281
(2) ADVANCE NOTICE OF TERMINATIONS AND
REDUCTIONS.—The amendment made by subsection
(e)(2) shall apply to qualifying events occurring
after the date of the enactment of this Act, except
that in no case shall notice be required under such
amendment before such date.
Subpart B—Amendments to the Public Health
Service Act
SEC. 254. COBRA CONTINUATION BENEFITS FOR CERTAIN
RETIRED 
WORKERS 
WHO 
LOSE 
RETIREE
HEALTH COVERAGE.
(a) 
ESTABLISHMENT
OF
NEW
QUALIFYING
EVENT.—
(1) IN GENERAL.—Section 2203 of the Public
Health Service Act (42 U.S.C. 300bb–3) is amended
by inserting after paragraph (5) the following new
paragraph:
‘‘(6) The termination or substantial reduction
in benefits (as defined in section 2208(6)) of group
health plan coverage as a result of plan changes or
termination in the case of a covered employee who
is a qualified retiree.’’.
(2) QUALIFIED
RETIREE; QUALIFIED
BENE-
FICIARY; 
AND
SUBSTANTIAL
REDUCTION
DE-
282
FINED.—Section 2208 of such Act (42 U.S.C.
300bb–8) is amended—
(A) in paragraph (3)—
(i) in subparagraph (A), by inserting
‘‘except as otherwise provided in this para-
graph,’’ after ‘‘means,’’; and
(ii) by adding at the end the following
new subparagraph:
‘‘(C) SPECIAL RULE FOR QUALIFYING RE-
TIREES AND DEPENDENTS.—In the case of a
qualifying event described in section 2203(6),
the term ‘qualified beneficiary’ means a quali-
fied retiree and any other individual who, on
the day before such qualifying event, is a bene-
ficiary under the plan on the basis of the indi-
vidual’s relationship to such qualified retiree.’’;
and
(B) by adding at the end the following new
paragraphs:
‘‘(5) QUALIFIED RETIREE.—The term ‘qualified
retiree’ means, with respect to a qualifying event de-
scribed in section 2203(6), a covered employee who,
at the time of the event—
‘‘(A) has attained 55 years of age; and
283
‘‘(B) was receiving group health coverage
under the plan by reason of the retirement of
the covered employee.
‘‘(6) SUBSTANTIAL
REDUCTION.—The term
‘substantial reduction’—
‘‘(A) means, as determined under regula-
tions of the Secretary of Labor and with respect
to a qualified beneficiary, a reduction in the av-
erage actuarial value of benefits under the plan
(through reduction or elimination of benefits,
an increase in premiums, deductibles, copay-
ments, and coinsurance, or any combination
thereof), since the date of commencement of
coverage of the beneficiary by reason of the re-
tirement of the covered employee (or, if later,
January 6, 2001), in an amount equal to at
least 50 percent of the total average actuarial
value of the benefits under the plan as of such
date (taking into account an appropriate ad-
justment to permit comparison of values over
time); and
‘‘(B) includes an increase in premiums re-
quired to an amount that exceeds the premium
level described in the fourth sentence of section
2202(3).’’.
284
(b) DURATION OF COVERAGE THROUGH AGE 65.—
Section 2202(2)(A) of such Act (42 U.S.C. 300bb–
2(2)(A)) is amended—
(1) by redesignating clause (iii) as clause (iv);
and
(2) by inserting after clause (ii) the following
new clause:
‘‘(iii) SPECIAL
RULE
FOR
CERTAIN
DEPENDENTS
IN
CASE
OF
TERMINATION
OR SUBSTANTIAL REDUCTION OF RETIREE
HEALTH
COVERAGE.—In the case of a
qualifying 
event 
described 
in 
section
2203(6), in the case of a qualified bene-
ficiary described in section 2208(3)(C) who
is not the qualified retiree or spouse of
such retiree, the later of—
‘‘(I) the date that is 36 months
after the earlier of the date the quali-
fied retiree becomes entitled to bene-
fits under title XVIII of the Social Se-
curity Act, or the date of the death of
the qualified retiree; or
‘‘(II) the date that is 36 months
after the date of the qualifying
event.’’.
