Statement of Administration Policy: H.R. 3448 - Small Business Job Protection Act

(Senate)
(Archer (R) Texas)

The Administration, while supporting Senate passage of a number of provisions of H.R. 3448 as amended by the Finance Committee, will seek further amendments to the bill. And, as stated in the President's June 28th letter to the Senate, a copy of which is attached, if H.R. 3448 is presented to the President with the minimum wage provisions of the Republican leadership amendment, the President will veto the bill.

The Administration strongly opposes section 1601 of the bill, which would repeal the tax credit related to corporate investments in Puerto Rico while allowing several grandfather rules for existing companies. The Administration urges the Senate to delete this provision and adopt instead the proposal to reform the credit contained in the President's FY 1997 Budget. The Administration's proposal provides tax benefits for new and expanded operations based directly on real economic activity in these underdeveloped areas. The projected revenue savings from the reform of this credit would be used for social and employment training programs in Puerto Rico. Unlike section 1601, the final legislative language concerning the credit should contain effective mechanisms to promote job creation in the islands.

The Administration will also work with Congress to adopt other amendments as described below.

Provisions Supported by the Administration and Additional Recommended Amendments

The Administration supports many of the revenue provisions of H.R. 3448, which are consistent with Administration proposals to strengthen small businesses, simplify pension laws, reinstate incentives for research and development, and improve incentives for education and work opportunities.

In particular:

• Small Business Expensing. The Administration strongly supports the bill's increase from $17, 500 to $25, 000 for the amount of tangible personal property that small businesses can expense. The President supported such an increase in 1993 and in his FY 1997 Budget, although with a faster phase-in.
  
  
• Employer-Provided Educational Assistance. The Administration supports the temporary extension of the income exclusion for employer-provided educational assistance, including the exclusion for post-graduate level education. The Administration will work with Congress to provide a permanent extension of the exclusion. The Administration also supports a 10 percent tax credit for educational assistance provided under section 127 plans for small businesses with annual gross receipts of $10 million or less.
  
  
• Research Tax Credit. The Administration strongly supports full reinstatement of the research tax credit back to its June 30, 1995, expiration date. The Administration will work with Congress to make the credit permanent. The Administration continues to believe that full, permanent reinstatement should take priority over modifications to the credit such as those contained in H.R. 3448.
  
  
• Orphan Drug Credit. The Administration strongly supports full reinstatement of the orphan drug credit and will work with Congress to make the credit permanent.
  
  
• Gifts of Appreciated Stock to Private Foundations. The Administration strongly supports this provision and will work with Congress to make it permanent.
  
  
• Work Opportunity Tax Credit. The provision for a new Work Opportunity Tax Credit addresses many of the criticisms of the prior Targeted Jobs Tax Credit, particularly increasing the period of retention for eligible workers. The Administration will work with Congress to improve the scope and effectiveness of the new credit.
  
  
• Pension Simplification. Many provisions of H.R. 3448 were included in the President's pension simplification proposal announced in June 1995 at the White House Conference on Small Business. The Administration is concerned, however, that the safe harbor provisions applicable to both SIMPLE and 401(k) plans do not ensure that middle and lower-wage workers will benefit from the provision of tax-advantaged retirement savings plans. The Administration will work with Congress to modify these safe harbors so that employers taking advantage of them are required to provide meaningful coverage to these workers. The Administration is also concerned that the three-year waiver of the excise tax on very large retirement distributions would add complexity and could actually encourage plan sponsors to terminate plans.
  
  
• Subchapter S. The Administration also strongly supports most of the reforms in the bill relating to Subchapter S (closely held) corporations, and will work with Congress to provide further reforms and to ensure that reforms are appropriately targeted to the intended beneficiaries.
  
  
• Technical Corrections. The Administration supports the long-overdue enactment of technical corrections to recent tax legislation and will work with Congress to achieve a consensus package of technical corrections.

Objectionable Provisions

• Classification of Workers for Employment Tax Purposes. The Administration has concerns about certain changes proposed to section 530 of the Revenue Act of 1978, which provides "safe harbors" under which an employer has a reasonable basis for treating a worker as an independent contractor rather than as an employee for employment tax purposes. The most important concerns are with proposed changes that would: (1) shift the burden of proof to the Internal Revenue Service with respect to the application of section 530; and (2) replace the safe harbor for reasonable reliance on a long-standing practice of a significant segment of the industry with a rigid numerical test.
• Special-Interest Provisions. The Administration opposes the inclusion in H.R. 3448 of numerous special-interest provisions.

