credits.

Sec. 106. Repeal of estate and gift taxes and obsolete income tax provisions.

Sec. 107. Effective date.

Subtitle B—Supermajority Required for Tax Changes

Sec. 111. Supermajority required.

TITLE II—SPENDING RESTRAINT AND BUDGET PROCESS

REFORM

Subtitle A—Balanced Budget by Fiscal Year 2002

Sec. 201. Maximum spending amounts.

Sec. 202. Enforcing maximum spending sequestration.

Sec. 203. Total spending point of order.

Subtitle B—Zero Based Budgeting and Decennial Sunsetting

Sec. 211. Reauthorization of discretionary programs and unearned entitlements.

Sec. 212. Point of order.

Sec. 213. Decennial sunsetting.

1 TITLE I—TAX REDUCTION AND

2 SIMPLIFICATION; SUPER3 MAJORITY REQUIRED FOR

4 TAX CHANGES

5 Subtitle A—Tax Reduction and

6 Simplification

7 SEC. 101. INDIVIDUAL INCOME TAX.

8 (a) IN GENERAL.—Section 1 of the Internal Revenue

9 Code of 1986 is amended to read as follows:

10 ‘‘SECTION 1. TAX IMPOSED.

11 ‘‘There is hereby imposed on the taxable income of

12 every individual a tax equal to 20 percent (17 percent in

13 the case of taxable years beginning after December 31,
3

•S 1040 IS

1 1998) of the taxable income of such individual for such

2 taxable year.’’

3 (b) TAXABLE INCOME.—Section 63 of such Code is

4 amended to read as follows:

5 ‘‘SEC. 63. TAXABLE INCOME.

6 ‘‘(a) IN GENERAL.—For purposes of this subtitle, the

7 term ‘taxable income’ means the excess of—

8 ‘‘(1) the sum of—

9 ‘‘(A) wages (as defined in section 3121(a)

10 without regard to paragraph (1) thereof) which

11 are paid in cash and which are received during

12 the taxable year for services performed in the

13 United States,

14 ‘‘(B) retirement distributions which are in15 cludible in gross income for such taxable year,

16 plus

17 ‘‘(C) amounts received under any law of

18 the United States or of any State which is in

19 the nature of unemployment compensation, over

20 ‘‘(2) the standard deduction.

21 ‘‘(b) STANDARD DEDUCTION.—

22 ‘‘(1) IN GENERAL.—For purposes of this sub23 title, the term ‘standard deduction’ means the sum

24 of—

25 ‘‘(A) the basic standard deduction, plus
4

•S 1040 IS

1 ‘‘(B) the additional standard deduction.

2 ‘‘(2) BASIC STANDARD DEDUCTION.—For pur3 poses of paragraph (1), the basic standard deduction

4 is—

5 ‘‘(A) $22,000 in the case of—

6 ‘‘(i) a joint return, or

7 ‘‘(ii) a surviving spouse (as defined in

8 section 2(a)),

9 ‘‘(B) $14,400 in the case of a head of

10 household (as defined in section 2(b)), and

11 ‘‘(C) $11,000 in the case of an individ12 ual—

13 ‘‘(i) who is not married and who is

14 not a surviving spouse or head of house15 hold, or

16 ‘‘(ii) who is a married individual filing

17 a separate return.

18 ‘‘(3) ADDITIONAL STANDARD DEDUCTION.—For

19 purposes of paragraph (1), the additional standard

20 deduction is $5,000 for each dependent (as defined

21 in section 152) who is described in section 151(c)(1)

22 for the taxable year and who is not required to file

23 a return for such taxable year.
5

•S 1040 IS

1 ‘‘(c) RETIREMENT DISTRIBUTIONS.—For purposes of

2 subsection (a), the term ‘retirement distribution’ means

3 any distribution from—

4 ‘‘(1) a plan described in section 401(a) which

5 includes a trust exempt from tax under section

6 501(a),

7 ‘‘(2) an annuity plan described in section

8 403(a),

9 ‘‘(3) an annuity contract described in section

10 403(b),

11 ‘‘(4) an individual retirement account described

12 in section 408(a),

13 ‘‘(5) an individual retirement annuity described

14 in section 408(b),

15 ‘‘(6) an eligible deferred compensation plan (as

16 defined in section 457),

17 ‘‘(7) a governmental plan (as defined in section

18 414(d)), or

19 ‘‘(8) a trust described in section 501(c)(18).

