SEPTEMBER 23, 2004

SERIAL 108-71

Printed for the use of the Committee on Ways and Means




BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida
NANCY L. JOHNSON, Connecticut
WALLY HERGER, California
JIM MCCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
PHIL ENGLISH, Pennsylvania
J.D. HAYWORTH, Arizona
RON LEWIS, Kentucky
PAUL RYAN, Wisconsin
ROBERT T. MATSUI, California
RICHARD E. NEAL, Massachusetts
JOHN S. TANNER, Tennessee
EARL POMEROY, North Dakota

Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel 

JIM MCCRERY, Louisiana, Chairman

J.D. HAYWORTH, Arizona
RON LEWIS, Kentucky
PAUL RYAN, Wisconsin

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.


Advisories announcing the hearing


Beauprez, Hon. Bob, a Representative in Congress from the State of Colorado

Blackburn, Hon. Marsha, a Representative in Congress from the State of Tennessee

Capps, Hon. Lois, a Representative in Congress from the State of California

Emanuel, Hon. Rahm, a Representative in Congress from the State of Illinois

Isakson, Hon. Johnny, a Representative in Congress from the State of Georgia

Kucinich, Hon. Dennis J., a Representative in Congress from the State of Ohio

Larson, Hon. John, a Representative in Congress from the State of Connecticut

Lofgren, Hon. Zoe, a Representative in Congress from the State of California

Mccarthy, Hon. Karen, a Representative in Congress from the State of Missouri

Neugebauer, Hon. Randy, a Representative in Congress from the State of Texas

Ryan, Hon. Tim, a Representative in Congress from the State of Ohio

Sessions, Hon. Pete, a Representative in Congress from the State of Texas

Simmons, Hon. Rob, a Representative in Congress from the State of Connecticut

Turner, Hon. Michael, a Representative in Congress from the State of Ohio

Weldon, Hon. Curt, a Representative in Congress from the State of Pennsylvania

Wilson, Hon. Joe, a Representative in Congress from the State of South Carolina


Air Conditioning Contractors of America, Arlington, VA, statement

American Institute of Certified Public Accountants, Robert A. Zarzar, letter and attachment

American Prepaid Legal Services Institute, Chicago, IL, Andrew Kohn, statement

The Bond Market Association, statement

Coalition for Tax Fairness, Arlington, VA, Timothy J. Carlson, statement

Garrett, Hon. Scott, a Representative in Congress from the State of New Jersey, statement and attachment

Green, Hon. Mark, a Representative in Congress from the State of Wisconsin, statement

Honda, Hon. Michael M., a Representative in Congress from the State of California, statement

Langevin, Hon. James R., a Representative in Congress from the State of Rhode Island, statement

National Association of Bond Lawyers, Monty G. Humble, letter and attachment

Public Finance Network, joint letter

Savers and Investors League, Mirror Lake, NH, W. Thomas Kelly, statement



Thursday, September 23, 2004

U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Select Revenue Measures,
Washington, DC.

The Subcommittee met, pursuant to notice, at 11:33 p.m., in room 1100, Longworth House Office Building, Hon. Jim McCrery (Chairman of the Subcommittee) presiding.

[The advisory and the revised advisory and the revised advisory #2 announcing the hearing follow:]

Chairman MCCRERY.  The hearing will come to order.  I would ask everyone to take a seat, please.  Good morning, everyone.  Today, the Subcommittee on Select Revenue Measures will hear testimony from both Republican and Democrat Members who do not sit on the Committee on Ways and Means.  Their testimony will assist our Committee in exploring ways to improve the tax system.  After all, it has been my experience that every Member of the Congress, regardless of what committee he or she is on, has an opinion about the Tax Code.  So, it is only appropriate that the Committee on Ways and Means should hear from those Members directly.   It has been said that we are not the bosses of taxpayers, they are ours, and as we recognize that Members of Congress are here to serve taxpayers, it is important that Members of Congress are responsive to taxpayers whose lives are affected in various ways by our tax laws.  This hearing offers the opportunity to hear from Members regarding tax proposals that are important to their constituents.  Our Tax Code, I think we all can agree, is far from perfect.  Many have called it hopelessly complex.  As policy makers, we must continue to make improvements to the system.  I believe this hearing will assist the Committee in our efforts to improve the tax system, and I look forward today to hearing from all of our honored guests as they discuss their proposals and give us the benefit of their expertise and their experience from their own districts.  Now I would recognize my good friend and the Ranking Member on the Subcommittee, Mr. McNulty. 

Mr. MCNULTY.  Thank you, Mr. Chairman.  I welcome my colleagues and other interested parties here today.  Mr. Chairman, I am not going to read my statement; I would just like to submit it for the record and summarize.  It is my observation that many Members of the U.S. House of Representatives who are not Members of the Committee on Ways and Means not only have opinions about the tax law, many are more expert in certain sections of the tax law than Members who sit on this Committee.  Many Members have been proposing various changes to the Tax Code for literally years, and I believe that a number of those proposals deserve not only a hearing by this Committee but adoption by the House of Representatives.  So, I am very pleased to welcome our colleagues here today, many of whom have spent a great deal of time on these proposals over a very long period, and I am especially grateful to you, Mr. Chairman, for affording them this opportunity.

[The opening statement of Mr. McNulty follows:]

Chairman MCCRERY.  Thank you, Mr. McNulty.  This morning we will begin with Ms. Capps, as she has a markup I believe to get to in just a few minutes.  So, we are going to allow her to go first.  Ms. Capps.


Ms. CAPPS.  Thank you, Mr. Chairman, and Members of the Subcommittee.  I thank you for holding this hearing today of the Subcommittee on Select Revenue Measures, and for this opportunity to present testimony in support of H.R. 2360, the Capital Construction Fund (CCF) Qualified Withdrawal Act.  This legislation would allow fishermen to use their CCF savings for nonfishing purposes.  The recent U.S. Commission on Oceans Policy report made clear that our oceans are in crisis and action needs to be taken at the Federal level to restore the health of our ocean ecosystems.  The commission's report contained a variety of important legislative recommendations, including reforming the CCF to reduce overcapitalization of America's fishing fleets, and last year I introduced legislation, this bill, to do just that.  My bill will give fishing families greater access to their own money in this CCF.  The CCF works like an individual retirement account (IRA):  deposits to the fund earn tax-deferred interest and are deducted from the fishermen's taxable income.  It is a way for fishermen to accumulate funds free from taxes for the purpose of buying and refitting fishing vessels.  However, if fishermen withdraw funds for purposes other than buying new vessels or upgrading their current vessels, they can lose up to 70 percent in taxes and penalties. 

The program successfully expanded the U.S. fishing industry by allowing fishermen to rapidly accumulate the funds necessary for future expansion.  That was in the past.  Unfortunately, as the commission's report noted, the CCF is unintentionally at this point contributing to the problems facing U.S. fisheries by encouraging the growth of U.S. commercial fishing fleets.  Because of the environmental problems plaguing commercial fishing as well as the need in many cases for fishing fleet downsizing, the CCF has outgrown its original purpose.  The CCF Qualified Withdrawal Act encourages more sustainable fishing practices by allowing CCF funds to be used for purposes other than the purchase or reconstruction of fishing vessels.  This bill will allow fishermen to roll over funds currently in the CCF into IRAs or other types of retirement accounts without adverse tax consequences to the account holder.  The funds rolled into an IRA would be taxed upon withdrawal from that retirement account as are regular IRA contributions.  In addition, the funds could be paid to individuals who are leaving a fishery as part of a capacity reduction program, or for the acquisition of vessel monitoring systems or fishing gear designed to avoid untargeted marine life caught while fishing for other species. 

Both the fishing and the environmental community support this legislation.  It has been endorsed by the Fisherman's Marketing Association, the Oregon Trawl Commission, Pacific Marine Conservation Council, Oceana, Natural Resources Defense Council, Cape Cod Commercial Hook Fisherman's Association, and Trawlers Survival Fund.  You can tell it is bipartisan and bicoastal, the support for this legislation.  Mr. Chairman, at a time when the fishing industry is in trouble it makes sense to open the CCF for other purposes.  By allowing fishermen to access their money without severe tax penalties, we can give more options to those who wish to pursue other careers or retirement which in return will help the industry as a whole.  With this bill we can pursue twin goals:  sustain America's fisheries, and also protect the financial security of fishing families.  Again, thank you, Mr. Chairman and Members of the Committee, for your interest in this CCF Qualified Withdrawal Act.  I hope the Committee will approve this legislation which means so much to my constituents and fishing families across this country.  Thank you. 

[The prepared statement of Ms. Capps follows:]

Chairman MCCRERY.  Thank you, Ms. Capps; very good concise testimony.  Speaking of concise, I am sure you are all aware we are under the 5-minute rule for presentation of remarks, oral remarks.  Your written testimony will be inserted in the record in its entirety.  Next, we have a gentleman who has been pursuing changes in the Tax Code for some time along areas of his interest, and he is here today to tell us about one of those, Johnny Isakson from Georgia. 


Mr. ISAKSON.  Thank you, Mr. Chairman and Ranking Member.  I appreciate the opportunity of being here today and discussing with you H.R. 2036, which I have introduced and have talked about to this Committee once before.  I come back to you today understanding the timing of the session is close, but also understanding the importance of us really paying attention to our environment and to development of this country, and to creating positive ways that incentivize our communities, the development community and our conservation community, to protect our precious homeland and use it as an asset for generations to come.  Mr. Chairman, in the last 225 years our country, the continental United States has lost 52 percent of its wetlands.  In a 5-year period between 1992 and 1997, the urban footprint of the United States of America grew by 15 percent.  We are a rapidly growing Nation, and with that we have lost a tremendous amount of open and greenspace.  I have worked for some time and professionally all my life, I was in the real estate brokerage and development business, with real property, with the development of real estate, with the consequences of growth, and with the rising and urgent need to understand that our environment is our amenity package for our country and for its development. 

