Amo Houghton

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, today I am re-introducing a bill, the Individual and Small Business Tax Simplification Act, to address a problem that remains as relevant in the 108th Congress as it was in the 107th. In 1935, there were 34 lines on Form 1040 and instructions were two pages. Today, the tax code and regulations have grown to over 9 million words. According to the Tax Foundation, individual taxpayers spent 2.9 billion hours on federal tax compliance in 2002. This is 370 million more hours than in 2001. Businesses spent an additional 2.75 billion hours on tax compliance. The value of this 5.6 billion hours of lost time is incalculable. Our tax code is a growing thicket of complexity that frustrates ordinary taxpayers, is a haven for promoters of dubious schemes, and frequently generates unintended consequences. To be sure, defining income in a manner that is fair and easy to administer is inherently complex, but, for a variety of reasons, the tax code has become far more complicated than necessary. Pamela Olson, the Treasury Department Assistant Secretary for Tax Policy, put it well recently when she said that our tax system ``is surely not a tax system that anyone would set out to create * * * it is the system that has evolved over time.'' In many cases, there is a clear answer to the question of whether a rational person would design a tax provision the same way from a clean slate. The objective of the legislation I am introducing today is to roll back unneeded complexity for individuals and small business taxpayers. One or more of the bill's provisions would simplify annual filing for every individual taxpayer and nearly every business in America. This legislation builds on a bill that I introduced in the 106th Congress, the Tax Simplification and Burden Reduction Act. The Ways and Means Subcommittee on Oversight has held numerous hearings on tax simplification, and the bill draws on the record built at those hearings. I plan to hold additional hearings on tax simplification during the 108th Congress to consider ways to refine this legislation and to consider additional simplification proposals. Several of the provisions of this legislation appeared first as recommendations in the Joint Committee on Taxation's April, 2001 report, and the staff of the Joint Committee on Taxation has helped to refine the proposals contained in the bill. Other provisions originated with the work of the Tax Section of the American Bar Association and the American Institute of Certified Public Accountants. I have received many comments on last year's legislation, and I welcome comments from other individuals and organizations on the bill as we continue to work toward the goal of simplification. Our future as a Nation depends on our ability to raise revenue in a manner that is fair and equitable. The Internal Revenue Code must be simplified to restore faith by all taxpayers in our tax system. The proposal includes the following provisions:

