May 24, 2000

The Honorable Nancy L. Johnson

Chairperson, Subcommittee on Human Resources

Committee on Ways and Means

U.S. House of Representatives

Washington, D.C. 20515

Dear Madam Chairperson:

Secretary Summers asked me to respond to your letter of May 10, 2000, in which you request the views of Treasury on H.R. 816, the Child Support Enforcement Act (the "Act"). The Act would require individuals who fail to make their child support payments to include the unpaid amounts in their gross income and would allow custodial parents to claim a deduction for unpaid child support payments.

As you are aware, the Administration has made child support enforcement a critical priority. The Federal and state Child Support Enforcement program broke new records in nationwide collections in FY 1999, reaching an estimated $15.5 billion, nearly twice the amount collected in 1992. This Spring, the Administration submitted to the Congress a comprehensive child support bill that proposed incentives for states to direct more child support payments to families, as well as new child support enforcement tools. Although we share the goal of ensuring that families get the child support they need and deserve, and look forward to working with the Congress and the Committee on developing an effective approach, Treasury cannot support the Act.

The Act generally may not be effective in increasing child support payments. In certain circumstances, the Act could actually discourage the payment of child support by imposing a higher tax bill on a delinquent parent, just when he or she might be attempting to marshal resources to pay child support. By providing custodial parents a tax benefit for unpaid child support payments, the Act might also discourage custodial parents from enforcing their rights to receive such payments.

The Act also raises significant tax policy concerns. Under present law, an unpaid debt generally is included in the income of the debtor and deducted by the creditor when it is certain that the debt will not be paid. The Act would prematurely treat unpaid support obligations as if they were certain not to be paid. This premature treatment would require offsetting adjustments if the obligation were paid in the future. By determining the tax treatment of unpaid support obligations before it is certain whether or not they will be paid, the Act would create complexity and be difficult to administer. The Act would also impose administrative burdens on custodial parents by requiring them to provide identifying information on their returns and to send notices to delinquent parents. In addition, the Act would be extremely complex and difficult to administer.

We thank you for inviting us to share our views with you, and look forward to working with you to continue to develop effective child support enforcement strategies.

OMB has advised that there is no objection to the presentation of this report from the standpoint of the Administration's program.

Sincerely,

/s/

Jonathan Talisman

Deputy Assistant Secretary (Tax Policy)