Marriage Tax Penalty Relief Act of 1999

Summary: Marriage Tax Penalty Relief Act of 1999 - Amends the Internal Revenue Code to provide for a deduction for two-earner married couples to eliminate the marriage penalty.  Allows such deduction, in the case of a joint return, in an amount equal to a specified applicable percentage of the qualified earned income of the spouse with the lower qualified earned income for the taxable year.  Specifies such applicable percentage as 20 percent (10 percent for FY 1999 and 2000) reduced (but not below zero) by one percentage point (0.5 percentage point for FY 1999 and 2000) for each $1,000 (or fraction thereof) by which the taxpayer's modified adjusted gross income for the taxable year exceeds $50,000. 
Makes such deduction above-the-line (allowed regardless of whether the taxpayer itemizes other deductions).  Requires that the earned income credit phaseout reflect such deduction.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Marriage Tax Penalty Relief Act of 
1999''.

SEC. 2. RESTORATION OF DEDUCTION FOR 2-EARNER MARRIED COUPLES.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 222 as 
section 223 and by inserting after section 221 the following new 
section:

``SEC. 222. DEDUCTION FOR 2-EARNER MARRIED COUPLES.

    ``(a) Deduction Allowed.--In the case of a joint return for the 
taxable year, there shall be allowed as a deduction an amount equal to 
the applicable percentage of the qualified earned income of the spouse 
with the lower qualified earned income for such taxable year.
    ``(b) Applicable Percentage.--For purposes of this section--
            ``(1) In general.--The term `applicable percentage' means 
        20 percent reduced (but not below zero) by 1 percentage point 
        for each $1,000 (or fraction thereof) by which the taxpayer's 
        modified adjusted gross income for the taxable year exceeds 
        $50,000.
            ``(2) Transition rule for 1999 and 2000.--In the case of 
        taxable years beginning in 1999 or 2000, paragraph (1) shall be 
        applied by substituting `10 percent' for `20 percent' and `0.5 
        percentage point' for `1 percentage point'.
            ``(3) Modified adjusted gross income.--The term `modified 
        adjusted gross income' means adjusted gross income determined--
                    ``(A) without regard to this section and sections 
                911, 931, and 933, and
                    ``(B) after application of sections 86, 135, 137, 
                219, 221, and 469.
    ``(c) Qualified Earned Income.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified earned income' means an amount equal to the excess 
        of--
                    ``(A) the earned income of the spouse for the 
                taxable year, over
                    ``(B) an amount equal to the sum of the deductions 
                described in paragraphs (1), (2), (6), (7), (12), and 
                (16) of section 62(a) to the extent such deductions are 
                properly allocable to or chargeable against earned 
                income described in subparagraph (A).
        The amount of qualified earned income shall be determined 
        without regard to any community property laws.
            ``(2) Earned income.--For purposes of paragraph (1), the 
        term `earned income' means income which is earned income within 
        the meaning of section 911(d)(2) or 401(c)(2)(C), except that--
                    ``(A) such term shall not include any amount--
                            ``(i) not includible in gross income,
                            ``(ii) received as a pension or annuity,
                            ``(iii) paid or distributed out of an 
                        individual retirement plan (within the meaning 
                        of section 7701(a)(37)),
                            ``(iv) received as deferred compensation, 
                        or
                            ``(v) received for services performed by an 
                        individual in the employ of his spouse (within 
                        the meaning of section 3121(b)(3)(A)), and
                    ``(B) section 911(d)(2)(B) shall be applied without 
                regard to the phrase `not in excess of 30 percent of 
                his share of the net profits of such trade or 
                business'.
    ``(d) Deduction Disallowed for Individual Claiming Benefits of 
Section 911 or 931.--No deduction shall be allowed under this section 
for any taxable year if either spouse claims the benefits of section 
911 or 931 for such taxable year.
    ``(e) Cost-of-Living Adjustment.--In the case of any taxable year 
beginning in a calendar year after 1999, the $50,000 amount contained 
in subsection (b)(1) shall be increased by an amount equal to the 
product of--
            ``(1) such dollar amount, and
            ``(2) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which the taxable year 
        begins, determined by substituting `calendar year 1998' for 
        `calendar year 1992' in subparagraph (B) thereof.
If any increase determined under the preceding sentence is not a 
multiple of $50, such increase shall be rounded to the next lowest 
multiple of $50.''
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes Other 
Deductions.--Subsection (a) of section 62 of such Code (defining 
adjusted gross income) is amended by inserting after paragraph (17) the 
following new paragraph:
            ``(18) Deduction for 2-earner married couples.--The 
        deduction allowed by section 222.''
    (c) Earned Income Credit Phaseout To Reflect Deduction.--Paragraph 
(2) of section 32(c) of such Code (defining earned income) is amended 
by adding at the end the following new subparagraph:
                    ``(C) Marriage penalty reduction.--Solely for 
                purposes of applying subsection (a)(2)(B), earned 
                income for any taxable year shall be reduced by an 
                amount equal to the amount of the deduction allowed to 
                the taxpayer for such taxable year under section 222.''
    (d) Conforming Amendments.--
            (1) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), and 
        219(g)(3)(A)(ii) of such Code are each amended by inserting 
        ``222,'' after ``221,''.
            (2) Clause (i) of section 221(b)(2)(C) of such Code is 
        amended by inserting ``222,'' before ``911''.
            (3) Clause (iii) of section 469(i)(3)(E) of such Code is 
        amended by striking ``and 221'' and inserting ``, 221, and 
        222''.
            (4) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 222 and inserting the following:

                              ``Sec. 222. Deduction for 2-earner 
                                        married couples.
                              ``Sec. 223. Cross reference.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.