Action On Legislation

Taxes

President Clinton on Aug. 6 signed into law a balanced budget plan that included several provisions important to the banking industry.

Many community bank owners and their customers will benefit from an immediate increase in the inheritance exemption for family-owned business and farms, to $1.3 million from $600,000.

Banks and their customers also would benefit from an increase in the standard estate tax exemption to $1 million by 2006. Also, the capital gains tax rate for individuals will be cut to 20%, down from 28%. For investments purchased after 2001 and held for five years, the top rate would be 18%.

On the downside: Bankers will be forced to write off operating losses faster, and credit card issuers will pay a 7.5% excise tax on frequent flier miles.

Individual Retirement Accounts

The balanced budget bill also contained the first overhaul of individual retirement account rules in 10 years. The plan, sponsored by Senate Finance Committee Chairman William Roth, would create a new type of IRA, reversing traditional account rules by letting people withdraw earnings tax-free. Contributions, however, would be taxed.

Income limits for fully deductible contributions to traditional IRAs would be doubled, to $80,000 for couples and $50,000 for individuals.

Also, homemakers would be allowed to contribute up to $2,000 tax-free, even if a spouse participates in an employer-sponsored retirement plan. Pending Legislation

Financial Modernization

The House Commerce Committee is expected to vote on changes to pending financial reform legislation shortly after returning from recess Sept. 2. Republican leaders gave Commerce Committee Chairman Thomas J. Bliley, R- Va., until Sept. 15 to make changes to the bill.

The bill, sponsored by House Banking Committee Chairman Jim Leach and approved by that panel June 20, would let banks affiliate with securities, insurance, and nonfinancial firms. It would also require federal thrifts to convert to national banks.

Commerce Committee members have not revealed their specific plans, but have indicated in hearings that they will seek to roll back the comptroller of the currency's authority to determine new powers for national banks. They also are expected to eliminate from the bill a National Council on Financial Services meant to settle difference among financial regulators. New Legislation

Business Checking Accounts/Sterile Reserves

Rep. Jack Metcalf, R-Wash. introduced legislation that would let banks pay interest on business checking accounts. The measure is intended to help small banks compete with large institutions, many of which already offer businesses sophisticated "sweep" money market accounts.

Rep. Metcalf's plan would also require the Federal Reserve banks to pay interest on required reserves. He argued the legislation would give banks an incentive to boost traditional savings and checking accounts, which are subject to Fed reserve requirements, rather than sweep funds into money market accounts, which are exempt. Senate Banking Committee Chairman Alfonse M. D'Amato has pledged to hold hearings on the issue in September.

Debit Cards

Reps. Henry Gonzalez, D-Tex., and Charles Schumer, D-N.Y. introduced legislation that would cap consumer liability for stolen debit cards at $50. Their proposal also would require debit card solicitations to disclose that the cards can be used without a personal identification number.

The bill would bring debit card consumer protection into line with those of credit cards, rather than automated teller machine cards. Liability for ATM cards would rise to $500 if the issuer weren't notified within 48 hours after a card was lost. Liabilities would be unlimited if loss of the card weren't reported within six months.

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