150
has a history of providing services to school-
aged children in the community who are at-risk. 
(2) PARTICIPATION.—A partnership described 
in paragraph (1) shall, to the maximum extent fea-
sible, involve broad based community participation 
from parents and adolescent children to be served, 
health and social service providers, teachers and 
other public school and school board personnel, de-
velopment and service organizations for adolescent 
children, and interested business leaders. Such par-
ticipation may be evidenced through an expanded 
partnership, or an advisory board to such partner-
ship. 
(c) DEFINITIONS REGARDING CHILDREN.—For pur-
poses of this subtitle: 
(1) The term ‘‘adolescent children’’ means 
school-aged children who are adolescents. 
(2) The term ‘‘school-aged children’’ means in-
dividuals who are between the ages of 4 and 19 (in-
clusive). 
SEC. 733. PREFERENCES. 
(a) IN GENERAL.—In making grants under sections 
734 and 735, the Secretary shall give preference to appli-
cants whose communities to be served show the most sub-
stantial level of need for such services among school-aged
151
children, as measured by indicators of community health 
including the following: 
(1) High levels of poverty. 
(2) The presence of a medically underserved 
population. 
(3) The presence of a health professional short-
age area. 
(4) High rates of indicators of health risk 
among school-aged children, including a high propor-
tion of such children receiving services through the 
Individuals with Disabilities Education Act, adoles-
cent pregnancy, sexually transmitted disease (includ-
ing infection with the human immunodeficiency 
virus), preventable disease, communicable disease, 
intentional and unintentional injuries, community 
and gang violence, unemployment among adolescent 
children, juvenile justice involvement, and high rates 
of drug and alcohol exposure. 
(b) LINKAGE TO COMMUNITY HEALTH CENTERS.—
In making grants under sections 734 and 735, the Sec-
retary shall give preference to applicants that demonstrate 
a linkage to community health centers.
152
SEC. 734. GRANTS FOR DEVELOPMENT OF PROJECTS. 
(a) IN GENERAL.—The Secretary may make grants 
to State health agencies or to local community partner-
ships to develop school health service sites. 
(b) USE OF FUNDS.—A project for which a grant 
may be made under subsection (a) may include but not 
be limited to the cost of the following: 
(1) Planning for the provision of school health 
services. 
(2) Recruitment, compensation, and training of 
health and administrative staff. 
(3) The development of agreements, and the ac-
quisition and development of equipment and infor-
mation services, necessary to support information 
exchange between school health service sites and 
health plans, health providers, and other entities au-
thorized to collect information under this Act. 
(4) Other activities necessary to assume oper-
ational status. 
(c) APPLICATION FOR GRANT.—
(1) IN GENERAL.—Applicants shall submit ap-
plications in a form and manner prescribed by the 
Secretary. 
(2) APPLICATIONS BY STATE HEALTH AGEN-
CIES.—
153
(A) In the case of applicants that are State 
health agencies, the application shall contain 
assurances that the State health agency is ap-
plying for funds—
(i) on behalf of at least 1 local com-
munity partnership; and 
(ii) on behalf of at least 1 other com-
munity identified by the State as in need 
of the services funded under this subtitle 
but without a local community partnership. 
(B) In the case of the communities identi-
fied in applications submitted by State health 
agencies that do not yet have local community 
partnerships (including the community identi-
fied under subparagraph (A)(ii)), the State
shall describe the steps that will be taken to 
aid the communities in developing a local com-
munity partnership. 
(C) A State applying on behalf of local 
community partnerships and other communities 
may retain not more than 10 percent of grants 
awarded under this subtitle for administrative 
costs.
154
(d) CONTENTS OF APPLICATION.—In order to receive 
a grant under this section, an applicant must include in 
the application the following information: 
(1) An assessment of the need for school health 
services in the communities to be served, using the 
latest available health data and health goals and ob-
jectives established by the Secretary. 
