Statement of Administration Policy: H.R. 11 - Revenue Act of 1992

(House Rules)
(Rostenkowski (D) Illinois and 31 others)

If H.R. 11 were presented to the President in its current form, the Secretary of the Treasury and the Secretary of Housing and Urban Development would recommend a veto.

The Administration will continue to work with Congress to develop mutually acceptable language that provides stronger incentives for enterprise zones and additional support for the Weed and Seed program.

Enterprise Zones

The Administration remains deeply committed to addressing the problems that have plagued America's urban centers. The President has put forward a comprehensive six-part agenda to attack the conditions that impede growth and opportunity, one element of this agenda is an enterprise zone proposal to revitalize poverty-stricken urban and rural areas in our country.

To be successful, any enterprise zone program must meet two requirements that are the cornerstones of the Administration's plan. First, tax incentives, particularly elimination of the tax on capital gains, must be provided. These incentives must encourage local entrepreneurship, the provision of goods and services to the local community, and the creation of local employment. Second, the selection of zones must be based on objective criteria, rather than bureaucratic or political decisions.

The enterprise zone proposal included in H.R. 11 fails to satisfy either of these requirements for a successful program. H.R. 11 fails to provide any type of capital gains exclusion for zone entrepreneurs. Equally important, H.R. 11 requires HUD or the Department of Agriculture to select zones from among hundreds of qualifying areas without establishing objective criteria on which to base these decisions. In addition, H.R. 11 provides a very poorly-targeted wage incentive to employers, who would be allowed a wage credit with respect to employees who could be making over $100,000 per year.

Other Provisions

The Administration supports the extension of certain expiring tax provisions, the repeal of the luxury tax provisions, and the provisions of H.R. 11 relating to intangible assets. The Administration also supports the tax simplification provisions of H.R. 11. Certain modifications, however, may be necessary to fully realize overall simplification objectives.

While H.R. 11 makes various expiring provisions permanent, it only extends the tax credit for research and development by 18 months and the 25 percent health insurance deduction for self- employed persons for 6 months. The President's FY 1993 Budget contained a permanent extension of the research and development credit. The Administration also transmitted legislation, as part of the President's comprehensive health care proposals, to increase the deduction for health insurance expenses for the self-employed from 25 percent to 100 percent, and to make it permanent.

The Administration has long supported taxpayers' rights and supports many of the proposals contained in the "Taxpayer Bill of Rights" title of H.R. 11. However, the Administration is strongly opposed to certain provisions in that title which would result in a loss of revenue and in counterproductive policies. The Administration also opposes a change in the estate tax rate, a cap on moving expenses, and the repeal of the deduction for club dues.

H.R. 11 is also unacceptable because of the provision permanently diverting General Fund revenues to the Railroad Retirement account. The diversion sets a dangerous precedent for other industry pension plans that may seek Federal taxpayer support in the future. The income tax transfer substitutes for pension contributions from the rail sector. The Administration also opposes unfunded mandates on States, such as those concerning student earnings and step-parents, that increase both State and Federal welfare costs without appropriate offsets. In addition, the Administration opposes the enhanced Federal match for the JOBS program, which would increase Federal costs while weakening State investment and commitment to the program.

Finally, the Administration also opposes H.R. 11 because it fails to meet the Budget Enforcement Act pay-as-you-go requirements. The bill's revenue losses are not fully offset for purposes of the Omnibus Budget Reconciliation Act of 1990 (OBRA). The bill could, therefore, result in a sequester of Medicare, farm payments, and other sequestrable mandatory programs.

Pay-As-You-Go Scoring

H.R. 11 affects receipts and outlays; therefore it is subject to the pay-as-you-go requirement of OBRA. A budget point of order applies in both the House and Senate against any bill that is not fully offset under CBO scoring. If, contrary to the Administration's recommendation, any such point of order that applies against H.R. 11 is waived, the effects of enactment of this legislation would be included in a look back pay-as-you-go sequester report at the end of the Congressional session.

OMB's preliminary scoring estimates of this bill are presented in the table below. Final scoring of this legislation may deviate from these estimates. If H.R. 11 were enacted, final OMB scoring estimates would be published within five days of enactment, as required by OBRA. The cumulative effects of all enacted legislation on direct spending will be issued in monthly reports transmitted to the Congress.

ESTIMATES FOR PAY-AS-YOU-GO *
($ in millions)