285
(c) TYPE OF COVERAGE IN CASE OF TERMINATION
OR SUBSTANTIAL REDUCTION OF RETIREE HEALTH COV-
ERAGE.—Section 2202(1) of such Act (42 U.S.C. 300bb–
2(1)) is amended—
(1) by striking ‘‘The coverage’’ and inserting
the following:
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the coverage’’; and
(2) by adding at the end the following:
‘‘(B) CERTAIN RETIREES.—In the case of
a qualifying event described in section 2203(6),
in applying the first sentence of subparagraph
(A) and the fourth sentence of paragraph (3),
the coverage offered that is the most prevalent
coverage option (as determined under regula-
tions of the Secretary of Labor) continued
under the group health plan (or, if none, under
the most prevalent other plan offered by the
same plan sponsor) shall be treated as the cov-
erage described in such sentence, or (at the op-
tion of the plan and qualified beneficiary) such
other coverage option as may be offered and
elected by the qualified beneficiary involved.’’.
(d) INCREASED LEVEL OF PREMIUMS PERMITTED.—
Section 2202(3) of such Act (42 U.S.C. 300bb–2(3)) is
286
amended by adding at the end the following new sentence:
‘‘In the case of an individual provided continuation cov-
erage by reason of a qualifying event described in section
2203(6), any reference in subparagraph (A) of this para-
graph to ‘102 percent of the applicable premium’ is
deemed a reference to ‘125 percent of the applicable pre-
mium for employed individuals (and their dependents, if
applicable) for the coverage option referred to in para-
graph (1)(B)’.’’.
(e) NOTICE.—Section 2206(a) of such Act (42 U.S.C.
300bb–6(a)) is amended—
(1) in paragraph (4)(A), by striking ‘‘or (4)’’
and inserting ‘‘(4), or (6)’’; and
(2) by adding at the end the following:
‘‘The notice under paragraph (4) in the case of a quali-
fying event described in section 2203(6) shall be provided
at least 90 days before the date of the qualifying event.’’.
(f) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section (other than subsection (e)(2)) shall
apply to qualifying events occurring on or after Jan-
uary 6, 2001. In the case of a qualifying event oc-
curring on or after such date and before the date of
the enactment of this Act, such event shall be
287
deemed (for purposes of such amendments) to have
occurred on the date of the enactment of this Act.
(2) ADVANCE NOTICE OF TERMINATIONS AND
REDUCTIONS.—The amendment made by subsection
(e)(2) shall apply to qualifying events occurring
after the date of the enactment of this Act, except
that in no case shall notice be required under such
amendment before such date.
Subpart C—Amendments to the Internal Revenue
Code of 1986
SEC. 255. COBRA CONTINUATION BENEFITS FOR CERTAIN
RETIRED 
WORKERS 
WHO 
LOSE 
RETIREE
HEALTH COVERAGE.
(a) 
ESTABLISHMENT
OF
NEW
QUALIFYING
EVENT.—
(1) IN GENERAL.—Section 4980B(f)(3) of the
Internal Revenue Code of 1986 is amended by in-
serting after subparagraph (F) the following new
subparagraph:
‘‘(G) The termination or substantial reduc-
tion in benefits (as defined in subsection (g)(6))
of group health plan coverage as a result of
plan changes or termination in the case of a
covered employee who is a qualified retiree.’’.