20 Such term includes any plan, contract, account, annuity,

21 or trust which, at any time, has been determined by the

22 Secretary to be such a plan, contract, account, annuity,

23 or trust.

24 ‘‘(d) INCOME OF CERTAIN CHILDREN.—For purposes

25 of this subtitle—
6

•S 1040 IS

1 ‘‘(1) an individual’s taxable income shall include

2 the taxable income of each dependent child of such

3 individual who has not attained age 14 as of the

4 close of such taxable year, and

5 ‘‘(2) such dependent child shall have no liability

6 for tax imposed by section 1 with respect to such in7 come and shall not be required to file a return for

8 such taxable year.

9 ‘‘(e) INFLATION ADJUSTMENT.—

10 ‘‘(1) IN GENERAL.—In the case of any taxable

11 year beginning in a calendar year after 1997, each

12 dollar amount contained in subsection (b) shall be

13 increased by an amount determined by the Secretary

14 to be equal to—

15 ‘‘(A) such dollar amount, multiplied by

16 ‘‘(B) the cost-of-living adjustment for such

17 calendar year.

18 ‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur19 poses of paragraph (1), the cost-of-living adjustment

20 for any calendar year is the percentage (if any) by

21 which—

22 ‘‘(A) the CPI for the preceding calendar

23 year, exceeds

24 ‘‘(B) the CPI for the calendar year 1996.
7

•S 1040 IS

1 ‘‘(3) CPI FOR ANY CALENDAR YEAR.—For pur2 poses of paragraph (2), the CPI for any calendar

3 year is the average of the Consumer Price Index as

4 of the close of the 12-month period ending on Au5 gust 31 of such calendar year.

6 ‘‘(4) CONSUMER PRICE INDEX.—For purposes

7 of paragraph (3), the term ‘Consumer Price Index’

8 means the last Consumer Price Index for all-urban

9 consumers published by the Department of Labor.

10 For purposes of the preceding sentence, the revision

11 of the Consumer Price Index which is most consist12 ent with the Consumer Price Index for calendar year

13 1986 shall be used.

14 ‘‘(5) ROUNDING.—If any increase determined

15 under paragraph (1) is not a multiple of $10, such

16 increase shall be rounded to the next highest mul17 tiple of $10.

18 ‘‘(f) MARITAL STATUS.—For purposes of this section,

19 marital status shall be determined under section 7703.’’

20 SEC. 102. TAX ON BUSINESS ACTIVITIES.

21 (a) IN GENERAL.—Section 11 of the Internal Reve22 nue Code of 1986 (relating to tax imposed on corpora23 tions) is amended to read as follows:
8

•S 1040 IS

1 ‘‘SEC. 11. TAX IMPOSED ON BUSINESS ACTIVITIES.

2 ‘‘(a) TAX IMPOSED.—There is hereby imposed on

3 every person engaged in a business activity a tax equal

4 to 20 percent (17 percent in the case of taxable years be5 ginning after December 31, 1998) of the business taxable

6 income of such person.

7 ‘‘(b) LIABILITY FOR TAX.—The tax imposed by this

8 section shall be paid by the person engaged in the business

9 activity, whether such person is an individual, partnership,

10 corporation, or otherwise.

11 ‘‘(c) BUSINESS TAXABLE INCOME.—For purposes of

12 this section—

13 ‘‘(1) IN GENERAL.—The term ‘business taxable

14 income’ means gross active income reduced by the

15 deductions specified in subsection (d).

16 ‘‘(2) GROSS ACTIVE INCOME.—

17 ‘‘(A) IN GENERAL.—For purposes of para18 graph (1), the term ‘gross active income’ means

19 gross receipts from—

20 ‘‘(i) the sale or exchange of property

21 or services in the United States by any

22 person in connection with a business activ23 ity, and

24 ‘‘(ii) the export of property or services

25 from the United States in connection with

26 a business activity.
9

•S 1040 IS

1 ‘‘(B) EXCHANGES.—For purposes of this

2 section, the amount treated as gross receipts

3 from the exchange of property or services is the

4 fair market value of the property or services re5 ceived, plus any money received.