(2) A description of how the applicant will de-
sign the proposed school health services to reach the 
maximum number of school-aged children who are at 
risk. 
(3) An explanation of how the applicant will in-
tegrate its services with those of other health and 
social service programs within the community. 
(4) A description of a quality assurance pro-
gram which complies with standards that the Sec-
retary may prescribe. 
(e) NUMBER OF GRANTS.—Not more than 1 planning 
grant may be made to a single applicant. A planning grant 
may not exceed 2 years in duration. 
SEC. 735. GRANTS FOR OPERATION OF PROJECTS. 
(a) IN GENERAL.—The Secretary may make grants 
to State health agencies or to local community partner-
ships for the cost of operating school health service sites.
155
(b) USE OF GRANT.—The costs for which a grant 
may be made under this section include but are not limited 
to the following: 
(1) The cost of furnishing health services that 
are not otherwise covered under this Act or by any 
other public or private insurer. 
(2) The cost of furnishing services whose pur-
pose is to increase the capacity of individuals to uti-
lize available health services, including transpor-
tation, community and patient outreach, patient 
education, translation services, and such other serv-
ices as the Secretary determines to be appropriate in 
carrying out such purpose. 
(3) Training, recruitment and compensation of 
health professionals and other staff. 
(4) Outreach services to school-aged children 
who are at risk and to the parents of such children. 
(5) Linkage of individuals to health plans, com-
munity health services and social services. 
(6) Other activities deemed necessary by the 
Secretary. 
(c) APPLICATION FOR GRANT.—Applicants shall sub-
mit applications in a form and manner prescribed by the 
Secretary. In order to receive a grant under this section,
156
an applicant must include in the application the following 
information: 
(1) A description of the services to be furnished 
by the applicant. 
(2) The amounts and sources of funding that 
the applicant will expend, including estimates of the 
amount of payments the applicant will receive from 
sources other than the grant. 
(3) Such other information as the Secretary de-
termines to be appropriate. 
(d) ADDITIONAL CONTENTS OF APPLICATION.—In 
order to receive a grant under this section, an applicant 
must meet the following conditions: 
(1) The applicant furnishes the following serv-
ices: 
(A) Diagnosis and treatment of simple ill-
nesses and minor injuries. 
(B) Preventive health services, including 
health screenings. 
(C) Services provided for the purpose de-
scribed in subsection (b)(2). 
(D) Referrals and followups in situations 
involving illness or injury. 
(E) Health and social services, counseling 
services, and necessary referrals, including re-
157
ferrals regarding mental health and substance 
abuse. 
(F) Such other services as the Secretary 
determines to be appropriate. 
(2) The applicant is a participating provider in 
the State’s program for medical assistance under 
title XIX of the Social Security Act. 
(3) The applicant does not impose charges on 
students or their families for services (including col-
lection of any cost-sharing for services under the 
comprehensive benefit package that otherwise would 
be required). 
(4) The applicant has reviewed and will periodi-
cally review the needs of the population served by 
the applicant in order to ensure that its services are 
accessible to the maximum number of school-aged 
children in the area, and that, to the maximum ex-
tent possible, barriers to access to services of the 
applicant are removed (including barriers resulting 
from the area’s physical characteristics, its eco-
nomic, social and cultural grouping, the health care 
utilization patterns of such children, and available 
transportation). 
(5) In the case of an applicant which serves a 
population that includes a substantial proportion of
158
individuals of limited English speaking ability, the 
applicant has developed a plan to meet the needs of 
such population to the extent practicable in the lan-
guage and cultural context most appropriate to such 
individuals. 
(6) The applicant will provide non-Federal con-
tributions toward the cost of the project in an 
amount determined by the Secretary. 
(7) The applicant will operate a quality assur-
ance program consistent with section 734(d). 
(e) DURATION OF GRANT.—A grant under this sec-
tion shall be for a period determined by the Secretary. 
(f) REPORTS.—A recipient of funding under this sec-
tion shall provide such reports and information as are re-
quired in regulations of the Secretary. 
