**PRESENT LAW AND BACKGROUNDRELATING TO THE MARRIAGE TAX PENALTY,EDUCATION TAX INCENTIVES,THE ALTERNATIVE MINIMUM TAX, ANDEXPIRING TAX PROVISIONS**

Scheduled for a Public Hearing

Before the

HOUSE COMMITTEE ON WAYS AND MEANS

on June 23, 1999

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

June 22, 1999

JCX-39-99

----

**CONTENTS**

**INTRODUCTION**

**PART ONE: MARRIAGE TAX PENALTY**

I.  PRESENT LAW AND BACKGROUND

A.  Present Law

B.  Legislative History

II.  ANALYSIS

**PART TWO: EDUCATION TAX INCENTIVES**

I.  OVERVIEW OF PRESENT-LAW TAX INCENTIVES FOR EDUCATION

A.  General Tax Treatment of Education Expenses

B.  Exclusion for Employer-Provided Educational Assistance

C.  Qualified Scholarships

D.  HOPE and Lifetime Learning Credits     1.  HOPE credit     2.  Lifetime Learning credit

E.  Provisions Relating to Student Loans     1.  Deduction for student loan interest     2.  Exclusion of income from student loan forgiveness

F.  Education IRAs     1.  In general     2.  Coordination with HOPE and Lifetime Learning credits

G.  Qualified State Tuition Programs

H.  Exclusion of Interest Earned on Education Savings Bonds

I.  Individual Retirement Arrangements     1.  In general     2.  Deductible IRA contributions     3.  Roth IRAs     4.  Nondeductible IRA contributions

J.  Tax Benefits for Certain Types of Bonds for Educational Facilities and Activities     1.  Tax-exempt bonds     2.  Qualified zone academy bonds

II.  BACKGROUND DATA ON COLLEGE ENROLLMENT AND COSTS

III.  ECONOMIC ANALYSIS

A.  The Economics of Subsidizing Education

B.  Treatment of Education Expenses Under an Income Tax

**PART THREE: ALTERNATIVE MINIMUM TAX**

I.  INDIVIDUAL ALTERNATIVE MINIMUM TAX

A.  Present Law

B.  Data on the Individual Minimum Tax

C.  Complexity of the Individual Minimum Tax

II.  CORPORATE ALTERNATIVE MINIMUM TAX

A.  Present Law

B.  Legislative Background

C.  Analysis of Issues     1.  Background     2.  Discussion of Issues

**PART FOUR: EXPIRED AND EXPIRING FEDERAL TAX PROVISIONS, 1998-2008**

	A.  Provisions That Expired in 1998

	B.  Provisions Expiring in 1999

	C.  Provisions Expiring in 2000

	D.  Provisions Expiring in 2001

	E.  Provisions Expiring in 2002

	F.  Provisions Expiring in 2003

	G.	Provisions Expiring in 2004

	H.  Provisions Expiring in 2005

	I.  Provisions Expiring in 2007

	J.  Provisions Expiring in 2008

----

**INTRODUCTION**

	The House Committee on Ways and Means has announced a series of public hearings onproposals to reduce the tax burden on individuals and businesses.  The second day of the series,scheduled for June 23, 1999, includes proposals such as marriage tax penalty relief, educationincentives, individual and corporate alternative minimum tax relief, expiring tax provisions, anddomestic business tax incentives.

	This document,(1) prepared by the staff of the Joint Committee on Taxation, provides adescription of present law and background information relating to the marriage tax penalty (PartOne), tax incentives for education (Part Two), and the individual and corporate alternativeminimum tax (Part Three).  This document also includes a list of expired and expiring Federaltax provisions (Part Four).

----

**PART ONE: MARRIAGE TAX PENALTY**

**I.  PRESENT LAW AND BACKGROUND**

**A.  Present Law**

**In general**

	A marriage penalty exists when the sum of the tax liabilities of two unmarried individualsfiling their own tax returns (either single or head of household returns) is less than their taxliability under a joint return (if the two individuals were to marry).  A marriage bonus existswhen the sum of the tax liabilities of the individuals is greater than their combined tax liabilityunder a joint return.

	While the size of any marriage penalty or bonus under present law depends upon theindividuals' incomes, number of dependents, and itemized deductions, as a general rule marriedcouples whose earnings are split more evenly than 70-30 suffer a marriage penalty. Marriedcouples whose earnings are largely attributable to one spouse generally receive a marriage bonus.Although the marginal tax rate breakpoints(2) and the standard deduction are typically consideredthe major elements of the Federal income tax system that create marriage penalties and bonuses,other provisions of present law also contribute to the amount of marriage penalty or bonus anycouple will face.

**Marriage penalties due to rate brackets and standard deduction**

	Under present law, the size of the standard deduction and the bracket breakpoints followcertain customary ratios across filing statuses.  For taxpayers in the 15-, 28-, and 31-percentmarginal tax rate bracket, the bracket breakpoints and the standard deduction for single filers areroughly 60 percent of those for joint filers and those for head of household filers are about 83percent of those for joint filers. For the 36-percent bracket, the breakpoint for single filers and forhead of household filers are 82 percent and 91 percent, respectively, of the breakpoint for jointfilers. For the 39.6-percent bracket, the bracket breakpoint is $283,150 (for 1999) regardless offiling status.

	With these ratios, unmarried individuals have standard deductions whose sum exceedsthe standard deduction they would receive as a married couple filing a joint return. Thus, theirtaxable income as joint filers may exceed the sum of their taxable incomes as unmarriedindividuals. Furthermore, because of the way the bracket breakpoints are structured, taxpayersfiling joint returns may have some of their taxable income pushed into a higher marginal taxbracket than when they were unmarried.  In order for there to be no marriage penalties as a resultof the rate structure and the standard deduction, the bracket breakpoints for married joint filerswould have to be at least twice that for both single and head of household filers.

**Other marriage penalties and bonuses**

	Marriage penalties or bonuses will also arise whenever a tax provision exists that has anincome-based phase-in or phase-out provision.  For any such provision, whether a marriagepenalty or a marriage bonus arises will depend on the circumstances of the particular taxpayersand on the income levels at which the phase-out ranges occur for single or head of householdtaxpayers versus married taxpayers filing jointly.  While setting the bracket breakpoints formarried taxpayers filing jointly at twice that for singles and head of households would eliminatemarriage penalties arising from the rate structure, no such remedy is available with respect tophaseins or phaseouts of tax provisions.  The reason for this is that in many instances a taxbenefit that is phased in or phased out might be associated with a taxpayer who qualifies for thebenefit as a single taxpayer, but when he or she marries another taxpayer their combined incomeexceeds the level for married joint returns to qualify.  This could happen regardless of where thephase-out ranges are set for married joint returns, so long as the other taxpayer had sufficientincome to put the combined return over the income limits to qualify for the benefit.

	There are many examples of phaseouts and phaseins of tax provisions in the currentFederal income tax laws that cause marriage penalties and bonuses.(3)  For example, the provisionof present law that requires a portion of social security benefits to be included in income cancreate either a marriage penalty (because it is possible that one spouse's taxable income mayrequire the other spouse's social security benefits to be included in income) or a marriage bonus(because spouses with relatively unequal incomes may have fewer social security benefitsincluded in income than if the spouses were not married).

**Marriage penalty for low-income individuals**

	There are three features of the current Federal individual income tax system that create amarriage penalty for low-income individuals: the variation of the size of the standard deductionby filing status; the phaseout of the earned income credit ("EIC") as income increases; and thevariation of the size of the EIC by number of dependent children.

	As discussed above, when two unmarried individuals marry, their standard deduction as amarried couple is less than the sum of their standard deductions as single taxpayers.  For thosethat take the standard deduction rather than itemize, this produces a marriage penalty because thelower standard deduction means taxable income is correspondingly higher.  Because lowerincome taxpayers are more likely to use the standard deduction, this feature of present law is amore important part of the marriage penalty for lower-income taxpayers relative to higher-income taxpayers.

	Even if the marriage penalty caused by the rate structure and standard deduction could beeliminated, other features of present law conditioned on income can still cause either a marriagepenalty or bonus.  For low-income individuals with dependent children, the EIC is one suchfeature. Because the EIC increases over one range of income and then is phased out over anotherrange of income, the aggregation of incomes that occurs when two individuals marry may reducethe amount of EIC for which they are eligible.(4)

	Marriage may reduce the size of a couple's EIC not only because their incomes areaggregated, but also because the number of dependent children is aggregated. Because theamount of EIC does not increase when a taxpayer has more than two dependent children,marriages that cause the resulting family to have more than two dependent children will result ina smaller number of children giving rise to the EIC than when their parents were unmarried.Even when each unmarried individual brings just one dependent child into the marriage there is areduction in the amount of EIC, because the maximum credit for two children is generally muchless than twice the maximum credit for one child.

	These three features can cause unmarried individuals who are eligible for the EIC to facesignificant marriage penalties. For example, in 1999, two individuals, each with one dependentchild and wage income of $15,000, would face a marriage penalty of $4,460(5) due to the EIC.(6)

**B.  Legislative History**

	The marriage penalty in the current income tax rate structure dates from changes in thestructure of individual income tax rates in 1969.(7) To understand the effect of those changes, oneneeds to go back to 1948, when separate rate schedules for joint filers and single returns wereintroduced. Before 1948, there was only one income tax schedule, and all individuals were liablefor tax as separate filing units.  Under this tax structure, there was neither a marriage penalty nora marriage bonus.  However, this structure created an incentive to split incomes because, with aprogressive income tax rate structure, a married couple with only one spouse earning incomecould reduce its combined tax liability if it could split the income and assign half to each spouse.While the Supreme Court upheld the denial of contractual attempts to split income,(8) it ruled thatin States with community property laws, income splitting was required for community income.(9)As income tax rates and the number of individuals liable for income taxes increased before andduring World War II, some States adopted, or considered adopting, community property statutesto give their citizens the tax benefits of income splitting.