288
(2) QUALIFIED
RETIREE; QUALIFIED
BENE-
FICIARY; 
AND
SUBSTANTIAL
REDUCTION
DE-
FINED.—Section 
4980B(g) 
of 
such 
Code 
is
amended—
(A) in paragraph (1)—
(i) in subparagraph (A), by inserting
‘‘except as otherwise provided in this para-
graph,’’ after ‘‘means,’’; and
(ii) by adding at the end the following
new subparagraph:
‘‘(E) SPECIAL RULE FOR QUALIFYING RE-
TIREES AND DEPENDENTS.—In the case of a
qualifying 
event 
described 
in 
subsection
(f)(3)(G), the term ‘qualified beneficiary’ means
a qualified retiree and any other individual who,
on the day before such qualifying event, is a
beneficiary under the plan on the basis of the
individual’s relationship to such qualified re-
tiree.’’; and
(B) by adding at the end the following new
paragraphs:
‘‘(5) QUALIFIED RETIREE.—The term ‘qualified
retiree’ means, with respect to a qualifying event de-
scribed in subsection (f)(3)(G), a covered employee
who, at the time of the event—
289
‘‘(A) has attained 55 years of age; and
‘‘(B) was receiving group health coverage
under the plan by reason of the retirement of
the covered employee.
‘‘(6) SUBSTANTIAL
REDUCTION.—The term
‘substantial reduction’—
‘‘(A) means, as determined under regula-
tions of the Secretary of Labor and with respect
to a qualified beneficiary, a reduction in the av-
erage actuarial value of benefits under the plan
(through reduction or elimination of benefits,
an increase in premiums, deductibles, copay-
ments, and coinsurance, or any combination
thereof), since the date of commencement of
coverage of the beneficiary by reason of the re-
tirement of the covered employee (or, if later,
January 6, 2001), in an amount equal to at
least 50 percent of the total average actuarial
value of the benefits under the plan as of such
date (taking into account an appropriate ad-
justment to permit comparison of values over
time); and
‘‘(B) includes an increase in premiums re-
quired to an amount that exceeds the premium
290
level described in the fourth sentence of sub-
section (f)(2)(C).’’.
(b) DURATION OF COVERAGE THROUGH AGE 65.—
Section 4980B(f)(2)(B)(i) of such Code is amended—
(1) in subclause (II), by inserting ‘‘or (3)(G)’’
after ‘‘(3)(F)’’;
(2) in subclause (IV), by striking ‘‘or (3)(F)’’
and inserting ‘‘, (3)(F), or (3)(G)’’;
(3) by redesignating subclause (IV) as sub-
clause (VI);
(4) by redesignating subclause (V) as subclause
(IV) and by moving such clause to immediately fol-
low subclause (III); and
(5) by inserting after such subclause (IV) the
following new subclause:
‘‘(V) SPECIAL
RULE
FOR
CER-
TAIN DEPENDENTS IN CASE OF TER-
MINATION
OR
SUBSTANTIAL
REDUC-
TION
OF
RETIREE
HEALTH
COV-
ERAGE.—In the case of a qualifying
event described in paragraph (3)(G),
in the case of a qualified beneficiary
described in subsection (g)(1)(E) who
is not the qualified retiree or spouse
of such retiree, the later of—
291
‘‘(a) the date that is 36
months after the earlier of the
date the qualified retiree becomes
entitled to benefits under title
XVIII of the Social Security Act,
or the date of the death of the
qualified retiree; or
‘‘(b) the date that is 36
months after the date of the
qualifying event.’’.
(c) TYPE OF COVERAGE IN CASE OF TERMINATION
OR SUBSTANTIAL REDUCTION OF RETIREE HEALTH COV-
ERAGE.—Section 4980B(f)(2)(A) of such Code is
amended—
(1) by striking ‘‘The coverage’’ and inserting
the following:
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the coverage’’; and
(2) by adding at the end the following:
‘‘(ii) CERTAIN
RETIREES.—In the
case of a qualifying event described in
paragraph (3)(G), in applying the first
sentence of clause (i) and the fourth sen-
tence of subparagraph (C), the coverage
offered that is the most prevalent coverage
292
option (as determined under regulations of
the Secretary of Labor) continued under
the group health plan (or, if none, under
the most prevalent other plan offered by
the same plan sponsor) shall be treated as
the coverage described in such sentence, or
(at the option of the plan and qualified
beneficiary) such other coverage option as
may be offered and elected by the qualified
beneficiary involved.’’.