6 ‘‘(C) COORDINATION WITH SPECIAL RULES

7 FOR FINANCIAL SERVICES, ETC.—Except as

8 provided in subsection (e)—

9 ‘‘(i) the term ‘property’ does not in10 clude money or any financial instrument,

11 and

12 ‘‘(ii) the term ‘services’ does not in13 clude financial services.

14 ‘‘(3) EXEMPTION FROM TAX FOR ACTIVITIES OF

15 GOVERNMENTAL ENTITIES AND TAX-EXEMPT ORGA16 NIZATIONS.—For purposes of this section, the term

17 ‘business activity’ does not include any activity of a

18 governmental entity or of any other organization

19 which is exempt from tax under this chapter.

20 ‘‘(d) DEDUCTIONS.—

21 ‘‘(1) IN GENERAL.—The deductions specified in

22 this subsection are—

23 ‘‘(A) the cost of business inputs for the

24 business activity,
10

•S 1040 IS

1 ‘‘(B) wages (as defined in section 3121(a)

2 without regard to paragraph (1) thereof) which

3 are paid in cash for services performed in the

4 United States as an employee, and

5 ‘‘(C) retirement contributions to or under

6 any plan or arrangement which makes retire7 ment distributions (as defined in section 63(c))

8 for the benefit of such employees to the extent

9 such contributions are allowed as a deduction

10 under section 404.

11 ‘‘(2) BUSINESS INPUTS.—

12 ‘‘(A) IN GENERAL.—For purposes of para13 graph (1), the term ‘cost of business inputs’

14 means—

15 ‘‘(i) the amount paid for property sold

16 or used in connection with a business ac17 tivity,

18 ‘‘(ii) the amount paid for services

19 (other than for the services of employees,

20 including fringe benefits paid by reason of

21 such services) in connection with a busi22 ness activity, and

23 ‘‘(iii) any excise tax, sales tax, cus24 toms duty, or other separately stated levy

25 imposed by a Federal, State, or local gov-
11

•S 1040 IS

1 ernment on the purchase of property or

2 services which are for use in connection

3 with a business activity.

4 Such term shall not include any tax imposed by

5 chapter 2 or 21.

6 ‘‘(B) EXCEPTIONS.—Such term shall not

7 include—

8 ‘‘(i) items described in subparagraphs

9 (B) and (C) of paragraph (1), and

10 ‘‘(ii) items for personal use not in

11 connection with any business activity.

12 ‘‘(C) EXCHANGES.—For purposes of this

13 section, the amount treated as paid in connec14 tion with the exchange of property or services

15 is the fair market value of the property or serv16 ices exchanged, plus any money paid.

17 ‘‘(e) SPECIAL RULES FOR FINANCIAL INTER18 MEDIATION SERVICE ACTIVITIES.—In the case of the

19 business activity of providing financial intermediation

20 services, the taxable income from such activity shall be

21 equal to the value of the intermediation services provided

22 in such activity.

23 ‘‘(f) EXCEPTION FOR SERVICES PERFORMED AS EM24 PLOYEE.—For purposes of this section, the term ‘business
12

•S 1040 IS

1 activity’ does not include the performance of services by

2 an employee for the employee’s employer.

3 ‘‘(g) CARRYOVER OF CREDIT-EQUIVALENT OF EX4 CESS DEDUCTIONS.—

5 ‘‘(1) IN GENERAL.—If the aggregate deductions

6 for any taxable year exceed the gross active income

7 for such taxable year, the credit-equivalent of such

8 excess shall be allowed as a credit against the tax

9 imposed by this section for the following taxable

10 year.

11 ‘‘(2) CREDIT-EQUIVALENT OF EXCESS DEDUC12 TIONS.—For purposes of paragraph (1), the credit13 equivalent of the excess described in paragraph (1)

14 for any taxable year is an amount equal to—

15 ‘‘(A) the sum of—

16 ‘‘(i) such excess, plus

17 ‘‘(ii) the product of such excess and

18 the 3-month Treasury rate for the last

19 month of such taxable year, multiplied by

20 ‘‘(B) the rate of the tax imposed by sub21 section (a) for such taxable year.