	The Revenue Act of 1948 provided the benefit of income splitting to all married couplesby establishing a separate tax schedule for joint returns. That schedule was designed so thatmarried couples would pay twice the tax of a single taxpayer having one-half the couple's taxableincome. (This relationship between rate schedules is the same as that between joint returns andseparate returns for married couples under present law.) While this new schedule equalizedtreatment between married couples in States with community property laws and those in Stateswith separate property laws, it introduced a marriage bonus into the tax law for couples in Stateswith separate property laws.(10) As a result of this basic rate structure, by 1969, an individual withthe same income as a married couple could have had a tax liability as much as 40 percent higherthan that of the married couple. To address this perceived inequity, which was labeled a "singlespenalty" by some commentators, a special rate schedule was introduced for single taxpayers(leaving the old schedule solely for married individuals filing separate returns). The bracketbreakpoints and standard deduction amounts for single taxpayers were set at about 60 percent ofthose for married couples filing joint returns. This schedule created a marriage penalty for sometaxpayers.

	In 1981, Congress created a deduction for two-earner married couples. The maximumdeduction equaled 10 percent of the lesser of: (1) the earned income of the spouse with lowerincome or (2) $30,000. The two-earner deduction, was, in part, created to alleviate the workdisincentive effects of high marginal tax rates on the second earner's income.  The Tax ReformAct of 1986 repealed the two-earner deduction in conjunction with the enactment of generallylower tax rates.

----

**II.  ANALYSIS**

**Data relating to marriage penalty under present law**

	There is no precisely accurate measure of the size of the marriage penalty or bonus underpresent law. The amount of penalty or bonus that any married couple will face depends on theparticular characteristics of the couple's income, deductions, credits, etc., and how such items ofincome, etc., are assumed to be divided between the spouses.

	Under Congressional Budget Office calculations prepared in 1997, the marriage penaltyfor 1996 under their basic set of assumptions was estimated to be $28.8 billion for 20.9 millionreturns, and the marriage bonus was estimated to be $32.9 billion for 25.3 million returns.  Underthis set of assumptions, the 20.9 million returns with a marriage penalty had an average penaltyof $1,380 and the 25.3 million returns with a marriage bonus had an average bonus of $1,300.Under a broader measure of penalties and bonuses, the marriage penalty for 1996 was estimatedto be $40.2 billion for 23 million returns and the marriage bonus was estimated to be $32.2billion for 23.9 million returns. Under a third and less broad set of assumptions, the marriagepenalty for 1996 was estimated to be $18.1 billion for 18.5 million returns and the marriagebonus was estimated to be $42.2 billion for 27.7 million returns.(11)

**Marriage neutrality versus equal taxation of married couples with equal incomes**

	Any system of taxing married couples requires making a choice among three differentconcepts of tax equity.  One concept is that the tax system should be "marriage neutral;" that is,the tax burden of a married couple should be exactly equal to the combined tax burden of twosingle persons where one has the same income as the husband and the other has the same incomeas the wife.  A second concept of equity is that, because married couples frequently consume as aunit, couples with the same income should pay the same amount of tax regardless of how theincome is divided between them.  (This second concept of equity could apply equally well toother tax units that may consume jointly, such as the extended family or the household, definedas all people living together under one roof.)  A third concept of equity is that the income taxshould be progressive; that is, as income rises, the tax burden should rise as a percentage ofincome.

	These three concepts of equity are mutually inconsistent.  A tax system can generallysatisfy any two of them, but not all three. The current tax system is progressive: as a taxpayer'sincome rises, the tax burden increases as a percentage of income.  It also taxes married coupleswith equal income equally: it specifies the married couple as the tax unit so that married coupleswith the same income pay the same tax.  But it is not marriage neutral.(12)  A system of mandatoryseparate filing for married couples would sacrifice the principle of equal taxation of marriedcouples with equal incomes for the principle of marriage neutrality unless it were to forgoprogressivity.  It should be noted, however, that there is an exception to this rule if refundablecredits are permissible.  A system with a flat tax rate and a per taxpayer refundable credit wouldhave marriage neutrality, equal taxation of couples with equal incomes, and  progressivity.(13)

	There is disagreement as to whether equal taxation of couples with equal incomes is abetter principle than marriage neutrality.(14)  Those who hold marriage neutrality to be moreimportant argue that tax policy discourages marriage and encourages unmarried individuals tocohabit without getting married, thereby lowering society's standard of morality.  Also, theyargue that it is simply unfair to impose a marriage penalty even if the penalty does not actuallydeter anyone from marrying.

	Those who favor the principle of equal taxation of married couples with equal incomesargue that as long as most couples pool their income and consume as a unit, two married coupleswith $20,000 of income are equally well off regardless of whether their income is divided$10,000-$10,000 or $15,000-$5,000.  Thus, it is argued, those two married couples should paythe same tax, as they do under present law.  By contrast, a marriage-neutral system withprogressive rates would involve a larger combined tax on the married couple with the unequalincome division.  The attractiveness of the principle of equal taxation of couples with equalincomes may depend on the extent to which married couples actually pool their incomes.(15)

	An advocate of marriage neutrality could respond that the relevant comparison is notbetween a two-earner married couple where the spouses have equal incomes and a two-earnermarried couple with an unequal income division, but rather between a two-earner married coupleand a one-earner married couple with the same total income.  Here, the case for equal taxation ofthe two couples may be weaker, because the non-earner in the one-earner married couple benefitsfrom more time that may be used for unpaid work inside the home, child care, other activities orleisure.  It could, of course, be argued in response that the "leisure" of the non-earner may in factconsist of necessary job hunting or child care, in which case the one-earner married couple maynot have more ability to pay income tax than the two-earner married couple with the sameincome.

**Marriage penalty, labor supply, and economic efficiency**

	Most analysts discuss the marriage penalty or marriage bonus as an issue of fairness, butthe marriage penalty or bonus also may create economic inefficiencies.  The marriage penalty orbonus may distort taxpayer behavior.  The most obvious decision that may be distorted is thedecision to marry.  For taxpayers for whom the marriage penalty exists, the tax system increasesthe "price" of marriage.  For taxpayers for whom the marriage bonus exists, the tax systemreduces the "price" of marriage.  Most of what is offered as evidence of distorted choice isanecdotal.  There is no statistical evidence that the marriage penalty or marriage bonus hasaltered taxpayers' decisions to marry.  Even if the marriage decision were distorted, it would bedifficult to measure the cost to society of delayed marriages or alternative family structures.

	Some analysts have suggested that the marriage penalty may alter taxpayers' decisions towork.  As explained above, a marriage penalty exists when the sum of the tax liabilities of twounmarried individuals filing their own tax returns (either single or head of household returns) isless than their tax liability under a joint return (if the two individuals were to marry).  This is theresult of a tax system with increasing marginal tax rates.  The marriage penalty not only meansthe total tax liability of the two formerly single taxpayers is higher after marriage than beforemarriage, but it also generally may result in one or both of the formerly single taxpayers being ina higher marginal tax rate bracket.  That is, the additional tax on an additional dollar of income ofeach taxpayer is greater after marriage than it was when they were both single.  Economists arguethat changes in marginal tax rates may affect taxpayers' decisions to work.  Higher marginal taxrates may discourage household saving and labor supply by the newly married household.  Forexample, suppose a woman currently in the 28-percent tax bracket marries a man who currentlyis unemployed.  If they had remained single and the man became employed, the first $6,950 ofhis earnings would be tax free.(16)  However, because he marries a woman in the 28-percentincome tax bracket, if he becomes employed he would have a tax liability of 28 cents on his firstdollar of earnings, leaving a net of 72 cents for his labor.  Filing a joint return may distort theman's decision regarding whether to enter the work force.  If he chooses not to work, societyloses the benefit of his labor.  Some have suggested that the labor supply decision of the lowerearner or "secondary earner" in married households may be quite sensitive to the household'smarginal tax rate.(17)

	The possible disincentive effects of a higher marginal tax rate on the secondary workerarise in the case of couples who experience a marriage bonus as well.  In the specific exampleabove, the couple consisted of one person in the labor force and one person not in the labor force. As noted previously, such a circumstance generally results in a marriage bonus.  By filing a jointreturn, the lower earner may become subject to the marginal tax rate of the higher earner.  Bycreating higher marginal tax rates on secondary earners, joint filing may discourage a number ofindividuals from entering the work force or it may discourage those already in the labor forcefrom working additional hours.(18)

**Eliminating or reducing the marriage penalty**

	The marriage penalty could be eliminated in two ways.  One is through restructuring ofrates (across different filing statuses) and phaseout ranges (for numerous provisions).  The otheris by giving married couples the option to calculate their tax liability as if they were unmarried.  

	To eliminate the marriage penalty through a change in the rate structure, the brackets forall unmarried taxpayers (both singles and heads of household) would have to be half as large asthe married, filing joint brackets.  This change could either gain or lose revenue--depending onwhether unmarried individuals have their rate brackets shifted down or joint filers have theirsshifted up.  Another effect of such a step would be that single individuals and heads of householdwith identical incomes would find their tax liabilities nearly the same (they would differ onlybecause of extra personal exemptions for the head of household's dependents and any EIC). Relying solely on extra personal exemptions to adjust for family size would result in unmarriedindividuals with dependents receiving smaller tax benefits than they now receive by filing ashead of household (assuming that the head of household rate is adjusted downward to match thesingles rate, rather than the reverse).  Such a change in rate structure would also bring back the"singles penalty" that led to the creation of an unmarried filing status (separate from married,filing separately) in 1969.

