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Billionaires’ Tax Loophole Could Complicate Passage of Health Reform

April 28, 1996

WASHINGTON (AP) _ A once white-hot, but still smoldering, partisan dispute over taxation of expatriate billionaires could further complicate enactment of a popular measure making health insurance portable from job to job.

The health insurance measure already is ensnared in disputes over tax-favored medical savings accounts, or MSAs, and equal treatment of mental and physical disease.

But an effort to plug a loophole that’s allowed a handful of wealthy people to avoid taxes by renouncing their citizenship could put another hurdle before a health bill all sides say they want.

Competing expatriate billionaire provisions are tucked into separate health bills that cleared the Senate last week and the House in March.

In an approach recommended by the Clinton administration, the Senate would impose an immediate capital gains tax on the assets of wealthy people when they renounce their citizenship.

However, the House bill, crafted by Ways and Means Chairman Bill Archer, R-Texas, takes an entirely different approach that Democrats and the administration say leaves the loophole wide open.

House and Senate lawmakers haven’t met yet to work out the differences between the two health bills. But if past negotiations on the expatriation issue are any indication, the House version will emerge victorious.

And, if that happens, taxation of wealthy citizenship renouncers could emerge as another partisan flash point in the bill.

A year ago, the issue had Democrats and Republicans at each others’ throats. So far it’s been barely mentioned this year. Democrats have chosen to focus their objections elsewhere.

``For most people, including the president, it’s the issue of MSAs that may cause the biggest problem,″ said Senate Minority Leader Tom Daschle, D-S.D.

House Minority Whip David Bonior, D-Mich., said the House expatriates provision was ``not helpful at all.″ He added, ``Certainly the medical savings accounts are a deal-killer for the president and many of us.″

Administration officials say the expatriates issue is important, too. They note that Clinton cited the House version as one of the reasons for vetoing the GOP’s massive budget-balancing bill in December.

``It’s a very serious problem,″ said Assistant Treasury Secretary Leslie Samuels.

Instead of imposing a large and immediate tax on wealthy citizenship renouncers, the House version tightens current law. It requires expatriates with a net worth of $500,000 or more to pay taxes on capital gains and other income from U.S.-based assets for 10 years after they renounce their citizenship.

But critics say it will accomplish little more than forcing accountants and lawyers to find more creative ways around the rules on behalf of billionaire citizenship renouncers such as Campbell soup fortune heir John Dorrance III and Dart Container Corp. President Kenneth Dart.

The House version would be extremely difficult to enforce and would allow patient expatriates to avoid the tax by holding their assets for 10 years before selling, they say. In the interim, they could raise cash by borrowing against the assets.

``It’s not acceptable to identify a problem and then say we’re going to allow expatriates who are patient and wait 10 years to get around the law,″ Samuels said.

However, Archer says his committee’s version is actually tougher. The administration’s proposal would create an incentive for people who had recently inherited their wealth to expatriate before their newly acquired assets started to appreciate, he said.

``The reality is their proposal is weaker than ours,″ Archer said. ``Some of the most egregious cases are where there have been heirs that have been recipients of estates who can under their proposal leave and never pay anything.″

In support of his contention, Archer cited estimates of Congress’ Joint Committee on Taxation showing the House provision would raise $1.35 billion over seven years, compared with $750 million for the Senate version.

The administration disputes the figures and says the Senate version it prefers would raise $2.8 billion and the House version, $1.1 billion.

Nevertheless, Congress by law must use the joint committee’s estimates. Lawmakers may be tempted to go with the House provision because, on paper, it gives them more money to pay for a new tax break for insurance policies covering nursing home and other long-term care.

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