SEC. 736. FEDERAL ADMINISTRATIVE COSTS. 
Of the amounts made available under section 731, the 
Secretary may reserve not more than 5 percent for admin-
istrative expenses regarding this subtitle. 
SEC. 737. DEFINITIONS. 
For purposes of this subtitle: 
(1) The term ‘‘adolescent children’’ has the 
meaning given such term in section 732(c). 
(2) The term ‘‘at risk’’ means at-risk with re-
spect to health.
159
(3) The term ‘‘community health center’’ has 
the meaning given such term in section 330 of the 
Public Health Service Act. 
(4) The term ‘‘health professional shortage 
area’’ means a health professional shortage area des-
ignated under section 332 of the Public Health Serv-
ice Act. 
(5) The term ‘‘medically underserved popu-
lation’’ has the meaning given such term in section 
330 of the Public Health Service Act. 
(6) The term ‘‘school-aged children’’ has the 
meaning given such term in section 732(c). 
TITLE VIII—FINANCING PROVI-
SIONS; 
AMERICAN 
HEALTH 
SECURITY TRUST FUND 
SEC. 800. AMENDMENT OF 1986 CODE; SECTION 15 NOT TO 
APPLY. 
(a) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this title an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(b) SECTION 15 NOT TO APPLY.—The amendments 
made by subtitle B shall not be treated as a change in
160
a rate of tax for purposes of section 15 of the Internal 
Revenue Code of 1986. 
Subtitle A—American Health 
Security Trust Fund 
SEC. 801. AMERICAN HEALTH SECURITY TRUST FUND. 
(a) IN GENERAL.—There is hereby created on the 
books of the Treasury of the United States a trust fund 
to be known as the American Health Security Trust Fund 
(in this section referred to as the ‘‘Trust Fund’’). The 
Trust Fund shall consist of such gifts and bequests as 
may be made and such amounts as may be deposited in, 
or appropriated to, such Trust Fund as provided in this 
Act. 
(b) APPROPRIATIONS INTO TRUST FUND.—
(1) TAXES.—There are hereby appropriated to 
the Trust Fund for each fiscal year (beginning with 
fiscal year 2004), out of any moneys in the Treasury 
not otherwise appropriated, amounts equivalent to 
100 percent of the aggregate increase in tax liabil-
ities under the Internal Revenue Code of 1986 which 
is attributable to the application of the amendments 
made by this title. The amounts appropriated by the 
preceding sentence shall be transferred from time to 
time (but not less frequently than monthly) from the 
general fund in the Treasury to the Trust Fund,
161
such amounts to be determined on the basis of esti-
mates by the Secretary of the Treasury of the taxes 
paid to or deposited into the Treasury; and proper 
adjustments shall be made in amounts subsequently 
transferred to the extent prior estimates were in ex-
cess of or were less than the amounts that should 
have been so transferred. 
(2) CURRENT
PROGRAM
RECEIPTS.—Notwith-
standing any other provision of law, there are hereby 
appropriated to the Trust Fund for each fiscal year 
(beginning with fiscal year 2004) the amounts that
would otherwise have been appropriated to carry out 
the following programs: 
(A) The medicare program, under parts A 
and B of title XVIII of the Social Security Act 
(other than amounts attributable to any pre-
miums under such parts). 
(B) The medicaid program, under State 
plans approved under title XIX of such Act. 
(C) The Federal employees health benefit 
program, under chapter 89 of title 5, United 
States Code. 
(D) The TRICARE program (formerly 
known as the CHAMPUS program), under 
chapter 55 of title 10, United States Code.
163
Subtitle B—Taxes Based on Income 
and Wages 
SEC. 811. PAYROLL TAX ON EMPLOYERS. 