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, I am pleased to join my colleague from Massachusetts, Representative Richard Neal, in introducing our bill, ``The Housing Bond and Credit Modernization and Fairness Act of 2003''. My collaboration with Mr. Neal today is indicative of the broad bipartisan support Housing Bonds and the Low Income Housing Tax Credit (Housing Credit) programs enjoy. The Congress has a golden opportunity, without creating any new program or asking for any appropriation of Federal money, to create new housing opportunity for tens of thousands of low- and moderate-income families every year. All it will take is enactment of simple legislation to eliminate obsolete provisions in the two principal federal programs that finance the production of affordable housing: Housing Bonds, or single-family Mortgage Revenue Bonds, MRBs, as they are commonly known, and the Housing Credit. This bill is identical to the one Representative Neal and I introduced in the 107th Congress, which earned the support of 360 House cosponsors from both parties, from all regions of the country, and from rural and urban districts. The Housing Bond and Credit Modernization and Fairness Act of 2003 would do three things. First, the bill would repeal the Ten-Year Rule, a provision added to the MRB program in 1988 that prevents states from using homeowner payments on such mortgages to make new mortgages to additional qualified purchasers. For each day the Ten-Year Rule is in effect, states lose millions of dollars in financing for first-time home buyer mortgages, amounting to more than $12 billion in mortgage authority between 2001 and 2005. This represents nearly half of the entire Bond cap increase Congress enacted in 2000. Our bill would eliminate the Ten-Year Rule to allow states to use mortgage payments to finance additional lower income mortgages. Second, the bill would replace the present unworkable limit on the price of the homes these mortgages can finance with a simple limit that works. No reliable comprehensive data exists to determine average area home prices. The current price limits were issued in 1994 based on 1993 data. They are obsolete and well below current home price levels in most parts of the country. Many qualified buyers simply cannot find homes that are priced below the outdated limits. The answer is to replace the present limit, set in Washington, by a simple formula limiting the purchase price to three and a half times the qualifying income under the program. Finally, the bill makes Housing Credit apartment production viable in rural areas by allowing statewide median incomes as the basis for the income limits in that program. This change would apply the same methodology for determining qualifying income levels used in the MRB Program. HUD data shows that current income limits inhibit Housing Credit development in more than 1,300 nonmetropolitan counties across the country. I am pleased to tell my colleagues that the changes proposed by the Housing Bond and Credit Modernization and Fairness Act of 2003 have been endorsed by the bipartisan National Governors Association, the National Council of State Housing Agencies, and every major national housing organization. These groups know how important the Housing Bond and Housing Credit programs are in giving states the ability to meet the housing needs of low- and moderate-income families. Today, I ask you to join in a bipartisan effort to see that these important provisions are enacted as part of tax legislation this year.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, I am pleased to join a number of my colleagues in introducing our bill to solve a problem that has been facing a number of companies during the past few years who grant stock options to their employees. Due to the passage of time, this problem is becoming more urgent for a number of reasons mentioned below. I introduced an identical bill in the 107th Congress. Many companies use stock options as an incentive to attract and motivate employees. Companies give their workers the right to purchase company stock, at a small discount from the listed price, through Employee Stock Purchase Plans and Incentive Stock Options. Employee stock ownership motivates workers and can create a positive relationship between management and workers, where both reap rewards for successful company performance. For nearly 30 years the Internal Revenue Service (IRS) took the position that the income from these stock options was not subject to employment taxes when the option is granted or exercised. Instead tax is imposed when the actual stock is sold. However, audits and rulings on specific companies a few years ago raised the troubling prospect that the IRS was changing its position to require that employment taxes should be withheld from the paychecks of individuals who exercised stock options under these plans. Employee Stock Purchase Plans and Incentive Stock Options were created by Congress to provide tools to build strong companies and encourage greater employee ownership of company stock. It was not the intent of Congress to dilute these incentives by requiring employment tax on withholding when the stock is purchased. Members of Congress raised concerns about this issue, and in early 2001 the IRS put in place a moratorium so that no employment taxes would be assessed on stock options. The IRS later lifted the moratorium for options exercised this year. In response to further opposition, in 2002 the IRS announced an indefinite moratorium. As a result, the Joint Committee on Taxation determined that there would be no revenue loss it the law were clarified to prevent withholding on ESPPs and ISOs. If the moratorium is lifted by the IRS there will be a substantial revenue cost attached to clarifying the law. In 2002, the House passed the previous legislation I introduced. Although the Senate Finance Committee passed the legislation unanimously, the legislation was not considered by the Senate. The legislation would clarify that the difference between the exercise price and fair market value of a stock is not subject to employment taxes when an ISO or ESPP is exercised. In addition, wage withholding is not required on disqualifying dispositions of ISO stock or on the fifteen percent discount offered to employees by ESPPs. I urge my colleagues to support this proposed legislation, so that this issue can be resolved as quickly as possible in this Congress.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, I am pleased to join my colleagues, Mr. Sam Johnson from Texas, Mr. Portman from Ohio and Mr. Ramstad from Minnesota, in introducing a bill, the ``Fairness, Simplification and Competitiveness for American Business Act of 2003''. This bill is very similar to the one I introduced in the last Congress, and contains many of the provisions that have been included in past bills I have sponsored on international tax matters. Our trade laws and practices, as well as our commitment to the World Trade Organization, have encouraged the expansion of U.S. business interests abroad. That process continues with passage of the Trade Promotion Authority legislation and recent announcements of various free trade agreements that have been completed or are being negotiated. However, our tax policy lags far behind and seems out of sync with our trade policy. Many would argue that our international tax policy seems to promote consequences that may be contrary to our national interest. The United States continues to be the largest trading nation in the world. In a $10 trillion- plus economy, current data indicate that the value of our exports and imports of goods and services continues to represent about 25% of our GDP. It is no secret that our economy is more and more trade dependent, as our companies depend on overseas markets for a much larger share of profits and sales. Recent cases with the WTO show how our trade relations with various countries or blocks of countries affect the competitiveness of U.S. multinationals vis-a-vis their foreign competitors. Tax policy sometimes becomes intertwined with trade policy. For example, how we comply with the WTO ruling that our foreign sales corporation/ extraterritorial income tax provisions are a prohibited export subsidy highlights the significance of these matters to our economy. The ruling allows sanctions that would amount to an annual $4 billion-plus potential hit against U.S. exports, unless we come into compliance. The forty-year-plus history behind the FSC/ETI and predecessor provisions was all about trying to make our companies tax competitive with their foreign competitors. I don't believe anyone would seriously dispute that our tax system, in general and especially as it relates to international taxation, is overly complex and basically out of date. Many provisions were enacted, e.g. subpart F, in a totally different era as far as the world economy and competitiveness are concerned. The focus of the legislation is to make the international area more rational. The proposal contains a number of provisions to simplify and make fair our international tax laws. In general, the bill seeks in important ways to: (1) simplify this overly complex area, especially in subpart F of the Code and the foreign tax credit mechanisms; (2) encourage exports; and (3) enhance U.S. competitiveness in other industrialized countries. The bill includes some provisions proposed by the Joint Committee on Taxation in its simplification report issued in 2001. In addition, Treasury officials have repeatedly stressed the importance of updating our international tax laws. Some of the provisions in the prior bill have been modified to be consistent with H.R. 5095, introduced in the last Congress by the Chairman of the Ways and Means Committee. In addition, provisions relating to subpart F have been added from that bill. They are essential to updating that portion of the Internal Revenue Code. In summary, the law as now constituted frustrates the legitimate goals and objectives of U.S. businesses and erects artificial and unnecessary barriers to U.S. competitiveness. Neither the largest U.S.- based multinational companies nor the Internal Revenue Service is in a position to administer and interpret the mind-numbing complexity of many of the foreign provisions. Why not then move toward creating a set of international tax rules that taxpayers can understand and the government can administer? I believe the proposed changes in this bill represent a creditable package and we have a unique opportunity in the 108th Congress to make significant progress in enacting reform in the international tax area. I urge your support of the proposal.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, on rollcall No. 6 I inadvertently pressed the ``yea'' button. I meant to vote ``nay'' on the McDermott motion to commit. Announcement by the Speaker pro Tempore

