Abel says to Mabel, "Come work for me. You are a wage earner. You are not self-employed. I will give you $50,000 a year.” So Mabel goes to work for Abel. Abel has left only $50,000 per year after his practice to set aside $7.500 for his pension; but his dear identical twin sister, Mabel, who is not self-employed, can only set aside $1,500 per year for her pension. So what happens? At retirement time Abel gets $81,000 per year, but Mabel gets only $13,000 per year. Mrs. GRIFFITHS. Mr. Chairman, will the gentleman yield? Mr. DANIELSON. I yield to the gentlewoman from Michigan. Mrs. GRIFFITHS. The gentleman has stated here if Abel sets aside $7,500, he has to cover all his employees in the plan, so he has to take care of her. He has $80,000 to cover her $1,500. Mr. DANIELSON. I left one link out of my presentation. Two days after Mabel goes to work for Abel, she went down the street and went to work for someone otherwise not covered; but the figures remain the same. However, since she is not self-employed, she is restricted to $1,500, but Abel gets $7.500 toward the $81,000. Mrs. GRIFFITHS. But Abel gets to cover all his employees. He does not get the benefit of $7,500. Mr. DANIELSOx. But he has no other employees. Mrs. GRIFFITHS. He can still have $1,500, but most people do not set aside that much. Mr. DANIELSON. The point is that it is a constitutional classification. Is this a proper classification? Is it proper under our laws to permit a self-employed person to have a tax deferment on $7,500 a year, while a person not self-employed has a tax deferment on only $1,500 per year? Mrs. GRIFFITHS. How about a corporate president that gets $25,000, does that bother the gentleman? Mr. DANIELSON. That bothers me, too; but at the moment I am bothered about the reason why this person gets $1,500 and the other person gets $7,500. Mrs. GRIFFITHS. Because the plan is on $7,500, that covers everybody. Mr. DANIELSON. I respect fully submit it is not a constitutional classification and I hope that the committee in conference will give serious consideration to this. Mr. GIBBONS. Mr. Chairman, will the gentleman yield? Mr. DANIELSON. Mr. Chairman, I yield to the gentleman from Florida. Mr. GIBBONS. Mr. Chairman, I do not know where the gentleman. got his illustration from, and I respect the gentleman's right to use it, but the facts are not correct in the illustration. If Mabel went to work for Abel Mr. DANIELSON. Mabel left. They could not get along. Mr. GIBBONS. The first day she went to work for him, she was covered by a plan. He had to contribute to the fund on a nondiscriminatory basis the same amount for her that he contributed for himself on a percentage basis; the same percentage. He could not discriminate against her. She was covered by the plan on the first day, and that is far more protection for her than she would get if she went to work for a corporate employer. She may have to work for a corporate employer for 10 years before she would be covered by the plan, so I do not know where the illustration came from, but the facts are wrong. Mr. DANIELSON. Mr. Chairman, I respect fully submit that there are some non-self-employed people, some wage earners not covered by a pension plan, who would wish to set aside $7,500 per year, but who would be limited to $1,500. My contention is simply this: I am going to support the bill, but everyone should have the same right to set aside a pension. Mr. YOUNG of Illinois. Mr. Chairman, I move to strike the last word. Mr. Chairman, I would like to rise in support of the provisions of title II which pertain to some very forward looking improvements in the retirement system that we are developing in this country to assist individuals to develop voluntary types of individual retirement programs and to improve H.R. 10 retirement plans. No one claims that our various types of deferred compensation programs are perfect. Of course, the very fact that we are making these amendments is an acknowledgment that we are trying to improve profit sharing plans and pension programs and various types of retirement programs such as H.R. 10 and also this new innovation, the individual retirement account. Mr. Chairman, I think that the Ways and Means Committee deserves a great deal of credit for offering for our consideration improved and new benefits for self employed and wage earners which will bring greater equity into the retirement situation. I want to point out that even with the proposed increase in deductible contributions to H.R. 10 plans, I refer to the $7,500 maximum deduction, there are still many advantages to a corporate type of profit-sharing plan or pension plan as compared to H.R. 10 plans. So, I support the purpose of these amendments in this legislation. These amendments do help to bring the H.R. 10 plans a little closer to broader benefits permitted now to deferred compensation programs authorized for corporations. Let us not apologize for the type of deferred compensation programs that Congress has already enacted with respect to corporations. As a matter of fact, they are very salutory types of programs, and we want to continue them. They encourage savings and capital formation which is the lifeblood of the free enterprise system. We want voluntary retirement programs that encourage thrift and initiative. Mr. Chairman, I also point out with respect to