22 ‘‘(3) CARRYOVER OF UNUSED CREDIT.—If the

23 credit allowable for any taxable year by reason of

24 this subsection exceeds the tax imposed by this sec-
13

•S 1040 IS

1 tion for such year, then (in lieu of treating such ex2 cess as an overpayment) the sum of—

3 ‘‘(A) such excess, plus

4 ‘‘(B) the product of such excess and the 3-

5 month Treasury rate for the last month of such

6 taxable year,

7 shall be allowed as a credit against the tax imposed

8 by this section for the following taxable year.

9 ‘‘(4) 3-MONTH TREASURY RATE.—For purposes

10 of this subsection, the 3-month Treasury rate is the

11 rate determined by the Secretary based on the aver12 age market yield (during any 1-month period se13 lected by the Secretary and ending in the calendar

14 month in which the determination is made) on out15 standing marketable obligations of the United States

16 with remaining periods to maturity of 3 months or

17 less.’’

18 (b) TAX ON TAX-EXEMPT ENTITIES PROVIDING

19 NONCASH COMPENSATION TO EMPLOYEES.—Section

20 4977 of such Code is amended to read as follows:

21 ‘‘SEC. 4977. TAX ON NONCASH COMPENSATION PROVIDED

22 TO EMPLOYEES NOT ENGAGED IN BUSINESS

23 ACTIVITY.

24 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed

25 a tax equal to 20 percent (17 percent in the case of cal-
14

•S 1040 IS

1 endar years beginning after December 31, 1998) of the

2 value of excludable compensation provided during the cal3 endar year by an employer for the benefit of employees

4 to whom this section applies.

5 ‘‘(b) LIABILITY FOR TAX.—The tax imposed by this

6 section shall be paid by the employer.

7 ‘‘(c) EXCLUDABLE COMPENSATION.—For purposes

8 of subsection (a), the term ‘excludable compensation’

9 means any remuneration for services performed as an em10 ployee other than—

11 ‘‘(1) wages (as defined in section 3121(a) with12 out regard to paragraph (1) thereof) which are paid

13 in cash,

14 ‘‘(2) remuneration for services performed out15 side the United States, and

16 ‘‘(3) retirement contributions to or under any

17 plan or arrangement which makes retirement dis18 tributions (as defined in section 63(c)).

19 ‘‘(d) EMPLOYEES TO WHOM SECTION APPLIES.—

20 This section shall apply to an employee who is employed

21 in any activity by—

22 ‘‘(1) any organization which is exempt from

23 taxation under this chapter, or
15

•S 1040 IS

1 ‘‘(2) any agency or instrumentality of the

2 United States, any State or political subdivision of

3 a State, or the District of Columbia.’’

4 SEC. 103. SIMPLIFICATION OF RULES RELATING TO QUALI5 FIED RETIREMENT PLANS.

6 (a) IN GENERAL.—The following provisions of the In7 ternal Revenue Code of 1986 are hereby repealed:

8 (1) NONDISCRIMINATION RULES.—

9 (A) Paragraphs (4) and (5) of section

10 401(a) (relating to nondiscrimination require11 ments).

12 (B) Sections 401(a)(10)(B) and 416 (re13 lating to top heavy plans).

14 (C) Section 401(a)(17) (relating to com15 pensation limit).

16 (D) Sections 401(a)(26) and 410(b) (relat17 ing to minimum participation and coverage re18 quirements).

19 (E) Paragraphs (3), (8), (11) and (12) of

20 sections 401(k), and section 4979, (relating to

21 actual deferral percentage).

22 (F) Section 401(l) (relating to permitted

23 disparity in plan contributions or benefits).
16

•S 1040 IS

1 (G) Section 401(m) (relating to non2 discrimination test for matching contributions

3 and employee contributions).

4 (H) Paragraphs (1)(D) and (12) of section

5 403(b) (relating to nondiscrimination require6 ments).

7 (I) Paragraph (3) of section 408(k) and

8 paragraph (6) (other than subparagraph (A)(i))

9 of such section (relating to simplified employee

10 pensions).

11 (2) CONTRIBUTION LIMITS.—

12 (A) Sections 401(a)(16), 403(b) (2) and

13 (3), and 415 (relating to limitations on benefits

14 and contributions under qualified plans).

15 (B) Sections 401(a)(30) and 402(g) (relat16 ing to limitation on exclusion for elective defer17 rals).

18 (C) Paragraphs (3) and (7) of section

19 404(a) (relating to percentage of compensation

20 limits).