(d) INCREASED LEVEL OF PREMIUMS PERMITTED.—
Section 4980B(f)(2)(C) of such Code is amended by add-
ing at the end the following new sentence: ‘‘In the case
of an individual provided continuation coverage by reason
of a qualifying event described in paragraph (3)(G), any
reference in clause (i) of this subparagraph to ‘102 per-
cent of the applicable premium’ is deemed a reference to
‘125 percent of the applicable premium for employed indi-
viduals (and their dependents, if applicable) for the cov-
erage option referred to in subparagraph (A)(ii)’.’’.
(e) NOTICE.—Section 4980B(f)(6) of such Code is
amended—
(1) in subparagraph (D)(i), by striking ‘‘or
(F)’’ and inserting ‘‘(F), or (G)’’; and
(2) by adding at the end the following:
293
‘‘The notice under subparagraph (D)(i) in the case of a
qualifying event described in paragraph (3)(G) shall be
provided at least 90 days before the date of the qualifying
event.’’.
(f) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section (other than subsection (e)(2)) shall
apply to qualifying events occurring on or after Jan-
uary 6, 2001. In the case of a qualifying event oc-
curring on or after such date and before the date of
the enactment of this Act, such event shall be
deemed (for purposes of such amendments) to have
occurred on the date of the enactment of this Act.
(2) ADVANCE NOTICE OF TERMINATIONS AND
REDUCTIONS.—The amendment made by subsection
(e)(2) shall apply to qualifying events occurring
after the date of the enactment of this Act, except
that in no case shall notice be required under such
amendment before such date.
295
riod, premiums paid for continuation coverage (as
defined in section 4980B(f)) under a group health
plan for such period but only if failure to offer such
coverage to the taxpayer for such period would con-
stitute a failure by such health plan to meet the re-
quirements of section 4980B(f) and only if the con-
tinuation coverage is provided because of a quali-
fying event described in section 4980B(f)(3)(G).
‘‘(2) 
MEDICARE
BUY-IN
COVERAGE
PRE-
MIUMS.—The term ‘medicare buy-in coverage pre-
miums’ means premiums paid under part E of title
XVIII of the Social Security Act.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart A of part IV of subchapter A of chapter 1
of such Code is amended by inserting after the item relat-
ing to section 25A the following new item:
‘‘Sec. 25B. Medicare buy-in premiums and certain COBRA continu-
ation coverage premiums.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
296
TITLE III—PROTECTING AND EX-
TENDING 
MEDICARE 
SOL-
VENCY
Subtitle A—Dedication of 20 Per-
cent of Projected Budget Sur-
plus to Medicare
SEC. 301. TRANSFERS TO EXTEND MEDICARE SOLVENCY.
Section 1817 (42 U.S.C. 1395i) is amended by add-
ing at the end the following new subsection:
‘‘(l) Additional Appropriation to Federal Hospital In-
surance Trust Fund.—
‘‘(1) FINDINGS.—The Congress finds as fol-
lows:
‘‘(A) The number of individuals eligible for
benefits under the medicare program will ap-
proximately double (from about 40,000,000 to
80,000,000) between 2000 and 2030.
‘‘(B) It is expected that there will be major
new high technology services available to medi-
care beneficiaries that may be priced accord-
ingly.
‘‘(C) It is essential that additional re-
sources be made available to finance the medi-
care program in the future.
297
‘‘(2) AMOUNT
OF
ADDITIONAL
APPROPRIA-
TION.—In addition to any other amounts appro-
priated to the Trust Fund, there is hereby appro-
priated to the Trust Fund, out of any moneys in the
Treasury not otherwise appropriated, 20 percent of
the on-budget surplus, as estimated by the Congres-
sional Budget Office in January 2001 (adjusted to
exclude surpluses in the Federal Hospital Insurance
Trust Fund), as follows:
‘‘(A) 
for 
fiscal 
year 
2002,
$21,200,000,000;
‘‘(B) 
for 
fiscal 
year 
2003,
$26,400,000,000;
‘‘(C) 
for 
fiscal 
year 
2004,
$31,000,000,000;
‘‘(D) 
for 
fiscal 
year 
2005,
$34,400,000,000;
‘‘(E) 
for 
fiscal 
year 
2006,
$44,600,000,000;
‘‘(F) 
for 
fiscal 
year 
2007,
$55,000,000,000;
‘‘(G) 
for 
fiscal 
year 
2008,
$63,600,000,000;
‘‘(H) 
for 
fiscal 
year 
2009,
$75,600,000,000;
298
‘‘(I) for fiscal year 2010, $89,400,000,000;
‘‘(J) 
for 
fiscal 
year 
2011,
$104,800,000,000; and
‘‘(K) for any subsequent fiscal year
through fiscal year 2015, 20 percent of any
such adjusted on-budget surplus.