	Allowing joint filers the option of calculating a combined tax liability as if they were notmarried would eliminate the problem of the marriage penalty at the cost of complicating the taxreturn.  To take advantage of the provision, taxpayers would have to calculate their tax liabilityunder two alternatives and then choose the smaller liability.  Rules would have to prescribe howtaxpayers would allocate deductions and dependent exemptions (if any) between the two spousesor the spouses could be allowed to allocate them in the most favorable manner.  In many cases, itwould be difficult for the Internal Revenue Service to enforce detailed rules short of audit; inpractice, taxpayers could have wide latitude to allocate deductions and unearned income in themost favorable way.(19)

	A second issue for the optional unmarried filing is what filing status to allow taxpayerswith dependents to use.  Married filers with dependents could be allowed to file as heads ofhousehold or permitted only to file as a single taxpayer.  If one measures the marriage penaltyrelative to what tax treatment the spouses would get if they divorced, then head of householdfiling would be appropriate.  If one measures the marriage penalty relative to the tax treatmentbefore the time of marriage, then the answer hinges upon whether the dependents arose before orafter the marriage.

	An alternative approach would be to reduce the marriage penalty by returning to the1982-1986 second-earner deduction, which allowed joint filers a deduction for 10 percent of thelesser of the earned income of the lower-earning spouse or $30,000.  This approach reduces themarginal tax rate on the lower-earning spouse, but does not eliminate the marriage penalty,especially if the size of the deduction is capped, as was the 1982-1986 deduction.  While thisapproach is not tailored to the particular situation of a married couple, it is much easier toadminister than calculating separate liabilities for each spouse.  Because it is a deduction, itsvalue rises as the couple's marginal tax rate rises.  This feature does not necessarily track the sizeof the marriage penalty, which is much larger for individuals in the bottom (in relative terms) andtop (in dollar amounts) marginal tax brackets.  Also, a second-earner deduction provides a taxbenefit even if the couple suffers no marriage penalty (i.e*.*, those couples where the earnings aresplit less evenly than 70/30 as previously discussed).

----

**PART TWO:  EDUCATION TAX INCENTIVES**

**I.  OVERVIEW OF PRESENT-LAW TAX INCENTIVES FOR EDUCATION**

**A.  General Tax Treatment of Education Expenses**

	Individual taxpayers generally may not deduct their education and training expenses.However, a deduction for education expenses generally is allowed under section 162 if theeducation or training (1) maintains or improves a skill required in a trade or business currentlyengaged in by the taxpayer, or (2) meets the express requirements of the taxpayer's employer, orrequirements of applicable law or regulations, imposed as a condition of continued employment(Treas. Reg. sec. 1.162-5).  Education expenses are not deductible if they relate to certainminimum educational requirements or to education or training that enables a taxpayer to beginworking in a new trade or business.  In the case of an employee, education expenses (if notreimbursed by the employer) may be claimed as an itemized deduction only if such expensesmeet the above-described criteria for deductibility under section 162 and only to the extent thatthe expenses, along with other miscellaneous deductions, exceed 2 percent of the taxpayer'sadjusted gross income ("AGI").

**B.  Exclusion for Employer-Provided Educational Assistance**

	A special rule allows an employee to exclude from gross income for income tax purposesand from wages for employment tax purposes up to $5,250 annually paid by his or her employerfor educational assistance (sec. 127).  This exclusion does not apply to graduate-level courses.  Inorder for the exclusion to apply certain requirements must be satisfied.  The educationalassistance must be provided pursuant to a separate written plan of the employer.  The employer'seducational assistance program must not discriminate in favor of highly compensated employees. In addition, not more than 5 percent of the amounts paid or incurred by the employer during theyear for educational assistance under a qualified educational assistance program can be providedfor the class of individuals consisting of more than 5-percent owners of the employer and thespouses or dependents of such more than 5-percent owners.  This special exclusion foremployer-provided educational assistance expires with respect to courses beginning after May31, 2000.

	For purposes of the special exclusion, educational assistance means the payment by anemployer of expenses incurred by or on behalf of the employee for education of the employeeincluding, but not limited to, tuition, fees, and similar payments, books, supplies, and equipment.Educational assistance also includes the provision by the employer of courses of instruction forthe employee (including books, supplies, and equipment).  Educational assistance does notinclude (1) tools or supplies that may be retained by the employee after completion of a course,(2) meals, lodging, or transportation, and (3) any education involving sports, games, or hobbies.

	In the absence of the exclusion under section 127, employer-provided educationalassistance is excludable from gross income and wages as a working condition fringe benefit (sec.132(d)) only if the education expenses would have been deductible to the employee (if paid bythe employee) under section 162.  In determining the amount deductible for this purpose, the 2-percent floor on miscellaneous itemized deductions is disregarded.

**C.  Qualified Scholarships**

	Present law provides an exclusion from gross income for amounts received as a qualifiedscholarship by an individual who is a candidate for a degree and used for tuition and feesrequired for the enrollment or attendance (or for fees, books, supplies, and equipment requiredfor courses of instruction) at a primary, secondary, or post-secondary educational institution (sec.117).  This tax-free treatment does not extend to scholarship amounts covering regular livingexpenses, such as room and board.  In addition to the exclusion for qualified scholarships,present law provides an exclusion from gross income for qualified tuition reductions for certaineducation provided to employees (and their spouses and dependents) of certain educationalorganizations (sec. 117(d)).

	The exclusion for qualified scholarships and qualified tuition reductions does not apply toany amount received by a student that represents payment for teaching, research, or other servicesby the student required as a condition for receiving the scholarship or tuition reduction.

**D.  HOPE and Lifetime Learning Credits**

**1.  HOPE credit**

	Individual taxpayers are allowed to claim a nonrefundable credit, the "HOPE" credit,against Federal income taxes up to $1,500 per student per year for qualified tuition and relatedexpenses paid for the first two years of the student's post-secondary education in a degree orcertificate program.  The HOPE credit rate is 100 percent on the first $1,000 of qualified tuitionand related expenses, and 50 percent on the next $1,000 of qualified tuition and relatedexpenses.(20)  The qualified tuition and related expenses must be incurred on behalf of thetaxpayer, the taxpayer's spouse, or a dependent of the taxpayer.  The HOPE credit is availablewith respect to an individual student for two taxable years, provided that the student has notcompleted the first two years of post-secondary education before the beginning of the secondtaxable year.(21)  The HOPE credit amount that a taxpayer may otherwise claim is phased outratably for taxpayers with modified AGI between $40,000 and $50,000 ($80,000 and $100,000for joint returns).  For taxable years beginning after 2001, the $1,500 maximum HOPE creditamount and the AGI phase-out range will be indexed for inflation.

	The HOPE credit is available in the taxable year the expenses are paid, subject to therequirement that the education is furnished to the student during that year or during the first threemonths of the next year.  Qualified tuition and related expenses paid with the proceeds of a loangenerally are eligible for the HOPE credit.  The repayment of a loan itself is not a qualifiedtuition or related expense.

	A taxpayer may claim the HOPE credit with respect to an eligible student who is not thetaxpayer or the taxpayer's spouse (e.g., in cases in which the student is the taxpayer's child) onlyif the taxpayer claims the student as a dependent for the taxable year for which the credit isclaimed.  If a student is claimed as a dependent, the student is not entitled to claim a HOPE creditfor that taxable year on the student's own tax return.  If a parent (or other taxpayer) claims astudent as a dependent, any qualified tuition and related expenses paid by the student are treatedas paid by the parent (or other taxpayer) for purposes of determining the amount of qualifiedtuition and related expenses paid by such parent (or other taxpayer) under the provision.  Inaddition, for each taxable year, a taxpayer may elect either the HOPE credit or the "LifetimeLearning" credit (described below) with respect to an eligible student.(22)

	The HOPE credit is available for "qualified tuition and related expenses," which includetuition and fees required to be paid to an eligible educational institution as a condition ofenrollment or attendance of an eligible student at the institution.  Charges and fees associatedwith meals, lodging, insurance, transportation, and similar personal, living or family expenses arenot eligible for the credit.  The expenses of education involving sports, games, or hobbies are notqualified tuition and related expenses unless this education is part of the student's degreeprogram.

	Qualified tuition and related expenses generally include only out-of-pocket expenses.  Qualified tuition and related expenses do not include expenses covered by employer-providededucational assistance and scholarships that are not required to be included in the gross incomeof either the student or the taxpayer claiming the credit. Thus, total qualified tuition and relatedexpenses are reduced by any scholarship or fellowship grants excludable from gross incomeunder section 117 and any other tax-free educational benefits received by the student (or thetaxpayer claiming the credit) during the taxable year.  The HOPE credit is not allowed withrespect to any education expense for which a deduction is claimed under section 162 or any othersection of the Code.

	An eligible student for purposes of the HOPE credit is an individual who is enrolled in adegree, certificate, or other program (including a program of study abroad approved for credit bythe institution at which such student is enrolled) leading to a recognized educational credential atan eligible educational institution.  The student must pursue a course of study on at least ahalf-time basis.  A student is considered to pursue a course of study on at least a half-time basis ifthe student carries at least one-half the normal full-time work load for the course of study thestudent is pursuing for at least one academic period which begins during the taxable year.  To beeligible for the HOPE credit, a student must not have been convicted of a Federal or State felonyconsisting of the possession or distribution of a controlled substance.

	Eligible educational institutions generally are accredited post-secondary educationalinstitutions offering credit toward a bachelor's degree, an associate's degree, or anotherrecognized post-secondary credential.  Certain proprietary institutions and post-secondaryvocational institutions also are eligible educational institutions.  In order to qualify as an eligibleeducational institution, an institution must be eligible to participate in Department of Educationstudent aid programs.

**2.  Lifetime Learning credit**

	Individual taxpayers are allowed to claim a nonrefundable  credit, the "LifetimeLearning" credit, against Federal income taxes equal to 20 percent of qualified tuition and relatedexpenses incurred during the taxable year on behalf of the taxpayer, the taxpayer's spouse, or anydependents.  For expenses paid after June 30, 1998, and prior to January 1, 2003, up to $5,000 ofqualified tuition and related expenses per taxpayer return are eligible for the Lifetime Learningcredit (i.e., the maximum credit per taxpayer return is $1,000).  For expenses paid afterDecember 31, 2002, up to $10,000 of qualified tuition and related expenses per taxpayer returnwill be eligible for the Lifetime Learning credit (i.e., the maximum credit per taxpayer return willbe $2,000).