Revenue Offsets

The Administration has serious concerns with the offset provision in H.R. 3448 that would repeal tax benefits for certain employee stock ownership plans that provide meaningful employee ownership. Several of the offsets — relating to interest allocations for nonfinancial corporations, tax treatment of expatriates, basis adjustment rules under section 1033, withholding on certain gambling winnings, and reinstatement of airport and airway trust fund excise taxes - are included in the President's balanced budget proposal. These offsets should be reserved for deficit reduction and meeting balanced budget goals. In working with the Congress to develop an improved bill that is consistent with the Administration's recommended amendments, appropriate offsets will be sought.

Proposals Not Addressed in H.R. 3448

In the context of an overall balanced budget plan, the Administration will work with Congress to provide other incentives previously proposed by the Administration but omitted from this bill. Such incentives include the $10, 000 deduction for postsecondary tuition and training expenses, the $1, 500 tax credit for postsecondary tuition, and incentives to revitalize economically distressed areas by cleaning up abandoned, contaminated properties, and creating new Empowerment Zones and Enterprise Communities.

The Administration would also support an amendment to the Foreign Sales Corporation statute as it applies to licenses of software, and will work with Congress to develop an acceptable package, including appropriate revenue offsets.

Pay-As-You-Go-Scoring

H.R. 3448 would affect receipts; therefore, it is subject to the "pay-as-you-go" requirements of the Omnibus Budget Reconciliation Act of 1990. OMB's scoring of this legislation is under development.

THE WHITE HOUSE
WASHINGTON

Lyon

June 28, 1996

Dear Mr. Leader:

If we want to make work pay, we must make the minimum wage a living wage. Nearly a year and a half ago, I proposed raising the minimum wage by 90 cents in two equal steps. This increase would honor our values: work, family, responsibility, and opportunity. And it would ensure — along with the expanded Earned income Tax Credit — that no parent who works full-time would have to raise their children in poverty.

A bipartisan group in the House has done their part and voted in favor of raising the minimum wage. For the 10 million workers and their families struggling at or near the minimum wage, the time for the Senate to do its part is long overdue.

We now have a bipartisan majority of Senators in favor of raising the minimum wage. Regrettably, the Senate Republican leadership is planning to offer an amendment that would potentially deny any minimum wage increase to millions of American workers and delay any increase for the remainder until next year. I strongly oppose any measure that would deny a minimum wage increase to those workers who need and deserve it.

Under the senate majority leadership proposal, employees of fully two-thirds of all firms in the United States — all businesses with revenues of less than $500, 000 annually — would not be eligible for an increase in the minimum wage. For millions of American workers, this provision would lock in, for an indefinite period of time, a minimum wage that will be at a 40-year low in real terms. Now does that reward working families and honor our values? It doesn't matter the size of your employer, you can't raise a family on $4.25 an hour. If you send me legislation with this poison pill, I will veto it.

The Senate majority leadership bill could also deny a minimum wage increase to every worker for the first six months of their employment with any employer. This is another piece of an apparent strategy to play a game of bait and switch with a minimum wage increase. This provision is more extreme than the House-passed version, which the Administration strongly opposed, and a radical and unacceptable expansion of the "youth training wage" included in the 1989 minimum wage bill. It doubles — from 90 to 180 days — the time period during which an employer could deny any new employees the minimum wage increase, and it fails to limit this extended subminimum wage to workers under 20 years of age. It creates a permanent subminimum wage of $4.25 an hour for every worker without any requirement that the employers train these lower paid workers. In industries where high turnover is common — like retail — this provision would create an incentive for employers to drop workers after six months, so that they would never graduate from the subminimum wage. If this provision is included in the bill, I will veto the bill.

The minimum wage is already very close to its lowest real value in 40 years. Inflation has largely repealed the minimum wage increase enacted by an overwhelming bipartisan majority in both houses of Congress in 1989 and signed by President Bush. The first part of our 90-cent increase will not even restore the minimum wage to its value following the last increase. Every day we delay a minimum wage increase, its real value moves closer and closer to a 40-year low. I am determined not to let that happen and will strongly oppose any legislation that delays any increase in the minimum wage until next year. If this provision is included in the bill, I will veto the bill.

I strongly oppose the provision in the Senate majority leadership bill that would deny the minimum wage to tipped employees (e.g., waiters and delivery people). It may not seem like much, but to these workers my minimum wage proposal would mean an extra 45 cents an hour. For someone struggling to make ends meet, that's a difference we could never imagine.

In addition, I would strongly oppose the provision that would deprive overtime pay to workers who use an employer-owned vehicle to drive from job site to job site during the course of the workday, and X would oppose the provision to diminish the protection of "computer professionals" to receive overtime pay when they work excessive hours.

The American people want the minimum wage increased. A bipartisan majority in Congress wants the minimum wage increased. If we truly value work and family, we should raise the value of the minimum wage now. The Senate majority leadership should drop the poison pills in their amendment and immediately allow an honest up-or-down vote on the minimum wage.

Sincerely,

Bill Clinton

The Honorable Trent Lott
Majority Leader
United States Senate
Washington, D.C. 20510