the new individual retirement accounts, that these accounts will be inferior in important respects to H.R. 10 plans. H.R. 10 plans continue to be inferior in many important respects to corporate deferred compensation plans. This legislation is starting on the road to providing some equity to the wage earner, the self-employed person, since both can take advantage of the tax savings provisions for establishment of individual retire ment accounts. This proposal as afforded by the Ways and Means Committee is a good proposal. It should not be crippled by the elimination of the higher benefits for H.R. 10 plans. This legislation is an encouragement to the self-employed people of this country. It gives the selfemployed middle income person a more equitable treatment and it also gives an individual who is not a part of any qualified plan an opportunity to put away some money for his old age instead of having to rely upon social security and the Government to take care of him. We are talking about the taxpayers' money; he has earned it, and he ought to be allowed to defer the taxes on some of it to a later time the same way the law permits this to corporate employees. Mr. MAYNE. Mr. Chairman, I move to strike the last word. (Mr. Mayne asked and was given permission to revise and extend his remarks.) Mr. MAYNE. Mr. Chairman, I rise in opposition to the Reuss amendment. Ladies and gentlemen of the House, there are many sections in this bill which are designed to provide people who work for wages with legitimate tax relief. I am for those provisions, and the bill's other needed pension reforms, many of them similar to earlier pension reform measures I had cosponsored. I commend the House Ways and Means Committee for including them in the bill. However, the Reuss amendment now before us will deprive the independent businessman, the small businessmen in the small towns of America, of having adequate opportunity to more equitably and properly participate in legitimate tax relief. Up until recent years farmers have not enjoyed enough earned income to be very concerned about income tax liability to any great extent. But with farm income having finally reached more adequate levels, there is no question but what this amendment will also prevent the farmers of the country from being able to participate in this type of legitimate tax relief to the extent to which they should be entitled. I do not feel that we should support such an amendment. We should retain in this bill those provisions which at long last allow some relief to the great middle class of this country which has so long had to bear the principal tax burden. They are the forgotten people of this country, the self-employed and the small businessmen. It is about time we did something for them. Mr. Chairman, I believe the committee bill will help provide this needed relief, and that this amendment, by refusing to raise the $2,500 limitation on tax deductibility of contributions to retirement plans, will be very destructive to the interests of the great middle classes, and, more particularly, the small businessmen and the farmers of America. Mr. DENNIS. Mr. Chairman, will the gentleman yield? Mr. MAYNE. I yield to the gentleman from Indiana. Mr. DENNIS, Mr. Chairman, I would like to associate myself with the remarks of the gentleman in the well. While I am on my feet, I would like to take the opportunity especially to compliment the gentlewoman from Michigan for her very fine presentation. I think we will miss her around here in the future. when these matters come before the House. Mr. DON H. CLAUSEN. Mr. Chairman, will the gentleman yield? (Mr. Don H. Clausen asked and was given permission to revise and extend his remarks.) Mr. DON H. CLAUSEN. Mr. Chairman, I rise in strong opposition to the Reuss amendment which would strip from the bill the increase in benefits for Keogh plan programs :et up by the self-employed, by small businessmen and by farmers and others. I am at a loss to understand why, when we are making the effort to upgrade pension programs generally, we should not improve at the same time the individual, self-help retirement programs. Undoubtedly, the majority of the House will recognize the contradiction of encouraging some to improve their retirement programs while discouraging others that would occur if the Reuss amendment is adopted. I trust it will not be. While we are constantly doing things to improve the lot of those who work for large corporations or those who receive benefits because of union efforts, we should also seek to help small businessmen and their employees, and farmers, and their employees. The provisions of the pension bill will help small businessmen attract and reward employees through improved fringe benefits just as larger corporations can do with their larger resources. Finally, any improvement in the incentives to plan for retirement will increase the number of people not totally dependent upon social security for their retirement annuity. This will permit them to be selfsupporting more easily and reduce the number of elderly who are not self-sufficient and dependent upon welfare programs. I hope the Reuss amendment will be defeated, Mr. Chairman. Mr. MAYNE. Mr. Chairman, the Reuss amendment would strike those provisions of title II of the pension reform bill which are designed to provide some measure