Farmer Tax Fairness Act of 2005

Mr. President, today I am introducing legislation to address an injustice in the Tax Code that is threatening family farmers and other self-employed individuals. Some of my constituents, primarily Wisconsin farmers, have requested Congress's assistance to correct the Tax Code so they can protect their families. The legislation I introduce today, the Farmer Tax Fairness Act of 2005, is similar to legislation I introduced last Congress and will solve the problem for today and into the future.

Farming is vital to Wisconsin. Wisconsin's agricultural industry plays a large and important role in the growth and prosperity of the entire State. Wisconsin's status as ``America's Dairyland,'' is central to our State's agriculture industry. Wisconsin's dairy farmers produce approximately 23 billion pounds of milk and 25 percent of the country's butter a year. But Wisconsin's farmers produce much more than milk; they also are national leaders in the production of cheese, potatoes, ginseng, cranberries, various processing vegetables, and many organic foods. So when the hard-working farmers of Wisconsin need help, I will do all I can to assist.

One concern that I have heard from Wisconsin farmers is that the Tax Code can limit their eligibility for social safety net programs, including old age, survivors, and disability insurance, OASDI, under Social Security and the hospital insurance HI part of Medicare. These programs are paid for through payroll taxes on workers and through the self-employment tax on the income of self-employed individuals. To be eligible for OSADI and HI benefits an individual must be fully insured and must have earned a minimum amount of income in the years immediately preceding the need for coverage. Every year, the Social Security Administration, SSA, sets the amount of earned

income that individuals must pay taxes on to earn quarters of coverage, QCs, and maintain their benefits. An individual's eligibility requirements depend upon the age at which death or disability occurs, but for workers over 31 years of age, they must have earned at least 20 QCs within the past 10 years.

Self-employed individuals can have highly variable income, and, particularly for farmers who are at the whim of Mother Nature, not every year is a good year. During lean years, individuals may not earn enough income to maintain adequate coverage under OASDI and HI. Therefore, the Tax Code provides options to allow self-employed individuals to maintain eligibility for benefits. These options allow individuals to choose to pay taxes based on $1,600 of earned income, thus allowing self-employed entrepreneurs to maintain the same Federal protections even when their income varies.

Unfortunately, both the options for farmers and nonfarmers--Social Security Act 211(a) and I.R.C. Sec. 1402(a)--have not kept pace with inflation, and they no longer provide security to families across the country. Decades ago, self-employment income of $1,600 earned an individual four QCs under SSA's calculations. In 2001, the amount needed to earn a QC rose to $830 of earned income, so individuals electing the optional methods were only able to earn one QC per year, making it much harder for them to remain eligible for benefits because they must average 2 QCs per year to be eligible.

Congress's failure to address this problem threatens the ability of self-employed individuals to maintain eligibility for OASDI and HI. I have heard from several of my constituent who want these options to be fixed so they can make sure their families will be taken care of in the event that something unforeseen occurs.

Therefore, I am introducing the Farmer Tax Fairness Act of 2005 in order to provide farmers and self-employed individuals with a fair choice. Under this bill, they will continue to be able to elect the optional method if they so choose. When individuals do elect the option, this legislation provides an update to the Tax Code so farmers and self-employed individuals can retain full eligibility for OASDI and HI benefits. It indexes the optional income levels to SSA's QC calculations, allowing these farmers and self-employed individuals to claim enough earned income to qualify for four OCs annually. In addition, by linking the earned income level to SSA's requirements for QCs, the bill will ensure that the amount of income deemed to be earned under the optional methods will not need to be adjusted by Congress again.

Along with providing security to self-employed individuals and farmers across the country, this solution is fiscally responsible. It actually provides a short run increase in U.S. Treasury revenues while having negligible impact upon the Social Security trust fund in the long run.

Let me take a moment to acknowledge the efforts of the Senator from Iowa, Mr. Grassley, to address this problem in the 107th Congress. As chairman of the Senate Finance Committee, he included similar legislative language in the chairman's mark for the Small Business and Farm Economic Recovery Act of 2002. The Senate Finance Committee held a markup on the legislation on September 19, 2002, but the changes to the optional methods did not become law.

