WE ALL SEEM TO ASSUME THAT VOLUNTEERS ARE SOMEHOW IMMUNE TO THE SOCIETAL
PRESSURES THAT AFFECT BUSINESSES. THERE ARE TAX CREDITS FOR OIL COMPANIES,
AND EXPENSE ACCOUNTS FOR EXECUTIVES, BUT VOLUNTEERS ARE SOMEHOW EXPECTED TO BE
AN ENDLESS RESERVOIR OF RESOURCES, MONEY AND ENERGY.

INFLATION HAS AFFECTED THE NON-PROFIT WORLD IN THE SAME WAY THAT IT HAS
AFFECTED GOVERNMENT AND PROFIT-MAKING ORGANIZATIONS. THOSE LADIES WHO WORK
THE AUXILIARY AT THE HOSPITAL ARE UNDER PRESSURE TO CONTRIBUTE ADDITIONAL
INCOME TO THE FAMILY. THAT BOY SCOUT TROOP LEADER MAY BE LOOKING FOR A SECOND
JOB, OR MAY HAVE BEEN LAID OFF FROM OUR STEEL, HOUSING, OR AUTO INDUSTRY.
THAT MEALS ON WHEELS VOLUNTEER MAY HAVE TO HELP OUT GRANDMA BECAUSE HER MEDICARE
COSTS HAVE INCREASED. IN FACT, MANY VOLUNTEERS ARE ON FIXED INCOMES THEMSELVES.
TIMES ARE JUST AS TOUGH FOR THE VOLUNTEER AS FOR THE MEGA-CORPORATION, AND
YET WE BLITHELY EXPECT THE VOLUNTEERS TO GIVE MORE AND MORE.

EVERYONE HAS BECOME MORE CONSCIOUS OF OUT-OF-POCKET EXPENSES. MANY VOLUNTEERS HAVE TO TRAVEL MILES AND MILES TO DO THE GOOD WORK THEY DO DRIVING TO MEETINGS, TO YOUTH CENTERS, TO VISIT THE HOUSEBOUND. THREE MILLION OF OUR VOLUNTEERS

ARE GIVING THEIR RESOURCES TO THE FEDERAL GOVERNMENT, WORKING IN PARKS, FOR THE VETERANS ADMINISTRATION, THE COAST GUARD AUXILIARY. IN TURN THE FEDERAL GOVERNMENT SAYS, "DO MORE."

I CAN HONESTLY SAY THAT I AM NOT ASKING FOR SPECIAL TREATMENT FOR A PRIVILEGED
FEW, OR A NEW LOOPHOLE FOR SOME WOULD-BE TAX EVADERS. I SUBMIT THIS TESTIMONY
ON BEHALF OF THE "GOOD GUYS" OF OUR SOCIETY
WHO ARE OUT THERE
EVERY DAY HELPING THEIR NEIGHBORS AND OURS. THEY HAVE NEVER ASKED FOR A REWARD;
BUT NOW THEY ARE ASKING FOR RELIEF. IF IT COSTS 20 CENTS A MILE TO OPERATE

MEN AND WOMEN

A CAR FOR GOVERNMENT PURPOSES, IT COSTS JUST AS MUCH TO USE IT AS A VOLUNTEER. AND IT IS TIME THAT WE RECOGNIZE THAT ECONOMIC REALITY OF LIFE.

-

DAY

ALL OVER THE UNITED STATES RIGHT NOW, VOLUNTEERS USING THEIR OWN CARS ARE
PROVIDING ESSENTIAL SERVICES TO THEIR FELLOW CITIZENS. IN MY CAN COMMUNITY OF
BALTIMORE IN 1980, MEALS ON WHEELS OF CENTRAL MARYLAND SERVED 2,050 MEALS EVERY
DRIVING 150,000 MILES A WEEK. LIFE SUPPORT PROJECT VOLUNTEERS VISIT
ELDERLY NURSING HOME PATIENTS WHO WOULD OTHERWISE HAVE NO VISITORS. IN
1980, THEY MADE OVER 6,500 VISITS TO PEOPLE IN NURSING HOMES. I KNOW OF TWO
PATIENTS IN CANCER CLINICS WHO WERE DRIVEN TO TREATMENT 40 TIMES FOR A TOTAL
OF 2,894 MILES.