‘‘(3) TRANSFER OF FUNDS.—The amounts ap-
propriated for each fiscal year by paragraph (2)
shall be transferred from the general fund in the
Treasury to the Trust Fund in equal monthly in-
stallments on the first business day of each month.’’.
SEC. 302. MEDICARE SOLVENCY DEBT REDUCTION RE-
SERVE.
(a) IN
GENERAL.—The transfers under section
1817(l) of the Social Security Act shall be known as the
Medicare Solvency Debt Reduction Reserve.
(b) POINTS OF ORDER TO PROTECT RESERVE.—
(1) Section 301 of the Congressional Budget
Act of 1974 is amended by adding at the end the
following:
‘‘(j) POINT OF ORDER TO PROTECT MEDICARE SOL-
VENCY DEBT REDUCTION RESERVE.—It shall not be in
order in the House of Representatives or the Senate to
consider any concurrent resolution on the budget (or
amendment, motion, or conference report on the resolu-
299
tion) that would allocate any amount of, or assume a re-
duction in the Medicare Solvency Debt Reduction Re-
serve.’’.
(2) Section 311(a) of the Congressional Budget
Act of 1974 is amended by adding at the end the
following:
‘‘(4) ENFORCEMENT OF MEDICARE SOLVENCY
RESERVE.—It shall not be in order in the House of
Representatives or the Senate to consider any bill,
joint resolution, amendment, motion, or conference
report that would cause a decrease in the level of the
Medicare Solvency Debt Reduction Reserve.’’.
(c) SUPER MAJORITY REQUIREMENT.—
(1) Section 904(c)(2) of the Congressional
Budget Act of 1974 is amended by inserting
‘‘301(j),’’ after ‘‘301(i),’’.
(2) Section 904(d)(3) of the Congressional
Budget Act of 1974 is amended by inserting
‘‘301(j),’’ after ‘‘301(i),’’.
SEC. 303. PROTECTION OF MEDICARE SOLVENCY DEBT RE-
DUCTION RESERVE.
(a) REDUCTION OF MEDICARE SOLVENCY TRANS-
FERS NOT TO BE COUNTED AS PAY-AS-YOU-GO OFF-
SET.—Any provision of legislation that would reduce, re-
peal, or reverse the transfers to the Hospital Insurance
300
Trust Fund under section 1817(l) of the Social Security
Act shall not be counted on the pay-as-you-go scorecard
and shall not be included in any pay-as-you-go estimates
made by the Congressional Budget Office or the Office
of Management and Budget under section 252 of the Bal-
anced Budget and Emergency Deficit Control Act of 1985.
(b) CONFORMING CHANGE.—Section 252 of the Bal-
anced Budget and Emergency Deficit Control Act of 1985
is amended, in paragraph (4) of subsection (d), by—
(1) striking ‘‘and’’ after subparagraph (A),
(2) striking the period after the subparagraph
(B) and inserting ‘‘; and’’, and
(3) adding the following:
‘‘(C) provisions that reduce, repeal, or re-
verse transfers under section 1817(l) of the So-
cial Security Act.’’.
(c) MEDICARE SOLVENCY TRANSFERS REDUCE ON-
BUDGET SURPLUS.—The transfers under section 1817(l)
of the Social Security Act, known as the ‘‘Medicare Sol-
vency Debt Reduction Reserve’’, shall be treated for pur-
poses of the President’s budget under title 31, United
States Code, the Balanced Budget and Emergency Deficit
Control Act of 1985, and the Congressional Budget Act
of 1974 as reductions to the on-budget surplus (or in-
creases in the on-budget deficit).