When incomes fall, the Tax Code provides optional methods for calculating net earnings to ensure that farmers and self-employed individuals maintain eligibility for social safety net programs. When these provisions were developed, Congress intended self-employed individuals to have the ability to pay enough to earn a full 4 QCs. Unfortunately the Tax Code has not kept up with the times and due to inflation many farmers are losing eligibility for some of Social Security's programs. Congress needs to provide security to farm families and other self-employed individuals. I urge my colleagues to support the Farmer Tax Fairness Act of 2005.

I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, today I am introducing legislation to address an injustice in the Tax Code that is threatening family farmers and other self-employed individuals. Some of my constituents, primarily Wisconsin farmers, have requested Congress's assistance to correct the Tax Code so they can protect their families. The legislation I introduce today, the Farmer Tax Fairness Act of 2005, is similar to legislation I introduced last Congress and will solve the problem for today and into the future.

Farming is vital to Wisconsin. Wisconsin's agricultural industry plays a large and important role in the growth and prosperity of the entire State. Wisconsin's status as ``America's Dairyland,'' is central to our State's agriculture industry. Wisconsin's dairy farmers produce approximately 23 billion pounds of milk and 25 percent of the country's butter a year. But Wisconsin's farmers produce much more than milk; they also are national leaders in the production of cheese, potatoes, ginseng, cranberries, various processing vegetables, and many organic foods. So when the hard-working farmers of Wisconsin need help, I will do all I can to assist.

One concern that I have heard from Wisconsin farmers is that the Tax Code can limit their eligibility for social safety net programs, including old age, survivors, and disability insurance, OASDI, under Social Security and the hospital insurance HI part of Medicare. These programs are paid for through payroll taxes on workers and through the self-employment tax on the income of self-employed individuals. To be eligible for OSADI and HI benefits an individual must be fully insured and must have earned a minimum amount of income in the years immediately preceding the need for coverage. Every year, the Social Security Administration, SSA, sets the amount of earned

income that individuals must pay taxes on to earn quarters of coverage, QCs, and maintain their benefits. An individual's eligibility requirements depend upon the age at which death or disability occurs, but for workers over 31 years of age, they must have earned at least 20 QCs within the past 10 years.

Self-employed individuals can have highly variable income, and, particularly for farmers who are at the whim of Mother Nature, not every year is a good year. During lean years, individuals may not earn enough income to maintain adequate coverage under OASDI and HI. Therefore, the Tax Code provides options to allow self-employed individuals to maintain eligibility for benefits. These options allow individuals to choose to pay taxes based on $1,600 of earned income, thus allowing self-employed entrepreneurs to maintain the same Federal protections even when their income varies.

Unfortunately, both the options for farmers and nonfarmers--Social Security Act 211(a) and I.R.C. Sec. 1402(a)--have not kept pace with inflation, and they no longer provide security to families across the country. Decades ago, self-employment income of $1,600 earned an individual four QCs under SSA's calculations. In 2001, the amount needed to earn a QC rose to $830 of earned income, so individuals electing the optional methods were only able to earn one QC per year, making it much harder for them to remain eligible for benefits because they must average 2 QCs per year to be eligible.

Congress's failure to address this problem threatens the ability of self-employed individuals to maintain eligibility for OASDI and HI. I have heard from several of my constituent who want these options to be fixed so they can make sure their families will be taken care of in the event that something unforeseen occurs.

Therefore, I am introducing the Farmer Tax Fairness Act of 2005 in order to provide farmers and self-employed individuals with a fair choice. Under this bill, they will continue to be able to elect the optional method if they so choose. When individuals do elect the option, this legislation provides an update to the Tax Code so farmers and self-employed individuals can retain full eligibility for OASDI and HI benefits. It indexes the optional income levels to SSA's QC calculations, allowing these farmers and self-employed individuals to claim enough earned income to qualify for four OCs annually. In addition, by linking the earned income level to SSA's requirements for QCs, the bill will ensure that the amount of income deemed to be earned under the optional methods will not need to be adjusted by Congress again.

Along with providing security to self-employed individuals and farmers across the country, this solution is fiscally responsible. It actually provides a short run increase in U.S. Treasury revenues while having negligible impact upon the Social Security trust fund in the long run.