	In contrast to the HOPE credit, a taxpayer may claim the Lifetime Learning credit for anunlimited number of taxable years.  Also in contrast to the HOPE credit, the maximum amountof the Lifetime Learning credit that may be claimed on a taxpayer's return will not vary based onthe number of students in the taxpayer's family -- that is, the HOPE credit is computed on aper-student basis, while the Lifetime Learning credit is computed on a family-wide basis.  TheLifetime Learning credit amount that a taxpayer may otherwise claim is phased out ratably fortaxpayers with modified AGI between $40,000 and $50,000 ($80,000 and $100,000 for jointreturns).

	The Lifetime Learning credit is available in the taxable year the expenses are paid, subjectto the requirement that the education is furnished to the student during that year or during thefirst three months of the next year.  Qualified tuition and related expenses paid with the proceedsof a loan generally are eligible for the Lifetime Learning credit (rather than repayment of the loanitself).

	As with the HOPE credit, a taxpayer may claim the Lifetime Learning credit with respectto a student who is not the taxpayer or the taxpayer's spouse (e.g., in cases where the student isthe taxpayer's child) only if the taxpayer claims the student as a dependent for the taxable year forwhich the credit is claimed.  If a student is claimed as a dependent by the parent or othertaxpayer, the student may not claim the Lifetime Learning credit for that taxable year on thestudent's own tax return.  If a parent (or other taxpayer) claims a student as a dependent, anyqualified tuition and related expenses paid by the student are treated as paid by the parent (orother taxpayer) for purposes of the provision.

	A taxpayer may claim the Lifetime Learning credit for a taxable year with respect to oneor more students, even though the taxpayer also claims a HOPE credit for that same taxable yearwith respect to other students. If, for a taxable year, a taxpayer claims a HOPE credit with respectto a student, then the Lifetime Learning credit is not be available with respect to that samestudent for that year (although the Lifetime Learning credit may be available with respect to thatsame student for other taxable years).(23)

	The Lifetime Learning credit is available for "qualified tuition and related expenses,"which include tuition and fees required to be paid to an eligible educational institution as acondition of enrollment or attendance of a student at the institution.  Charges and fees associatedwith meals, lodging, insurance, transportation, and similar personal, living or family expenses arenot eligible for the credit.  The expenses of education involving sports, games, or hobbies are notqualified tuition expenses unless this education is part of the student's degree program.

	In contrast to the HOPE credit, qualified tuition and related expenses for purposes of theLifetime Learning credit include tuition and fees incurred with respect to undergraduate orgraduate-level (and professional degree) courses.(24)

	As with the HOPE credit, qualified tuition and fees generally include only out-of-pocketexpenses.  Qualified tuition and fees do not include expenses covered by educational assistancethat is not required to be included in the gross income of either the student or the taxpayerclaiming the credit.  Thus, total qualified tuition and fees are reduced by any scholarship orfellowship grants excludable from gross income under section 117 and any other tax-freeeducational benefits received by the student during the taxable year (such as employer-providededucational assistance excludable under section 127).  The Lifetime Learning credit is notallowed with respect to any education expense for which a deduction is claimed under section162 or any other section of the Code.

	In addition to allowing a credit for the tuition and related expenses of a student whoattends classes on at least a half-time basis as part of a degree or certificate program, the LifetimeLearning credit also is available with respect to any course of instruction at an eligibleeducational institution (whether enrolled in by the student on a full-time, half-time, or less thanhalf-time basis) to acquire or improve job skills of the student.(25)  Undergraduate and graduatestudents are eligible for the Lifetime Learning credit.  Moreover, in contrast to the HOPE credit,the eligibility of a student for the Lifetime Learning credit does not depend on whether or not thestudent has been convicted of a Federal or State felony consisting of the possession ordistribution of a controlled substance.

**E.  Provisions Relating to Student Loans**

**1.  Deduction for student loan interest**

	Certain individuals who have paid interest on qualified education loans may claim anabove-the-line deduction for such interest expenses, subject to a maximum annual deductionlimit (sec. 221).  The deduction is allowed only with respect to interest paid on a qualifiededucation loan during the first 60 months in which interest payments are required.  Requiredpayments of interest generally do not include nonmandatory payments, such as interest paymentsmade during a period of loan forbearance.  Months during which interest payments are notrequired because the qualified education loan is in deferral or forbearance do not count againstthe 60-month period.  No deduction is allowed to an individual if that individual is claimed as adependent on another taxpayer's return for the taxable year.

	A qualified education loan generally is defined as any indebtedness incurred solely to payfor the costs of attendance (including room and board) of the taxpayer, the taxpayer's spouse, orany dependent of the taxpayer as of the time the indebtedness was incurred in attending on atleast a half-time basis (1) post-secondary educational institutions and certain vocational schoolsdefined by reference to section 481 of the Higher Education Act of 1965, or (2) institutionsconducting internship or residency programs leading to a degree or certificate from an institutionof higher education, a hospital, or a health care facility conducting postgraduate training.

	The maximum allowable deduction per taxpayer return is $1,500 in 1999, $2,000 in 2000,and $2,500 in 2001 and thereafter.(26)  The deduction is phased out ratably for individual taxpayerswith modified AGI of $40,000-$55,000 and $60,000-$75,000 for joint returns.  The incomeranges will be indexed for inflation after 2002.

**2.  Exclusion of income from student loan forgiveness**

	Gross income generally includes the discharge of indebtedness of the taxpayer.  Under anexception to this general rule, gross income does not include any amount from the forgiveness (inwhole or in part) of certain student loans, provided that the forgiveness is contingent on thestudent's working for a certain period of time in certain professions for any of a broad class ofemployers (sec. 108(f)).

	Student loans eligible for this special rule must be made to an individual to assist theindividual in attending an educational institution that normally maintains a regular faculty andcurriculum and normally has a regularly enrolled body of students in attendance at the placewhere its education activities are regularly carried on.  Loan proceeds may be used not only fortuition and required fees, but also to cover room and board expenses.  The loan must be made by(1) the United States (or an instrumentality or agency thereof), (2) a State (or any politicalsubdivision thereof), (3) certain tax-exempt public benefit corporations that control a State,county, or municipal hospital and whose employees have been deemed to be public employeesunder State law, or (4) an educational organization that originally received the funds from whichthe loan was made from the United States, a State, or a tax-exempt public benefit corporation.

	In addition, an individual's gross income does not include amounts from the forgivenessof loans made by educational organizations (and certain tax-exempt organizations in the case ofrefinancing loans) out of private, nongovernmental funds if the proceeds of such loans are usedto pay costs of attendance at an educational institution or to refinance any outstanding studentloans (not just loans made by educational organizations) and the student is not employed by thelender organization.  In the case of loans made or refinanced by educational organizations (aswell as refinancing loans made by certain tax-exempt organizations) out of private funds, thestudent's work must fulfill a public service requirement.  Cancellation of the student loan mustbe contingent upon the student working in an occupation or area with unmet needs and suchwork must be performed for or under the direction of a tax-exempt charitable organization or agovernmental entity.

**F.  Education IRAs**

**1.  In general**

	Taxpayers may establish certain trusts or custodial accounts created exclusively for thepurpose of paying qualified higher education expenses of a named beneficiary ("educationIRAs") (sec. 530).  Annual contributions to education IRAs may not exceed $500 per designatedbeneficiary, and may not be made after the designated beneficiary reaches age 18.  Thecontribution limit is phased out for taxpayers with modified AGI between $95,000 and $110,000($150,000 and $160,000 for taxpayers filing joint returns); the AGI of the contributor not thebeneficiary controls whether a contribution is permitted by the taxpayer.  No contribution may bemade to an education IRA during any year in which any contributions are made by anyone to aqualified State tuition program on behalf of the same beneficiary.

	Earnings on contributions to the account generally are subject to tax when withdrawn.(27) However, distributions from an education IRA are excludable from the gross income of thedistributee (i.e., the student) to the extent that the distribution does not exceed the qualifiedhigher education expenses incurred by the beneficiary during the year the distribution is made(provided that a HOPE credit or Lifetime Learning credit is not claimed with respect to thebeneficiary for the same taxable year).  The earnings portion of an education IRA distribution notused to pay qualified higher education expenses is includible in the gross income of thedistributee and generally is subject to an additional 10-percent tax.(28)

	Tax-free (and penalty-free) transfers or rollovers of account balances from one educationIRA benefitting one beneficiary to another education IRA benefitting another beneficiary (as wellas redesignations of the named beneficiary) are permitted, provided that the new beneficiary is amember of the family of the old beneficiary.

	The term "qualified higher education expenses" includes tuition, fees, books, supplies,and equipment required for the enrollment or attendance of the designated beneficiary at aneligible education institution, regardless of whether the beneficiary is enrolled at an eligibleeducational institution on a full-time, half-time, or less than half-time basis.  Moreover, qualifiedhigher education expenses include certain room and board expenses for any period during whichthe beneficiary is at least a half-time student.  Qualified higher education expenses includeexpenses with respect to undergraduate or graduate-level courses.  In addition, section530(b)(2)(B) specifically provides that qualified higher education expenses include amounts paidor incurred to purchase tuition credits (or to make contributions to an account) under a qualifiedState tuition program for the benefit of the beneficiary of the education IRA.

	Qualified higher education expenses generally include only out-of-pocket expenses.  Suchqualified higher education expenses do not include expenses covered by educational assistancefor the benefit of the beneficiary that is excludable from gross income.  Thus, total qualifiedhigher education expenses are reduced by scholarship or fellowship grants excludable from grossincome under present-law section 117, as well as any other tax-free educational benefits, such asemployer-provided educational assistance that is excludable from the employee's gross incomeunder section 127.