301
Subtitle B—Additional Revenues
SEC. 311. INCREASED FEDERAL EXCISE TAXES ON TO-
BACCO PRODUCTS.
(a) IN GENERAL.—Section 5701 of the Internal Rev-
enue Code of 1986 (relating to rate of tax on tobacco
products) is amended to read as follows:
‘‘SEC. 5701. RATE OF TAX.
‘‘(a) CIGARS.—On cigars, manufactured in or im-
ported into the United States, there shall be imposed the
following taxes:
‘‘(1) SMALL CIGARS.—On cigars, weighing not
more than 3 pounds per thousand, $4.406 per thou-
sand.
‘‘(2) LARGE CIGARS.—On cigars weighing more
than 3 pounds per thousand, a tax equal to 49.99
percent of the price for which sold but not more
than $98.75 per thousand.
Cigars not exempt from tax under this chapter which are
removed but not intended for sale shall be taxed at the
same rate as similar cigars removed for sale.
‘‘(b) CIGARETTES.—On cigarettes, manufactured in
or imported into the United States, there shall be imposed
the following taxes:
302
‘‘(1) 
SMALL
CIGARETTES.—On 
cigarettes,
weighing not more than 3 pounds per thousand,
$47.00 per thousand.
‘‘(2) 
LARGE
CIGARETTES.—On 
cigarettes,
weighing more than 3 pounds per thousand, $98.70
per thousand.
Cigarettes described in paragraph (2), if more than 61⁄2
inches in length, shall be taxable at the rate under para-
graph (1) by treating each 23⁄4 inches (or fraction thereof)
of the length of each as 1 cigarette.
‘‘(c) CIGARETTE
PAPERS.—On cigarette papers,
manufactured in or imported into the United States, there
shall be imposed a tax of 2.9 cents for each 50 papers
or fractional part thereof; except that cigarette papers
which measure more than 61⁄2 inches in length shall be
taxable at the rate prescribed by treating each 23⁄4 inches
(or fraction thereof) of the length of each as 1 cigarette
paper.
‘‘(d) CIGARETTE TUBES.—On cigarette tubes, manu-
factured in or imported into the United States, there shall
be imposed a tax of 5.9 cents for each 50 tubes or frac-
tional part thereof; except that cigarette tubes which
measure more than 61⁄2 inches in length shall be taxable
at the rate prescribed by treating each 23⁄4 inches (or frac-
tion thereof) of the length of each as 1 cigarette tube.
303
‘‘(e) SMOKELESS TOBACCO.—
‘‘(1) SNUFF.—On snuff, manufactured in or
imported into the United States, there shall be im-
posed a tax of $1.41 per pound (and a proportionate
tax at the like rate on all fractional parts of a
pound).
‘‘(2) CHEWING TOBACCO.—On chewing tobacco,
manufactured in or imported into the United States,
there shall be imposed a tax of 47 cents (and a pro-
portionate tax at the like rate on all fractional parts
of a pound).
‘‘(f) PIPE TOBACCO.—On pipe tobacco, manufac-
tured in or imported into the United States, there shall
be imposed a tax of $2.64 per pound (and a proportionate
tax at the like rate on all fractional parts of a pound).
‘‘(g) ROLL-YOUR-OWN TOBACCO.—On roll-your-own
tobacco, manufactured in or imported into the United
States, there shall be imposed a tax $2.64 per pound (and
a proportionate tax at the like rate on all fractional parts
of a pound).
‘‘(h) IMPORTED TOBACCO PRODUCTS
AND CIGA-
RETTE PAPERS AND TUBES.—The taxes imposed by this
section on tobacco products and cigarette papers and
tubes imported into the United States shall be in addition
304
to any import duties imposed on such articles, unless such
import duties are imposed in lieu of internal revenue tax.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 2002.