Let me take a moment to acknowledge the efforts of the Senator from Iowa, Mr. Grassley, to address this problem in the 107th Congress. As chairman of the Senate Finance Committee, he included similar legislative language in the chairman's mark for the Small Business and Farm Economic Recovery Act of 2002. The Senate Finance Committee held a markup on the legislation on September 19, 2002, but the changes to the optional methods did not become law.

When incomes fall, the Tax Code provides optional methods for calculating net earnings to ensure that farmers and self-employed individuals maintain eligibility for social safety net programs. When these provisions were developed, Congress intended self-employed individuals to have the ability to pay enough to earn a full 4 QCs. Unfortunately the Tax Code has not kept up with the times and due to inflation many farmers are losing eligibility for some of Social Security's programs. Congress needs to provide security to farm families and other self-employed individuals. I urge my colleagues to support the Farmer Tax Fairness Act of 2005.

I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, I rise today to introduce a bill to clarify the tax treatment of a narrow range of health plans sponsored by associations. I am joined in this effort by my good friends and colleagues, the Chairman and the Ranking Democratic Member of the Finance Committee respectively, Senator Grassley and Senator Baucus.

For many years, trade associations of small businesses have sponsored plans for their member companies to provide health care coverage to their employees. These plans have helped thousands of small businesses across the country control rising health care costs and keep administrative costs to a minimum.

Unfortunately, final regulations issued by the Internal Revenue Service in 2003 concerning ``10-or-more'' employer health benefit plans that use the experience-rating method threaten to shut down the health plans of many associations. Essentially, these regulations state that health plans that utilize experience rating are not allowed to accumulate reserves, forcing them into the untenable position of either

operating on a break-even basis or losing money.

These regulations were not aimed directly at association health plans, but at certain other employer-provided benefits, such as life and disability insurance, where the IRS has found a pattern of abuse among some companies. However, the proposed implementation of the regulations make it impossible for an association to continue operating a health plan for the group's small business members, even where no abuse of the rules has occurred.

For example, in my home State of Utah, at least one association of small businesses has already been negatively affected by these regulations. This association has dozens of small business members that are dependent upon the health plan the association has had in place for decades. Compliance with the regulations will very likely lead to increased costs for health coverage for the 1,300 employees and their 2,200 dependents of these small businesses. If the trust is not able to properly reserve funds for the future, some of these businesses could be forced to drop out as premiums rise higher and higher and the plan is unable to offset those increases with the reserves.

The legislation we are introducing today would correct this problem by providing that medical benefit plans of bona fide associations may have a reserve of up to 35 percent. This amount is designed to give association health plans the flexibility they need without raising the potential for abuse.

In the face of rising health care costs, employers that offer health coverage to their employees are struggling to maintain these benefits, and those who do not offer coverage find the cost of providing this important advantage increasingly out of reach. With the recent 59 percent spike in health care costs over the past five years, employers have had to resort to various cost-cutting moves in order to keep providing health care benefits. The IRS regulations affecting 10-or- more employer health benefit plans could strike a devastating blow to many small businesses, forcing them to stop providing health care benefits altogether, or at least making the coverage more expensive and/or less available to employees.

This legislation was developed with bipartisan support. It is noncontroversial. It corrects a problem created by a well-meaning regulation that inadvertently overreached its target. I urge all of my colleagues to help us correct this error and not allow medical benefit health plans offered by small business associations to be forced to shut down, leaving thousands of employees facing higher costs for medical coverage, or worse, no coverage at all.

I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, in the 1746 Poor Richard's Almanac, Benjamin Franklin wrote, ``When the well is dry, we learn the worth of water.'' Nowhere is the bottom of the well approaching more quickly than in western United States. Nearly depleted aquifers and deteriorated infrastructure on which our small and rural communities rely coupled with their inability to raise large amounts of capital to afford water infrastructure has resulted in substantial want. When the water dries up, so will many of our communities. As such, the scarcity of water in rural western communities is a dire situation.