(a) IN GENERAL.—Section 3111 (relating to tax on 
employers) is amended by redesignating subsection (c) as 
subsection (d) and inserting after subsection (b) the fol-
lowing new subsection: 
‘‘(c) HEALTH CARE.—In addition to other taxes, 
there is hereby imposed on every employer an excise tax, 
with respect to having individuals in his employ, equal to 
8.7 percent of the wages (as defined in section 3121(a)) 
paid by him with respect to employment (as defined in 
section 3121(b)).’’
(b) SELF-EMPLOYMENT INCOME.—Section 1401 (re-
lating to rate of tax on self-employment income) is amend-
ed by redesignating subsection (c) as subsection (d) and 
inserting after subsection (b) the following new subsection: 
‘‘(c) HEALTH CARE.—In addition to other taxes, 
there shall be imposed for each taxable year, on the self-
employment income of every individual, a tax equal to 8.7 
percent of the amount of the self-employment income for 
such taxable year.’’
(c) COMPARABLE
TAXES
FOR
RAILROAD
SERV-
ICES.—
164
(1) TAX
ON
EMPLOYERS.—Section 3221 is 
amended by redesignating subsection (c) as sub-
sections (d) and inserting after subsection (b) the 
following new subsection: 
‘‘(c) HEALTH CARE.—In addition to other taxes, 
there is hereby imposed on every employer an excise tax, 
with respect to having individuals in his employ, equal to 
8.7 percent of the compensation paid by such employer 
for services rendered to such employer.’’
(2) TAX ON EMPLOYEE REPRESENTATIVES.—
Section 3211 (relating to tax on employee represent-
atives) is amended by redesignating subsection (c) as 
subsection (d) and inserting after subsection (b) the 
following new paragraph: 
‘‘(c) HEALTH CARE.—In addition to other taxes, 
there is hereby imposed on the income of each employee 
representative a tax equal to 8.7 percent of the compensa-
tion received during the calendar year by such employee 
representative for services rendered by such employee rep-
resentative.’’
(3) NO APPLICABLE BASE.—Subparagraph (A) 
of section 3231(e)(2) is amended by adding at the 
end thereof the following new clause:
165
‘‘(iv) HEALTH CARE TAXES.—Clause 
(i) shall not apply to the taxes imposed by 
sections 3221(c) and 3211(c).’’
(4) TECHNICAL AMENDMENT.—
(A) Subsection (d) of section 3211, as re-
designated by paragraph (2), is amended by 
striking ‘‘and (b)’’ and inserting ‘‘, (b), and 
(c)’’. 
(B) Subsection (d) of section 3221, as re-
designated by paragraph (1), is amended by 
striking ‘‘and (b)’’ and inserting ‘‘, (b), and 
(c)’’.
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to remuneration paid after Decem-
ber 31, 2004. 
SEC. 812. HEALTH CARE INCOME TAX. 
(a) GENERAL RULE.—Subchapter A of chapter 1 (re-
lating to determination of tax liability) is amended by add-
ing at the end thereof the following new part: 
‘‘PART VIII—HEALTH CARE INCOME TAX ON 
INDIVIDUALS
‘‘Sec. 59B. Health care income tax.
‘‘SEC. 59B. HEALTH CARE INCOME TAX. 
‘‘(a) IMPOSITION OF TAX.—In the case of an indi-
vidual, there is hereby imposed a tax (in addition to any
166
other tax imposed by this subtitle) equal to 2.2 percent 
of the taxable income of the taxpayer for the taxable year. 
‘‘(b) NO CREDITS AGAINST TAX; NO EFFECT ON 
MINIMUM TAX.—The tax imposed by this section shall not 
be treated as a tax imposed by this chapter for purposes 
of determining—
‘‘(1) the amount of any credit allowable under 
this chapter, or 
‘‘(2) the amount of the minimum tax imposed 
by section 55. 
‘‘(c) SPECIAL RULES.—
‘‘(1) TAX TO BE WITHHELD, ETC.—For pur-
poses of this title, the tax imposed by this section 
shall be treated as imposed by section 1. 