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, this is an important--no, a critical debate. It is right that we have it. I stand here as one who enlisted in the Marine Corps in 1994, voted for Desert Storm, and has always believed that the first federal dollar spent each year should go to the military. These men and women provide for our ultimately security. However, I am prepared to vote against this particular resolution. It will not be a happy vote. I will be in the minority. I sadly will not stand with my President, a man I admire so much. Yet as with literally the thousands of votes cast in this chamber, I've found that following one's instinct is the most honest, if not always the most politically popular, approach. What we're discussing is all unknown territory. We're talking about the future--and that talk, out of necessity, means guesses, estimates, and personal interpretation. The one thing we do know is that since September 11, 2001, we are living in a new world. It's an unsettling world requiring different defenses--secrecy, stealth operations, armies without uniforms--but maybe of greatest importance, an adhesive-like working relationship with our friends. Following 9/11 we were told that the enemy was terrorism in all its forms. The al Qaeda, Osama bin Laden would be hunted down, Afghanistan was to be stabilized and rebuilt, and we were to work closely with our allies and near-allies. We could not go it alone. Now we hear that priorities have changed. Iraq is the prime target. Saddam Hussein is a heinous criminal, with frightening weapons. And I believe all that. But the question remains: what does this have to do with terrorism, our original objective? There is little evidence that Iraq had anything to do with 9/11. I happen to be a hawk on Iraq. Saddam Hussein is a disturbed, dangerous leader. We should deal with him. But absent any immediate threat, our eye ought to be on the security of the American people. The fight is against terrorism in all the emerging subtle forms and that has little to do with Saddam Hussein. So without finishing what we started and with no sure knowledge that he is near producing nuclear weapons, why is it that within the last few months we recalibrate our objectives? War would be hugely costly. We already are in deep deficit. We are not backed by the essential allies, and we could easily unleash additional terrorism. Last weekend I spent a whole day with Jewish and Palestinian representatives. One Arab comment was, ``The Iraqis hate Saddam Hussein, but remember they hate the United States more.'' Iraq is one of the few secular countries in the Middle East. Unleashing, without careful ground work, the hatred of two mortal internal enemies--the Sunnis and the Shi'ites--could produce another angry fundamentalist state. The bill in front of us says, ``The President is authorized to use the Armed Forces of the United States as he determines to be necessary and appropriate . . .'' I have the greatest respect for the President. And you know what? He may be right. But I am given the opportunity to express my opinion and to cast my vote. I feel uncertain at this time, in this place, sanctioning that authority. Unilateralism scares me. We haven't shown a lot of patience since the President's speech to the U.N. Our historic rule of thumb has been to bring people together, not divide them. This war will not be a cake walk. People fight differently in defense of their homeland, their families. I worry about the Israeli-Palestinian conflict, and our lack of attention to it. I think we've got the cart before the horse. Let the U.N. first work its will. Finally, Mr. Speaker, a right decision at the wrong time is a wrong decision. Why don't we win the war against terrorism before we start another fight?