House Resolution 2036 takes the approach to create a 5-year program, $25 billion in tax credits to be used for the purpose of the purchase of conservation easements, according to a statewide comprehensive plan allocated among the States by conscientious formula, to see to it that we do everything we can to protect our open and greenspace.  The bill is named after the late Paul Coverdell, who was the U.S. Senator from Georgia until his death 4 years ago, who began this effort, and I have picked up its mantle and am doing everything I can to raise the visibility of this important purpose.  Mr. Chairman, I guess the best way I can emphasize my strong belief in this is to tell you the following.  My last effort as a private businessman before I came to the Congress of the United States was the development of a 300-acre tract of land on the Chattahoochee River in Atlanta, in suburban Atlanta.  I was also a part of the Trust for Public Land's effort to create the Chattahoochee Greenway, which is substantially created in our State now to protect our State's largest natural resource and water supply, the Chattahoochee River. 

The property that we purchased along that river had significant environmental challenges, and developers in the area and other pieces of property had taken the old approach of trying to figure out how to shoehorn into a piece of property all the development they could with less than the important interest and intensity on the environment.  We took another approach, and we took a risk.  The risk was that we would protect what ended up being about 22 percent of the total land area purchased into a conservation park.  We named that park after the former President of the Georgia Conservancy; we sold to the Trust for Public Land the river frontage, and we took the undevelopable or questionably-developable land, created it into a seamless park throughout the development as the amenity package for this community.  It was the biggest hit in the metropolitan Atlanta area and development for years, and it wasn't because of any genius of the developer or sales and marketing techniques; it was because Americans were willing to pay for what all of us love and appreciate, and that is our natural resource.  I would like to ask unanimous consent, in addition to my testimony which I previously submitted, to submit a Yale University study on the value of conservation easements as well as a comprehensive summary of this bill.  Mr. Chairman, I believe--

Chairman MCCRERY.  Without objection. 

[The information was not received at the time of printing.]

Mr. ISAKSON.  I believe the tax policy drives economic policy and decisions, and I think paramount among our considerations as public policy makers in the years ahead must be the quality of our own and greenspace and our environment.  I am a believer that a developing country can be a partner with the environment in which that country develops.  Our most important assets for my grandchildren are our waters, our air, and our greenspace, as well as the opportunity to thrive in the business community in the free enterprise system.  It is incumbent upon us to create mechanisms to make great partnerships between the development community and the environmental community.  Good tax policy, H.R. 2036, and a focus towards environmental and conservation easements versus trying to consume through purchase all the land necessary to protect, gives America a 10 to 1 return on its investment and a comprehensive plan State-by-State to ensure that our future is bright, our air is clean, and our water is safe.  I thank the Chairman.  

[The prepared statement of Mr. Isakson follows:]

Chairman MCCRERY.  Thank you, Mr. Isakson.  Now the gentleman from Connecticut, Mr. Larson.


Mr. LARSON.  Thank you, Chairman McCrery and Ranking Member McNulty, for this opportunity to appear before the Committee on Ways and Means and discuss the exemption of tax abatements and other local incentives on our volunteer services, most notably firefighters, police, and emergency medical services.  I seek the Committee's unanimous consent to revise and extend, submit extraneous materials and supportive data with regard to my testimony. 

[The information was not received at the time of printing.]

Chairman MCCRERY.  Without objection. 

Mr. LARSON.  Thank you, Mr. Chairman.  The genesis of this bill comes from local volunteer firefighters.  Chief Crombie out of South Windsor approached me more than a year and a half ago now explaining a problem that local volunteers were having.  South Windsor is not unlike many communities across this country, where there is considerable problems with both recruitment and retention of volunteers, especially firefighters and emergency medical services.  Many States, including my own like Connecticut, local legislative bodies enacted incentives.  Unfortunately, the Internal Revenue Service (IRS) in a court decision decided to strike those down, and in this case, in the case of South Windsor, treated a tax abatement as income.  What is worse is that the workers, because they don't receive cash, the employer, in this case the municipality, is required to pay both portions of the Federal Insurance Contributions Act tax, therefore making it almost impossible for the local municipality to reach out and get the kind of recruitment and retention that they need. 

This has a compounding effect, especially since International Fire Chiefs Association has noted that over the last 10 years we have seen a decline in volunteerism and largely over these very issues of recruitment and retention.  There isn't a municipality in any one of our States that doesn't face these concerns on a regular basis.  So, we put forward this legislation.  We thought that there might be an administrative process, but in writing the U.S. Department of the Treasury, they responded by saying that they would prefer that we go the legislative route with exemptions.  What the bill does very simply is provide exemptions not only in the case of a tax abatement but provides both local autonomy and flexibility, local autonomy for the municipality and flexibility for the States, so that they might include other incentives such as stipends, pay-per-call, health care, retirement incentives, State income tax credits, or death benefits, thereby leaving the decisions up to the States and also not allowing the IRS to reach into local coffers. 

In seeking a cost estimate to this, we have yet to receive those.  However, it is my contention and my opinion that this bill simply prohibits the IRS from claiming new revenue sources, or in essence prevents them from reaching into local tax coffers as they try to address their concerns and their needs with recruitment and retention of volunteers.  The urgency, I think, is paramount.  It wasn't lost on any Member of this body in response to September 11 that it wasn't the Federal Bureau of Investigations, the Central Intelligence Agency, or the Armed Services that responded in New York City, here at the Pentagon, or in the fields of Pennsylvania.  It was local firefighters, emergency medical teams, and police.  We should be doing everything within our power to make sure that we are empowering local municipalities to make sure that they are able to continue to recruit and retain these valuable citizens in our communities.  Passage of this legislation where a companion bill has been introduced in the House would address an urgent concern needed in each and every one of our States and municipalities.  Again, I thank the Chairman and the Ranking Member and the distinguished Members of this Committee for providing us an opportunity to bring this very urgent and timely request before you, and we hopefully will receive a favorable response.

[The prepared statement of Mr. Larson follows:]

Chairman MCCRERY.  Thank you, Mr. Larson.  Well, we have had a Yale study submitted and now we are getting double teamed from Connecticut.  Our next presenter is Mr. Simmons, also from the State of Connecticut.  Mr. Simmons, you may proceed. 


Mr. SIMMONS.  Thank you, Mr. Chairman.  Because my colleague and friend Congressman Larson has done such as excellent job, I will ask that my full statement be introduced into the record as if read. 

Chairman MCCRERY.  Without objection. 

Mr. SIMMONS.  Then I would like to summarize it.  First of all, the State of Connecticut has 169 municipalities.  In my district, the Second Congressional District, we have 65 towns.  These tend to be rural, agricultural, small towns.  We have no county government.  I repeat, we have no county government.  We have town government.  Who provides emergency services and firefighting for those towns?  By and large, volunteers.  Because of the great job they do, and because it is harder and harder to get volunteers to provide these services, the State of Connecticut in 1999 passed the law allowing the municipalities, allowing these towns by ordinance to establish property tax relief as kind of a benefit to these volunteers.  I voted for that law.  I was in the legislature at that time; it is a good law, and it helps us with our 65 towns to attract and keep volunteers.  It gives them a little benefit. 

Well, lo and behold, what happens?  The IRS comes in and says that this little benefit is taxable income, essentially taxable income.  So, what do the towns do?  Well, in some cases the towns wrestle with the paperwork for a while; in other cases they just give up.  It is too complicated, it is too difficult to do.  Again, these are small towns.  So, this benefit which we as citizens of our State try to extend to our volunteers and emergency services and firefighting, this benefit has now been essentially taken away by the Federal Government, and I think that is wrong.  I think it is wrong in principle, I think it is wrong at a time when we rely on our firefighters and our emergency service personnel more than ever to deal with issues of homeland security.  I think it is wrong at a time when the President has urged more Americans to volunteer their time to their communities and their country, and where he is trying to stimulate volunteerism, which is what I understand is coming out of the White House.  So, again, I commend my colleague, Mr. Larson.  He has done a great job of bringing this legislation forward.  I think there are probably other of our colleagues and other States that suffer from the same problem, and we thank the Chair and the Committee for considering this important proposal.

[The prepared statement of Mr. Simmons follows:]

Chairman MCCRERY.  Thank you, Mr. Simmons and Mr. Larson.  Excellent presentation, and it is something that I am sure we will take a look at.  Next on our agenda is the Representative from South Carolina, Mr. Wilson.  Welcome.  You may proceed.


Mr. WILSON.  Chairman McCrery, Ranking Member McNulty, Members of the Subcommittee, I would like to thank you for the opportunity to be here today to testify in support of my legislation, H.R. 2822, to modify the accumulated earnings tax.  My interest in this particular tax derived actually from a corporate citizen of the district that I represent, and I think you all recognize Bose Corporation.  We are very pleased that in the district that I represent they employ 1,200 people.  They have just concluded investing $15 million into upgrading the manufacturing of the new compact disc version of the Bose, which is available immediately for you after the presentation.  Additionally--this is such an important company.  They export to 42 nations from the facility in South Carolina.  My interest also has been piqued because this is a model corporation of the significance of the Indian-American population in the United States.  Dr. Amar Bose, there is an article that I wanted to submit from Fortune Magazine this month.  The Indian American population has been so significant in providing opportunities of employment for people of the United States.  I am very proud as the Co-Chair of the Indian Caucus to point that out.  Additionally, I have a commitment from the company that I would like to point out or submit along with questions for the record.

[The information was not received at the time of printing.]

A final point.  I served as a real estate attorney for 25 years until I was fortunate enough to join you 3 years ago, and part of my service was to advise small businesses in the formation of their companies, and this directly relates.  So, I had only wished that I worked with companies that would grow to the size of $1.7 billion.  That is what we have in front of us.  To briefly summarize, this legislation permits the corporations to accumulate earnings after taxes to protect--and this is accumulated earnings tax--against normal business fluctuations and unforeseen contingencies without fear of being subject to a Draconian penalty of the accumulated earnings tax.  The legislation does not allow a corporation to avoid its liability for the corporate income tax; rather, it allows a corporation to save its earnings after it pays its taxes.  Most important, it provides clear guidelines as to the amount of savings it can retain so that the IRS or the courts cannot later use a later standard in determining whether the corporation had the proper amount of savings. 