**2.  Coordination with HOPE and Lifetime Learning credits**

	If an exclusion from gross income under section 530 is allowed for a particular student,then neither the HOPE credit nor the Lifetime Learning credit will be available in the sametaxable year with respect to the same student.  However, if a student elects to waive the exclusionfrom gross income under section 530, then either the student or a parent (if the student is claimedas a dependent by the parent) may claim the HOPE credit or the Lifetime Learning credit.

**G.  Qualified State Tuition Programs**

	Present law provides tax-exempt status to "qualified State tuition programs," meaningcertain programs established and maintained by a State (or agency or instrumentality thereof)under which persons may (1) purchase tuition credits or certificates on behalf of a designatedbeneficiary that entitle the beneficiary to a waiver or payment of qualified higher educationexpenses of the beneficiary, or (2) make contributions to an account that is established for thepurpose of meeting qualified higher education expenses of the designated beneficiary of theaccount (sec. 529).  The term "qualified higher education expenses" has the same meaning asdoes the term for purposes of education IRAs (as described above) and, thus, includes expensesfor tuition, fees, books, supplies, and equipment required for the enrollment or attendance at aneligible educational institution(29), as well as certain room and board expenses (i.e., the minimumroom and board allowance applicable to the student as determined by the institution incalculating costs of attendance for Federal financial aid programs under sec. 472 of the HigherEducation Act of 1965) for any period during which the student is at least a half-time student.

	Present law also provides that no amount shall be included in the gross income of acontributor to, or beneficiary of, a qualified State tuition program with respect to any distributionfrom, or earnings under, such program, except that (1) amounts distributed or educationalbenefits provided to a beneficiary (e.g., when the beneficiary attends college) will be included inthe beneficiary's gross income (unless excludable under another Code section) to the extent suchamounts or the value of the educational benefits exceed contributions made on behalf of thebeneficiary, and (2) amounts distributed to a contributor or another distributee (e.g., when aparent receives a refund) will be included in the contributor's/distributee's gross income to theextent such amounts exceed contributions made on behalf of the beneficiary.

	A qualified State tuition program is required to provide that purchases or contributionsonly be made in cash.  Contributors and beneficiaries are not allowed to directly or indirectlydirect the investment of contributions to the program (or earnings thereon).  The program isrequired to maintain a separate accounting for each designated beneficiary.  A specifiedindividual must be designated as the beneficiary at the commencement of participation in aqualified State tuition program (i.e., when contributions are first made to purchase an interest insuch a program), unless interests in such a program are purchased by a State or local governmentor a tax-exempt charity described in section 501(c)(3) as part of a scholarship program operatedby such government or charity under which beneficiaries to be named in the future will receivesuch interests as scholarships.  A transfer of credits (or other amounts) from one accountbenefitting one designated beneficiary to another account benefitting a different beneficiary willbe considered a distribution (as will a change in the designated beneficiary of an interest in aqualified State tuition program), unless the beneficiaries are members of the same family.(30) Earnings on an account may be refunded to a contributor or beneficiary, but the State orinstrumentality must impose a more than de minimis monetary penalty unless the refund is (1)used for qualified higher education expenses of the beneficiary, (2) made on account of the deathor disability of the beneficiary, or (3) made on account of a scholarship received by thedesignated beneficiary to the extent the amount refunded does not exceed the amount of thescholarship used for qualified higher education expenses.

	No amount is includible in the gross income of a contributor to, or beneficiary of, aqualified State tuition program with respect to any contribution to or earnings on such a programuntil a distribution is made from the program, at which time the earnings portion of thedistribution (whether made in cash or in-kind) is includible in the gross income of the distributee. However, to the extent that a distribution from a qualified State tuition program is used to pay forqualified tuition and related expenses (as defined in sec. 25A(f))(1)), the distributee (or anothertaxpayer claiming the distributee as a dependent) will be able to claim the HOPE credit orLifetime Learning credit under section 25A with respect to such tuition and related expenses(assuming that the other requirements for claiming the HOPE credit or Lifetime Learning creditare satisfied and the modified AGI phaseout for those credits does not apply).

**H.  Exclusion of Interest Earned on Education Savings Bonds**

	Interest earned on a qualified U.S. Series EE savings bond issued after 1989 is excludablefrom gross income if the proceeds of the bond upon redemption do not exceed qualified highereducation expenses paid by the taxpayer during the taxable year (sec. 135).(31)  "Qualified highereducation expenses" include tuition and fees (but not room and board expenses) required for theenrollment or attendance of the taxpayer, the taxpayer's spouse, or a dependent of the taxpayer atcertain eligible higher educational institutions (defined in the manner as for the HOPE andLifetime Learning credits).  The amount of qualified higher education expenses taken intoaccount for purposes of the exclusion provided by section 135 is reduced by the amount of suchexpenses taken into account in determining the HOPE or Lifetime Learning credits claimed byany taxpayer, or an exclusion from gross income for a distribution from an education IRA, withrespect to a particular student for the taxable year.

	The exclusion provided by section 135 is phased out for certain higher-income taxpayers,determined by the taxpayer's modified AGI during the year the bond is redeemed. For 1999, theexclusion is phased out for single taxpayers with modified AGI between $53,100 and $68,100($79,650 and $109,650 for joint returns). To prevent taxpayers from effectively avoiding theincome phaseout limitation through issuance of bonds directly in the child's name, present lawprovides that the interest exclusion is available only with respect to U.S. Series EE savings bondsissued to taxpayers who are at least 24 years old.

**I.  Individual Retirement Arrangements**

**1.  In general**

	There are two basic types of individual retirement arrangements ("IRAs") under presentlaw: "traditional" IRAs, to which both deductible and nondeductible contributions can be made,and Roth IRAs.  The economic benefits of making deductible IRA contributions and makingcontributions to Roth IRAs are similar,(32) although the rules applicable to each type of IRAcontribution vary.  IRAs may generally be used to save for any purpose, including educationalexpenses.  In addition, withdrawals used to pay for educational expenses are not subject to the10-percent early withdrawal tax generally applicable to IRA withdrawals before age 59-1/2.

**2.  Deductible IRA contributions**

	Under present law, an individual may make deductible contributions to an individualretirement arrangement ("IRA") up to the lesser of $2,000 or the individual's compensation if theindividual and the individual's spouse are not active participants in an employer-sponsoredretirement plan. In the case of a married couple, deductible IRA contributions of up to $2,000 canbe made for each spouse (including, for example, a homemaker who does not work outside thehome), if the combined compensation of both spouses is at least equal to the contributed amount. If the individual (or the individual's spouse) is an active participant in an employer-sponsoredretirement plan, the $2,000 deduction limit is phased out for taxpayers with AGI over certainlevels for the taxable year.

	The AGI phase-out limits for a single individual who is an active participant in anemployer-sponsored retirement plan are as follows: for 1999, $31,000 to $41,000; for 2000, 2001and 2002, the limits increase by $1,000 each year, so that the limits by 2002 are $34,000 to$44,000; for 2003, $40,000 to $50,000; for 2004, $45,000 to $55,000; and for 2005 andthereafter, $50,000 to $60,000.

	The AGI phase-out limits for a married individual filing a joint return who is an activeparticipant in an employer-sponsored plan are as follows: for 1999, $51,000 to $61,000; for 2000, 2001 and 2002, the limits increase by $1,000 each year, so that the limits by 2002 are$54,000 to $64,000; for 2003, $60,000 to $70,000; for 2004, $65,000 to $75,000; for 2005,$70,000 to $80,000; for 2006, $75,000 to $85,000; and for 2007 and thereafter, $80,000 to$90,000.

	If the individual is not an active participant in an employer-sponsored retirement plan, butthe individual's spouse is, the $2,000 deduction limit is phased out for taxpayers with AGIbetween $150,000 and $160,000.

	Amounts held in a traditional IRA are includible in income when withdrawn (except tothe extent the withdrawal is a return of nondeductible contributions). Includible amountswithdrawn prior to attainment of age 59-1/2 are subject to an additional 10-percent earlywithdrawal tax, unless the withdrawal is due to death or disability, is made in the form of certainperiodic payments, is used to pay medical expenses in excess of 7.5 percent of AGI, is used topurchase health insurance of an unemployed individual, is used for education expenses, or isused for first-time homebuyer expenses of up to $10,000.  Education expenses that qualify for theexception to the early withdrawal tax are qualified higher education expenses (as defined underthe rules relating to qualified State tuition programs) of the taxpayer, the taxpayer's spouse, orany child or grandchild of the taxpayer and his or her spouse, at an eligible educationalinstitution.  The amount of education expenses is reduced by certain scholarships and similarpayments.

**3.  Roth IRAs**

	Individuals with AGI below certain levels may make nondeductible contributions to aRoth IRA. The maximum annual contribution that may be made to a Roth IRA is the lesser of$2,000 or the individual's compensation for the year. The contribution limit is reduced to theextent an individual makes contributions to any other IRA for the same taxable year. As underthe rules relating to IRAs generally, a contribution of up to $2,000 for each spouse may be madeto a Roth IRA provided the combined compensation of the spouses is at least equal to thecontributed amount. The maximum annual contribution that can be made to a Roth IRA isphased out for single individuals with AGI between $95,000 and $110,000 and for joint filerswith AGI between $150,000 and $160,000.

	Taxpayers with modified AGI of $100,000 or less generally may convert a deductible ornondeductible IRA into an Roth IRA.  The amount converted is includible in income as if awithdrawal had been made, except that the 10-percent early withdrawal tax does not apply and, ifthe conversion occurred in 1998, the income inclusion may be spread ratably over 4 years.

	Amounts held in a Roth IRA that are withdrawn as a qualified distribution are notincludible in income, nor subject to the additional 10-percent tax on early withdrawals. Aqualified distribution is a distribution that (1) is made after the 5-taxable year period beginningwith the first taxable year for which the individual made a contribution to a Roth IRA, and (2)which is made after attainment of age 59-1/2, on account of death or disability, or is made forfirst-time homebuyer expenses of up to $10,000.