Mr. HOUGHTON

Mr. HOUGHTON. Madam Speaker, I thank the gentleman from Nebraska for yielding me this time. The American people are now going to experience a wonderful and lengthy debate, something that is just absolutely essential for this country, and they will have their fill of it. I want to stand here, though, and say that in 1944 I enlisted in the Marine Corps. I voted for Desert Storm. I have always felt that the first dollar of Federal money should go into defense, to be able to protect our country. But I am prepared to vote against this resolution. This is a sad day for me, because I want to support my President. I admire him greatly. But I guess, with thousands of votes which we make over the years, I have found that conscience is probably the best thing to follow and is most honest if one is going to be true to one's self, if not always politically popular. Following September 11 of last year, we were told that terrorism is the enemy. We have to get rid of al Qaeda. We have to take out Osama bin Laden. We have to eliminate the pockets who hate Americans. We have to rebuild Afghanistan. Secondly, we were told that to win the war against terrorism, our main objective, it required the cooperation of our allies around the world. And I bought that, and the President spelled it out very clearly and very eloquently. But now we hear that the priorities have changed and that Iraq is the prime target. Saddam Hussein is a bad man, he has horrible weapons, and I believe all of that. But as a single-minded believer I asked, what does this have to do with September 11? There is very little evidence that Iraq had anything to do with the attack on September 11 or on terrorism itself. As a matter of fact, probably Saddam Hussein and Osama bin Laden are mortal enemies. One is from a secular country and the other is a religious fundamentalist. Now, I happen to be a hawk on Iraq. Saddam Hussein is bad, and some day we should deal with him. But, right now, the security of the American people is at stake, and I believe we must fight terrorism in its emerging and subtle forms. So, I see that, without finishing what we started to do and with no intimate knowledge that there is nuclear weapons at hand or that there is a relationship to terrorism, why is it that we refocus our objectives? It is hugely costly. We are not backed by some of our key allies, and we potentially can unleash even more of the thing which we are fighting: terrorism. I met with some Arabs the other day, with a group of Israelis and Arabs who were talking about the Middle East, and they said, the Iraqis in general hate Saddam Hussein, but they hate the United States even more. So Iraq is now one of the only secular countries in that region. And the Sunnis and the Shiites could create such a mess following a war that we could find ourselves against a religious fundamentalist state that could develop, where that is not the case now. The bill here today says that the President, ``is authorized to use the Armed Forces of the United States as he determines to be necessary and appropriate.'' Now, I have great respect for this President. He is an unusual man. And he may be right. We do not know. This is all the future that we are dealing with. But I am given the opportunity as a Congressman to express my feelings and to cast my vote; and I, frankly, feel uncomfortable. Unilateralism scares me. We have not shown a lot of patience. Our goal as a Nation is to bring people together, not divide them. This is not going to be a cakewalk. People fighting for their own country fight, just differently. And what about the dire Arab-Israeli or Palestinian-- Israeli situation? I think we have the cart before the horse. I think the U.N. ought to do its will first. Frankly, I feel that a right decision at the wrong time is a wrong decision; and somehow we must finish our war on terrorism before we take on another fight.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, I ask unanimous consent to take from the Speaker's table the bill (H.R. 3100) to amend the Internal Revenue Code of 1986 to allow for the expansion of areas designated as renewal communities based on 2000 census data, and ask for its immediate consideration in the House.

Mr. HOUGHTON. Mr. Speaker, will the gentleman yield?

Mr. HOUGHTON. Mr. Speaker, I thank the gentleman for yielding. Mr. Speaker, this is a very simple bill which is designed to correct the Renewal Community legislation previously passed by this Congress. It is going to allow the use of 2000 census data for designation of new areas in the Renewal Communities.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks on H.R. 3100, the bill just passed.

