Tax Fairness and Deficit Reduction Act of 1995

TABLE OF CONTENTS:

Title I: Discretionary Savings

Title II: Extension of Authority of Federal Communications

Commission to Use Competitive Bidding

Title III: Privatization of the United States Enrichment

Corporation

Title IV: Retirement

Title V: Medicare Savings Extensions

Subtitle A: Provisions Relating to Part A of the

Medicare Program

Subtitle B: Provisions Relating to Part B of the

Medicare Program

Subtitle C: Provisions Relating to Parts A and B of the

Medicare Program

Title VI: Contract With America Tax Relief Act of 1995

Subtitle A: American Dream Restoration

Subtitle B: Senior Citizens' Equity

Subtitle C: Job Creation and Wage Enhancement

Subtitle D: Family Reinforcement

Subtitle E: Social Security Earnings Test

Subtitle F: Technical Corrections

Tax Fairness and Deficit Reduction Act of 1995 - Title I: Discretionary Savings - Discretionary Spending Reduction and Control Act of 1995 - Amends the Congressional Budget Act of 1974 to establish discretionary spending limits for FY 1996 through 2000.

Extends congressional committee allocation and enforcement provisions and the applicability of certain points of order through FY 2000.

Extends the requirement for five-year concurrent resolutions on the budget through FY 2000.

Amends the Balanced Budget and Emergency Deficit Control Act of 1985 (Gramm-Rudman-Hollings Act) to establish amounts for FY 1996 through 2000 to eliminate budgetary excess from the Violent Crime Reduction Trust Fund.

(Sec. 1003) Revises the general statement of budget enforcement to apply to discretionary spending limits and pay-as-you-go requirements rather than expired maximum deficit amounts.

(Sec. 1004) Extends enforcement of discretionary spending limits, pay-as-you-go requirements, and reporting requirements through FY 2000.

(Sec. 1009) Provides a special rule on the interrelationship between changes in discretionary spending limits and pay-as-you-go requirements for enforcement purposes. Prohibits changes in direct spending and receipts resulting from this Act from being reflected in pay-as-you-go estimates.

Revises the final sequestration report to be made by the Office of Management and Budget for FY 1996.

Title II: Extension of Authority of Federal Communications Commission to Use Competitive Bidding - Amends the Communications Act of 1934 to extend through FY 2000 the authority of the Federal Communications Commission to use competitive bidding in granting licenses and permits.

Title III: Privatization of the United States Enrichment Corporation - USEC Privatization Act - Provides for the transfer by the United States Enrichment Corporation of some or all of its assets and obligations regarding uranium- and uranium enrichment-related activities to a private corporation.

Title IV: Retirement - Congressional and Federal Employee Retirement Equalization Act - Increases, incrementally through 1997, percentages of basic pay which may be deposited by a Federal employee or Member of Congress in the Civil Service Retirement and Disability Fund for service for which retirement deductions or deposits have not been made. Adjusts employing agency deductions and withholding according to this schedule. Provides that Government contributions shall be determined, with respect to service after 1995, according to the 1995 applicable percentage plus three percent. Conforms military basic pay and volunteers' readjustment allowance or stipend percentages to the percentages for employee service.

Revises Federal Employees' Retirement System (FERS) deductions and withholding so that the rates applicable to Federal and congressional employees and Members, increased incrementally through 1997, are made uniform. Provides higher rates for law enforcement officers, fire fighters, and air traffic controllers. Conforms military basic pay and volunteers' compensation percentages to the FERS percentages for employee service.

Exempts postal employees from the applicability of these Civil Service Retirement System (CSRS) and FERS contribution changes.

(Sec. 4004) Revises rules relating to average pay, for purposes of computing employee annuities or survivor annuities for employees separating after 1995, to increase the number of consecutive years of service considered. Revises accrual rates, with respect to annuities of congressional employees and Members with at least five years of service, to compute annuities on the basis of service before 1996. Applies, in the case of immediate retirement, the 1.1 percent accrual rate in the computation of the basic annuity of a Member or congressional employee who separates after January 1, 1996.

(Sec. 4006) Eliminates the option of Members not to participate in FERS.

