Roth Releases Outline of Final Version of Tax Relief and Medicare, Medicaid and SCHIP Benefits Improvement & Protection Act
House-Senate Tax and Health Care Compromise Packages Expected to be taken up as a Single Bill
WASHINGTON -- Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) Wednesday released the outline of a tax relief and health care package that has been agreed upon by both the House and Senate. All tax and health care components are expected to be taken up as a single bill. Revenue estimates by the Joint Committee on Taxation are not completed yet. They will be released when they are available. The broad components of the overall legislation are:
• Expansion of retirement savings options;
• Tax relief for small businesses and the self-employed;
• Help for both rural and urban communities through the Community Renewal Act;
• Repeal of the foreign sales corporation rules in the tax code;
• Health care tax relief provisions; and
• Improvement and protection of Medicare, Medicaid and State Children's Health Insurance Program benefits.
"I am particularly pleased that we were able to include significant incentives for retirement savings," Roth stated. "I am also pleased that we make adoption more affordable for many families, and help families afford long-term health care expenses."
Highlights of each of the components follow.
1. Increases IRA contributions to $5,000 from $2,000 and provide for a $1,500 IRA catch-up contribution for those age 50 and above.
2. Increases contribution limits for 401(k), 403(b) and 457 plans from $10,000 to $15,000.
3. Allows employees over age 50 to make an additional $5,000 contribution to a 401(k), 403(b) and 457 plan.
4. Increases other qualified plan limits and loosens some restrictions on small businesses establishing plans.
5. Permits employees to make after tax contributions to a Roth 401(k) or 403(b) account where distributions will be tax-free at retirement.
6. Allows greater transferability between IRAs and employer plans by eliminating artificial barriers to rollovers.
7. Loosens rules which restricted the amounts that employers could deduct in order to fund pension plans.
8. Requires that employers who change their plans to notify their employees of the change.
9. Increase the disclosure requirements when employers reduce future benefits.
10. Also includes many provisions that reduce the complexity of plan administration.
TAX RELIEF FOR SMALL BUSINESSES AND THE SELF-EMPLOYED:
1. Extends the Work Opportunity Tax Credit through June 30, 2004.
2. Increases the maximum reforestation expenses and clarifies capital gains treatment.
3. Increases section 179 expensing to $35,000.
4. Increases business meals deductions: This is a compromise that excludes entertainment, but accelerates the meal deduction to 70% in 2001.
5. Increases business meal deductions to 80% in 2001 for individuals subject to Department of Transportation hours of service limitations.
6. Permits installment method for accrual basis taxpayers.
7. Coordinates farmer income averaging and AMT and provide the same income averaging relief to commercial fishermen.
8. Repeals the occupational taxes relating to distilled spirits wine and beer.
9. Excludes from gross income forgiven mortgage obligations on qualified residential indebtedness.
10. Clarifies cash accounting rules for small business: Small taxpayers will be permitted to use cash accounting method without limitation.
COMMUNITY RENEWAL ACT PROVISION HIGHLIGHTS
1. Creates 40 Renewal Communities and 9 Empowerment Zones (so that there are 40 of each); Renewal Communities have a zero capital gains rate; creates a new markets tax credit for equity investments in qualified low income communities (total credit allocation is $15 billion over 7 years).
2. Low Income Housing Tax Credit and Private Activity Bonds Volume Caps:
Increases both provisions over a two year period and then indexes for inflation. Housing credits go to $1.75 per capita and bonds go to $75 per capita.
3. Brownfields: Eliminates the targeting restriction and so allows expensing of all brownfields clean-up costs, except Superfund sites. This provision runs through 2003.
4. FFARM accounts: Creates a tax-deferred savings account for farmers and fishermen, allowing a deduction of up to 20% of the income deposited into a custodial account. The deposits must be withdrawn within 5 years and are taxable when withdrawn.