21 (D) Section 404(l) (relating to limit on in22 cludible compensation).

23 (3) RESTRICTIONS ON DISTRIBUTIONS.—
17

•S 1040 IS

1 (A) Section 72(t) (relating to 10-percent

2 additional tax on early distributions from quali3 fied retirement plans).

4 (B) Sections 401(a)(9), 403(b)(10), and

5 4974 (relating to minimum distribution rules).

6 (C) Section 402(e)(4) (relating to net un7 realized appreciation).

8 (D) Section 4980A (relating to tax on ex9 cess distributions from qualified retirement

10 plans).

11 (4) SPECIAL REQUIREMENTS FOR PLAN BENE12 FITING SELF-EMPLOYED INDIVIDUALS.—Subsections

13 (a)(10)(A) and (d) of section 401.

14 (5) PROHIBITION OF TAX-EXEMPT ORGANIZA15 TIONS AND GOVERNMENTS FROM HAVING QUALIFIED

16 CASH OR DEFERRED ARRANGEMENTS.—Section

17 401(k)(4)(B).

18 (b) EMPLOYER REVERSIONS OF EXCESS PENSION

19 ASSETS PERMITTED SUBJECT ONLY TO INCOME INCLU20 SION.—

21 (1) REPEAL OF TAX ON EMPLOYER REVER22 SIONS.—Section 4980 of such Code is hereby re23 pealed.
18

•S 1040 IS

1 (2) EMPLOYER REVERSIONS PERMITTED WITH2 OUT PLAN TERMINATION.—Section 420 of such

3 Code is amended to read as follows:

4 ‘‘SEC. 420. TRANSFERS OF EXCESS PENSION ASSETS.

5 ‘‘(a) IN GENERAL.—If there is a qualified transfer

6 of any excess pension assets of a defined benefit plan

7 (other than a multiemployer plan) to an employer—

8 ‘‘(1) a trust which is part of such plan shall not

9 be treated as failing to meet the requirements of sec10 tion 401(a) or any other provision of law solely by

11 reason of such transfer (or any other action author12 ized under this section), and

13 ‘‘(2) such transfer shall not be treated as a pro14 hibited transaction for purposes of section 4975.

15 The gross income of the employer shall include the amount

16 of any qualified transfer made during the taxable year.

17 ‘‘(b) QUALIFIED TRANSFER.—For purposes of this

18 section—

19 ‘‘(1) IN GENERAL.—The term ‘qualified trans20 fer’ means a transfer—

21 ‘‘(A) of excess pension assets of a defined

22 benefit plan to the employer, and

23 ‘‘(B) with respect to which the vesting re24 quirements of subsection (c) are met in connec25 tion with the plan.
19

•S 1040 IS

1 ‘‘(2) ONLY 1 TRANSFER PER YEAR.—No more

2 than 1 transfer with respect to any plan during a

3 taxable year may be treated as a qualified transfer

4 for purposes of this section.

5 ‘‘(c) VESTING REQUIREMENTS OF PLANS TRANSFER6 RING ASSETS.—The vesting requirements of this sub7 section are met if the plan provides that the accrued pen8 sion benefits of any participant or beneficiary under the

9 plan become nonforfeitable in the same manner which

10 would be required if the plan had terminated immediately

11 before the qualified transfer (or in the case of a partici12 pant who separated during the 1-year period ending on

13 the date of the transfer, immediately before such separa14 tion).

15 ‘‘(d) DEFINITION AND SPECIAL RULE.—For pur16 poses of this section—

17 ‘‘(1) EXCESS PENSION ASSETS.—The term ‘ex18 cess pension assets’ means the excess (if any) of—

19 ‘‘(A) the amount determined under section

20 412(c)(7)(A)(ii), over

21 ‘‘(B) the greater of—

22 ‘‘(i) the amount determined under

23 section 412(c)(7)(A)(i), or

24 ‘‘(ii) 125 percent of current liability

25 (as defined in section 412(c)(7)(B)).
20

•S 1040 IS

1 The determination under this paragraph shall be

2 made as of the most recent valuation date of the

3 plan preceding the qualified transfer.