(c) FLOOR STOCKS TAXES.—
(1) IMPOSITION OF TAX.—On tobacco products
and cigarette papers and tubes manufactured in or
imported into the United States which are removed
before January 1, 2002, and held on such date for
sale by any person, there is hereby imposed a tax in
an amount equal to the excess of—
(A) the tax which would be imposed under
section 5701 of the Internal Revenue Code of
1986 on the article if the article had been re-
moved on such date, over
(B) the prior tax (if any) imposed under
section 5701 of such Code on such article.
(2) AUTHORITY TO EXEMPT CIGARETTES HELD
IN VENDING MACHINES.—To the extent provided in
regulations prescribed by the Secretary, no tax shall
be imposed by paragraph (1) on cigarettes held for
retail sale on January 1, 2002, by any person in any
vending machine. If the Secretary provides such a
benefit with respect to any person, the Secretary
305
may reduce the $500 amount in paragraph (3) with
respect to such person.
(3) CREDIT AGAINST TAX.—Each person shall
be allowed as a credit against the taxes imposed by
paragraph (1) an amount equal to $500. Such credit
shall not exceed the amount of taxes imposed by
paragraph (1) for which such person is liable.
(4) LIABILITY FOR TAX AND METHOD OF PAY-
MENT.—
(A) LIABILITY FOR TAX.—A person hold-
ing cigarettes on January 1, 2002, to which any
tax imposed by paragraph (1) applies shall be
liable for such tax.
(B) METHOD OF PAYMENT.—The tax im-
posed by paragraph (1) shall be paid in such
manner as the Secretary shall prescribe by reg-
ulations.
(C) TIME
FOR
PAYMENT.—The tax im-
posed by paragraph (1) shall be paid on or be-
fore April 1, 2000.
(5) ARTICLES
IN
FOREIGN
TRADE
ZONES.—
Notwithstanding the Act of June 18, 1934 (48 Stat.
998, 19 U.S.C. 81a) and any other provision of law,
any article which is located in a foreign trade zone
306
on January 1, 2002, shall be subject to the tax im-
posed by paragraph (1) if—
(A) internal revenue taxes have been deter-
mined, or customs duties liquidated, with re-
spect to such article before such date pursuant
to a request made under the 1st proviso of sec-
tion 3(a) of such Act, or
(B) such article is held on such date under
the supervision of a customs officer pursuant to
the 2d proviso of such section 3(a).
(6) 
DEFINITIONS.—For 
purposes 
of 
this
subsection—
(A) IN GENERAL.—Terms used in this sub-
section which are also used in section 5702 of
the Internal Revenue Code of 1986 shall have
the respective meanings such terms have in
such section, as amended by this Act.
(B) SECRETARY.—The term ‘‘Secretary’’
means the Secretary of the Treasury or the
Secretary’s delegate.
(7) CONTROLLED
GROUPS.—Rules similar to
the rules of section 5061(e)(3) of such Code shall
apply for purposes of this subsection.
(8) OTHER LAWS APPLICABLE.—All provisions
of law, including penalties, applicable with respect to
307
the taxes imposed by section 5701 of such Code
shall, insofar as applicable and not inconsistent with
the provisions of this subsection, apply to the floor
stocks taxes imposed by paragraph (1), to the same
extent as if such taxes were imposed by such section
5701. The Secretary may treat any person who bore
the ultimate burden of the tax imposed by para-
graph (1) as the person to whom a credit or refund
under such provisions may be allowed or made.
SEC. 312. TOBACCO SETTLEMENT DEPOSIT.
Amounts that are recovered by the United States in
the civil action brought on September 22, 1999, under the
Racketeer Influenced and Corrupt Organizations Act
(RICO) in the United States District Court for the Dis-
trict of Columbia against the industry engaged in the pro-
duction and sale of tobacco products and persons engaged
in public relations and lobbying for such industry and that
are attributable to the expenditures of the Department of
Health and Human Services for tobacco-related illnesses
shall be deposited in the Federal Hospital Insurance Trust
Fund established under section 1817 of the Social Secu-
rity Act (42 U.S.C. 1395i).