5. Computer Donations: Extends the current law enhanced deduction for computer donations to elementary and secondary schools through 2003; also expands the enhanced deduction to include donations to public libraries and to computers that are 3 years old (rather than 2 years).
6. Individual Development Accounts (IDAs): Creates an account for low income workers to build assets. Financial institutions would receive a tax credit for matching up to $300 of contributions to the accounts.
7. High Speed Rail Bonds: Authorizes $10 billion of tax credit bonds for issuance by Amtrak and the Alaska Railroad. States would have to put up at least 20% of the qualified project costs before the bonds could be issued.
8. Adoption Credit: Extends the non-special needs adoption credit through 2005 and raises the maximum credit from $5,000 to $10,000; raises the special needs adoption maximum credit from $6,000 to $12,000; increases the credit eligibility from $110,000 to $190,000.
REPEAL OF THE FOREIGN SALES CORPORATION RULES:
The "FSC Repeal and Extraterritorial Income Exclusion Act of 2000" repeals the existing foreign sales corporation ("FSC") rules, which the WTO ruled were an illegal export subsidy, and replaces those rules with a new approach that provides a partial exclusion for certain types of export and foreign sales income. In this respect, the bill mimics the European territorial tax system.
The FSC rules were originally enacted to equalize the tax burdens of U.S. manufacturers to match the lower taxes imposed on European manufacturers under a territorial system. The bill's new approach maintains that international competitive balance.
In order to comply with the WTO ruling, this bill must signed into law by next Wednesday, Nov. 1st. The provision will be effective as of October 1, 2000. Unless the legislation is passed by next Wednesday, the European Union could begin to impose significant retaliatory duties on a broad range of U.S. exports.
HEALTH CARE TAX RELIEF PROVISIONS:
1. Provides a 100% deduction for payment of medical insurance for self-employed individuals.
2. Provides an above the line deduction for payment of medical insurance premiums for those individuals who do not participate in an employer sponsored medical plan. Also provides an above-the-line deduction for long-term care insurance. The amount of the deduction is phased in over the next 6 years. Certain consumer protections regarding long term care insurance are also included.
3. The trial period for medical savings accounts, which was to end December 31, 2000, will be extended to the end of 2002.
4. A taxpayer who cares for a relative with long term care needs (who incurs long-term care expenses) will be allowed an extra tax deduction. The deduction will be $3,000 in 2001 and will be phased in up to $10,000 in 2008. This deduction will be available to a taxpayer regardless of whether the taxpayer itemizes deductions.
MEDICARE, MEDICAID AND SCHIP BENEFITS IMPROVEMENT & PROTECTION ACT COMPROMISE AGREEMENT HIGHLIGHTS
Lowers Seniors' Out-of-Pocket Hospital Costs - The plan accelerates the reduction of high co-payments Medicare beneficiaries pay for outpatient hospital visits. Currently, Medicare patients pay as much as 70 percent on certain co-pays for outpatient hospital care.
Improved Benefits for Medicare Seniors - The plan creates and expands important new preventive benefits for seniors and the disabled. In addition to lowering out-of-pocket outpatient hospital costs, the plan also offers coverage of:
• Bi-annual pap smear screenings and pelvic exams;
• Medical nutrition therapy for patients with diabetes or renal disease;
• Glaucoma screenings;
• Colon cancer screenings for all Medicare patients; and
• Calls for Congressional study of expanding Medicare coverage of thyroid screenings.
Additional Beneficiary Assistance - Additional provisions improve access to Medigap coverage; permit Medicare+Choice plans to give beneficiaries cash rebates of Part B premiums; protect access to immunosuppressive, cancer, hemophilia and other drugs; and conduct new outreach initiatives to promote enrollment in programs designed to provide cost-sharing assistance to low-income Medicare beneficiaries.
Creates New Protections Through Medicare Patient Bill of Rights - Gives Medicare beneficiaries access to an external review process and expands the rights of Medicare patients to appeal coverage decisions.