4 ‘‘(2) COORDINATION WITH SECTION 412.—In

5 the case of a qualified transfer—

6 ‘‘(A) any assets transferred in a plan year

7 on or before the valuation date for such year

8 (and any income allocable thereto) shall, for

9 purposes of section 412, be treated as assets in

10 the plan as of the valuation date for such year,

11 and

12 ‘‘(B) the plan shall be treated as having a

13 net experience loss under section

14 412(b)(2)(B)(iv) in an amount equal to the

15 amount of such transfer and for which amorti16 zation charges begin for the first plan year

17 after the plan year in which such transfer oc18 curs, except that such section shall be applied

19 to such amount by substituting ‘10 plan years’

20 for ‘5 plan years’.’’

21 SEC. 104. REPEAL OF ALTERNATIVE MINIMUM TAX.

22 Part VI of subchapter A of chapter 1 of the Internal

23 Revenue Code of 1986 is hereby repealed.
21

•S 1040 IS

1 SEC. 105. REPEAL OF CREDITS.

2 Part IV of subchapter A of chapter 1 of the Internal

3 Revenue Code of 1986 is hereby repealed.

4 SEC. 106. REPEAL OF ESTATE AND GIFT TAXES AND OBSO5 LETE INCOME TAX PROVISIONS.

6 (a) REPEAL OF ESTATE AND GIFT TAXES.—

7 (1) IN GENERAL.—Subtitle B of the Internal

8 Revenue Code of 1986 is hereby repealed.

9 (2) EFFECTIVE DATE.—The repeal made by

10 paragraph (1) shall apply to the estates of decedents

11 dying, and gifts and generation-skipping transfers

12 made, after December 31, 1996.

13 (b) REPEAL OF OBSOLETE INCOME TAX PROVI14 SIONS.—

15 (1) IN GENERAL.—Except as provided in para16 graph (2), chapter 1 of the Internal Revenue Code

17 of 1986 is hereby repealed.

18 (2) EXCEPTIONS.—Paragraph (1) shall not

19 apply to—

20 (A) sections 1, 11, and 63 of such Code,

21 as amended by this Act,

22 (B) those provisions of chapter 1 of such

23 Code which are necessary for determining

24 whether or not—

25 (i) retirement distributions are includ26 ible in the gross income of employees, or
22

•S 1040 IS

1 (ii) an organization is exempt from

2 tax under such chapter, and

3 (C) subchapter D of such chapter 1 (relat4 ing to deferred compensation).

5 SEC. 107. EFFECTIVE DATE.

6 Except as otherwise provided in this subtitle, the

7 amendments made by this subtitle shall apply to taxable

8 years beginning after December 31, 1996.

9 Subtitle B—Supermajority

10 Required for Tax Changes

11 SEC. 111. SUPERMAJORITY REQUIRED.

12 (a) IN GENERAL.—It shall not be in order in the

13 House of Representatives or the Senate to consider any

14 bill, joint resolution, amendment thereto, or conference re15 port thereon that includes any provision that—

16 (1) increases any Federal income tax rate,

17 (2) creates any additional Federal income tax

18 rate,

19 (3) reduces the standard deduction, or

20 (4) provides any exclusion, deduction, credit or

21 other benefit which results in a reduction in Federal

22 revenues.

23 (b) WAIVER OR SUSPENSION.—This section may be

24 waived or suspended in the House of Representatives or
23

•S 1040 IS

1 the Senate only by the affirmative vote of three-fifths of

2 the Members, duly chosen and sworn.

3 TITLE II—SPENDING RESTRAINT

4 AND BUDGET PROCESS REFORM

5 Subtitle A—Balanced Budget by

6 Fiscal Year 2002

7 SEC. 201. MAXIMUM SPENDING AMOUNTS.

8 Section 601(a)(1) of the Congressional Budget Act

9 of 1974 is amended to read as follows:

10 ‘‘(1) MAXIMUM SPENDING AMOUNT.—The term

11 ‘maximum spending amount’ means—

12 ‘‘(A) with respect to fiscal year 1998,

13 $1,653,000,000,000 in outlays;

14 ‘‘(B) with respect to fiscal year 1999,

15 $1,687,000,000,000 in outlays;

16 ‘‘(C) with respect to fiscal year 2000,

17 $1,748,000,000,000 in outlays;