Mr. HOUGHTON

Mr. HOUGHTON. Ben, how do you feel about all these nice words being said about you? Just do not inhale them. Mr. Speaker, I would like to do a little more personal approach. Ben has had a distinguished career. He has been here for 30 years, been chairman of the Committee on International Relations, been on many CODELs, co-chairman of the New York State delegation, been absolutely wonderful, but, more importantly than that, I would like to say something to Ben. He has been a mentor. The two best friends I have had in this Chamber have been Hamilton Fish and Ben Gilman. Hamilton is no longer with us; and, along with his lovely wife, Georgia, they have been wonderful friends of Priscilla's and mine. But, more important, when a Member comes here, and I did not know anything about politics, I had never been in politics before, Ben took me under his wing and was always there for me. They say a friend in need is a pest. Never would Ben. He was always there, always honest, always leading, always inclusive. I cannot tell Ben how much I appreciate that friendship, and I trust and hope it will continue. So, Mr. Chairman, Charlie, my great friend, sergeant, we are going to miss you.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, today I am introducing a bill, the Individual and Small Business Tax Simplification Act, to address an ever-increasing problem. In 1935, there were 34 lines on Form 1040 and instructions were two pages. Today, there are well over 13,000 pages of forms and instructions. The tax code and regulations have mushroomed to over 9 million words. Approximately eighty-percent of the paperwork burden of the entire federal government is related to tax compliance, and the extent of this burden is staggering. In 2001, individual taxpayers spent an estimated 2\1/2\ billion hours on federal tax compliance. Businesses spent an additional 2 billion hours. The value of this lost time is incalculable, but it does not even include the economic cost of decisions based on a faulty understanding of the law. Nor does the 4\1/2\ billion hour total include time spent on planning. An added cost of complexity is that it undermines voluntary compliance. It is a haven for promoters of dubious schemes and it often produces unintended consequences. There are legitimate reasons for some of this complexity. Defining income in a manner that is fair and easy to administer is inherently complex, and, it must be acknowledged, any tax measured by income—even a flat tax—must reflect the way income is earned in a complex economy such as our own. But, for a variety of reasons, the tax code has become far more complicated than necessary. In many cases, there is a clear answer to the question of whether a rational person would design a tax provision the same way from a clean slate. The objective of the legislation I am introducing today is to roll back this sort of complexity. One or more of the bill's provisions would simplify annual filing for every individual taxpayer. This legislation builds on a bill that I introduced in the 106th Congress, the Tax Simplification and Burden Reduction Act. The Ways and Means Subcommittee on Oversight has held numerous hearings on tax simplification, and the bill draws on the record built at those hearings. Several of the provisions of this legislation appeared first as recommendations in the Joint Committee on Taxation's April, 2001 report, and the staff of the Joint Committee on Taxation has helped to refine all of the proposals contained in the bill. Other provisions originated with the work of the Tax Section of the American Bar Association and the American Institute of Certified Public Accountants. I welcome comments from other individuals and organizations on the bill and other simplification measures. Our future as a nation depends on our ability to raise revenue in a manner that is fair and equitable. The Internal Revenue Code must be simplified to restore faith by all taxpayers in our tax system. The proposal includes the following provisions: I. Individual Income Tax Simplification Alternative Minimum Tax—Inflation has caused many middle-income taxpayers to be subject to AMT by eroding the value of the AMT exemption. Rising state and local taxes have added to the problem, because state taxes are not deductible in calculating taxable income for AMT purposes. The failure to allow a state and local tax deduction for AMT purposes is one of the most unfair aspects of the Internal Revenue Code. It results in double taxation of income, and it forces taxpayers who live in states with higher income taxes to bear a larger percentage of the federal tax burden than those who live in states with lower taxes or no tax. If we allow the AMT to remain unaddressed, this unfair and inequitable disparity will worsen over time. As a result of inflation, the Joint Committee on Taxation predicts that more than 35 million will pay AMT within ten years. Currently, AMT affects less than 2 million taxpayers. A recent study by the Urban- Brookings Tax Policy Center confirms this finding and further notes that if left unattended the AMT will shift a substantial portion of the tax burden of this country to urban and suburban middle-class taxpayers. Congress would not design a system with these features deliberately, and we should not allow it to happen by default. Under the proposal, the AMT exemption would be adjusted for inflation since the date it was enacted and indexed for inflation in future years. State and local taxes would become fully deductible under the new AMT. The effect of these changes will be to restore AMT to its intended purpose and stop its growth. Replace Head of Household Filing Status with New Exemption—Head of Household filing status has long been a leading-source of taxpayer confusion and mistakes during the filing season. In 2000, the IRS fielded over half a million taxpayer questions on filing status. An error on filing status can have consequences throughout the return, and it can lead to costly interest and penalty charges later on. To address this problem, the bill replaces Head of Household filing status with a $3,700 “Single Parent Exemption.” This amount will be indexed. The proposal, as a whole, is revenue neutral. The bill achieves further simplification by cross referencing the new uniform definition of a qualifying child. Simplified Taxation of Social Security Benefits—Under present law, determining whether and how much social security benefits are subject to tax is a highly involved process that requires the completion of an 18 line worksheet. Many taxpayers are not eligible to use this worksheet, and they must refer to a 27 page publication. The bill would simplify the calculation by repealing the 