308
SEC. 313. EXCESS PROFITS FROM MEDICARE TAX.
(a) IN GENERAL.—Subchapter A of chapter 1 of the
Internal Revenue Code of 1986 is amended by adding at
the end the following new part:
‘‘PART VIII—EXCESS PROFITS OF
PHARMACEUTICAL COMPANIES
‘‘Sec. 59B. Imposition of tax.
‘‘SEC. 59B. IMPOSITION OF TAX.
‘‘(a) IN GENERAL.—In the case of any person who
manufactures or produces any article reimbursed under
part D of title XVIII of the Social Security Act, there is
hereby imposed (in addition to any other tax imposed by
this title) a tax equal to 50 percent of the excess profit
on the sale of such article by such person.
‘‘(b) EXCESS PROFIT.—For purposes of subsection
(a), the term ‘excess profit’ means, with respect to an arti-
cle, the amount by which the costs associated with the sale
of such article (including gifts, other than samples of the
article, provided to physicians) exceeds twice the research
and development costs properly allocable to such article.’’
(b) CLERICAL AMENDMENT.—The table of parts for
subchapter A of chapter 1 of such Code is amended by
adding at the end the following new item:
‘‘Part VIII. Excess profits of pharmaceutical companies.’’
309
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 2004.
SEC. 314. MEDICARE PART B PERCENT SUBSIDY INCLUDED
IN GROSS INCOME.
(a) IN GENERAL.—Part II of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items specifically included in gross income) is amended by
adding at the end the following new section:
‘‘SEC. 91. MEDICARE PART B SUBSIDY.
‘‘(a) IN GENERAL.—Gross income includes the appli-
cable percentage of the Medicare part B subsidy with re-
spect to premiums under part B of title XVIII of the So-
cial Security Act which are paid by the taxpayer during
the taxable year.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
this section, the applicable percentage for any taxable year
is the applicable percentage determined under the fol-
lowing table for the calendar year in which such taxable
year begins.
Applicable
Calendar year
percentage
2005 .........................................................................................
2006 .........................................................................................
2007 .........................................................................................
2008 .........................................................................................
2009 .........................................................................................
2010 .........................................................................................
2011 .........................................................................................
2012 .........................................................................................
2014 .........................................................................................
2015 or thereafter ....................................................................
100.’’
310
(b) CLERICAL AMENDMENT.—The table of sections
for part II of subchapter B of chapter 1 of such Code
is amended by adding at the end the following new item:
‘‘Sec. 91. Medicare part B subsidy.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to taxable years begin-
ning after December 31, 2004.
SEC. 315. DEDICATION OF FEDERAL ESTATE AND GIFT TAX
RECEIPTS, TOBACCO TAX RECEIPTS AND
OTHER REVENUES TO MEDICARE.
(a) TRANSFER TO FEDERAL HOSPITAL INSURANCE
TRUST FUND.—Section 1817(a) (42 U.S.C. 1395i(a)) is
amended—
(1) by striking ‘‘and’’ at the end of paragraph
(1), and
(2) by striking the period at the end of para-
graph (2) and inserting a semicolin, and
(3) by inserting after paragraph (2) the fol-
lowing new paragraphs:
‘‘(3) the taxes imposed by subtitle B of the In-
ternal Revenue Code of 1986 (relating to estate and
gift taxes) reported to the Secretary of the Treasury
or his delegate on tax returns under subtitle F of
such Code;
‘‘(4) the taxes imposed by chapter 52 of such
Code (relating to cigars, cigarettes, smokeless to-
311
bacco, pipe tobacco, and cigarette papers and tubes)
as so reported;
‘‘(5) the taxes imposed by section 59B of such
Code (relating to excess profits of pharmaceutical
companies) as so reported; and
‘‘(6) the increase in tax liabilities under chapter
1 of such Code which is attributable to section 91
of such Code (relating to medicare part B subsidy).’’
(b) EFFECTIVE DATE.—The amendments made by
this section apply to taxes imposed after the date of the
enactment of this Act.
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