Title V: Medicare Savings Extensions - Medicare Presidential Budget Savings Extension Act of 1995 - Subtitle A: Provisions Relating to Part A of the Medicare Program - Amends title XVIII (Medicare) of the Social Security Act (SSA) to prohibit the Secretary of Health and Human Services (Secretary), with respect to per diem limits on routine costs of services of skilled nursing facilities or prospective payments to such facilities, from considering changes in the costs of services occurring during cost periods which began in FY 1994 or 1995.

Subtitle B: Provisions Relating to Part B of the Medicare Program - Sets the monthly part B premium (for supplementary medical insurance) at 50 percent of the monthly actuarial rate for enrollees age 65 and over.

Subtitle C: Provisions Relating to Parts A and B of the Medicare Program - Amends title XVIII secondary payer provisions to extend permanently requirements for employer responses to fiscal intermediaries or carriers inquiring as to coverage of an employee under a group health plan. Amends the Internal Revenue Code to extend permanently requirements of the Secretary of the Treasury and the Commissioner of Social Security to provide taxpayer identity information for verification of Medicare beneficiary employment status.

Extends permanently the prohibition on large group health plans from taking into account that a disabled active individual under age 65 is entitled to Medicare benefits under title II (Old Age, Survivors and Disability Insurance) of the SSA. Extends the period during which a group health plan may not take into account that an individual with end stage renal disease is entitled to Medicare benefits solely by reason of title II provisions.

Prohibits the Secretary, in determining limits on reasonable costs of home health care agency services, from taking into account changes in the costs of services furnished with respect to cost reporting periods which began on or after July 1, 1994, and before July 1, 1996.

Title VI: Contract With America Tax Relief Act of 1995 - Contract With America Tax Relief Act of 1995 - Subtitle A: American Dream Restoration - Amends the Internal Revenue Code to allow individuals a tax credit of $500 multiplied by the number of qualifying children who have not attained age 18. Places limitations on such credit for taxpayer adjusted gross incomes over $200,000. Provides an inflation adjustment for such credit and the taxpayer adjusted gross income amount.

(Sec. 6102) Allows a marriage penalty reduction credit for qualified married couples to be determined under tables prescribed by the Secretary of the Treasury.

(Sec. 6103) Establishes individual retirement plans (IRAs) which can be designated as American Dream Savings Accounts. Disallows a tax deduction for amounts contributed to such accounts. Limits contributions to such accounts to the lesser of $2,000, or compensation includible in an individual's gross income for a taxable year ($4,000 in the case of certain married individuals). Provides an inflation adjustment of such amounts. Permits contributions to be made after age 70.5.

Excludes distributions from such accounts from gross income and makes the penalty on early distributions inapplicable.

Designates qualified distributions as those: (1) made after the individual attains age 59.5; (2) made to a beneficiary on or after the death of the individual; (3) attributable to the individual being disabled; and (4) qualified as special purpose distributions. Prohibits qualified distributions from being made within the five-year period since the account began.

Describes special purpose distributions as those for: (1) qualified first-time homebuyers; (2) qualified higher education expenses; and (3) qualified medical expenses, including long-term care insurance.

Terminates the authority to make nondeductible contributions to IRAs.

(Sec. 6104) Provides for computing a spousal IRA on the basis of compensation of both spouses.

Subtitle B: Senior Citizens' Equity - Amends the Internal Revenue Code to decrease the tax on social security benefits from 1996 through 1999. Terminates such tax after December 31, 1999.

(Sec. 6211) Provides for the treatment of qualified long-term care insurance as accident and health insurance for purposes of insurance company taxation. Prohibits long-term care insurance under cafeteria plans. Includes in the gross income of an employee employer-provided coverage for qualified long-term care services provided through flexible spending arrangements. Provides that the continuation coverage excise tax does not apply to a group health plan solely by reason of failing to provide long-term care insurance. Declares that payments to relatives (unlicensed with respect to long-term medical care services) shall be treated as not paid for medical care.

(Sec. 6212) Includes amounts paid for qualified long-term care services as medical expenses deductible from gross income.

(Sec. 6213) Provides for the nonrecognition of gain or loss on the exchange of any life insurance contract or an endowment or annuity contract for a long-term care insurance contract.

(Sec. 6214) Excludes from gross income certain amounts withdrawn from individual retirement accounts and certain employer cash or deferred arrangements to pay long-term care premiums.

(Sec. 6221) Provides for the exclusion as a death benefit of any amount paid or advanced to an individual under a life insurance contract because such individual is terminally ill or chronically ill and confined to a qualified facility.