of legitimate tax relief to the middle class which has too often been ignored when the House Ways and Means Committee hands out tax breaks. The amendment would seriously affect some 30 million self-employed persons, and their employees, most of whom are not now covered by any retirement program. The Self-Employed Individuals Retirement Act of 1962, H.R. 10, enables self-employed individuals such as farmers, owners of unincorporated businesses, professional people and partners in partnerships-to defer tax liability on as much as $2.500 or 10 percent of their annual adjusted gross income, whichever is the lesser, when set aside. for retirement purposes, in much the same way as these persons could do for their employees under the then-existing law. That legislation was intended to remove discrimination in tax treatment against selfemployed persons who wanted to accumulate savings for retirement. Many self-employed individuals have complied with the H.R. 10 requirements and built up savings for their retirement. By 1968, 246,000 individual taxpayers had taken advantage of Keogh plan deductions. While H.R. 10 has often been described as being of particular benefit to professional persons, I would like to point out that many farmers have taken the opportunity to set aside for their retirement through Keogh plans, and they would like to increase their participation. More than 20,000 farmers took Keogh plan contribution deductions in 1968, the first year tax returns were surveyed by occupation. That is about 10 percent of the total of those who did. Thus, there were more farmers than there were lawyers or accountants or dentists or persons in finance, insurance, and real estate who utilized the Keogh plans by 1968. In the 5 years since 1968, the number of taxpayers utilizing these Keogh plan tax deductions has increased by about 63 percent, to an estimated 402,600 individuals for this last tax year of 1973. The esti mated total of $599,500,000 in contributions toward retirement plans qualified for tax deduction represented a tax saving for these selfemployed individuals, whether farmers, small businessmen, or professional men and women, of some $214 million for the tax year 1973. Many, many more self-employed Americans are eligible to set up Keogh retirement plans and take the deferral of tax on their contributions until the year they draw their retirement benefit, and they should be encouraged to do so. I think it is in the national interest to insure this participation by the middle-class American self-employed businessman or farmer in building adequate retirement funds so that he may face his golden years in comfort and without hardship, and without having to rely entirely upon relatively limited social security benefits. In order to obtain greater participation, however, we must remove inequities in the present law. The steady inflation since enactment of the Self-Employed Individuals Retirement Act in 1962 has made many retirement plans no longer adequate. Many plan participants argue that the $2,500 or 10 percent of earned income maximum is too low to provide an adequate accumulation of funds for retirement. Furthermore, the present low ceiling discriminates against the selfemployed compared with corporate executives who are participating in regular corporate pension plans which have no effective tax-deductible limits under the existing law. Because of this inequity, in recent years many self-employed individuals have avoided the limited H.R. 10 plans by incorporating for the sole purpose of setting up qualified corporate pension plans for themselves. President Nixon early recognized the need to make the Keogh plan more equitable. Many of his proposed reforms were incorporated by the Senate in the pension reform legislation it passed and by the House Ways and Means Committee in title II of the present bill. The bill raises the existing deduction limitations for H.R. 10 plan contributions from 10 percent of self-employment income up to a $2,500 annual maximum, to a new maximum of 15 percent of income or $7,500 whichever is the lower. A minimum of $750 per year may be deducted without regard to the percentage limitation. For the purposes of the H.R. 10 antidiscrimination test, only the first $100,000 in compensation is to be considered in calculating the contribution percentage. Thus a self-employed plan participant using the full $7,500 contribution allowance would have to make a pension contribution in behalf of all qualified employees equal to 7.5 percent of their compensation. Without this provision, the percentage contribution of a self-employed owner taking the $7,500 maximum would progressively decline as his income rose above $100,000, thus undermining the protection provided his employees by the antidiscrimination requirement. The bill further reduces the inequities in the tax-treatment of selfemployed individuals as compared to corporate-employees, by providing overall limitations on the accumulation of funds in qualified pension trusts out of tax-sheltered dollars, in general providing that a qualified pension trust may not provide a defined benefit in excess of $75,000 a year or 100 percent of the employee's average high-3 years of compensation. Thus there will be less incentive for self-employed individuals to incorporate. At the same time, the limitations provided |