85% inclusion rule that was enacted in 1993. This alone would remove 6 lines from the Form 1040 worksheet. Going further, the proposal would index the 50% inclusion rule for future inflation, and greatly simplify the calculation of income for purposes of this rule. Tax exempt interest will no longer be required to be added in the calculation. Indexation will mean that fewer taxpayers will be required to complete the calculation and include benefits in income. Simplify Capital Gains Tax—Under present law, there are seven different capital gains rates that apply to various kinds of dispositions of property. There are special rates for taxpayers in lower tax brackets, for property held five years or more, and for gain on collectibles. Before 1986, there was one rule: 50% of capital gains are deductible. For any investor who has struggled to fill out Schedule D of Form 1040, it will come as welcome news that the bill proposes a return to the system in place prior to 1986. No taxpayer will pay a higher capital gains rate under this proposal. By definition, the capital gains rate that individuals pay will be no more than one-half of their marginal income tax rate. Therefore, this proposal preserves the progressivity that is accomplished by a rate structure under current law, and the maximum rate will be no more than one-half of the highest marginal income tax rate. Thus, the maximum effective capital gains rate would be 19.3% in 2003, and an individual in the 10% bracket would have a 5% capital gains rate. Repeal of 2% Floor on Miscellaneous Itemized Deductions—The bill follows the recommendation of the Joint Committee on Taxation that the 2% floor on miscellaneous itemized deductions should be repealed. This provision was originally enacted in 1986 to ease administrative burdens for the IRS and record keeping burdens for taxpayers. Instead of easing taxpayers’ burdens, it has caused extensive litigation and controversy over such matters as whether an individual is properly characterized as an employee or an independent contractor. It has also resulted in disparate treatment of similarly situated taxpayers. For example, an employee whose job requires him to pay out of pocket for travel, professional publications, or education is disadvantaged compared to a taxpayer in a similar job whose employer reimburses such items. Simplify Taxation of Minor Children—This provision would eliminate the current restrictions on adding a minor child's income to the parent's return. A parent could freely elect to include the income of a child under 14 on his or her own tax return, regardless of the character and amount of the child's income. Parents and children would retain the ability to file separate returns, but the unearned income of a minor child would be subject to tax at the rates applicable to trusts. The single filing rate structure would continue to apply to the child's earned income. Simplify Dependent Care Tax Benefits—The bill would conform differences between the Dependent Care Tax Credit and the Exclusion for Employer-Provided Dependent Care Assistance. The two programs serve identical purposes, but their rules are different. Under this proposal, the dollar limit on the amount creditable or excludable would be increased to $5,500, and the percentage creditable would be increased to 35%. These provisions would be further simplified by a cross- reference to the new uniform definition of a qualifying child. Accelerate Repeal of PEP and PEASE—The bill would accelerate and make permanent the repeal of the overall limitation on itemized deductions (PEASE) and the personal exemption phaseout (PEP). These provisions add complexity and complicate planning for millions of taxpayers. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) repeals these provisions over a period of years from 2006 to 2009, but, because of EGTRRA's sunset provisions, PEP and PEASE spring back to life in 2011. Uniform Definition of a Child—One of the most challenging and difficult problems that taxpayers face each year is to navigate the multiple definitions of a qualifying child for the dependent exemption, the child tax credit, the dependent care credit, the earned income tax credit, and for purposes of determining head of household filing status. The bill would establish a uniform definition of a child based on the residence, relationship, and age of the child. The Proposal would replace the rule that requires taxpayers to prove that they provide more than one-half of a child's support with a preference for the parent who provides housing for the child for more than one-half of the year. In addition, the bill would establish that means-tested government benefits are generally disregarded in determining eligibility for tax benefits. Combine HOPE and Lifetime Learning Credits—Like the dependent care credit and the exclusion for employer provided dependent care assistance, the HOPE and Lifetime Learning Credits (LTL) serve nearly identical purposes, but they have different rules. The LTL credit is a per-taxpayer credit, and it applies on up to $10,000 of qualifying, education expenses. The HOPE credit is a per-child credit, and it applies with respect to the first $2,000 of qualifying education expenses incurred during the first two years of post-secondary education. Both credits are for higher education, but taxpayers face a challenge to determine which credit is best for their circumstances. The bill would merge the two credits, providing a credit for one-half of the first $3,000 of post-secondary education expenses. This credit would apply on a per-child basis, and it would not be limited to the first two years of post-secondary education. Uniform Definition of Qualifying Higher Education Expense—The bill adopts the recommendation of the Joint Committee on Taxation that there should be a uniform definition of higher education expense for purposes of the various education tax benefit programs. The varying definitions that exist in current law greatly complicate the task of determining which education benefit is best for the taxpayer. II. Small Business Tax Simplification Uniform Passthrough Entity Regime—This provision would combine the benefits of Subchapter S (S corporations) and Subchapter K (Partnerships) of the Internal Revenue Code in a single, unified passthrough entity regime based on Subchapter K. While at one time, Subchapter S provided the only avenue for prospective investors to avoid the corporate-level tax while retaining a full liability protection, the emergence and broad acceptance of limited liability companies (LLCs) has provided investors with an alternative. There are now two separate, fully-articulated passthrough entity regimes. Maintaining two separate passthrough