	Distributions from a Roth IRA that are not qualified distributions are includible in incometo the extent attributable to earnings, and subject to the 10-percent early withdrawal tax (unlessan exception applies).(33) The same exceptions to the early withdrawal tax that apply to IRAs applyto Roth IRAs.

**4.  Nondeductible IRA contributions**

	To the extent an individual cannot or does not make deductible contributions to an IRA orcontributions to a Roth IRA, the individual may make nondeductible contributions to atraditional IRA.  As mentioned above, distributions from a traditional IRA are includible inincome and subject to the 10-percent early withdrawal tax (except to the extent the amountdistributed is a return of nondeductible contributions).

**J.  Tax Benefits for Certain Types of Bonds for Educational Facilities and Activities**

**1.  Tax-exempt bonds**

**In general**

	Interest on debt(34) incurred by States or local governments is excluded from income if theproceeds of the borrowing are used to carry out governmental functions of those entities or thedebt is repaid with governmental funds (sec. 103).(35)  Like other activities carried out and paid forby States and local governments, the construction, renovation, and operation of public schools isan activity eligible for financing with the proceeds of tax-exempt bonds.

	Interest on bonds that nominally are issued by States or local governments, but theproceeds of which are used (directly or indirectly) by a private person and payment of which isderived from funds of such a private person is taxable unless the purpose of the borrowing isapproved specifically in the Internal Revenue Code (the "Code") or in a non-Code provision of arevenue Act.(36)  These bonds are called "private activity bonds."  The term "private person"includes the Federal Government and all other individuals and entities other than States or localgovernments.  Present law provides two tests for determining whether a State or localgovernment bond is in substance a private activity bond (sec. 141(b) and (c)).

Private business test.--Private business use and private payments result in State or localgovernment bonds being private activity bonds if both parts of a two-part private business test aresatisfied--

	(1)	More than 10 percent of the bond proceeds is to be used (directly or indirectly) bya private business (the "private business use test"); and

	(2)	More than 10 percent of the debt service on the bonds is secured by aninterest in property to be used in a private business use or to be derivedfrom payments in respect of such property (the "private payment test").(37)

Private loan test.--The second standard for determining whether a State or localgovernment bond is a private activity bond is whether an amount exceeding the lesser of (1) 5percent of the bond proceeds or (2) $5 million is used (directly or indirectly) to finance loans toprivate persons. Private loans include both business and other (e.g., personal) uses and paymentsby private persons; however, in the case of business uses and payments, all private loans alsoconstitute private business uses and payments subject to the private business test.  Present lawprovides that the substance of a transaction governs in determining whether a transaction givesrise to a private loan. In general, any transaction which transfers tax ownership of property to aprivate person is treated as a loan.

**Activities eligible for financing with tax-exempt private activity bonds**

	The Code includes several exceptions permitting States or local governments to act asconduits providing tax-exempt financing for certain private activities.  In most cases, theaggregate volume of these private activity tax-exempt bonds is restricted by annual aggregatevolume limits imposed on bonds issued by issuers within each State.  These annual volume limitsare equal to $150 per resident of the State, or $150 million if greater.(38)

Qualified 501(c)(3) bonds.--Both capital expenditures and limited working capitalexpenditures of charitable organizations described in section 501(c)(3) of the Code -- includingelementary, secondary, and post-secondary schools -- may be financed with tax-exempt bonds("qualified 501(c)(3) bonds").  Bonds to finance activities of these organizations are not subjectto the annual aggregate State volume limits.

Qualified student loan bonds.--States and local governments may issue tax-exemptprivate activity bonds to finance certain student loans.  Eligible student loans include Federallyguaranteed loans under the Higher Education Act of 1965 ("GSL loans") and other loansfinanced as part of a program of general application approved by the State (sec. 144(b)(1)).  Non-GSL student loans may be financed with tax-exempt bonds only if no loan under the programexceeds the difference between the total cost of attendance and other forms of student assistancefor which the borrower may be eligible.

Other tax-exempt private activity bonds.--States or local governments may issuetax-exempt exempt-facility bonds to finance property for certain private businesses. Businessuses generally eligible for this financing include transportation (airports, ports, local masscommuting, and high speed intercity rail facilities);  privately owned and/or privately operatedpublic works facilities (sewage, solid waste disposal, local district heating or cooling, andhazardous waste disposal facilities); privately-owned and/or operated low-income rental housing;and certain private facilities for the local furnishing of electricity or gas. A further provisionallows tax-exempt financing for "environmental enhancements of hydro-electric generatingfacilities."  Tax-exempt financing is authorized for capital expenditures for certain manufacturingfacilities and land and equipment for first-time farmers ("qualified small-issue bonds"), certainlocal redevelopment activities ("qualified redevelopment bonds"), and eligible empowermentzone and enterprise community businesses.

	Finally, in addition to student loans, certain non-business private housing may befinanced with proceeds of these bonds: (1) mortgage loans for first-time home buyers satisfyingmoderate income and home purchase price requirements, and (2) mortgage loans generally forcertain pre-1977 veterans who purchase homes in any of the five States that historically haveauthorized issuance of these bonds.(39)

	Private activity tax-exempt bonds may not be used to finance schools for private, for-profit businesses.

**Arbitrage restrictions on tax-exempt bonds**

	The Federal income tax does not apply to the income of States and local governments thatis derived from the exercise of an essential governmental function.  To prevent these tax-exemptentities from issuing more Federally subsidized tax-exempt bonds than is necessary for theactivity being financed or from issuing such bonds earlier than necessary, the Code includesarbitrage restrictions limiting the ability to profit from investment of tax-exempt bond proceeds. In general, arbitrage profits may be earned only during specified periods (e.g., defined"temporary periods" before funds are needed for the purpose of the borrowing) or on specifiedtypes of investments (e.g., "reasonably required reserve or replacement funds").  Subject tolimited exceptions, profits that are earned during these periods or on such investments must berebated to the Federal Government.

	The Code includes three exceptions applicable to education-related bonds.  First, issuersof all types of tax-exempt bonds are not required to rebate arbitrage profits if all of the proceedsof the bonds are spent for the purpose of the borrowing within six months after issuance.(40) Second, in the case of bonds to finance certain construction activities, including schoolconstruction and renovation, the six-month period is extended to 24 months.  Arbitrage profitsearned on construction proceeds are not required to be rebated if all such proceeds (other thancertain retainage amounts) are spent by the end of the 24-month period and prescribedintermediate spending percentages are satisfied.(41) Third, governmental bonds issued by "small"governments are not subject to the rebate requirement.  Small governments are defined as generalpurpose governmental units that issue no more than $5 million of tax-exempt governmentalbonds in a calendar year.  The $5 million limit is increased to $10 million if at least $5 million ofthe bonds are used to finance public schools.(42)

**2.  Qualified zone academy bonds**

	As an alternative to traditional tax-exempt bonds, certain States and local governmentsare given the authority to issue "qualified zone academy bonds."  Under present law, a total of$400 million of qualified zone academy bonds may be issued in each of 1998 and 1999.  The$400 million aggregate bond authority is allocated each year to the States according to theirrespective populations of individuals below the poverty line.(43)  Each State, in turn, allocates thecredit to qualified zone academies within such State.  A State may carry over any unusedallocation into subsequent years.  

	Certain financial institutions (i.e., banks, insurance companies, and corporations activelyengaged in the business of lending money) that hold qualified zone academy bonds are entitled toa nonrefundable tax credit in an amount equal to a credit rate (set monthly by TreasuryDepartment regulation at 110 percent of the applicable Federal rate for the month in which thebond is issued) multiplied by the face amount of the bond (sec. 1397E).  The credit rate applies toall such bonds issued in each month.  A taxpayer holding a qualified zone academy bond on thecredit allowance date (i.e., each one-year anniversary of the issuance of the bond) is entitled to acredit.  The credit amount is includible in gross income (as if it were a taxable interest paymenton the bond), and credit may be claimed against regular income tax and alternative minimum taxliability.

	The Treasury Department sets the credit rate each month at a rate estimated to allowissuance of qualified zone academy bonds without discount and without interest cost to theissuer.  The maximum term of the bond issued in a given month also is determined by theTreasury Department, so that the present value of the obligation to repay the bond is 50 percentof the face value of the bond.  Such present value is determined using as a discount rate of theaverage annual interest rate of tax-exempt obligations with a term of 10 years or more issuedduring the month.

	"Qualified zone academy bonds" are defined as bonds issued by a State or localgovernment, provided that: (1) at least 95 percent of the proceeds is used for the purpose ofrenovating, providing equipment to, developing course materials for use at, or training teachersand other school personnel in a "qualified zone academy;" and (2) private entities have promisedto contribute to the qualified zone academy certain equipment, technical assistance or training,employee services, or other property or services with a value equal to at least 10 percent of thebond proceeds.

	A school is a "qualified zone academy" if (1) the school is a public school that provideseducation and training below the college level, (2) the school operates a special academicprogram in cooperation with businesses to enhance the academic curriculum and increasegraduation and employment rates, and (3) either (a) the school is located in one of the 31designated empowerment zones or one of the 95 designated enterprise communities, or (b) it isreasonably expected that at least 35 percent of the students at the school will be eligible for freeor reduced-cost lunches under the school lunch program established under the National SchoolLunch Act.