(Sec. 6222) Allows insurance companies to issue accelerated death benefit riders on life insurance contracts.

(Sec. 6231) Includes in gross income excess long-term care benefits, except for terminally ill individuals.

(Sec. 6232) Establishes reporting requirements for persons who pay long-term care benefits.

Subtitle C: Job Creation and Wage Enhancement - Amends the Internal Revenue Code to allow a 50 percent income tax deduction for the net capital gain of noncorporate taxpayers. Allows such deduction in computing gross income.

(Sec. 6302) Requires indexing, based on the gross national product deflator, of the adjusted basis of certain assets (corporate stock and tangible property that is a capital asset or property used in a trade or business) that have been held for more than three years at the time of sale or other transfer, solely for the purpose of determining gain or loss.

Allows a taxpayer, other than a corporation that holds any readily tradable stock on January 1, 1995, to treat such stock as having been sold on the last business day before such date for an amount equal to its closing market price on such last business day (and as having been reacquired on such last business day for an amount equal to such closing market price).

(Sec. 6311) Reduces the alternative capital gains tax on corporations from 35 percent to 25 percent.

(Sec. 6316) Allows an itemized deduction for losses arising from the sale or exchange of a principal residence.

(Sec. 6321) Allows the depreciation deduction to be computed based on a neutral recovery basis for property placed in service after December 31, 1994.

(Sec. 6322) Provides for the treatment of lessor improvements which are abandoned at the termination of a lease.

(Sec. 6331) Phases out the alternative minimum tax for corporations to zero after December 31, 2000. Provides for earlier termination of certain tax adjustments.

(Sec. 6341) Establishes in the Treasury a Public Debt Reduction Trust Fund for the deposit of portions of tax liability designated by individuals. Makes amounts in such Trust Fund available only to pay at maturity, or to redeem or buy before maturity, any obligation of the Federal Government included in the public debt. Prohibits the reissuance of any obligation which is paid, redeemed, or bought with amounts from the Trust Fund.

Amends the Balanced Budget and Emergency Deficit Control Act of 1985 to require a sequestration (reduction) of Federal spending equivalent to the aggregate amounts designated for payment to such Fund. Sets forth congressional reporting requirements.

(Sec. 6351) Increases the unified credit against the estate tax and the unified credit against the gift tax and provides a cost-of- living adjustment for such credits. Provides an inflation adjustment for the alternate valuation of certain farm and business property, the gift tax exclusion, the generation-skipping tax exemption, and the estate tax on closely held businesses.

(Sec. 6352) Increases the dollar limitation on the election to expense certain depreciable business assets.

(Sec. 6353) Includes as a principal place of business, for purposes of qualifying a home office for the deductibility of expenses, a place of business used by the taxpayer for administrative or management activities of a trade or business if there is no other fixed location where the taxpayer conducts such activities.

(Sec. 6354) Treats the storage of product samples as inventory for deduction purposes.

Subtitle D: Family Reinforcement - Allows an income tax credit for up to $5,000 of qualified adoption expenses paid or incurred by the taxpayer during the taxable year. Sets forth a formula for reduction of such credit for taxpayers whose adjusted gross income exceeds $60,000. Denies such a credit for any expense for which a deduction or credit is allowable under another Code provision. Defines "qualified adoption expenses" as reasonable and necessary adoption fees, court costs, attorney's fees, and other lawful expenses directly related to legal adoption of a child, but not any expenses paid from any funds received under a Federal, State, or local program. Disqualifies for such a credit any expenses in connection with the adoption of a child of the taxpayer's spouse.

(Sec. 6402) Allows a tax credit for an individual who maintains a household which includes one or more qualified persons requiring custodial care equal to $500 for each such person.

Subtitle E: Social Security Earnings Test - Amends title II (Old Age, Survivors and Disability Insurance) of the Social Security Act to increase the monthly exempt amount for individuals who have attained retirement age.

Subtitle F: Technical Corrections - Makes technical amendments to the Revenue Reconciliation Act of 1990 and the Revenue Reconciliation Act of 1993. Provides for the application of amendments made by title XII of the Omnibus Budget Reconciliation Act of 1990.

Includes among such amendments clarification of U.S. shareholder interests in controlled foreign corporations with respect to dividends, modification of the election to include a child's unearned income on a parent's return, and certain investments in annuity contracts.