By enacting H.R. 2822, Congress would amend the tax laws to provide a clear and unambiguous safe harbor for the appropriate accumulation of earnings after taxes.  Ideally, Congress should repeal the accumulated earnings tax.  It discriminates against successful entrepreneurs who created businesses prior to the advent of the limited liability company.  That is not really feasible at this time.  Since the current fiscal situation appears to prevent repeal of the accumulated earnings tax, we must at least make it more reasonable.  The situation before us, the amount of working capital that a corporation can maintain has been frozen by outdated cases that were decided close to 40 years ago.  These historic precedents do not take into account the dynamic economy today.  Although our economy is evolving and changing, these antiquated court precedents and regulations remain.  I urge the Committee to act favorably on H.R. 2822.  We need to prevent the accumulated earnings tax laws from being a barrier to sensible business planning, including planning for unforeseen contingencies.  Mr. Chairman, Members of the Committee, I truly appreciate the opportunity to appear before you today, my first opportunity, and I would welcome any questions.  Thank you very much. 

[The prepared statement of Mr. Wilson follows:]

Chairman MCCRERY.  Thank you, Mr. Wilson.  Next the gentleman from Ohio, Mr. Turner.  By the way, we will allow the Committee to ask questions when all the panel members have completed their testimony.  Mr. Turner.


Mr. TURNER.  Thank you, Chairman McCrery, and Ranking Member McNulty, and Members of the Subcommittee.  Thank you for the opportunity to testify considering the Brownfields Revitalization Act of 2004 (H.R. 4480).  I would also like to thank my Ohio colleague, Stephanie Tubbs Jones, for assistance in the opportunity to testify before the Subcommittee, and thank her as an original co-sponsor of the legislation that I will address in my remarks.  I greatly appreciate her leadership in the area of brownfield redevelopment.  Mr. Chairman, before being elected to Congress, I served for 8 years as the Mayor for the City of Dayton, where my top priority was urban revitalization and economic development.  The City of Dayton is not unlike many of America's center cities that continue to struggle economically.  In most of urban America tax revenues are declining and jobs are leaving.  Although many center cities are inventing wonderfully creative programs to achieve revitalization, they are hindered by the very thing that makes them unique:  density.  The availability of land is an enormous impediment to the economic renewal and revitalization of cities.  Yet there is a solution to this predicament. 

American cities hold acres of abandoned land that could be and should be redeveloped as a key ingredient to urban recovery.  These abandoned properties include former factories and other contaminated sites.  These sites are called brownfields.  Brownfields are defined as abandoned or underutilized properties, such as old factories, where expansion or redevelopment is complicated by environmental contamination.  These properties are found in every State and in every congressional district.  Estimates range from a half a million to 1 million brownfield sites nationwide, covering at least 178,000 acres, or roughly the combined land area of Seattle, Atlanta, and San Francisco.  These sites are missed economic development opportunities.  Based on a survey of 205 cities, the U.S. Conference of Mayors estimates that redevelopment of brownfields located in our cities could generate more than 575,000 new jobs, and that renewed activity could actually bring in as much as $1.9 billion annually in new tax revenues for the cities surveyed.  House Resolution 4480, the Brownfields Revitalization Act of 2004, provides a Federal program to encourage redevelopment by providing funding for demolition and environmental remediation costs. 

Specifically, the proposed brownfields tax credit program would provide $1 billion in Federal tax credits allocated to the States according to population.  The credit program would be administered by State development agencies and would provide credits to brownfield projects where the local government entity includes a census tract with poverty in excess of 20 percent.  The redevelopment project may be located anywhere within a qualifying local jurisdiction.  Brownfield tax credits would be allocated for up to 50 percent of demolition and remediation costs pursuant to an approved plan.  These credits would be transferable and could be sold to third parties.  The proceeds of the sale would be nontaxable.  The remainder of cleanup costs could be deductible or may be capitalized by the property owner, and the plan also includes incentives for original polluters to participate in the redevelopment.  Parties potentially responsible for cleanup costs that contribute no less than 25 percent of the environmental remediation costs would receive liability releases for 100 percent of approved demolition and remediation costs.  This program would constitute a powerful incentive to transform derelict brownfield sites into job producing economic development.  Without a federally created program, brownfields remain, marring the face of U.S. cities.  Redeveloping brownfields will revitalize our cities, returning them to the life and vitality once seen when these sites provided jobs and were anchors for our neighborhoods and communities.  The bill has been endorsed by the American Institute of Architects, the U.S. Conference of Mayors, the National Home Builders Association, and has support by the members of the real estate roundtable.  Thank you. 

[The prepared statement of Mr. Turner follows:]

Chairman MCCRERY.  Thank you, Mr. Turner.  Last on our beginning panel today but certainly not least, the Representative from Missouri, the gentle lady Ms. McCarthy. 


Ms. MCCARTHY.  Thank you very much, Mr. Chairman, and also to Ranking Member McNulty and the Members of the Subcommittee, several of whom are co-sponsors of this legislation.  The purpose of H.R. 4736, the Independent Films Small Business Job Creation Act, is to help create jobs in the United States by encouraging investment in film production here at home.  The U.S. Department of Commerce report released earlier this year estimates that runaway production drains as much as $10 billion per year from the United States, as the entertainment industry foregoes the United States and chooses to make motion pictures, television shows, and commercials abroad.  This exodus to foreign countries or runaway production affects American workers and the American economy.  Between 1990 and 1998, it is estimated that the number of U.S. films made abroad doubled from 14 percent to 27 percent.  Tens of thousands of artists and craftspeople have lost wages, health care benefits, their homes, and their dignity as a result of this continuing problem.  Dramatic State revenue deficits inspired Governors Schwarzenegger of California, Bush of Florida, Pataki of New York, and Perry of Texas to co-sign a letter urging Congress to take action on this critical issue to their State's economy. 

The directors of the Missouri Film Commission have received calls from film makers in Montreal and Toronto requesting our Missouri signage, newspaper, and license plates to give the appearance of Missouri for film productions being shot in Canada.  Director Ang Lee's movie Ride with the Devil, a $38-million film about the Civil War, was shot in Missouri; but, conversely, I know that Missouri lost the Angelina Jolie production, Life or Something Like It, because tax incentives utilized in Canada lured the producers to shoot the movie there.  Missouri, a State that has lost 34,000 jobs since January, could have greatly benefited from that production.  It is estimated the economic multiplier effect of every dollar spent on film production yields a $2 to $5 return to the community.  A Missouri economic study showed that the movie, The Game of Their Lives, which was shot in Staint Louis, provided a $21-million stimulus to the State of Missouri.  That production and the opportunity that it represents was nearly lost to Canada.  It is ironic, but Little House on the Prairie is being shot in Canada currently. 

House Resolution 4736 is supported by the Screen Actors Guild among others in the industry.  It encourages domestic film investment by allowing investors to expense their investment in the percentage that is spent by the production company each year.  The deduction is available to investment on film productions that have budgets greater than $2 million but less than $20 million.  That would indicate independent film making.  So, long as 95 percent of the budget is spent in the United States.  In summary, this bill would address runaway productions by encouraging investment in independent film projects in the United States.  Many of the business opportunities created by film production are in local businesses like catering, car services, printers, special effects, and sound technicians, telecommunication vendors, retail stores, carpenters, painters, stage hands, and dry cleaners.  Missouri, Massachusetts, New York, Texas, Florida, Illinois, Arizona, North Carolina, Utah, Washington, Nevada, and California are increasingly dependent on film productions as major contributions to their economies.  However, foreign countries following the lead of Canada, that being Australia, England, and France, are now providing incentives to lure U.S. productions to their countries.  Using standard economic formulas to calculate the multiplier effect, each new $10-million film project will yield $35 million in ripple effects locally as a stimulus.  Chairman McCrery and Ranking Member McNulty and Members of the Committee, thank you again for this opportunity to discuss important legislation.  This bill will create jobs locally and stimulate local economies across our Nation and continue a great U.S. tradition of excellence in the world of film making.  Thank you very much. 

Chairman MCCRERY.  Thank you, Ms. McCarthy.  Before we go to questions, I want to recognize for unanimous consent request a Member of the Subcommittee, Mr. Sandlin. 

Mr. SANDLIN.  Thank you, Mr. Chairman, for recognizing me.  I know the Chairman is very interested in energy issues, and I would like to submit for the record a statement from Charlie Stenholm, a Representative from Texas.  He is asking that we move forward with energy legislation and include the wind energy production tax credit in the All American Tax Relief Act.  So, I would like to submit his written statement for the record. 

Chairman MCCRERY.  Without objection. 

Mr. SANDLIN.  Thank you.

[The prepared statement of Mr. Stenholm was not received at the time of printing.]

Chairman MCCRERY.  I thought all of you did an excellent job laying out for the Subcommittee your ideas on how to improve the Tax Code, so I don't have a lot of questions because I thought you did such a good job of explaining your point of view.  Mr. Wilson, though, I can't pass up the opportunity to ask you the question:  why should corporations not be taxed on their accumulated earnings?  I mean, what would they do with that money that they save from not having to pay the taxes? 

Mr. WILSON.  Well, they still would be taxed on it. 

Chairman MCCRERY.  They pay their initial income tax. 

Mr. WILSON.  Then what would happen is that, because it has become a moving target how much can be accumulated, what we are proposing is that it be a percentage so that IRS and so that courts and businesses would know what the number is.  So, it is a modification.  In particular, it also addresses a concern in that foreign corporations don't have this problem.  Then, in particular, Bose is unique in that indeed they put their earnings back into research and development, and that is indicated in the article that I mentioned from Fortune Magazine.  So, this is really to still provide for the taxation, but it is to make specific as to how much can be accumulated, which has been--according to the agent, virtually--and then trying to second guess how the corporation operates and where it is located and how many people it employs, and so it has made it virtually impossible to count on it. 

Chairman MCCRERY.  So, it would help them to carry out their business plan in a more orderly fashion? 

Mr. WILSON.  Yes.