-4

THESE ARE JUST SOME OF THE EXAMPLES OF THE WORK DONE EVERY DAY BY VOLUNTEERS,
WITHOUT SALARY, WITHOUT PAYMENT AND TOO OFTEN WITHOUT RECOGNITION OF ANY
KIND, BUT NOW THESE PROGRAMS ARE IN TROUBLE. THE COST OF GASOLINE IS A SERIOUS
THREAT TO THE KIND OF NEIGHBOR-HELPING SOCIETY WE AS AMERICANS ARE SO PROUD OF.
EVERY DAY, WE LEARN OF MORE PROGRAMS WHICH HAVE HAD TO CUT BACK, TO RETRENCH,
TO DENY SERVICES TO NEEDY CLIENTS

BECAUSE THEY DO NOT HAVE ENOUGH DRIVERS.

I DO NOT WANT TO LOSE THE VOLUNTEER PROGRAMS THAT ARE THE BONDING FABRIC IN OUR SOCIETY. I DO NOT THINK WE CAN AFFORD TO HAVE THIS KIND OF WORK DONE BY SALARIED EMPLOYEES. WE CANNOT AFFORD IT FINANCIALLY AND WE CANNOT AFFORD IT SPIRITUALLY.

-

FINALLY, I AM DEEPLY CONCERNED BECAUSE THE AMERICAN PEOPLE ARE NOW SUFFERING UNDER ONE OF THE LARGEST CUTBACKS IN GOVERNMENT PROGRAMS IN OUR NATION'S HISTORY. THOUSANDS OF GOVERNMENT PROGRAMS PROVIDING ESSENTIAL SERVICES TO MILLIONS OF AMERICANS HAVE BEEN ELIMINATED. THE NEED FOR CHARITABLE ORGANIZATIONS AND VOLUNTEERS TO FILL THIS VOID IS ENORMOUS. IT IS IMPERATIVE THAT OUR GOVERNMENT ADJUST ITS TAX POLICY TO ENCOURAGE CITIZENS TO PERFORM CHARITABLE WORKS.

I URGE THIS COMMITTEE TO TAKE ACTION TO KEEP VOLUNTEERS IN THE PROGRAMS
AND ON THE ROADS
PASS S. 1579. THANK YOU.

Senator ARMSTRONG. I really like your characterization of this as the Good Samaritan mileage bill. I have been calling it when I have spoken on it and described it as the charitable mileage deduction. But really, Good Samaritan sums it up so well, and I am going to borrow that notion from you.

Let me ask this. Some people who oppose this legislation make the argument that volunteers should not expect to be reimbursed for their cost. In effect, they say that if they are really good samaritans they would not care about this deduction issue. What is your response to that?

Representative MIKULSKI. Well, Senator, my response to that is that, No. 1, we are not reimbursing them for their time. We are reimbursing them for their out-of-pocket expenses. There is a precedence for that within the Federal Government in the way we reimburse those wonderful volunteers who work for CAB and the Coast Guard Auxiliary for their fuel expenses because that is the only way they can volunteer.

Second, one of the things that also emerges is that many volunteers really are on fixed incomes themselves. And the Meals on Wheels program in Baltimore, the average volunteer is over the age of 60, him or herself. And what we are talking about is reimbursing for expenses and not paying them for their time, which means we are not renting volunteers for their services, we are only reimbursing them for their out-of-pocket expenses.

And, Senator, I think maybe that would be a good argument when gas was 30 cents a gallon. When it hit 50, I think the argument got a little bit more shaky. I think now that it is up to $1.30 a gallon, of which we even posed an even higher gas tax on the volunteers to rebuild America's infrastructure, I think that argument just isn't valid any more.

Senator ARMSTRONG. Well, I certainly agree with your characterization of it. And, of course, all we are really permitting people to do in this instance is to deduct this from the computation of their tax. It isn't really a reimbursement in the sense that, for example, a salesman that might go to call on a hospital to sell medical supplies would actually be reimbursed for his expenses by his employer. We are just saying that a candy striper or some of the others that you mentioned ought to be able to take a tax deduction for a reasonable amount. And I understand that this mileage amount has only been raised twice in all the time it has been on the books. And so it is way beyond what is fair already. It has fallen far behind the rate of inflation.

Representative MIKULSKI. Well, that is exactly right, Senator. And you know, a volunteer undertakes not only gasoline expenses, but substantial insurance expenses on their own as they deliver meals or as they drive handicapped or ill people to needed services. One of the important services volunteers now do is drive people who have no other means to their chemotherapy, and cancer, and other life support mechanisms. So, yes, I would agree with your rationale as well.

Senator ARMSTRONG. I don't want to put you on the spot about it, but do you have any sense of what the sympathy of the House would be for legislation of this type?

Representative MIKULSKI. Mr. Armstrong, I believe that the House would pass such legislation if it could be brought before it. In the last session of the Congress we had over 100 cosponsors. And I believe we could up that even more.

