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May 29, 2001

**Tax Relief -- Conference Report**

### Summary of Major Provisions

**[Year-By-Year Tax Relief:]{.underline}**

#### Dollars in Billions

  ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------------
  **2001**   **2002**   **2003**   **2004**   **2005**   **2006**   **2007**   **2008**   **2009**   **2010**   **2011**   **2001-2011**

  40.9       70.7       90.6       101.1      114.0      135.2      151.7      160.1      167.8      187.0      129.5      1,348.5
  ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------------

**[Marginal Rate Relief:]{.underline}**

-   New 10% bracket retroactive to January 1 on first \$6,000 of income
    for individuals, \$10,000 for the heads of households, and \$12,000
    for couples

-   39.6, 36, 31, and 28 percent brackets reduced by one point each,
    effective July 1 of this year, and then by another point in 2004 and
    by an additional point in 2006 (except for the 39.6% bracket, which
    in 2006 will drop to 35%)

-   Beginning in 2006, the bill phases-out the limits on personal
    exemptions (PEP) and itemized deductions (Pease) (which effectively
    lowers the marginal tax rate for high-income taxpayers)

  ---------------- ----------------- ------------------ ------------------
  **Present**      **2001-2003**     **2004-2005**      **2006-2010**

  N/A              10%               10%                10%

  15%              15%               15%                15%

  28%              27%               26%                25%

  31%              30%               29%                28%

  36%              35%               34%                33%

  39.6%            38.6%             37.6%              35%
  ---------------- ----------------- ------------------ ------------------

> **[2001 Rate Reduction Refund:]{.underline}**

-   Since the new 10% tax bracket is retroactive to January 1, taxpayers
    will receive a rebate check for the difference in tax liability
    between the new 10% bracket and the current 15% bracket (5% of the
    maximum amount of income taxable under the new bracket).

-   Single taxpayers will receive a maximum rebate of \$300

-   Heads of Households will receive a maximum rebate of \$500

-   Couples will receive a maximum rebate of \$600

-   Most taxpayers will receive their check prior to October 1

**[Child Tax Credit Expansion:]{.underline}**

-   Phases in a doubling of the child credit from \$500 to \$1,000.

  ---------------------------- ------------------------------------------
  **Calendar Year**            **Credit Amount Per Child**

  2001-2004                    \$600

  2005-2008                    \$700

  2009                         \$800

  2010                         \$1,000
  ---------------------------- ------------------------------------------

-   Makes the Child Tax Credit refundable up to the greater of 15% (10%
    in 2001 through 2004) of earned income in excess of \$10,000 or
    current law (i.e. cash payments for those with tax liability less
    than the credit)

**[Marriage Penalty:]{.underline}**

-   Sets the standard deduction for couples at twice the level for
    individuals -- phased in over 5 years beginning in 2005

-   Sets the 15% bracket for couples at twice the level for individuals
    -- phased in over 4 years beginning in 2005

-   EITC changes to reduce marriage penalty -- beginning in 2002

-   Marriage penalty relief does not discriminate between one and
    two-earner couples

> **[Estate and Gift Tax:]{.underline}**

-   Phases-out the estate tax beginning in 2002 by eliminating the 5%
    surtax and the rates in excess of 50% and increases the exemption to
    \$1 million

-   Continues to phase out the estate tax as follows:

  ---------------------- --------------------------- ---------------------
  **Calendar Year**      **Exemption**               **Highest Estate and
                                                     Gift Tax Rate**

  2002                   \$1 million                 50%

  2003                   \$1 million                 49%

  2004                   \$1.5 million               48%

  2005                   \$1.5 million               47%

  2006                   \$2 million                 46%

  2007                   \$2 million                 45%

  2008                   \$2 million                 45%

  2009                   \$3.5 million               45%

  2010                   N/A (estate tax repealed)   Top Individual Rate
                                                     (for gift tax)
  ---------------------- --------------------------- ---------------------

-   Expands the availability of qualified conservation easements by
    eliminating the requirement that the land be located within a
    certain distance from a metropolitan area

-   Beginning in 2010, the "stepped up" basis for valuation of inherited
    assets would be replaced with the "carryover basis," thereby
    imposing a new capital gains tax on the difference between what the
    deceased paid for assets and current market value. An exemption of
    \$1.3 million in gained value (\$4.3 million for a surviving spouse)
    would be allowed.