Chairman MCCRERY.  Dedicate that money to research and development or to increasing their sales force or whatever it might be in a time frame that they deem appropriate. 

Mr. WILSON.  That is right.  Obviously I am very interested in Bose, with the 1,200 employees in the district.  The success of it.  This would just simply enhance their ability for greater research and development.  We are all so familiar with how extraordinary Bose products have been received around the world.  Forty-two countries are receiving exports from our district, and we want to make it--let us see if we can make it to 50. 

Chairman MCCRERY.  Thank you.  Ms. McCarthy. 

Ms. MCCARTHY.  Yes, Mr. Chairman. 

Chairman MCCRERY.  I am sure you have had conversations with the industry regarding your proposal.  Do you have any evidence or any suggestion from your conversations with the industry that, if we were to make this change in the Tax Code, that the industry would respond favorably and bring more of their production onto our shores?

Ms. MCCARTHY.  Yes, Mr. Chairman, and I would be glad to submit letters from organizations in the industry, like the Screen Actors Guild and others, for the record so that you have that documentation.  Again, we are talking about independent films, and those are the ones that really do make a difference locally.  This does not address Hollywood; they have their own incentives. 

Chairman MCCRERY.  Right.  Well, thank you.  Without objection, those materials will be inserted into the record. 

Ms. MCCARTHY.  Thank you.

[The information was not received at the time of printing.]

Chairman MCCRERY.  Mr. McNulty. 

Mr. MCNULTY.  Thank you, Mr. Chairman.  I want to thank each of the Members for their testimony.  There are a couple of these proposals that I already intend to support, a couple of others I need to look at a bit further.  I want to echo the Chairman's remarks that each of the Members did an excellent job in presenting their views to the Committee.  With that, I wish to yield to Ms. Tubbs Jones. 

Mrs. JONES.  Thank you, Mr. Ranking Member, Mr. Chairman, my colleagues from across the United States.  I want to commend you in the work that you are doing in this area.  Unfortunately, we are at the end of the season for the 108th Congress, but I would encourage each and every one of you to join together and reintroduce much of this legislation in the 109th Congress.  I want to commend my colleague from Ohio who will be appearing here today, Mr. Chairman, and for the record I seek unanimous consent to submit an opening statement.  Thank you. 

Chairman MCCRERY.  Without objection. 

[The opening statement of Mrs. Jones was not received at the time of printing.]

Chairman MCCRERY.  Mr. Lewis. 

Mr. LEWIS.  I have no questions. 

Chairman MCCRERY.  Mr. Ryan. 


Chairman MCCRERY.  Mr. Sandlin. 

Mr. SANDLIN.  No, sir, Mr. Chairman.  Thank you. 

Chairman MCCRERY.  Mr. Collins. 

Mr. COLLINS.  No, sir. 

Chairman MCCRERY.  See, I told you, you did a great job.  Thank you all very much for your testimony.  Now would the second panel please come forward and take your seats?  Okay.  Welcome to the Subcommittee on Select Revenue Measures of the Committee on Ways and Means.  It is nice to have you with us.  We are expecting a couple more Members for this second panel.  So, they will be coming in, but we will go ahead and start with the Members who are here.  Just to reiterate, your written testimony will be included in the record in its entirety, but we would like for you to summarize your thoughts and proposals within 5 minutes.  With that, we will begin with Mr. Neugebauer from Texas.  Mr. Neugebauer.


Mr. NEUGEBAUER.  Thank you, Mr. Chairman.  I am here today to discuss a very significant issue that is important not only, I think, to the people in the United States but it is certainly important to the people in my district of west Texas, and that is wind energy.  In the 1960s, Bob Dylan wrote a popular song, "You don't need a weatherman to know which way the wind blows."  Today the wind represents more than weather in west Texas; it means economic growth and renewable energy.  Texas, particularly west Texas, has vast areas of land which have high wind power potential.  Previous generations in this area relied on wind mills to pump water.  Today, high-tech wind turbines as tall as the Statue of Liberty are producing megawatts of electricity, enough power to supply electricity to thousands of homes.  The wind energy industry contributes directly to the economies of 46 States with power plants and manufacturing facilities that produce wind turbines, blades, electronic components, gear boxes, generators, and a wide range of other equipment.  Wind farms can revitalize the economy of rural communities, providing a steady income through lease or royalty payments to farmers and other landowners, as well as property and school taxes to the local governments.  Although leasing arrangements vary widely, a reasonable estimate for income to a landowner for a single utility-scale turbine is about $3,000 per year. 

Wind farms may extend over a large geographic area, but their actual footprint covers only a small portion of the land, making wind development an ideal way for farmers to earn additional income.  In west Texas, farmers and ranchers are welcoming wind, as lease payments from this new clean energy source replace declining payments for oil wells on the properties that have been depleted.  Local governments are also welcoming wind.  The county commissioners in Howard County, for example, in my district, have proposed issuance of industrial revenue bonds to an energy company interested in building another wind farm in the county.  County officials estimate that this new wind farm will bring more than $700,000 to the county and other taxing jurisdictions, such as their local schools.  Additional local income is generated from payments to construction contractors and suppliers during the installation and from payments to turbine maintenance personnel on a long-term basis.  All of this sounds great, but how much does wind energy cost?  The actual production of energy comes at a relatively low price.  State-of-the-art wind power plants can generate electricity for less than 5 cents per kilowatt hour in many parts of the United States.  Over the last 20 years, the cost of electricity from utility-scale wind systems has dropped more than 80 percent.  However, the investment required to establish wind production farms runs in the millions of dollars.  For example, a 160-turbine wind farm built in west Texas in 2003 cost more than $80 million. 

The wind energy production credit is a key component in financing new wind energy projects.  Without consistent government policy that creates a consistent business environment, investment slows and projects on the drawing board are put on hold.  Wind energy producers need a tax policy consistency in order to develop accurate long-term business models, acquire land, and finance expensive construction.  As you know, the production tax credit expired at the end of 2003, costing thousands of jobs and millions of dollars of wind power investments in States across the country, including Texas.  I appreciate the work of this Subcommittee to advance the credit and energy bill and the American Jobs Creation Act, and most recently including it in the conference report in H.R. 1308, which is on the floor today.  This credit is crucial to this young, growing industry.  Wind energy projects require a lead time of 6 to 9 months, and expiration of the credit has stopped wind projects, and restarting projects will take time. 

This slowdown has affected not only the wind energy producers, but their suppliers, their construction workers, and local governments.  For example, Taylor County, Texas estimates that it lost $500,000 in annual revenue this year due to the postponement of construction of up to 200 new wind turbines in an area school district that has anticipated up to $1 million in taxes from this project.  To make up for the lost revenue, the county had to raise their tax rates.  Over the past 2 years, the wind industry has installed over 250,000 megawatts of new electric capacity, spurring more than $2.5 billion in economic activity.  However, the expiration of the tax credit has resulted in the loss of 2,000 jobs already and 1,500 megawatts of new wind energy production and nearly $2 billion in economic activity on hold.  As work continues on legislation to provide relief to American businesses, I believe that the wind energy production tax credit is a critical incentive that would further fuel economic growth and job creation in west Texas and the United States.  I would say also that there are some out there that think that these credits maybe should be transferable as a way to also encourage investment in this very important renewable source of wind energy, and certainly I would encourage the Committee to look into that as we move forward with our energy policy and tax policy in the future.  Thank you again, Mr. Chairman, for holding these hearings and for your allowing me to testify today. 

[The prepared statement of Mr. Neugebauer follows:]

Chairman MCCRERY.  Thank you, Mr. Neugebauer.  Next we have from the State of Pennsylvania, the gentleman, Mr. Weldon, a classmate of mine, and a very outstanding Member of the Armed Services Committee.  Welcome to the Committee on Ways and Means.


Mr. WELDON.  Thank you, Mr. Chairman, and Mr. McNulty, and Members of the Subcommittee.  It is a pleasure to be here.  The legislation I am here to support is H.R. 1824, the Fire Sprinkler Incentive Act.  It is co-sponsored by 137 Members of the House, including 14 Members of this Committee on Ways and Means.  It is perhaps the most significant legislation that we could pass to reduce the loss of lives in America each year.  Each year, we lose almost 4,000 Americans to fires in everything from nursing homes to nightclubs to single family homes, and we lose these lives because they are not sprinklered.  The National Fire Protection Association studies that have been done show that any building that is sprinklered has never had a multiple loss of life.  So, we have never had a multiple loss of life by fire in any building that complies with the Life Safety and Sprinkler Code of the National Fire Protection Association.  In addition to the loss of innocent civilians, we lose 100 firefighters each year who enter burning buildings to attempt to rescue people.  Now, why aren't these buildings sprinklered?  Most new building codes that are applied to new construction, whether it is in some cases residential, manufacturing, nursing homes, or other, require sprinkler protection.  The problem, Mr. Chairman, is that many of our older nightclubs like the one up in Rhode Island where 100 people were killed because they were trapped inside the building and had no way out, most of them are frame construction, most of them have no protection systems whatsoever.  They were grandfathered in by building codes and fire codes because they were built decades ago, and these are the most vulnerable facilities where we have the highest loss of life. 

How then can we convince a nightclub owner, a nursing home owner, or a school to retrofit the building when it would cost so much money to put sprinklers in?  The current rate of depreciation for installing sprinklers would take 39 years for recovery.  Now, the insurance industry offers significant insurance premium reduction if sprinklers are installed.  In fact, they go as high as 80 percent.  If we pass the legislation I have before you, you decrease the depreciation from 39 years to 5 years, and if you take that increased depreciation, which can be used to recover the cost of the sprinkler, and you add to that the cost of the insurance savings, then a small business owner who runs a nightclub in a small town can put sprinklers in and recover the cost within 2 years.  That is an incentive that anyone would jump at the opportunity.  So, you are not forcing that nightclub owner to retroactively retrofit his facility, you are not mandating that nursing home to do it, but it becomes so logical and such a natural that everyone we are convinced would move forward to retrofit their buildings, because between the increased depreciation and being able to write off that cost in 5 years as opposed to 39, and the added reduction in insurance premiums, that we can put the systems in place that do protect lives. 

