Subcommittee hearings Several Ways and Means Subcommittee hearings were held during 1985 that related to subject matters included in H.R. 3838. Subcommittee on Select Revenue Measures.-The Select Revenue Measures Subcommittee held hearings on the following areas: March 19, 1985-Targeted jobs tax credit April 1, 2, 16, 1985 Acquisitions and mergers (with Oversight Subcommittee) April 25, 1985 — Attorney's fees May 22, 1985 - Carryover of net operating losses (NOLs) June 6, 1985-Tax burdens of low-income wage earners Subcommittee on Oversight.-The Oversight Subcommittee held hearings on the following areas: June 21, 1985- IRS taxpayer refund delays July 18, and September 5, 6, 1985 Retirement income security (with Social Security Subcommittee) September 20, 1985 - High-income taxpayers and partnership tax issues Committee markup The Ways and Means Committee conducted 26 days of markup on tax reform proposals: beginning on September 18, 1985; continuing on September 26, 30, October 1-4, 7-9, 11, 15, 23, 25-27, November 6, 15-17, 19-23; and concluding on December 3, 1985, when the tax reform bill, H.R. 3838, was introduced and ordered favorably reported (by a vote of 28-8). There was also a committee markup on technical corrections to the 1984 tax legislation on September 27, 1985, which was included as a separate title of the bill. The committee report on H.R. 3838 was filed on December 7, 1985 (H. Rep. 99-426). House Floor Action On December 10, 1985, the House Rules Committee approved a modified closed rule on H.R. 3838 (H. Res. 336), making certain amendments in order for House floor consideration. This initial rule failed of passage (202-223, 1 "present") on December 11, 1985. On December 16, 1985, the Rules Committee approved another modified closed rule (H. Res. 343), which was adopted (258-168, 1 "present") by the House on December 17, 1985. The House passed H.R. 3838, as amended, by voice vote, on December 17, 1985. Finance Committee C. Senate Action H.R. 3838 was ordered favorably reported by the Senate Committee on Finance on May 6, 1986, with an amendment in the nature of a substitute. This action followed an almost year-long comprehensive review in the 99th Congress of tax reform proposals by the full committee and subcommittees in public hearings and markup consideration. The following is an overview of full committee and subcommittee activity on tax reform legislation during 1985 and 1986. Committee hearings The Finance Committee held 36 days of full committee public hearings on comprehensive tax reform proposals in 1985 and 1986. In 1985, the committee held public hearings on comprehensive tax reform proposals on May 9, June 11-13, 17-20, and 25-27; July 9-11, 16-19, and 24-25; September 24 and 26; and October 1-4 and 9-10. In 1986, committee hearings were held on January 29-30; February 316; March 4; and April 21. The committee's tax reform hearing consideration included the President's tax reform proposal made in May 1985, the Housepassed bill, and various Congressional and other proposals. Subcommittee hearings Several Finance Subcommittee hearings were held during 1985 and 1986 that related to subject matters included in H.R. 3838, as amended by the Committee on Finance. Subcommittee on Savings, Pensions, and Investment Policy.-The Savings, Pensions, and Investment Policy Subcommittee held hearings on the following areas: September 9, 1985- Post-retirement health benefits November 22, 1985 - Targeted jobs tax credit extension Subcommittee on Energy and Agricultural Taxation.-The Energy and Agricultural Taxation Subcommittee held a hearing on the following area: June 21, 1985- Impact of taxation on energy policy Subcommittee on Health.-The Health Subcommittee held a hearing on the following area: September 9, 1985- Asbestos-related disease trust fund Subcommittee on Taxation and Debt Management.-The Taxation and Debt Management Subcommittee held a hearing on the following area: January 31, 1986 — Mortgage-backed securities Committee markup and reporting of bill The Finance Committee conducted 17 days of markup on the tax reform bill: beginning on March 19, 1986; continuing on March 2426, April 8-10, 14-18, 22, 24, 28, and May 5; and concluding on May 6, 1986, when the tax reform bill, H.R. 3838, as amended, was ordered favorably reported (by a vote of 20-0). The committee report on H.R. 3838 was filed on May 29, 1986 (S. Rep. 99-313). Senate Floor Action H.R. 3838, as amended by the Finance Committee, was brought up on the Senate floor on June 4, 1986, and debate on the bill con tinued on June 9-13, 16-20, and 23-24, 1986, with passage of the bill, as amended, on June 24 (by vote of 97-3). Conference D. Conference Action The Senate requested a conference on H.R. 3838 on July 15, 1986, and appointed the following conferees: Senators Packwood, Dole, Roth, Danforth, Chafee, Wallop, Long, Bentsen, Matsunaga, Moynihan, and Bradley. On July 16, the House agreed to the Senate request for a conference on the bill, and appointed the following conferees: Messrs. Rostenkowski, Pickle, Rangel, Stark, Gephardt, Russo, Pease, Duncan, Archer, Vander Jagt, and Crane. Formal conference committee meetings were held on July 17-18 and 21, 1986, and concluded on August 16, 1986, when the conferees met and approved the conference agreement. The conference report on H.R. 3838 was filed on September 18, 1986 (H. Rep. 99841, Vols. I