entity regimes is expensive and unnecessarily complicated. It increases costs both for taxpayers and for the IRS. At a time when the IRS is striving to train its auditors to understand passthrough entities, and a new class of investors is struggling to understand the pros and cons of the two regimes, the time is ripe to rationalize this most complex area of the Internal Revenue Code by reconciling Subchapter S and Subchapter K. The objective of the proposal is to establish a single passthrough entity regime that preserves the major benefits of Subchapter S and Subchapter K. Domestic corporations that are not publicly traded would have a new election to be treated as a partnership for federal tax purposes, and the S election would be repealed. The proposal would therefore endorse, and extend, the 1996 Check-the-Box regulations to allow state law corporations to elect partnership status. Existing S corporations would be permitted to continue as S corporations for ten years at which time they would be required to elect partnership or corporate status. So as not to undermine the corporate tax that will remain applicable to publicly traded corporations and other entities that elect to be taxed as corporations, a corporation that elects partnership status with undistributed earnings and profits will be required to track distributions of earnings under rules similar to IRC Section 1368. Similarly, electing corporations (including S corporations) with appreciated assets will be required to pay a built in gains tax if they sell or dispose of such assets within the first ten years after the election. However, corporations (including S corporations) that elect partnership status will not be required to recognize entity-level gain as a result of the election. The 8 proceeds of built in gain transactions will be added to historic earnings and profits and not currently taxed to the partners. Consistent with the overall objective of preserving the benefits of Subchapter S, the proposal will establish a means for passthrough entities to engage in tax free reorganizations with entities classified as corporations. Under the proposal, a partnership engaged in an active trade or business may contribute substantially all of its assets to a new corporation and immediately thereafter engage in a tax free reorganization. The bill would also adopt a recommendation of the American Institute of Certified Public Accountants and the American Bar Association that the definition of earnings from self-employment should not include the portion of a partner's distributive share that is attributable to capital. This proposal contains reasonable safe harbors and it would eliminate the disparate treatment of limited partners, S corporation shareholders, and limited liability company members. The current rules can only be described as a historical anachronism and a significant trap for the unwary. Additionally, the bill would adopt the recommendation of the Joint Committee on Taxation that the electing large partnership rules should be eliminated. Some may argue that by repealing the S election, the proposal forces more taxpayers to contend with a more complex tax regime, but this is generally not true. If there is a demand, investors can create an investment vehicle with all the features of an S corporation by contract or they may select a state law business form that restricts flexibility, such as a corporation or close corporation. This would eliminate nearly all of Subchapter K's feared complexity. The relative complexity of Subchapter K stems from its greater flexibility. The proposal allows investors to regulate the level of tax complexity by voluntary agreement among the investors or through the investors’ choice of a state law business entity. Increase Section 179 Expensing Limit—The bill would increase the limit on expensing to $25,000 in the tax year after enactment and to $40,000 after 2012. This measure will greatly reduce complexity for many small businesses by minimizing controversy over whether an item should be expensed or capitalized. Rollover of Property Held for Productive Use or Investment—Present law strongly favors sophisticated taxpayers over ordinary small business owners in the execution of like-kind exchange transactions. Thirty-seven pages of the Code of Federal Regulations is devoted to the topic of like-kind exchanges, and a library could be filled with the court decisions, revenue rulings, and letter rulings that Section 1031 of the IRC has engendered. Attorneys and exchange facilitators must execute hundreds of thousands of pages of documents each year to comply with the formalistic rule that prevents the owners of like-kind property from receiving cash in a like-kind exchange transaction. There is a simple way to eliminate this paperwork: repeal the limitation on sales for cash and allow a like-kind exchange within 180 days before or after the disposition of relinquished property. The bill does this. Repeal of Collapsible Corporation Rules—Finally, the bill would repeal the collapsible corporation rules that linger in the tax code as a trap for the unwary. These rules were enacted to prevent an abuse that has not existed since the repeal of the General Utilities doctrine. The repeal of these rules is long overdue. I urge my colleagues to join me in cosponsoring this legislation.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, I would like to tell you a story. There was a man called Robert Fulghum and he wrote a book called ``Everything I Ever Learned I Learned In Kindergarten.'' He was in college and there was a Greek immigrant called Dr. Papaderos and at the end of one of the courses he said, What is the meaning of life, Dr. Papaderos? And everybody laughed. And Dr. Papaderos took this thing very seriously. He said, I will tell you a story. When I was a little boy in Greece I ran across a German motorcycle and there was a glass on the ground, a mirror. And I did not have any toys to play with and I picked up the glass and I ground it and I ground it. Soon it was perfectly circular. It was a wonderful play thing for me, but as I grew up and went into life, I realized it was sort of a metaphor for what we were all about. When I used to shine this mirror into dark places, it would light up and I could see things. And he said, One of things that it taught me is that we are not the light, we are not the source of the light; but through our own lives, we can shine certain pieces of material, in this particular case it was the glass, so that we can illuminate an issue. This is the thing I think that Patsy did more than anything for me on the other side of the aisle. She was able to illuminate and humanize issues in a way I will never forget.