Mr. Chairman, the 18 national associations from the American Insurance Association to the International Association of Firefighters, the International Association of Fire Chiefs, the National Volunteer Fire Council, all the major building alliances, all of them publicly on the record, as is stated in my statement, support this legislation.  It makes sense.  In the end, yes, it will reduce the amount of revenue that we receive.  Mr. Chairman, it will increase the amount of savings for personal--for property loss, for industrial and commercial activity, and it will save significant amounts of lives.  So, I encourage you to consider this.  This is not a mandate, it is an opportunity, and it is an opportunity that I think will have an effect in every congressional district in America in a positive way by encouraging those institutions that have life safety risk, including homes, to install automatic sprinkler protection.  Thank you.

[The prepared statement of Mr. Weldon follows:]

Chairman MCCRERY.  Thank you, Mr. Weldon.  Next, another Member from the State of Ohio, Mr. Kucinich.  You may proceed. 


Mr. KUCINICH.  Thank you very much, Chairman McCrery, Ranking Member McNulty, for holding this hearing.  I would like to bring to your attention and the attention of the Members of the Committee a proposal I introduced last year that I believe would have a positive impact on millions of taxpayers.  I think it is fair to say that all Members of Congress believe we need to strive for a fair, simple, and adequate tax system.  We may disagree on how that is to be accomplished, but I think we have the same goals.  However, I think we can all agree on a need for transparency.  Transparency in the tax system is necessary to achieve fairness.  Transparency permits the taxpayer to understand how fairness is arrived at in the Tax Code.  A simplified Tax Code can provide this transparency, which in turn provides a sense of trust in government.  My hope is that this Committee will seriously consider my proposal to create a $2,000 simplified family credit, a refundable tax credit that simplifies the Tax Code by consolidating the earned income tax credit, child tax credit, additional child credit, and exemption for children into one streamlined, simplified family credit.  This tax credit will simplify the Tax Code, provide greater transparency, provide extra work incentives, and provide a stimulus effect. 

Families should not have to struggle to understand the eligibility requirements for each of the various family tax breaks in current law.  All families should follow the same set of rules.  The simplified family credit is structured to provide progressive tax benefits and a work incentive.  The families with lower income will get more benefit, but they are also rewarded for work.  The credit would be steeply phased in at the lowest income levels, providing the incentive to work, and a substantial benefit.  As income rises, a slow phaseout would be necessary to ensure we maintain a progressive tax system.  The cost of this proposal would fall in the range of $20 billion a year.  Given our current deficit problems, I believe Congress should only create the simplified family tax credit if it is paid for.  In my legislation, H.R. 3655, there are several options to pay for this proposal, including rolling back parts of the tax cuts enacted in the last 3 years.  Those tax cuts only added to the complexity of the Tax Code and removed any remaining transparency.  I want to thank this Committee for the opportunity to testify.  Thank you. 

[The prepared statement of Mr. Kucinich follows:]

Chairman MCCRERY.  Thank you, Mr. Kucinich.  Now the gentleman from Colorado, Mr. Beauprez.  Mr. Beauprez. 


Mr. BEAUPREZ.  Thank you, Mr. Chairman and Ranking Member McNulty and distinguished colleagues on the panel, on the Committee.  Like many of you, I very much look forward to the day when we have a debate over the Tax Code in its entirety.  I believe we are rapidly reaching consensus that the Tax Code is far too complex and inadvertently produces disincentives for some of the values that have traditionally made America great.  The current Tax Code laws serve as a disincentive to work, thrift, marriage, and charity.  This has to change, and I hope to see that change soon.  However, this is as much as we can do today to make an immediate positive impact on the lives of millions of seniors and low-income and middle-income families.  Mr. Chairman, despite the fact that Social Security was never intended to be the sole source of retirement income for American seniors, for far too many it has become exactly that; and unless you have supplemental retirement income, either through your previous employer or personal savings, Social Security by itself doesn't provide very much.  I want to talk about two proposals, both of which are included in one of the first pieces of legislation I introduced, that will bring relief to millions of American retirees and lower-income taxpayers. 

Mr. Chairman, the first proposal that I would like to discuss is the reduction, or even elimination, of the double taxation of Social Security benefits.  Not only is this a healthy thing to do for the economy, it is the right thing to do as well.  Nearly everyone knows that the Social Security system provides monthly benefits to qualified retirees, disabled workers and their spouses and dependents.  However, what many people do not realize is that after they have paid Social Security taxes throughout their entire life and their working careers, up to 85 percent of the monthly benefit they receive from Social Security may be taxed again.  It is interesting to note that until 1984, Social Security benefits were exempt from the Federal income tax.  In 1983 Congress passed legislation that made up to 50 percent of the Social Security benefits taxable for taxpayers whose income plus one-half of their Social Security benefits exceeded $25,000 for an individual, or 32,000 for a married couple filing a joint return.  Then, in 1993, Congress saw fit to increase this portion of benefits that were eligible for taxation from 50 percent to 85 percent.  This tax increase on senior citizens made a bad policy even worse.  Essentially, this graduated tax scheme penalized seniors with their fixed incomes who have worked hard to ensure their retirement security.

Another area for concern that is rarely mentioned in this debate, but carried additional negative consequences to America's seniors, is that many States use Federal adjusted gross income subject to taxation as a basis for their own income taxes.  Not only have we imposed a tax on these benefits, we have also triggered a State income tax as well in many of our States.  Eliminating the tax on Social Security benefits or, at the very least, repealing the 1993 tax increase will positively impact millions of our seniors who find themselves on fixed incomes and facing rising payment for health care, housing, energy and food costs.  In addition, it will increase the buying power of a large segment of our economy and help further our recovery.  Another way I believe the government can do more to help seniors is to promote responsible savings, which is why I am also here to advocate the elimination of taxes on savings accounts.  As a former community banker, I have first-hand knowledge that many low- and middle-income taxpayers have no other investment in their--other than their passbook savings accounts. 

Upper-income taxpayers tend to have much more sophisticated investments.  Very few of them keep large amounts of money in passbook savings accounts.  So, elimination of taxes on savings accounts will benefit lower-income, working families and senior citizens who rely on interest to supplement their Social Security benefits.  As I said earlier, I very much look forward to the day when we take up the challenge of overhauling the entire Tax Code.  Until that occurs, there are some in our society who desperately need, and undoubtedly deserve, immediate relief.  Furthermore, I firmly believe that especially during this time of economic recovery, we need to do more to help those in our communities who need it the most.  I am confident that by reducing the tax burden on our Nation's seniors, along with our low- and middle-income taxpayer, we would improve the lives of millions while encouraging our economy to grow.  Mr. Chairman, again I want to thank you for allowing me to appear before you today.  I will look forward to continuing the work with you and other distinguished colleagues who are here today to pass legislation that will reduce the tax burden for all taxpayers and bring simplicity to our confusing tax laws.  I would be happy to answer any questions you might have.  Thank you, Mr. Chairman. 

[The prepared statement of Mr. Beauprez follows:]

Chairman MCCRERY.  Thank you, Mr. Beauprez.  Last on this panel, the gentleman from Ohio, Mr. Ryan.  Mr. Ryan. 


Mr. RYAN OF OHIO.  Thank you, Mr. Chairman, Ranking Member McNulty, and also the gentle lady from Ohio.  Thank you for allowing me to testify on my bill, H.R. 4243, which provides a tax credit equal to the yearly cost of qualified college textbooks.  I am also proud to say that it has been endorsed by both the National Association of College Stores and the American Association of Publishers.  Mr. Chairman, I would like to submit the American Association of Publishers letter for the record. 

Chairman MCCRERY.  Without objection.

[The information was not received at the time of printing.]

Mr. RYAN OF OHIO.  It is not a secret that our students are paying more for their education, more are graduating with student loans, and the student loans are larger.  The cost of college for our country's students is out of control.  Last week, the biennial study for the National Center for Public Policy and Higher Education drops the country to an "F" rating in affordability from the "D" it received in the nonprofit group's report 2 years ago.  It is not our students who are failing us, it is our States and Federal Government receiving the flunking grade by not acting decisively to make college more affordable.  On affordability, the report directly contradicts studies that state increases of financial aid have kept pace with tuition hikes and college costs have stabilized.  The result, college is becoming less affordable.  How can we help our students and their families?  My legislation will give financial relief in an area that is a significant part of a student's education, the cost of textbooks.  Our students are spending an ever-increasing amount on textbooks.  According to the National Association of College Stores, the wholesale price of college texts has gone up 32.8 percent since 1998, while the price of ordinary books rose just 18 percent over the same period.  That is an average annual increase of 5.9 percent for college texts and 3.1 percent for regular books. 

Increasingly, students are paying upwards of $1,000 per school year for textbooks, and my legislation allows for an annual tax credit of up to $1,000.  One thousand dollars is obviously a lot of money for a student.  To put it in perspective, in the 2002-2003 school year, the average Pell Grant recipient was only awarded $2,436.  One thousand dollars spent on textbooks is 41 percent of that average Pell grant award.  House Resolution 4243 is not just limited to students, because many families work together to afford the cost of a family member's college education.  Most full-time students might not receive all of the benefits of this tax credit, because their time is spent in the classroom and not working.  So, this tax credit can be used by those parents who help pay for their son's or daughter's textbooks.  My legislation gives a tax credit to the taxpayer, the taxpayer spouse or any dependent of the taxpayer with respect to whom the taxpayer is allowed the deduction under Section 151 and who is an eligible student. 

To put this in perspective, consider the following example:  a family of four with an annual income of $40,000, sending one of their children to college, spent--will spend $1,000 on textbooks for the year.  They would have incurred Federal taxes of $2,041, but with my legislation, will receive the full tax credit and only incur a Federal tax liability of $1,041.  Mr. Chairman, my bill is not going to solve the college affordability issue completely, but it is a step in the right direction by recognizing that students and their families need more financial help.  We need to support the pursuit of higher education, and I thank you for your consideration.  We have almost 250,000 college-eligible people in this country who want to go to college, but feel, one way or another, they can't afford it; and this legislation helps move us in the direction to incentivize that for them.  So, I thank the Committee for the opportunity. 