‘‘(2) REIMBURSEMENT OF TAX BY EMPLOYER 
NOT INCLUDIBLE IN GROSS INCOME.—The gross in-
come of an employee shall not include any payment 
by his employer to reimburse the employee for the 
tax paid by the employee under this section. 
‘‘(3) OTHER
RULES.—The rules of section 
59A(d) shall apply to the tax imposed by this sec-
tion.’’
(b) CLERICAL AMENDMENT.—The table of parts for 
subchapter A of chapter 1 is amended by adding at the 
end the following new item:
‘‘Part VIII. Health care income tax on individuals.’’.
167
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2004. 
Subtitle C—Increase in Excise 
Taxes on Tobacco Products 
SEC. 821. INCREASE IN EXCISE TAXES ON TOBACCO PROD-
UCTS. 
(a) CIGARETTES.—Subsection (b) of section 5701 is 
amended—
(1) by striking ‘‘$19.50 per thousand ($17 per 
thousand on cigarettes removed during 2000 or 
2001)’’ in paragraph (1) and inserting ‘‘$22.50 per 
thousand’’, and 
(2) by striking ‘‘$40.95 per thousand ($35.70 
per thousand on cigarettes removed during 2000 or 
2001)’’ in paragraph (2) and inserting ‘‘$47.25 per 
thousand’’. 
(b) CIGARS.—Subsection (a) of section 5701 is 
amended—
(1) in paragraph (1), by striking ‘‘$1.828 cents 
per thousand ($1.594 per thousand on cigars re-
moved during 2000 or 2001)’’ in paragraph (1) and 
inserting ‘‘$2.11 per thousand’’, and 
(2) in paragraph (2) by striking ‘‘equal to’’ and 
all that follows in such paragraph and inserting
168
‘‘equal to 23.91 percent of the price for which sold 
but not more than $56.25 per thousand.’’
(c) CIGARETTE PAPERS.—Subsection (c) of section 
5701 is amended by striking ‘‘1.22 cents (1.06 cents on 
cigarette papers removed during 2000 or 2001)’’ and in-
serting ‘‘1.41 cents’’. 
(d) CIGARETTE TUBES.—Subsection (d) of section 
5701 is amended by striking ‘‘2.44 cents (2.13 cents on 
cigarette tubes removed during 2000 or 2001)’’ and in-
serting ‘‘2.81 cents’’. 
(e) SMOKELESS TOBACCO.—Subsection (e) of section 
5701 is amended—
(1) by striking ‘‘58.5 cents (51 cents on snuff 
removed during 2000 or 2001)’’ in paragraph (1) 
and inserting ‘67.5 cents’, and 
(2) by striking ‘‘19.5 cents (17 cents on chew-
ing tobacco removed during 2000 or 2001)’’ in para-
graph (2) and inserting ‘22.5 cents’. 
(f) PIPE TOBACCO.—Subsection (f) of section 5701 
is amended by striking ‘‘$1.0969 cents (95.67 cents on 
pipe tobacco removed during 2000 or 2001)’’ and insert-
ing ‘‘$1.27’’. 
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to articles removed (as defined in
169
section 5702(k) of the Internal Revenue Code of 1986) 
after December 31, 2004. 
(h) 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, 2005, 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 or 7652 of such Code on such ar-
ticle. 
(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, 2005, by any person in any 
vending machine. If the Secretary provides such a 
benefit with respect to any person, the Secretary 
may reduce the $500 amount in paragraph (3) with 
respect to such person.
170
(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 any article on January 1, 2005, 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 July 31, 2005. 
(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 
on January 1, 2005, shall be subject to the tax im-
posed by paragraph (1) if—
171
(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 sub-
section—
(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. 
(B) SECRETARY.—The term ‘‘Secretary’’ 
means the Secretary of the Treasury or his del-
egate. 
(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 
the taxes imposed by section 5701 of such Code 
shall, insofar as applicable and not inconsistent with