Mr. HOUGHTON

Mr. HOUGHTON. Madam Speaker, I thank the gentleman from Georgia (Mr. Lewis) for yielding me this time. I have a great deal of respect for the gentleman from North Carolina (Mr. Jones) and the gentleman from California (Mr. Herger). I just happen to disagree with them on this particular issue, and let me tell my colleagues why. This is really a tax consideration, and all tax bills really should go through the Committee on Ways and Means, and this has not. I have been on the Subcommittee on Oversight of the Committee on Ways and Means. We reviewed this in May. We had a good meeting. There was no consensus on the part of the religious community for Tax Code change. So the whole concept of the 501(c)(3) which includes religious groups, United Way, hospitals, so on and so forth, they receive tax preferential treatment, and there is a trade-off. For that there are no political campaign activities. And today churches are free to talk about the issues in any way they want, but they cannot use the church resources on a tax deductible basis to campaign for a candidate. I think that makes perfectly good sense. They can do what they want, but they should not use the Tax Code the way no one else can use the Tax Code for this political purpose.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, I am pleased to join my colleague from Ohio, Mr. Hoghton, in introducing our bill, the Workplace Employee Stock Option Act of 2002, that would benefit working men and women who would receive a new type of stock option under new section 423(d) of the Internal Revenue Code. This bill is an updated and improved version of bills I introduced in the 105th and 106th Congresses. We have been through difficult times in the past year. The financial downturn has resulted from a variety of questionable accounting practices by a number of companies. Unfortunately, stock options of all types have been tarred by a common brush. This proposal is a new approach to options. In spite of current problems, it is good for both employers and employees if workers are also owners of the business. Congress is considering legislation to impose new laws on corporations and accountants. Volume is reasonably intense in the debate on the advisability of expensing the value of stock options when they are granted. Expensing of options in financial statements may happen--even though there are several unresolved issues. If expensing happens, one hopes that we will leave it to the FASB and SEC to develop the best approach. Having said that, we would propose that the new type of option contained in this bill would be exempt from such valuation as a noncompensatory plan. Why? The option would be priced at market, fully available to nearly all employees, as well as management, on a nondiscriminatory basis, and subject to a relatively modest individual dollar cap. If we require expensing of such a widely held benefit, employers simply will not offer it. The highlights of the bill include: (1) substantially all full-time U.S. employees would be eligible to participate, (2) the option price would be 100% of the fair market value at time of grant, the maximum annual amount of a grant per employee would be $11,000 (same as indexed 401 (k) amount), (4) no tax to the employee at time of grant or exercise, including AMT, (5) at time of sale the employee would receive ordinary income to the extent of the fair market value at time of exercise, with any excess being capital gain, and (6) the employer's deduction would be the fair market value at time of exercise (same amount as employee reports at sale). The ever-widening compensation gap between the highly paid and the nation's work force is cause for great concern. Once again, let us emphasize: This new 423(d) option is designed for working men and women, whose everyday, solid work enhances the company's overall performance. This is a broad-based stock option program. Employees ought to be able to build their wealth beyond that which they would ordinarily receive from a salary or bonus. This proposal would add another leg on the stool for employee retirement by providing an additional means of accumulating assets. It would encourage the long- term holding of stock by deferring all tax until sale. We encourage our colleagues to join in cosponsoring this legislation.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, I am not at my best at 10 minutes of 3 in the morning, but I will do what I can in order to put this thing in clear perspective, as far as I am concerned. This piece of legislation loses no jobs. As a matter of fact, it does not even gain jobs. But we all know that 96 percent of the world's population live outside of the United States. They are our market in the future. We can take a look in terms of the impact of export jobs, and it ranges between 15 and 20 percent extra pay for those people who produce those products. This is very straight forward. We want more business. In order to get more business, we have to negotiate. In order to negotiate, we have to have the government behind us. This allows the government to get behind us.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Chairman, I thank the gentleman for yielding me this time, and I thank the gentleman from Vermont. I happen to feel, and I have been around this pension business a long time, that the Sanders amendment is going to unfairly tie the hands of the Treasury Department. Now, that is not important to some people, but it is to the general public. When it comes to writing new rules and issuing determination letters for defined benefit pension plans, the history is this: the Treasury and IRS issued a proposed ruling in 1996, and of course this is now in need of updating and improvement. The Sanders amendment, and I can understand where the gentleman from Vermont is coming from, but it really, I think, could have damaging effects if adopted. The cash balance pension conversions have already been thoroughly addressed by this body right on this floor. A number of hearings in the 105th and 106th Congresses were held by the relevant committees of jurisdiction; and Congress included in the 2001 tax law a provision expanding the disclosure, the disclosure obligations of employers when they convert to a cash balance defined benefit plan. Congress concluded at that time that enhanced disclosure was the proper response to the issue surrounding cash balance conversions, not stopping action by the IRS to revise guidance on the proposed rules. The Federal agencies, such as the IRS and the Treasury, responsible for jurisdiction over the pension age issues, are currently engaged in a thorough review of these age discrimination questions. The Subcommittee on Oversight of the Committee on Ways and Means, which I am a member of, held a hearing last month on defined benefit plans; and we would have the jurisdiction over any changes to the existing law. Unfortunately, this amendment that we are looking at today cuts into the legislative jurisdiction of the Committee on Ways and Means and also the work which it is trying to do. So, Mr. Chairman, I really feel that this is an unfortunate amendment at this particular time, and I would hope people would oppose it.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, there are just a couple of comments I make. This all is very confusing, sort of a double or triple negative, do we oppose an opposition? Actually, I oppose the disapproval of the extension of the waiver, which means we will continue our relationships with Vietnam. I can identify with the gentleman from New York (Mr. McNulty) and I am terribly sorry about the situation with his brother, but there are others of us who had members of our family in not only that war, but other wars have had the same situation, and I understand what the gentleman from California (Mr. Rohrabacher) is saying, but the same arguments could be used with Russia.

Mr. HOUGHTON. I yield to the gentleman from New York.

Mr. HOUGHTON. Mr. Speaker, I understand what the gentleman is saying, but there are others of us who have been in others wars and have other members of our families and there are still situations there which are still to be clarified. All I was saying is that I identify with the gentleman, and I am sorry about that situation because I know how meaningful it is to him and how poignant those memories are, but others of us have those same type of things. The only thing I am saying is that, very briefly, that if we are going to look forward rather than back, we must relate to other people in this world, including our former enemies, and I think it is high time that we kept those relations going, and therefore, I would strongly oppose the disapproval in H.J. Res. 101.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, I thank the gentleman from Texas very much for those wonderful and eloquent words. Mr. Speaker, I yield 2 minutes to the gentleman from North Carolina (Mr. Jones).

Mr. HOUGHTON. Mr. Speaker, I yield myself such time as I may consume. Mr. Speaker, I would like to thank the gentleman from New York (Mr. McNulty) for those wonderful words. Many strong words have been uttered by many strong people here, and I will not try to add to those. Suffice it to say, Mr. Speaker, that this is a fair bill, it is the right bill, it is the right bill at the right time; and I would like to, as with the gentleman from New York (Mr. McNulty), urge Members to support H.R. 5063.

Mr. HOUGHTON. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 5063) to amend the Internal Revenue Code of 1986 to provide a special rule for members of the uniformed services in determining the exclusion of gain from the sale of a principal residence and to restore the tax exempt status of death gratuity payments to members of the uniformed services.

Mr. HOUGHTON

Mr. HOUGHTON. Mr. Speaker, I ask unanimous consent that all Members have 5 legislative days in which to revise and extend their remarks and include extraneous material on H.R. 5063.