In all candor to you, Senator, I am not as equally as optimistic about the Ways and Means Committee or the leadership on the Ways and Means Committee. We find that we can move tax deductions for megacorporations a lot easier than we can move mileage deductions for volunteers. But we find that that is true of any humanitarian orientation in the Tax Code.

However, the organizations who back this legislation I know are creating a major drive in the House, and we feel that when the House comes up with the new tax package, to begin, this will not stand on its own, but we could have a better opportunity at it. And I think also the groups will now be focusing more attention on it, and therefore, the Congress. You know, when those volunteers start-I don't think people realize how many people volunteer, Senator. There is a myth that somehow or another the volunteer is a rich, affluent woman, usually over the age of 48, who, when she is not gawking over her trust fund, comes out and does good. We don't realize the thousands, even millions, of people who volunteer at all income levels. When those veterans start writing for the volunteer mileage bill, and other groups in our society, I think the House will pay more attention to us.

Senator ARMSTRONG. You know, this isn't the time and place to get into it, and I don't want to take it too far afield, but I really share your enthusiasm for volunteers, not only for the literal value of the services they provide which are so urgently needed by many parts of our society, but more than that for the quality and the spirit that they bring to the communities. And I have seen so many specific instances in my own State of how the quality of life is enhanced for the whole community because of this outpouring of interest and concern and affection by volunteers who get involved in local community projects. And you can't measure that in dollars; it goes far beyond that.

Representative MIKULSKI. Right.

Senator ARMSTRONG. Well, I'll say the same thing to you that I did to Bill Archer. If you can get this included in a package from the House, I will fight for it over here. And when we are packaging up some things in the Finance Committee I will see if I can get it added to the list. I think there is substantial interest in this issue here in the Senate. And when we see a vehicle moving, I will try and get this aboard. Thank you very much for coming.

Representative MIKULSKI. Thank you very much, Senator. And thank you for your cosponsorship.

Senator ARMSTRONG. We are now pleased to welcome and invite the testimony of Mr. Ronald A. Pearlman, Deputy Assistant Secretary for Tax Policy from the Treasury Department. Mr. Secretary, we welcome you, and I hope that you will share the enthusiasm of our other witnesses for the proposals that are before the committee.

STATEMENT OF HON. RONALD A. PEARLMAN, DEPUTY ASSISTANT SECRETARY FOR TAX POLICY, DEPARTMENT OF THE TREASURY, WASHINGTON, D.C.

Mr. PEARLMAN. Mr. Chairman, it is a pleasure to be here. Thank you very much. My statement is rather lengthy and I am not going to bore you with it. We will submit it in its entirety, and I will try to summarize our views on each of these five bills before you.

Senate bill 1600, the capital gain indexing provision, would add to the Internal Revenue Code a new provision designed to prevent the taxation of inflationary increases in the dollar value of certain qualifying property. I think it is important, because of our evaluation of this bill, to point out that it is limited to only certain property, certain common stock and certain real property. For example, tangible personal property would not be subject to indexing.

We recognize and indeed are sympathetic to the argument that exempting inflationary gains from income tax is a desirable objective, but, unfortunately, we must oppose Senate bill 1600 based on three major concerns: First, that it is a limited approach to indexing for inflation, which we think will create economic distortions among investors in different types of assets; second, that the bill contributes a rather significant level of complexity to the law; and, third, that we think it would duplicate the effect of provisions that are already in the law to indirectly adjust for inflation.

Senate bill 1600 is a limited proposal. It indexes only certain assets at certain times for certain purposes. This partial indexing necessarily creates inconsistencies between the tax treatment of indexed and nonindexed assets. We think these inconsistencies would cause undue economic distortion. The bill indexes common stock and real property, but no other property. Bonds, tangible personal property, and all other property would be subject to taxation without regard to inflation. However, the measurement of gain or loss on the disposition of these other types of property is affected by inflation just as much as inflation affects gain or loss on common stock and real property.

The only way to really deal with this problem is to index all assets. When you don't index all assets you create a mismeasurement of income when you compare different types of property.

The bill also introduces a mismeasurement when you look at qualifying property that is leveraged. Although a debtor benefits as inflation reduces the real burden of debt, and although a creditor is detrimented as inflation reduces the amount of repayment, Senate bill 1600 disregards the effect of inflation on both the borrower and the creditor.

We think Senate bill 1600 is rather significantly complicated. The best example is the bill's treatment of conduit entities, namely, regulated investment companies, real estate investment trusts, and common trust funds. Here the bill splits ownership interests in these entities into an indexed portion and a nonindexed portion in proportion to the ratio of the qualified property these entities own to the nonqualified property, and then requires that these calculations be done on a monthly basis. Therefore, if an investor in a mutual fund, for example, owns stocks and bonds, sells his interest after owning the investment in the mutual fund for 10