----

**II.  BACKGROUND DATA ON COLLEGE ENROLLMENT AND COSTS**

	Since 1990, more than 14 million students have enrolled annually in post-secondaryeducation or training programs, with approximately 75 percent enrolled in public institutions and25 percent in private institutions in 1995.  The full-time equivalent enrollment has exceeded 10million in every year since 1991.  Of all those enrolled in 1995, 61 percent were enrolled infour-year institutions. From the average high school sophomore class in 1980, 66.4 percent hadenrolled in some form of post-secondary education or training program by 1992.  During thisperiod, 7.9 percent had attained an associate's degree, 20 percent had attained a bachelor'sdegree, 2.7 percent had attained a master's degree, and 1.1 percent had attained a doctorate orprofessional degree.(44)

	In every year since 1981, the costs of attending a two- or four-year college have risenfaster than the rate of inflation; by contrast, in the late 1970s, college costs lagged behindinflation.  Table 1 below details average tuition and fees by type of college in both current andconstant (inflation adjusted) dollars since 1986.  Since 1976, college tuition and fees generallyhave risen 70 percent more than the economy's overall price level.  For the 1976-77 academicyear, the total cost(45) of attending a four-year private college averaged $3,906 (tuition and fees of$2,534) and the total cost of attending a four-year public college averaged $1,935 (tuition andfees of $617).  For the 1986-87 academic year, the comparable total cost figure had risen to$10,039 (tuition of $6,658) for a four-year private college and to $4,138 (tuition of $1,414) for afour-year public college.  By the 1996-97 academic year, the comparable total cost figure hadrisen to $18,476 (tuition and fees of $12,920) for a four-year private college and to $7,331(tuition and fees of $2,986) for a four-year public college.  For the 1996-97 academic year, theaverage cost of tuition and fees at a two-year public college was $1,283.(46)

	Over the past decade, governmental funding of higher education has declined as a shareof total funding.  Table 2 reports the revenues of all institutions of higher education by source.The table documents that, as a percentage of all revenues, Federal funds have remained relativelyconstant while State and local funding has declined.  As a percentage of all revenues, tuition andfees have increased  while other private funding has increased modestly.  As Table 2 details,State and local contributions have not declined in dollar terms, though their total growth over theperiod 1986-87 to 1994-95 was only 7 percent more than would be accounted for by inflation,while full-time equivalent fall enrollment at public institutions increased 14.4 percent.

----

**Table 1.-Average Undergraduate Tuition and Fees, 1986-87 Through 1996-97**

|  | **Current dollars**
**Constant 1996 dollars**
**Year**
**Privatefour-year**
**Privatetwo-year**
**Publicfour-year**
**Publictwo-year**
**Privatefour-year**
**Privatetwo-year**
**Publicfour-year**
**Publictwo-year**   1986-19876,6583,6841,4146609,3615,1791,9889281987-19887,1164,1611,5377069,6295,6302,0809551988-19897,7224,8171,64673010,0006,2392,1329451989-19908,3965,1961,78075610,3456,4022,1939311990-19919,0835,5701,88882410,6796,5492,2209691991-19929,7755,7522,11993711,0946,5282,4051,0631992-199310,2946,0592,3491,02511,3426,6762,5881,1301993-199410,9526,3702,5371,12511,7426,8292,7191,2061994-199511,4816,9142,6811,19211,9857,2182,7981,2451995-199612,2437,0942,8481,23912,4217,1982,8891,2571996-199712,9207,1902,9861,28312,7747,1092,9531,269
Notes: Current dollar figures are adjusted to constant dollars by reference to the average CPI of the calendar years spanned by the acacemic year for which thetuition is reported.
Source:  U.S. Department of Education, National Center for Education Statistics, *Digest of Education Statistics 1997.*

**Table 2.-Current Funds and Revenues of All Institutions of Higher EducationBy Source, Selected Years, 1986-1987 Through 1994-1995**

[amount in millions]****

**Tuition and fees**
**State and local sources**
**Federal sources**
******Other sources**
**Year**
**Dollar**
**Percent**
**Dollar**
**Percent**
**Dollar**
**Percent**
**Dollar**
**Percent**
**Total**1986-198725,70623.634,10931.314,23913.035,09132.2109,1451990-199137,43425.043,41229.018,23612.250,68433.8149,7661994-199551,50627.249,50926.223,24312.364,86334.3189,121
Source:  U.S. Department of Education, National Center for Education Statistics, *Digest of Education Statistics 1997.*
**III.  ECONOMIC ANALYSIS**

**A.  The Economics of Subsidizing Education**

**Overview of the goals of subsidies**

	All levels of government make substantial direct expenditures to subsidizepost-secondary education.  In addition, private educational organizations channel gifts fromprivate persons into subsidies for the education of other persons.  By exempting suchorganizations from income tax and permitting the gifts to such organizations to be deductible,additional implicit subsidies under the Internal Revenue Code are created for education.  Othersubsidies for education provided by the Internal Revenue Code permit students to receivetax-free qualified scholarships, tax-free employer-provided educational assistance, tax-freecancellation of certain governmental student loans, and a deduction for student loan interest.Students and parents also are provided the benefits of the HOPE and Lifetime Learning credits,the deferral of tax on the earnings of contributions to qualified State tuition programs, and theexclusion from income of earnings on education IRAs and of the interest on U.S. savings bondsused to pay for post-secondary education.(47)  Analysts attempt to evaluate subsidies in terms oftheir efficiency, equity, and administrability. In this regard, subsidies to post-secondary educationhave been argued to improve both economic efficiency and to promote economic equity.

**Efficiency as a goal of subsidies to education**

	Economists generally have a predilection for favoring the outcomes of the free marketand have reasoned that taxes or subsidies in the market generally lead to inefficient outcomes.That is, taxes or subsidies distort choices and divert resources from their highest and best use.However, economists also recognize that sometimes markets do not work efficiently. Economists observe that the consumption or acquisition of certain goods may create spillover, orexternal, effects that benefit society at large as well as the individual consumer who purchasesthe good.  An example of such a good is a vaccination.  The individual who is vaccinatedbenefits by not contracting an infectious disease, but the rest of society benefits as well, becauseby not contracting the disease the vaccinated individual also slows the spread of the disease tothose who are not vaccinated. Economists call such a spillover effect a "positive externality."(48) On his or her own, the individual would weigh only his or her own reduced probability ofcontracting the disease against the cost of the vaccination.  The individual would not account forthe additional benefit the vaccination produces for society.  As a result, the individual mightchoose not to be vaccinated, even though from society's perspective total reduction in the rate ofinfection throughout the population would be more than worth the cost of the vaccination. In thissense, the private market might produce too few of the vaccinations.  The private marketoutcome is inefficiently small.  Economists have suggested that the existence of positiveexternalities provides a rationale for the government to subsidize the acquisition of the good thatproduces the positive externalities.  The subsidy will increase the acquisition of the good to itsmore efficient level.

	While much evidence suggests that job skill acquisition and education benefit the privateindividual in terms of higher market wages,(49) many people have long believed that education alsoproduces positive externalities.  Commentators argue that society functions better with aneducated populace and that markets function better with educated consumers. They observe thateducation promotes innovation and that, because ideas and innovations are easily copied in themarket place, the market return (wage or profit) from ideas and innovations may not reflect thefull value to society from the idea or innovation. Just as the single individual does not appreciatethe full benefit of a vaccination, a single individual may not be able to reap the full benefit of anidea or innovation. Thus, it is argued, subsidies for education are needed to improve theefficiency of society.

	On the other hand, recognizing that a subsidy might be justified does not identify themagnitude of the subsidy necessary to promote efficiency nor the best method for delivery of thesubsidy.  It is possible to create inefficient outcomes by over-subsidizing a good that producespositive externalities.  Given that the United States already provides substantial subsidies topost-secondary education, without some empirical analysis of the social benefits that would arisefrom creating new subsidies, it is not possible to say whether such subsidies would increase ordecrease economic efficiency.

	Some observers note that, aside from potential spillover effects that education mightcreate, the market for financing education may be inefficient.  They observe that while investorsin housing or other tangible assets have property that can be pledged to secure financing toprocure the asset, an individual cannot generally pledge his or her future earnings as security fora loan to obtain education or training designed to increase the individual's future earningpotential.  This inability to provide security for education loans constrains borrowing as analternative to finance education for some taxpayers.  Taxpayers who cannot borrow to financeeducation or training may forgo the education or training even though it would produce a highreturn for the investor.  This inefficiency in the market for education finance may offer ajustification for public subsidies. The inefficiency in the market for financing is likely most acuteamong lower-income taxpayers who generally do not have other assets that could be pledged assecurity for an education loan.  This suggests that this potential source of market inefficiency alsorelates to the considerations of equity as a rationale for subsidies of education (discussed below).

**Equity as a goal of subsidies to education**

	As noted above, there is evidence indicating that education and training are rewarded inthe market place.  Recognizing this market outcome, some argue that it is appropriate tosubsidize education to ensure that educational opportunities are widely available, including tothose less well off in society. Commentators argue that education can play an important role inreducing poverty and income inequality.  They observe that even if there were no positiveexternalities from education, promoting economic equity within a market economy provides abasis for subsidizing education.(50) If equity is the goal of expanded subsidies to education, the costof the subsidies should be weighed in terms of the private benefits received by the target groups,rather than the social benefits that might be generated by any possible spillovers.

**B.  Treatment of Education Expenses Under an Income Tax**

**Educational expenditures**

	Students and their families incur direct educational expenses when they pay tuition andfees. Federal, State, and local governments and private persons make expenditures on behalf ofstudents by funding State and local and private educational institutions.(51)  Such expenditures bygovernments or private persons are equivalent to the government or private person transferringfunds to the student which the student subsequently pays over to the educational institution.Lastly, students incur implicit expenditures for education by choosing schooling over thealternative of taking a job and earning a wage.  The time spent in school means forgone income.Alternatively viewed, it is as if the student worked, was paid, and used the wages to purchaseeducation.  Analysts have concluded that the largest cost of obtaining an education come fromforgone wages.(52)

	Post-secondary education helps individuals develop general analytic and reasoning skills(e.g., problem solving) and often job specific skills (e.g., nursing training) that enhance thestudent's ability to earn a future income.  In this way, expenditures on education are like aninvestment in a capital good: an outlay is made in the present for a machine that will produceincome over a number of years in the future. It is because of this similarity that economists oftenrefer to expenditures on education as investment in "human capital."  However, some part ofexpenditures on post-secondary education are not as obviously investments in human capital butare more like consumption. For example, the chemical engineering student who takes an electivecourse in the history of music probably would not find her future earning potential increased bythat particular elective.  It is difficult to determine for any given student what portion ofpost-secondary education represents consumption and what portion represents investment inhuman capital.