[The prepared statement of Mr. Ryan follows:]

Chairman MCCRERY.  Thank you, Mr. Ryan.  Again, I think the members of the panel did an excellent job of laying out your proposal.  As a consequence of that, I don't have any questions.  I would point out to Mr. Neugebauer that he did such a good job, that there is going to be a bill on the floor this afternoon which contains an extension of the wind energy tax credit.  So, congratulations.  Mr. Weldon, you did almost as good a job.  There is going to be a bill on the floor, we hope next week or the week after. 

Mr. WELDON.  Really? 

Chairman MCCRERY.  Well, don't get too excited.  It does contain a reduction in the depreciation period from 39 years to 15 years for leasehold improvements for restaurants, so this is one of the things that they could take advantage of by putting in sprinklers and getting a shorter depreciation period.  So, it is a start.  With that, I will turn it over to Mr. McNulty. 

Mr. MCNULTY.  Thank you, Mr. Chairman.  I would echo your remarks, I think each of the Members did an excellent job.  I am already a cosponsor of Mr. Weldon's legislation.  I find a number of the other proposals very appealing.  They certainly deserve the consideration of this Subcommittee, the Committee, and the full House.  With that, I will yield to Ms. Tubbs Jones. 

Mrs. JONES.  Mr. Chairman, Mr. Ranking Member, thank you very much.  I also am a cosponsor of Mr. Weldon's legislation.  I also have in the hopper somewhere a piece of legislation providing benefits to the college and university dormitories, fraternities and sororities, for fire prevention, because it becomes such a serious issue for our young men and women who live in facilities where they are not provided with the appropriate fire prevention tools to keep them from being victims of fire.  So, I congratulate Mr. Weldon and support him.  I didn't realize--I wasn't a cosigner on Mr. Ryan's legislation.  I have a college student.  I probably don't qualify for the credit, but it would be great for my constituents to also have the ability to get some type of credit for books.  It seems like my son is calling me all the time, Mom, this book is $150; Mom, this book is $250.  I said, go print your own.  No, I didn't.  Just, can I go--an aside.  It is a serious cost and struggle for families who are trying to pay college tuition and the like.  To all of my colleagues, thank you for coming forward with these suggestions, and we will continue to be supportive and give you the opportunity to do this.  I am assuming, Mr. Chairman--well, I won't say "we."  The Chairman will continue to do that.  Thank you very much.  I yield back. 

Chairman MCCRERY.  Thank you, Ms. Tubbs Jones.  Mr. Ryan.

Mr. RYAN OF WISCONSIN.  I will be brief.  No questions.  Mr. Weldon, I think I am a cosponsor on your bill as well.  I think we are getting a good consensus on that measure.  Mr. Beauprez, I think you are hitting the nail on the head.  The Social Security tax is a double tax.  People already paid taxes on that dollar.  It is really a back-door benefit cut, so I think your presence here and your testimony on that are right on target.  Thank you all for coming. 

Chairman MCCRERY.  Thank you.  Thank you all again, gentlemen, for your excellent testimony.  Now, will the third panel please come forward.  Thank you.  Ms. Blackburn coming a little early.  The third panel was not supposed to be queued up until 2:00 p.m., but thanks to the concise testimony of the other two panels, we are a little ahead of time.  As Mr. McNulty pointed out, we are probably the only Committee in Congress that is ahead of schedule.  So, we are pleased that you are here early, and we are going to allow you to proceed.  Your written testimony will be included in the record, but we would like for you to sum up your testimony in about 5 minutes, if you would, and then we will see if any other Members have shown up to testify.  If not, we will ask you questions at that time.  You may proceed.


Ms. BLACKBURN.  Thank you, Mr. Chairman.  I will have to tell you that I do believe our Government Reform Committee hearing on piracy and counterfeit goods of intellectual property items was running a little ahead of schedule also today.  That is why I am able to jump out of that one, even though it is proceeding, to be here with you.  I do want to thank you and the Members of your Committee for holding the hearing today and giving us an opportunity to talk about some of the tax issues that are very important to us; and I want to offer my support.  The reason I am here today is to offer my support for H.R. 3776, the Songwriters Capital Gains Tax Equity Act, which was introduced by my friend from Kentucky and a Member of your panel, Congressman Ron Lewis.  We appreciate his leadership on that issue.  From 1995 until late 1997, I was Executive Director of Tennessee's Film Entertainment and Music Commission, and through that experience, I came to know and to fully appreciate the challenges that are facing our entertainment industry and the individuals who are working in that industry.  So, when I was elected to Congress, I knew that there were certain Federal problems that I wanted to put some energy into and try to help seek a remedy to. 

Mr. Lewis's bill is a recent solution to a significant problem.  Right now, our songwriters are forced to pay income tax when they are selling their life's work.  Their catalog sale ends up factoring into their income, rather than being treated as a capital gain.  We don't do this with the sale proceeds generated by works of literature that are produced by authors, but we do it with songs and with our songwriters.  The reality is that few people know the songwriters and even fewer know of the challenges our Tax Code presents to them.  The songwriters are the hidden component in our entertainment industry.  Everybody probably knows, and I would be willing to venture a guess, Mr. Chairman, that you are familiar with the song "Heartbreak Hotel," that it was the song that launched Elvis Presley's career.  It was his first single for RCA Records and it topped the Billboard charts around the world; it was the best selling single of 1956.  However, this song was not written by Elvis Presley.  This song was written by a wonderfully sweet lady and very dear friend from Hendersonville, Tennessee, the late Mae Axton.  She and her songwriting partner, Tommy Durden, were reading the newspaper in 1955, and they came across what they thought was a heartbreaking story about a man who killed himself and left a note with the line, "I walk a lonely street."  They were inspired--sitting down together, they were inspired to flip over that sheet of paper and write out the lyrics.  Then they produced a demo.  Writing that song took them about 22 minutes. 

That is the community that we are talking about, the people behind the headline.  These are the people we are trying to help.  I have worked with this wonderfully creative and entrepreneurial community, and I can tell you, they are the epitome of self-employed small business people.  Unlike the average small business owner, and what makes this issue so unique, is that the songwriters have their rate of pay set by Federal statute.  It is 17 U.S.C. 801.  The Federal Government sets that rate of pay, and if a songwriter does well and has many songs recorded, that collection of lyrics and music is known as a catalog.  When a songwriter decides to sell this catalog, this compilation of their life's work, meaning that they are no longer going to get royalties off of that airplay--they have passed it on, sold it--this asset is taxed as income instead of as a capital gain.  That is the crux of the problem. 

That is the situation, and Mr. Lewis's Songwriters Capital Gains Tax Equity Act would give songwriters the parity they deserve and treat their sales as capital gains rather than income.  In my district, which stretches from Memphis--which we know is the home of blues, and it is the birthplace of Rock and Roll--to Nashville, which is Music City USA, songwriters are our neighbors, they are our friends.  They are the people that we work with every single day.  We know how very important this issue is to them.  When I came to Congress, one of the first things that I did was to create the Congressional Songwriters Caucus here in the House to highlight this issue for our Members, and at every Guitar Pull that we have had on the Hill, this topic comes up.  It is a front-burner issue for our songwriters, and I am hopeful that this Committee can see merit in Representative Lewis's approach.  Thank you, Mr. Chairman. 

Chairman MCCRERY.  Thank you, Ms. Blackburn. Before I call on Mr. Sessions--Mr. Sessions, you can come on up and take your seat--I just want to point out that I did not affirmatively, when you asked if I was familiar with "Heartbreak Hotel," that is only because I have two much older sisters who were Elvis Presley fans. 

Ms. BLACKBURN.  I will accept that answer, sir. 

Chairman MCCRERY.  Thank you.  We will reserve our questions, Ms. Blackburn, if you can stay until the completion of Mr. Session's testimony.  Now I would like to introduce the gentleman from Texas, Mr. Sessions.  Mr. Sessions, your written testimony will be included in the record.  You will have about 5 minutes to summarize your remarks, and you may proceed. 


Mr. SESSIONS.  Thank you, Mr. Chairman.  I want to thank you and the Members of the Subcommittee today for allowing me to turn on my mike.  There it is. 

Ms. BLACKBURN.  Way to go. 

Mr. SESSIONS.  In the Rules Committee we have people there to turn them on.  I guess we don't here.  Mr. Chairman, I want to thank you for giving me the opportunity to speak today, and I would like to let you know that much of the material that I am going to provide you today was given to me by the National Center for Policy Analysis that has done a lot of work on the information that I am going to provide.  Today, Mr. Chairman, I would like to discuss the adverse effects of the Tax Code on women.  Now, of course, the Tax Code doesn't tax men at one rate and women at another.  Theoretically it treats them equally. Due to different work patterns between men and women, the outcome of our tax law is often negative for women.  One major reason for this is that the career path of a woman is usually different from that of a man.  According to the Census Bureau, 38.6 percent of the women between the ages of 20 and 64 choose not to work outside the home in order to take care of their children, compared with only 2.6 percent of men.  As a result, women tend to move in and out of the workforce.  They are also more likely to have part-time employment or to seek flexible hours or what we might call family-friendly workplace.  As a result of these patterns, women are frequently penalized by the Tax Code.  In particular, they are much less likely to be eligible for employee benefits.  Married women face higher marginal tax rates than their single counterparts.  Other factors, such as longer life expectancies, also have an impact. 

A prime example of the Tax Code's inequitable impact on women is retirement savings.  Because of their work patterns, women are less likely to qualify for benefits such as a 401(k) plan, and a woman who does qualify may not be able to invest if she pauses her career to take care of children.  One study found that among employees ages 18 to 62, the average balance in 401(k)s and similar accounts for women was about half of that of men.  Unfortunately, there is no 401(k) equivalent for moms who stay at home.  Traditional IRAs or spousal IRAs are options, but the contribution level limits are lower.  The opportunity to accumulate tax-favored savings shouldn't depend on where or if a person is employed.  We need to be especially concerned about the women's retirement savings, because they have a longer life expectancy and are more likely to live alone.  Women need a larger nest egg to cover their expenses throughout retirement, and those who do save will still face a host of taxes on retirement income and Social Security benefits. 