18 ‘‘(D) with respect to fiscal year 2001,

19 $1,799,000,000,000 in outlays; and

20 ‘‘(E) with respect to fiscal year 2002,

21 $1,851,000,000,000 in outlays.’’.
24

•S 1040 IS

1 SEC. 202. ENFORCING MAXIMUM SPENDING SEQUESTRA2 TION.

3 (a) SEQUESTRATION.—Section 253(a) of the Bal4 anced Budget and Emergency Deficit Control Act of 1985

5 is amended to read as follows:

6 ‘‘(a) SEQUESTRATION.—Within 15 days after Con7 gress adjourns to end a session (other than the One Hun8 dred Third Congress), and on the same day as sequestra9 tion (if any) under sections 251 and 252, but after any

10 sequestration required by those sections, there shall be a

11 sequestration (if necessary) to reduce total Federal spend12 ing to the maximum permissible level as set forth in sec13 tion 601(a)(1) of the Congressional Budget Act of 1974.’’.

14 (b) CONFORMING AMENDMENT TO HEADING.—The

15 section heading of section 253 of the Balanced Budget and

16 Emergency Deficit Control Act of 1985 is amended to

17 read as follows:

18 ‘‘SEC. 253. ENFORCING MAXIMUM SPENDING LIMITS.’’.

19 (c) ADDITIONAL CONFORMING AMENDMENTS.—Sec20 tion 253 of the Balanced Budget and Emergency Deficit

21 Control Act of 1985 is amended—

22 (1) by repealing subsections (b), (g), and (h),

23 and by redesignating subsections (c), (d), (e), and

24 (f), as subsections (b), (c), (d), and (e), respectively;

25 (2) in subsection (b) (as redesignated), by

26 amending the first sentence to read as follows: ‘‘To
25

•S 1040 IS

1 reduce total Federal spending to the maximum per2 missible level for a budget year, 20 percent of the

3 required outlay reductions shall be obtained from

4 non-exempt defense accounts (accounts designated

5 as function 050 in the President’s fiscal year 1998

6 budget submission) and 80 percent from non-ex7 empt, non-defense accounts (all other non-exempt

8 accounts).’’;

9 (3) in subsection (c) (as redesignated), by strik10 ing ‘‘subsection (c)’’ and inserting ‘‘subsection (b)’’;

11 and

12 (4) in subsection (e) (as redesignated), by strik13 ing ‘‘(b), (c), (d), and (e)’’ and inserting ‘‘(b), (c),

14 and (d)’’ and by striking ‘‘(d) or (e)’’ and inserting

15 ‘‘(c) or ‘‘(d)’’.

16 (d) LOOK-BACK SEQUESTER.—Section 253 of the

17 Balanced Budget and Emergency Deficit Control Act of

18 1985 is amended by adding at the end the following new

19 subsection:

20 ‘‘(f) LOOK-BACK SEQUESTER.—

21 ‘‘(1) IN GENERAL.—On July 1 of each fiscal

22 year, the Director of OMB shall determine if laws

23 effective during the current fiscal year will cause

24 spending to exceed the maximum spending amount

25 for such fiscal year. If the limit is exceeded, there
26

•S 1040 IS

1 shall be a preliminary sequester on July 1 to elimi2 nate the excess.

3 ‘‘(2) PERMANENT SEQUESTER.—Budget au4 thority sequestered on July 1 pursuant to paragraph

5 (1) shall be permanently canceled on July 15.

6 ‘‘(3) NO MARGIN.—The margin for determining

7 a sequester under this subsection shall be zero.

8 ‘‘(4) SEQUESTRATION PROCEDURES.—The pro9 vision of subsections (b), (c), and (d) of this section

10 shall apply to a sequester under this subsection.’’.

11 (e) REPORTS.—Section 254 of the Balanced Budget

12 and Emergency Deficit Control Act of 1985 is amended—

13 (1) by striking subsection (c);

14 (2) in subsection (d)(1), by striking ‘‘deficit se15 questration’’ and inserting ‘‘total spending seques16 tration’’;

17 (3) in subsection (d) by repealing paragraph (4)

18 and inserting the following new paragraph:

19 ‘‘(4) TOTAL SPENDING SEQUESTRATION RE20 PORTS.—The preview reports shall set forth for the

21 budget year estimates for each of the following:

22 ‘‘(A) The amount of reductions required

23 from defense accounts and the reductions re24 quired from non-defense accounts.
27

•S 1040 IS

1 ‘‘(B) The sequestration percentage nec2 essary to achieve the required reduction in de3 fense accounts under section 253(c).