Strengthens Rural Hospitals - The refinement package provides equitable treatment for rural disproportionate share hospitals (DSHs) caring for a disproportionate share of poor Medicare patients; extends the Medicare Dependent Hospital program for rural areas; updates target amounts for all sole community hospitals; and increases rural patients' access to emergency and ambulance services.
Boosts Medicare Anti-Fraud Provisions - Prevents drug companies from manipulating Medicare reimbursement levels for covered drugs which result in Medicare overpayments. Establishes fairer pricing system for Medicare reimbursable prescription drugs and related services. The package also re-authorizes an expired Office of Inspector General (OIG) advisory opinion provision, and creates stricter new standards for prosthetic device fraud.
Gives Rural Seniors Access to Best Medical Care Through Telehealth Services - Increases Medicare access to telehealth medicine in rural areas where medical specialists are not readily available. As a result, Medicare patients will now have access to the world's best doctors and medical care regardless of where they live.
Improves Beneficiaries' Access to New Medical Technologies - Modernizes Medicare's coding and payment procedures so that beneficiaries can have more rapid access to new technologies.
Improves Access to Hospitals and Strengthens Teaching Hospitals - Ensures access to hospital services nationwide by providing a full inflation update for 2001. The plan also ensures the financial stability of teaching hospitals by increasing payments related to physician training.
Offers Beneficiaries More Flexibility Through Medicare +Choice - Stabilizes and improves funding for beneficiaries electing to enroll in privately-offered Medicare+Choice plans, with special attention to rural communities; and provides additional assistance for disabled and rural beneficiaries. Assistance has also been targeted to immediately help those communities at greatest risk of losing their M+C plans. The plan also ensures that health disparities do not occur between different racial/ethnic groups served by M+C plans, and also makes it easier for employers providing retiree coverage to coordinate coverage with M+C plans.
Strengthens Critical Access Hospitals - Eases out-of-pocket costs for beneficiaries getting clinical lab tests done in critical access hospitals (CAHs). Gives rural hospitals more flexibility in exempting swing beds from the PPS, thus providing more flexibility to better care for patients with varying medical needs. Expands access to ambulance services furnished by CAHs as well as increased access to emergency room on-call physicians. The plan also provides hospitals with assistance so they can attract more doctors to isolated rural areas.
Home Health and Hospice Provisions - Protects funding for home health services by delaying a scheduled 15% cut in payments in addition to other payment increases. Provides for full medical inflation update for home health. Protects home health services in situations where beneficiaries may be using adult day care services. Hospice provisions also improve funding for end-of-life care. The plan also enhances the use of telehealth medicine in delivery of home health care services.
Increases Access to Care for Nursing Home Patients - Maintains access to therapy services, and reduces regulatory burdens by eliminating some parts of consolidated billing. In addition, the plan increases the Federal per diem rate for SNF "market baskets."
Provides Payment Updates for Renal Dialysis and Durable Medical Equipment - The plan improves beneficiaries' access to renal dialysis treatments and durable medical equipment such as wheelchairs.
Boosts Care in Long-Term, Rehabilitation and Psychiatric Hospitals - Adjusts payments for existing long-term, rehabilitation, and psychiatric hospitals.
Boosts Patient Access to Federally Qualified Health Centers - Adds provisions to protect clinics from potential reductions in payments in order to maintain access to community health centers.
Strengthens and Expands Access to Children's Health Insurance - Establishes policies for the retention and redistribution of unspent SCHIP funds.
Helps Protect the Financial Integrity of the Medicaid Program - Begins to take steps to address inappropriate Medicaid financing programs that undermine the federal/state matching relationship. By requiring HCFA to finalize its proposed regulation on upper payment limits by the end of this calendar year, this provision produces savings in excess of $20 billion over 5 years and $80 billion over 10 years. The package also adds funding for Medicaid's disproportionate share hospital (DSH) program.
The agreement also adds funds to the Ricky Ray Hemophilia Fund.
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