Another area of concern is health care.  Employers are able to deduct their expenses for providing health insurance, but individuals do not receive the same deduction if they purchase coverage on their own.  Because of such outdated laws, health insurance availability is tied to full employment, but many women in nontraditional work roles do not qualify for employer-provided health care.  One measure that addresses health care coverage is H.R. 583, the Fair Care for the Uninsured Act, which would create a refundable tax credit of $1,000 per adult or $3,000 for each family for the purchase of private health insurance.  This credit would be available to individuals who do not have access to employer-based health insurance or who are not enrolled in a government health program.  These are just a few of the challenges that women face in retirement planning, health care and many other areas, and I know this because I have a wife and a mother who are very concerned about not only their future but the future of many women who are their friends. 

Fortunately, Republicans and President Bush have enacted numerous measures that alleviate these problems with the Tax Code.  We have passed the marriage penalty tax relief and higher IRA limits.  These measures are in danger of expiring and do not fully address the inequities of the law.  The newly-created health savings accounts were also created to help improve health care coverage.  There is much more that I think we need to do and certainly I am trying to challenge our Committee to do today in our future.  On a broad scale, comprehensive tax reform such as a flat tax would eliminate many of the Tax Code inequities.  In the meantime, though, we should examine more specific proposals such as Fair Care.  Many of our tax laws are still based on the old assumption that a family will have a single earner, employed full time by one company that provides full benefits, but now this model is the exception rather than the rule.  Of course, the problems I have discussed apply to many men as well.  However, women are affected far many times more.  With the roles of men and women continually evolving, we need to replace our outdated tax laws with forward-looking reform, with the new ideas of the millennium, and maximize the opportunity of each of our citizens.  I thank the gentleman for allowing me to be here today, and I will make myself available for questions, as necessary, by this Committee. 

[The prepared statement of Mr. Sessions follows:]

Chairman MCCRERY.  Thank you, Mr. Sessions.  Ms. Blackburn, you talked about the catalog of songs that a songwriter might at some point sell.  What if it is just a single song that he gets royalties on for, say, 5 years, and then he just wants to sell that song?  Would he still qualify for the tax break in your bill? 

Ms. BLACKBURN.  Chairman McCrery, one of the things that happens in the industry is, when a songwriter writes that song, then they will get their royalty on that as long as they own that song.  It is the same thing as if you owned a piece of property that was a rental piece of property.  Then, as long as you own that property and rent it out, that rent check comes to you.  The day you sign the deed and you sell it and you turn it over, you no longer have anything to do with it.  It is the--it is the same thing that happens when you have a song.  Now, what songwriters will do--and Mr. Lewis may also want to speak to this just a little bit--what they will do is, generally they retain the ownership of their songs until they are ready to retire and then, at that point, they will sell their life's work.  Now, as with many small business people, who have built a factory, whether it is a tool and die factory or a clothing manufacturing factory, they are--or insurance agent who has a book of business.  They are gathering and building, and they are making residual income and they are working through that process for many, many years.  They decide to retire.  They know this business that they have built or the property that they have owned has been their work, and they decide to sell that.  That is--that lifetime of work, all of those songs, that is an artist's catalog, and once they make that sale, it is gone. 

Chairman MCCRERY.  Maybe Mr. Lewis can expound on that.  What if a songwriter doesn't wait until he wants to retire, but is there a holding period in their bill--a year or 5 years or whatever--at which point he can get capital gains treatment? 

Mr. LEWIS.  Well, I think what Ms. Blackburn is saying is, it is--and the one-song scenario, I am not sure that a person would be interested in selling one song.  An example is, like Hal David, the writer of many, many songs, "Raindrops Keep Falling on My Head," and of Rudy Vallie and others, a whole career of writing songs that he put into his catalog.  Upon wanting to--reaching a period in his life that he would want to retire, if he sold that catalog or, as Marsha just said, if I was a small business owner, and I put my whole life investment into that business, mortgaged my home and everything, basically all the profit I made I put back into that business building that, because I knew one day that I would probably retire on the basis of selling that business, well, that would be fine for me because I would have paid capital gains instead of income tax on that.  The songwriters are saying the same thing.  They are building, they are building for that future.  So, they are compiling those songs, and one day they hope to sell that small business that they have acquired over the years and the investment that they have put into it, and they don't want to have to pay income tax.  They want to be like any other small business and pay capital gains tax.  So, we are concentrating on that individual that has built a business over the years so that they can retire.

Chairman MCCRERY.  Okay.  Thank you.  Mr. Sessions, you certainly point out an area that this Committee has concerned itself with over the last few years, and that is trying to make sure that women in the workplace are given favorable treatment to counter the disadvantage that they have because of the facts of life, as you outlined, that they have interruptions in their work life.  When they have kids, they leave the workplace.  They come back.  It is an area that we have made some improvements in, but I agree with you that we need to continue to look at that and continue to make sure that the Tax Code does a good job of taking into consideration those life-style differences for women.  So, we will certainly continue to do that, and I appreciate your comments today on that subject. 

Mr. SESSIONS.  Thank you, Mr. Chairman. 

Mr. MCNULTY.  I have no questions.  I want to thank both of my colleagues for their presentations. 

Chairman MCCRERY.  Thank you.  Mr. Lewis, do you have any questions? 

Mr. LEWIS.  No. 

Chairman MCCRERY.  Mr. Ryan.  I thank both of you very much for your excellent testimony.  We appreciate your taking time to come by our Committee and share with us your thoughts.  As we develop policy in the next couple of years, I am sure we will consider what you have brought us today and make some improvements in the Tax Code.  So, thank you once again.  We still have a couple of Members on the third panel that were supposed to be here at 1:00 p.m.  So, we will simply wait for a few more minutes.  We will leave the record open for a few minutes and see if they get here.


Welcome, Ms. Lofgren. 

Ms. LOFGREN.  Thank you.  I was waiting for this on the floor.  I thought this was going to be at 1:00 p.m. 

Chairman MCCRERY.  Yes, ma'am.  We would have waited patiently if we had had to.  We have had two panels and we are about halfway through the third panel to testify.  Your written remarks will be included in their entirety in the record, but we would ask you to turn on your microphone and summarize your written testimony in about 5 minutes, if you would.


Ms. LOFGREN.  Thank you, Mr. Chairman.  I will not, I believe, take the entire 5 minutes.  When I learned of the great offer to receive testimony from Members who are not Members of the Committee, I wanted to take advantage of that opportunity because of an issue that I tried to bring to the attention of the Committee and, really, in justice to the losers for a period of several years.  That has to do with the application of the alternative minimum tax to incentive stock options.  I first learned about this when I received a letter from a young man in my district, an engineer, who was facing absolute financial ruin.  This kid had roommates.  He shared a house with another bunch of recently out-of-college engineers.  He was driving a car several years old.  He had received incentive stock options and had not known that even though he never received any money from those options, he never made a profit, he never sold them, that he was still subject to a tax on the phantom profit that existed that he was completely unaware of.  As time went on, I got other letters from individuals in my district and all across the United States of people who had a tax liability for income they never received. 

I introduced a bill last Congress, and before that I was not the only Member to try to bring a remedy to this problem.  Congressman Neal and I worked together, and Congressman Johnson has a bill in this Congress.  None of these bills has received action.  A lot of the individuals who had tax liabilities of hundreds of thousands of dollars on income of maybe $40,000, have gone bankrupt.  They have lost their homes.  They have lost their cars.  The injustice remains.  Should the Committee be willing to take action to remedy this, I would be prepared to reintroduce H.R. 1487 in an instant, because it is one of the nastiest and most unfair things I have seen for people to be caught in this terrible situation.  People have committed suicide in my district over this problem. All along, we have done a lot to solve tax problems, for large entities.  I would urge that we not forget the little guy, the little engineer who got caught in this very strange application of the alternative minimum tax.  I think they deserve our attention, and they deserve tax fairness.  They deserve justice.  So, I wanted to bring that to the attention of the Committee.  Should you have any interest or willingness to pursue this, please do let me know, and I will reintroduce my bill.  I didn't this year, because I was so discouraged and really had been led to believe by Members of the Committee that no action would be forthcoming.  I hope that is not correct.  I thank the Committee for your courteous attention to me, and for leaving the record open. 

[The prepared statement of Ms. Lofgren follows:]

Chairman MCCRERY.  Thank you, Ms. Lofgren.  We are going to recognize Mr. Emanuel, and then we will ask questions, if you can stay for that.  Next on the panel is the gentleman from Illinois, Mr. Emanuel.  Please, your written testimony will be included in the record.  If you turn on your mike and summarize that in about 5 minutes, we would appreciate it.  You may proceed. 


Mr. EMANUEL.  Well, Mr. Chairman, thank you, and I will try to do it in less time so we can get--I know that you have some questions and someone on the panel--as Henry Kissinger used to say, does anyone have any questions for my answers?  Obviously, he was serious.  I am joking.  There are two or three things I would like to address, if possible, and take them up in kind of magnitude from small to larger.  One is an issue known in the public as "janitor's insurance," and it has been written on extensively in the Wall Street Journal.  It has done about four or five articles on it.  It is a policy where corporations buy a life insurance policy on--not key, on what is referred to as "alternative key man insurance," but those lower on the corporate ladder.  Many times individuals don't, and their spouses don't know the insurance policies are there.  Corporations can do that.  As you know, in some of these articles, Wal-Mart buying--one of the most valuable contributors to their bottom line was the janitor's insurance in certain years from a capital perspective and a profit perspective.  There are two pieces of the Tax Code where we as a society and as a economy, the rest of us, are subsidizing corporations both on the front end when they buy it and on the buildup of the value of that premium.  They get a tax--they basically write it off on their taxes.  We as taxpayers have to, in other words, pick it up for them. 