> **[Pension and IRA Provisions:]{.underline}**

-   Increases the maximum IRA contribution limits for traditional and
    Roth IRAs as follows:

  ---------------------------- ------------------------------------------
  **Year**                     **Contribution Limit**

  2002-2004                    \$3,000

  2005-2007                    \$4,000

  2008                         \$5,000

  2009 and thereafter          Indexed for Inflation
  ---------------------------- ------------------------------------------

-   Increases IRA catch-up contribution limits for those age 50 and over
    by \$500 in 2002 and \$1,000 in 2006

-   Includes other pension provisions generally included in the
    Portman-Cardin Retirement Savings Bill

# Education Proposals:

-   Increases the annual limit on contributions to education IRAs from
    \$500 to \$2,000

-   Expands the definition of qualified education expenses to include
    elementary and secondary school expenses

-   Increases the phase-out range for couples to twice the level of
    single taxpayers

-   Clarifies that corporations and other entities may make
    contributions to education IRAs

-   Expands the definition of qualified prepaid tuition programs to
    include programs established by educational entities other than
    state-sponsored programs

-   Expands the exclusion from income for employer-provided educational
    assistance to graduate education

-   Increases the income phase-out range for the student loan interest
    deduction to \$50,000 to \$65,000 for singles and to \$100,000 to
    \$130,000 for couples and adjusts for inflation after 2002

-   Allows taxpayers to claim the student loan interest deduction for
    voluntary payments of interest

-   Eliminates any tax liability for scholarships under the National
    Health Service Corps Scholarship Program and the Armed Forces Health
    Professions Scholarship Program

-   Permits taxpayers to claim and above-the-line deduction for
    qualified higher education expenses as follows:

+-----------+--------------------------------------+------------------+
| **Year**  | **Income Limit**                     | **Maximum        |
|           |                                      | Deduction**      |
+-----------+--------------------------------------+------------------+
| 2002-2003 | \$65,000 for singles, \$130,000 for  | \$3,000          |
|           | couples                              |                  |
+-----------+--------------------------------------+------------------+
| 2004-2005 | \$65,000 for singles, \$130,000 for  | \$4,000          |
|           | couples                              |                  |
+-----------+--------------------------------------+------------------+
| 2004-2005 | \$80,000 for singles, \$160,000 for  | \$2,000          |
|           | couples                              |                  |
+-----------+--------------------------------------+------------------+
| 2006      | ## Provision                         | Repealed         |
+-----------+--------------------------------------+------------------+

**[School Construction:]{.underline}**

-   Increases from \$5 million to \$10 million the amount of bonds that
    local governmental units may issue for public schools without being
    subject to arbitrage rebate requirements

-   Expands the private activities for which tax-exempt bonds may be
    issued to include elementary and secondary public school facilities
    which are owned by private, for-profit corporations pursuant to
    public--private partnership agreements with a State or local
    education agency

**[Adoption Tax Benefits:]{.underline}**

-   Increases the adoption tax credit to \$10,000 per eligible child
    (includes special needs children)

-   Increases the exclusion from income for employer-provided adoption
    assistance to \$10,000

-   Increases the starting-point for the phase-out of both provisions to
    \$150,000 of adjusted gross income

**[Dependent Care Tax Credit:]{.underline}**

-   Increases the maximum amount of employment-related expenses from
    \$2,400 to \$3,000 if there is one qualifying individual and from
    \$4,800 to \$6,000 if there are two or more qualifying individuals

-   Increases the maximum credit from 30% to 35%

> **[Tax Credit for Employer-Provided Child Care
> Facilities:]{.underline}**

-   Provides employers with a tax credit equal to 25% of qualified
    expenses for employee child care and 10% of qualified expenses for
    child care resource and referral services; however, the total
    maximum credit may not exceed \$150,000 per taxable year

**[Treatment of Restitution Payments to Holocaust
Survivors:]{.underline}**

-   Excludes any payments to eligible individuals or the individual's
    heirs or estate from gross income for tax purposes

**[Alternative Minimum Tax:]{.underline}**

-   Increases the individual alternative minimum tax (AMT) exemption
    amount by \$2,000 for single taxpayers and \$4,000 for couples for
    2001 through 2004, thus reducing the number of taxpayers subject to
    the AMT

-   In 2005 the increased AMT exemptions expire

-   The expiration of the increased AMT exemption and the lower marginal
    tax rates will subject more taxpayers to the AMT beginning in 2005
    (roughly twice as many taxpayers will be subject to the AMT
    beginning in 2005 as a result of this bill)

**[General Provisions:]{.underline}**

-   In order to comply with the Budget Act, all provisions of the bill
    generally expire as of December 31, 2010. Tax provisions would at
    that time revert to current law

-   In order to shift the surplus from one year to another the bill
    modifies the date on which corporate estimated tax payments are due,
    effectively shifting \$33 billion in revenue from 2001 to 2002 and
    \$6.6 billion in revenue from 2004 to 2005 (this is accounted for
    the revenue tables at the beginning of this document)

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