and II). House-Senate consideration of Conference Report The House approved the conference report on H.R. 3838 on September 25, 1986, by a vote of 292-136, after a motion to recommit failed by a vote of 160-268. The conference report was considered by the Senate on September 26, 1986, and passed by a vote of 74-23 on September 27, 1986. E. Enactment into Law H.R. 3838, the Tax Reform Act of 1986, was signed into law by President Reagan on October 22, 1986 (P.L. 99-514). F. House-Senate Consideration of H. Con. Res. 395 On September 25, 1986, immediately after its approval of the conference report on H.R. 3838, the House passed (by voice vote) H. Con. Res. 395, to instruct the enrolling clerk to make certain technical and clerical corrections in the conference report statute. H. Con. Res. 395 was agreed to by the Senate (by voice vote) on October 16, 1986, with amendments. The House Rules Committee granted a rule on October 16, and the House adopted the rule (by voice vote) on October 17 for consideration of the resolution as amended by the Senate. Also on October 17, the House concurred in the Senate amendment with further amendments and returned the resolution to the Senate. On October 18, 1986, the Senate agreed (by voice vote) to certain of the House amendments to the resolution, disagreed to certain other amendments, and insisted on certain of its amendments. Also on October 18, the House disagreed to the Senate amendments to the House amendments to the original Senate amendment. H. Con. Res. 395 was not agreed to by both the House and the Senate before the 99th Congress adjourned sine die on October 18, 1986. G. Subsequent Related Tax Legislation H.R. 5300, the Omnibus Budget Reconciliation Act of 1986 (P. L. 99-509, signed on October 21, 1986), contains a provision (sec. 8002) increasing the Code section 6661(a) penalty on underpayments of tax to 25 percent rather than 20 percent as provided in H.R. 3838 (sec. 1504). The conference report on H.R. 5300 was filed on October 17, 1986 (H. Rep. 99-1012), and was passed by the Senate and the House also on October 17. Although H.R. 5300 was signed before H.R. 3838, the H.R. 5300 provision was intended to prevail since it was considered and passed by the House and the Senate subsequent to passage of H.R. 3838.4 In addition, H.R. 5300 includes a provision (sec. 8071) relating to a truck leasing transitional rule included in the Senate amendment to H.R. 3838 (sec. 204(a)), application of at-risk rule to lowincome housing credit (sec. 8072 of H.R. 5300 and sec. 252(a) of H.R. 3838), and a transitional rule relating to treatment of certain rural housing under the passive loss rules (sec. 8073 of H.R. 5300 and sec. 502(d) of H.R. 3838). • See explanation in Title XV. Part. A., footnote 14. A technical correction may be needed so that the statute reflects this intent. Overview II. GENERAL REASONS FOR THE ACT The Tax Reform Act of 1986 (the "Act") represents one of the most comprehensive revisions of the Federal income tax system since its inception. Congress was concerned that many taxpayers found the prior-law tax system unfair and overly complex. Further, Congress believed that a number of features of the prior-law tax system resulted in excessive interference in labor, investment, and consumption decisions of taxpayers. After extensive review of virtually the entire prior tax statute, Congress concluded that only a thorough reform could assure a fairer, more efficient, and simpler tax system. Congress believed that the Act, establishing the Internal Revenue Code of 1986, will restore the trust of the American people in the income tax system and lead the nation's economy into greater productivity. The Act makes sweeping changes to the prior-law tax system. First, Congress desired a fairer tax system. Congress questioned the fairness of a tax system that allowed some high-income individuals to pay far lower rates of tax than other, less affluent individuals. The Act provides new limitations on the use of losses from passive investments to shelter other types of income and expands the minimum tax to curtail these tax inequities in the future. The Act also completely removes six million low-income individuals from the income tax roll and provides significant reductions in the tax burden of other working low-income individuals. Second, Congress desired a more efficient tax system. The priorlaw tax system intruded at nearly every level of decision-making by businesses and consumers. The sharp reductions in individual and corporate tax rates provided by the Act and the elimination of many tax preferences will directly remove or lessen tax considerations in labor, investment, and consumption decisions. The Act enables businesses to compete on a more equal basis, and business success will be determined more by serving the changing needs of a dynamic economy and less by relying on subsidies provided by the tax code. Third, Congress desired a simpler tax system for individuals. Beginning in 1988, the Act establishes two individual income tax rates-15 percent and 28 percent-to replace more than a dozen tax rates in each of the prior-law rate schedules, which extended up to 50 percent. Significant increases in the standard deduction and modifications to certain personal deductions provide further simplicity by greatly reducing the number of taxpayers who will itemize their deductions. |