What you have here is a company that is buying life insurance on their employees who don't get--many times they or their spouses are not the beneficiary of that policy.  In the past, Chairman Archer of this Committee has criticized this.  Secretary of the Treasury Don Regan has criticized it.  Leaders in the insurance industry themselves have spoken out against it, calling it egregious, and yet this inequity exists in the Code.  Now, you can deal with janitor's insurance and try to make it like--or life insurance as a whole, and try to make it like some other insurance policies, and that may be one solution.  At this point, to the tune of $10 billion to $12 billion based on estimates, the taxpayers are subsidizing a policy and corporate bottom line when the so-called beneficiaries are not receiving the policy, and I am not sure this is exactly what was intended for the Tax Code.  There has been in the past big, bipartisan criticism of this policy.  Second, what again was intended for the right reasons, and I think now has been used in a way and has morphed into a process, is the "corporate jet" tax write-off.  In many cases, the most egregious example here is the Chief Executive Officer or corporate executive, because the Chief Executive Officer is not the only individual using it, are charged $300--these are examples that have been used in the public domain for their tax purposes and a sense of income--and yet the corporation writes off the use of the corporate jet at that point to the tune of $30,000. 

I think we could all agree, it is either $300 or $30,000, but the use of that corporate jet is not both simultaneously.  We as taxpayers pick up the $30,000 hit, again costing somewhere--low estimates at about $1.2 billion over 2 years, $2.5 billion--$1.2 billion over 5 years, $2.5 billion over 10 years.  I think again an egregious example of where the Tax Code not only does not reflect, I think, our values, but more importantly, economic sense.  Again, you can correct an inequity that exists in the Code that also, I think, undermines people's confidence in the tax policy and that the taxes are distributed fairly.  Lastly, an idea I have proposed in the past, and I have done other things in my Financial Services Committee on auditors and the sense of tax advice that they have been giving both to companies that they audit, as well as where they are giving tax advice to the Chief Executive Officers of companies they audit.  On a separate matter, I introduced a piece of legislation called the Simplified Family Credit.  It takes the Earned Income Tax Credit, the Dependent Child Credit, and the Child Credit and collapses approximately 2,000 pages of the Code down to 12 questions.  Now, in those three separate credits, there are north of five examples of children, or definitions of children.  I know, Mr. Chairman, as a father of a few children, as the father of three children, I think there is only one definition of what a child is and I think we should be able to consolidate that definition. 

There is no consolidation and simplification to be brought on the Code.  If you did that--I don't agree with some of the others who criticize the Earned Income Tax Credit for fraud and abuse, but many times--I will agree that there is fraud, but the fraud is unintended.  It is not intentional, as it is in other places, because of the complexity.  The way to deal with the abuse in the system would be to bring simplicity so that people know what they are filling out.  There is literally a form for 12 questions, reduces 2,000 pages in total by the IRS.  It would cost some money, but I also think it would be tremendously good for the economy, and it would bring simplification to the Code.  That is a bigger reform idea than the first two.  I again want to close by--I appreciate your letting me testify and for also holding this hearing today.

[The prepared statement of Mr. Emanuel follows:]

Chairman MCCRERY.  Thank you, Mr. Emanuel.  Ms. Lofgren, I think you should reintroduce your bill, maybe next year.  We probably won't act on it this year, but it seems to me that that is something we ought to look at.  It does seem to be somewhat punitive, certainly in some cases, so I would encourage you to continue to pursue that.  Don't get discouraged.  It takes a while around here sometimes to address something.  So, keep after it.  We appreciate very much your coming before us today to point out what is a problem in your district.  Certainly--as with many incentive stock options that are around in your district, but certainly everywhere across the country, that is a tool that companies can use and they want to use; and employees like it, so we ought not discourage the use of that through the tax treatment on the alternative minimum tax.  The best solution, of course, would be to repeal the alternative minimum tax altogether, but we can't do that quite yet.  So, we are working on it.  Would you like to respond? 

Ms. LOFGREN.  Yes, thank you, Mr. Chairman.  I, in the next Congress, with some encouragement, would happily pursue it.  I would say, when I was contacted by these individuals in my district--because I do represent Silicon Valley--I assumed it was primarily a Silicon Valley issue.  I was very surprised, therefore, to find out this is not just a Silicon Valley issue.  There are people all over the United States who got incentive stock options.  They saw their stock prices go under water in a year, and then they got hit with tax bills of $200,000, $300,000, $400,000, in one case $1 million on stock that they didn't receive a penny of value from.  They tend to be people who are not the Chief Executive Officers, but the engineers or the administrative assistants, people who don't have certified public accountants looking over their shoulders.  So, I would hope that the Committee could act.  It is really a very compelling situation.  I appreciate your kind comments. 

Chairman MCCRERY.  Thank you.  Mr. Emanuel, this Committee has looked at the issue of corporate-owned life insurance.  The Senate Finance Committee fairly recently adopted a number of reforms along the lines that you suggested.  Are you familiar with those?  Have you looked at those? 

Mr. EMANUEL.  Yes, I have.  Some of them were--yes, I have. 

Chairman MCCRERY.  Do you think that they would solve the problems that you alluded to in your testimony?  Or does more need to be done? 

Mr. EMANUEL.  Well, Mr. Chairman, if you were talking about the same type of reforms that they made, one was--I think their reform was on notification, so that the beneficiary and the family knew that there was a life insurance policy wrapped around the employee, so to say. 

Chairman MCCRERY.  Consent also. 

Mr. EMANUEL.  I do think that they don't--and I stand corrected if I am wrong, my understanding of it.  I don't think they dealt with the tax provisions, as I outlined here, both for the purchase of the policy and the buildup inside. 

Chairman MCCRERY.  No, they allow that to continue.

Mr. EMANUEL.  Right. 

Chairman MCCRERY.  They do require notification and consent of the employees.

Mr. EMANUEL.  Right. 

Chairman MCCRERY.  They also limit the employees that can be included in the corporate-owned life insurance, which would do away with the janitors problem.  So, maybe you should look at that.  Let us know, after you have had time to thoroughly review it, if you think we still ought to just repeal the tax provisions that allow the company to deduct and then, of course, not pay tax on the buildup, the inside buildup.

Mr. EMANUEL.  Right.

Chairman MCCRERY.  Because, after all, as you probably know, companies have been using this tool for quite a number of years for what I think both you and I would agree is a good social policy to fund the benefits that the corporations pay to their employees.  So, I am not sure that we want to throw that out, that tool out, without looking at it very closely. 

Mr. EMANUEL.  A, I have looked at what the Senate passed; B, I think it is good progress; C, I don't think the option is either you exist--you continue to exist the Tax Code as is.  That means, if you end it somehow or reform it, you eliminate how the policy is used to fund other benefits for the company.  I think there is a way to break bridges, too, so I don't think the taxpayers are out on the hook subsidizing what has happened in the past. 

Chairman MCCRERY.  Well, taxpayers subsidize a number of things.

Mr. EMANUEL.  Yes, they do. 

Chairman MCCRERY.  They subsidize our health insurance, for example, and subsidize the health insurance of the General Motors employees at the plant in Shreveport.  Again, I think we would agree that there is a pretty good social purpose there served by that tax deduction that the corporation enjoys and that tax exclusion that the employees enjoy.

Mr. EMANUEL.  So, X pie is not a finite pie.

Chairman MCCRERY.  That is something that this Committee has to grapple with all the time.  I appreciate your remarks and your testimony.  Mr. McNulty. 

Mr. MCNULTY.  Thank you, Mr. Chairman.  I want to thank both of our colleagues for their testimony.  I mentioned in my opening remarks that many times Members of this body work on various tax proposals over a very long period of time, and they tend to get lost in the shuffle when we consider these larger bills.  That may have been the case in Ms. Lofgren's legislation.  I would join with the Chairman in urging you to resubmit your legislation.  We have no further questions on our side of the aisle, Mr. Chairman. 

Chairman MCCRERY.  Mr. Ryan?  Mr. Brady?  Well, thank you again.  Mr. Emanuel, you did such a good job today in talking about the single definition of a child.  That is actually going to be in the bill that is going to be on the floor this afternoon.  So, you can take credit. 

Mr. EMANUEL.  Thank you both.  I saw the press release out about a year ago. 

Chairman MCCRERY.  Thank you again. 

Mr. MCNULTY.  Mr. Chairman, I just wanted to make a unanimous consent request.  Because we were scheduled to hear from 20 Members of Congress today and 16 of them were actually able to make it here and present their testimony in person--there were four who did not--I would ask unanimous consent that the testimony of Mr. Hoekstra, Mr. Edwards, Mr. Saxton and Mr. Fossella are submitted for the record. 

Chairman MCCRERY.  Without objection.  Is there any further business from any of the Members? 

[The prepared statement of Mr. Hoekstra follows:]
[The prepared statement of Mr. Edwards follows:]
[The prepared statement of Mr. Saxton follows:]
[The prepared statement of Mr. Fossella follows:]

Mr. MCNULTY.  Only the adjournment, Mr. Chairman. 

Chairman MCCRERY.  This hearing is adjourned.

[Whereupon, at 1:25 p.m., the hearing was adjourned.]
[Submissions for the record follow:]

Air Conditioning Contractors of America, Arlington, VA, statement

American Institute of Certified Public Accountants, Robert A. Zarzar, letter and attachment

American Prepaid Legal Services Institute, Chicago, IL, Andrew Kohn, statement

The Bond Market Association, statement

Coalition for Tax Fairness, Arlington, VA, Timothy J. Carlson, statement

Garrett, Hon. Scott, a Representative in Congress from the State of New Jersey, statement and attachment

Green, Hon. Mark, a Representative in Congress from the State of Wisconsin, statement

Honda, Hon. Michael M., a Representative in Congress from the State of California, statement

Langevin, Hon. James R., a Representative in Congress from the State of Rhode Island, statement

National Association of Bond Lawyers, Monty G. Humble, letter and attachment

Public Finance Network, joint letter

Savers and Investors League, Mirror Lake, NH, W. Thomas Kelly, statement