4 ‘‘(C) The reductions required under sec5 tions 253(d)(1) and 253(d)(2).

6 ‘‘(D) The sequestration percentage nec7 essary to achieve the required reduction in non8 defense accounts under section 253(d)(3).’’; and

9 (4) in subsection (g)(3), by striking ‘‘DEFICIT’’

10 and inserting ‘‘TOTAL SPENDING’’ in the side head11 ing and in the first sentence by striking ‘‘deficit’’

12 and inserting ‘‘total spending’’.

13 (f) CONFORMING AMENDMENT TO TABLE OF CON14 TENTS.—The item relating to section 253 is amended by

15 striking ‘‘Enforcing deficit targets’’ and inserting ‘‘En16 forcing maximum spending limits’’.

17 SEC. 203. TOTAL SPENDING POINT OF ORDER.

18 Section 605(b) of the Congressional Budget Act of

19 1974 is amended to read as follows:

20 ‘‘(b) TOTAL SPENDING POINT OF ORDER.—

21 ‘‘(1) IN GENERAL.—It shall not be in order in

22 the House of Representatives or the Senate to con23 sider any bill, joint resolution, amendment thereto,

24 or conference report thereon, that includes any pro25 vision that would result in total spending for a fiscal
28

•S 1040 IS

1 year that exceeds the maximum permissible total

2 spending amount for such fiscal year as set forth in

3 section 601(a)(1).

4 ‘‘(2) WAIVER OR SUSPENSION.—This subsection

5 may be waived or suspended in the House of Rep6 resentatives or the Senate only by the affirmative

7 vote of three-fifths of its Members, duly chosen and

8 sworn.’’.

9 Subtitle B—Zero Based Budgeting

10 and Decennial Sunsetting

11 SEC. 211. REAUTHORIZATION OF DISCRETIONARY PRO12 GRAMS AND UNEARNED ENTITLEMENTS.

13 (a) FISCAL YEAR 1998.—Effective October 1, 1997,

14 spending authority for each unearned entitlement and

15 high-cost discretionary spending program is terminated

16 unless such spending authority is reauthorized after the

17 date of enactment of this Act.

18 (b) FISCAL YEAR 1999.—Effective October 1, 1998,

19 spending authority for each discretionary spending pro20 gram (not including high-cost discretionary spending pro21 grams) is terminated unless such spending authority is re22 authorized after the date of enactment of this Act.

23 (c) DEFINITIONS.—For purposes of this subtitle—

24 (1) the term ‘‘unearned entitlement’’ means an

25 entitlement not earned by service or paid for in total
29

•S 1040 IS

1 or in part by assessments or contributions such as

2 Social Security, veterans’ benefits, retirement pro3 grams, and medicare; and

4 (2) the term ‘‘high-cost discretionary program’’

5 means the most expensive one-third of discretionary

6 program within each budget function account.

7 SEC. 212. POINT OF ORDER.

8 (a) IN GENERAL.—It shall not be in order in the

9 House of Representatives or the Senate to consider any

10 bill, joint resolution, amendment, or conference report that

11 includes any provision that appropriates funds unless such

12 appropriation has been previously authorized by law.

13 (b) WAIVER OR SUSPENSION.—This section may be

14 waived or suspended in the House of Representatives or

15 the Senate only by the affirmative vote of three-fifths of

16 the Members, duly chosen and sworn.

17 SEC. 213. DECENNIAL SUNSETTING.

18 (a) FIRST DECENNIAL CENSUS YEAR.—Effective on

19 the first day of the fiscal year beginning in the first decen20 nial census year after the year 2001 and each 10 years

21 thereafter, the spending authority described in section

22 211(a) is terminated unless such spending authority is re23 authorized after the last date the spending authority was

24 required to be reauthorized under this subtitle.
30

•S 1040 IS

1 (b) SECOND DECENNIAL CENSUS YEAR.—Effective

2 on the first day of the fiscal year beginning in the year

3 after the first decennial census year after the year 2001

4 and each 10 years thereafter, the spending authority de5 scribed in section 211(b) is terminated unless such spend6 ing authority is reauthorized after the last date the spend7 ing authority was required to be reauthorized under this

8 subtitle.

Æ