An article appearing on April 15, 2005 in the Wall Street Journal elucidates the breadth of our Nation's water infrastructure need. The article states that most water infrastructure and water treatment plants in the U.S. are more than 50 years old and, in many cases, are more than 100 years old. The huge capital outlays needed to rehabilitate this aging and, in many cases, deteriorated infrastructure far exceeds the ability of many rural communities to pay. Neither can these communities accommodate the costs in their rate structures nor are the necessary capital outlays within their bonding capacity. Exacerbating this problem is that, in many western states such as

my home state of New Mexico, ground water supplies for which many communities have relied on for water are nearly depleted. In many cases, the only practicable alternative for providing water to these communities is to build public works projects to transport water from other sources. This, too, requires large sums of money which rural and small communities can ill-afford.

Today, I rise to introduce the Rural Water Supply Act of 2005. This bill would begin the process of providing for the essential water needs of rural communities in the western United States. It establishes a federal loan guarantee program within the Bureau of Reclamation that would allow rural communities to obtain loans at interest rates far lower than had the loans not been guaranteed by the Federal Government. This allows rural communities access to the large sums of money required to construct water infrastructure while recognizing the significant demand on the Bureau's budget. The bill also expedites the appraisal and feasibility studies which allow these communities to assess how best to address their water supply needs and act accordingly. At present, rural communities have to wait for Congress to direct the Bureau of Reclamation to proceed with appraisal and feasibility studies. This bill expedites the appraisal and feasibility level process by requiring that, upon request of the community, the Bureau perform a study, provide funds to a rural water community to perform them, or accept and review studies undertaken independently by a community. This bill will provide much needed assistance to struggling communities.

I would like to thank Senator Bingaman, the ranking member of the Committee of Energy and Natural Resources who I have had the great pleasure of serving with for over two decades for being an original co- sponsor of this bill. In addition, I very much appreciate the willingness of the Bureau of Reclamation to work with my staff on this important matter.

Preserving our rural communities in the west requires that we address this instantly and vigorously. The U.S. Congress cannot sit idly by as water shortages cause death to our rural communities. I assure you that this bill will receive prompt consideration in the Energy and Natural Resources Committee and it is my sincere hope that the Senate will give this legislation its every consideration.

I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, I am pleased to join my colleagues, Senators Hatch and Grassley, in introducing legislation that will allow associations to make health insurance available to employers without either wondering if the full premium is deductible, or holding minimal reserves.

Across this country, many associations sponsor health insurance plans for member employers--plans that provide health coverage for thousands of working Americans. These arrangements allow smaller employers to get a better deal on insurance than they could on their own. As we struggle to improve the number of Americans who have health insurance coverage, we surely want to encourage an arrangement that provides cost-effective health benefits.

In order to smooth the cost of these medical benefits, these plans often hold reserves that are more than is necessary to cover unpaid claims that have been incurred at the end of the year. We should encourage that practice. But current law discourages these plans from holding more than the bare minimum in reserve.

The problem is that these plans use welfare trusts as a vehicle to fund the benefits. Under current law, if a state trade association sponsors a health welfare trust, and that trust does not charge every participant the same premium, then that plan may have to go back to employers after the end of the year and say ``Sorry. You can't deduct all of that premium we asked you to pay last year.'' Either that, or the association has to keep premiums low enough to avoid non-deductible contributions, and risk under-funding the benefits. That is not a good outcome.

So we have a simple solution here. This bill allows these association health plans to maintain reserves of thirty-five percent of annual costs without jeopardizing the deductibility of employer contributions to the trust. With current technology, claims are usually processed in a matter of days, not months, so thirty-five percent of annual costs is more than is normally needed to cover unpaid claims at the end of the year. That will leave a cushion to cover adverse experience, and help smooth future premium fluctuations.

This simple change will allow bona fide associations all over this country to not only continue providing health benefits, but to secure those benefits with adequate reserves. Plans like the State Bankers Association Group Benefits Trust that has been operating out of my home town of Helena, Montana, since 1978. This Trust provides health insurance to employees of banks in Montana, Wyoming, and Idaho. Forty- nine Montana banks provide coverage for nearly 3,000 Montanans through this program.

This bill is important to the employers and employees who get health insurance coverage through the State Bankers' trust, and the many other association health trusts in Montana and around the country. We encourage our colleagues to join us in helping associations continue to provide health benefits to tens of thousands of American workers and their families.