	The distinction between education as investment and education as consumption is notimportant to the efficiency/externality rationale for providing a subsidy to education, asexternalities can arise from either consumption or investment.  However, the distinction betweeneducation as investment and education as consumption is important to the equity rationale forproviding a subsidy to education, as the equity rationale generally is based upon education as aninvestment in future earning potential.  The distinction between education as investment andeducation as consumption also is important for analysis of the income tax treatment ofexpenditures on education--that is, should education expenses be deductible to properly measurea taxpayer's net income?

**Educational expenses under a theoretical income tax**

	Under a theoretical income tax, any expenditures undertaken in the present for returnsthat are expected in the future should be capitalized and recovered as the future returns areearned.  Consumption expenditures are neither deductible nor amortizable under a theoreticalincome tax.  Thus, certain expenditures on education should be capitalized by the taxpayer andrecovered against future earnings.  As discussed above, the relevant expenditures to becapitalized would only be those that represent investments in human capital,(53) not those related toconsumption.  Of course, making such decisions would be quite difficult in practice. Forexample, the would-be chemical engineer of the example above may not know whether herfuture employment will be in the chemical industry or perhaps as a chanteuse, making it difficultto know how to account for the costs of the chemical engineering courses and the music course.Many educational expenses are paid by a parent on behalf of a student.  In such case, thetheoretical income tax would permit amortization only by the student.

**Educational expenses under the present-law income tax**

	As discussed above, there are three types of expenditures made by students on theireducation: (1) payment via implicit or explicit transfers received from governments or privatepersons; (2) forgone wages; and (3) direct payment of tuition and other educational expenses bythe student.

	By not including the transfers from governments or private persons in the income of thestudent, present law offers the equivalent of expensing of those expenditures undertaken onbehalf of the student by governments and private persons.(54)  This treatment (the equivalent ofexpensing) also is provided for direct transfers to students in the form of qualified scholarships oremployer-provided educational assistance, which are excludable from income.  Similarly,because forgone wages are never earned, the implicit expenditure incurred by students forgoingpresent earnings also receives expensing under the present-law income tax.

	The present-law treatment of direct payment of tuition and other educational expenses bythe student is subject to various tax treatments.  With certain exceptions, the present-law incometax treats direct payments of tuition and other educational expenses as consumption, neitherdeductible nor amortizable.(55)  An important exception to this treatment is expenses that qualifyfor the HOPE credit or the Lifetime Learning credit.  The HOPE credit provides income taxtreatment that is the equivalent of an investment tax credit for educational expenditures thatqualify for the credit.  For the first $1,000 of qualified expenditures, a taxpayer receives a $1,000credit, which is the equivalent of a 100-percent investment tax credit.  Such 100-percentinvestment tax credit is more generous tax treatment than is expensing.  A 100-percentinvestment tax credit is, from the taxpayer's perspective,  preferred to expensing because itpermits a deduction from taxes owed, rather than a deduction from taxable income itself.  Thus, a100-percent credit allows a dollar-for-dollar credit against taxes owed, whereas the value of adeduction from taxable income depends on the taxpayer's marginal tax rate.(56)  For the next$1,000 of expenditures, the taxpayer receives the equivalent of a 50-percent investment taxcredit.  The Lifetime Learning credit is the equivalent of a 20-percent investment tax credit onqualified expenditures.

	The theoretical income tax would have all expenditures toward investment in humancapital capitalized and recovered against the student's future earnings.  By permitting theequivalent of expensing for the indirect expenditures related to a student's education (and directexpenditures made in the form of qualified scholarships or employer-provided educationassistance), the present-law income tax subsidizes investment in human capital relative toinvestment in physical capital.(57)  For direct expenditures by the student, for those that qualify forthe HOPE credit, the treatment of the first $2,000 on qualified educational expenses in the firsttwo years of post-secondary education provides greater subsidy than that provided for investmentin physical capital.(58)  Though certain educational expenses are thus afforded income taxtreatment that is as favorable or more favorable than expensing, the present-law income taxgenerally permits no recovery of the direct tuition or other educational costs paid by the studentthat do not qualify for the HOPE or Lifetime Learning credits.(59)  On balance, the variety andcomplexity of educational benefits afforded through the tax code, when coupled withexpenditures that do not receive favorable tax treatment, make it difficult to determine the extentto which educational expenditures are subsidized by the tax code, relative to investments inphysical capital.

**PART THREE:  ALTERNATIVE MINIMUM TAX**

**I.  INDIVIDUAL ALTERNATIVE MINIMUM TAX**

**A.  Present Law**

**In general**

	Present law imposes a minimum tax ("AMT") on an individual to the extent thetaxpayer's minimum tax liability exceeds his or her regular tax liability.  The AMT is imposed onindividuals at rates of (1) 26 percent on the first $175,000 of alternative minimum taxableincome ("AMTI") in excess of a phased-out exemption amount and (2) 28 percent on theremaining AMTI. The exemption amount is: $45,000 in the case of married individuals filing ajoint return and surviving spouses; $33,750 in the case of other unmarried individuals; and$22,500 in the case of married individuals filing a separate return.  These exemption amounts arephased-out by an amount equal to 25 percent of the amount that the individual's AMTI exceeds athreshold amount.  The threshold amount is: $150,000 in the case of married individuals filing ajoint return and surviving spouses; $112,500 in the case of other unmarried individuals; and$75,000 in the case of married individuals filing a separate return, estates, and trusts. Theexemption amounts, the threshold phase-out amounts, and the $175,000 break-point amount arenot indexed for inflation. The lower capital gains rates applicable to the regular tax apply forpurposes of the AMT.

	AMTI is the taxpayer's taxable income increased by certain preference items and adjustedby determining the tax treatment of certain items in a manner that negates the deferral of incomeresulting from the regular tax treatment of those items.

**Preference items in computing AMTI**

	The minimum tax preference items are:

	(1)  The excess of the deduction for percentage depletion over the adjusted basis of theproperty at the end of the taxable year.  This preference does not apply to percentage depletionallowed with respect to oil and gas properties.

	(2)  The amount by which excess intangible drilling costs arising in the taxable yearexceed 65 percent of the net income from oil, gas, and geothermal properties.  This preferencedoes not apply to an independent producer to the extent the preference would not reduce theproducer's AMTI by more than 40 percent.

	(3)  Tax-exempt interest income on private activity bonds (other than qualified 501(c)(3)bonds) issued after August 7, 1986.

	(4)  Accelerated depreciation or amortization on certain property placed in service beforeJanuary 1, 1987.

	(5)  Forty-two percent of the amount excluded from income under section 1202 (relatingto gains on the sale of certain small business stock).

	In addition, losses from any tax shelter, farm, or passive activities are denied.(60)

**Adjustments in computing AMTI**

	The adjustments that individuals must make in computing AMTI are:

	(1)  Depreciation on property placed in service after 1986 and before January 1, 1999,must be computed by using the generally longer class lives prescribed by the alternativedepreciation system of section 168(g) and either (a) the straight-line method in the case ofproperty subject to the straight-line method under the regular tax or (b) the 150-percent decliningbalance method in the case of other property.  Depreciation on property placed in service afterDecember 31, 1998, is computed by using the regular tax recovery periods and the AMT methodsdescribed in the previous sentence.

	(2)  Mining exploration and development costs must be capitalized and amortized over a10-year period.

	(3) Taxable income from a long-term contract (other than a home construction contract)must be computed using the percentage of completion method of accounting.

	(4)  The amortization deduction allowed for pollution control facilities placed in servicebefore January 1, 1999 (generally determined using 60-month amortization for a portion of thecost of the facility under the regular tax), must be calculated under the alternative depreciationsystem (generally, using longer class lives and the straight-line method).  The amortizationdeduction allowed for pollution control facilities placed in service after December 31, 1998, iscalculated using the regular tax recovery periods and the straight-line method.

	(5)  Miscellaneous itemized deductions are not allowed.

	(6)  Itemized deductions for State, local, and foreign real property taxes; State and localpersonal property taxes; and State, local, and foreign income, war profits, and excess profitstaxes are not allowed.

	(7)  Medical expenses are allowed only to the extent they exceed ten percent of thetaxpayer's adjusted gross income.

	(8)  Standard deductions and personal exemptions are not allowed.

	(9)  The amount allowable as a deduction for circulation expenditures must be capitalizedand amortized over a 3-year period.

	(10)  The amount allowable as a deduction for research and experimental expendituresmust be capitalized and amortized over a 10-year period.(61)

	(11)  The regular tax rules relating to incentive stock options do not apply.

**Other rules**

	The combination of the taxpayer's net operating loss carryover and foreign tax creditscannot reduce the taxpayer's AMT liability by more than 90 percent of the amount determinedwithout these items.

	The various nonrefundable credits allowed under the regular tax generally are allowedonly to the extent that the individual's regular tax exceeds the tentative minimum tax.  Theearned income credit and the child credit of those taxpayers with three or more qualified childrenare refundable credits and may offset the taxpayer's tentative minimum tax.  However, a taxpayermust reduce these refundable credits by the amount the taxpayer's tentative minimum tax exceedshis or her regular tax liability.(62)

	If an individual is subject to AMT in any year, the amount of tax exceeding the taxpayer'sregular tax liability is allowed as a credit (the "AMT credit") in any subsequent taxable year tothe extent the taxpayer's regular tax liability exceeds his or her tentative minimum tax in suchsubsequent year.  For individuals, the AMT credit is allowed only to the extent the taxpayer'sAMT liability is a result of adjustments that are timing in nature.  Most individual AMTadjustments relate to itemized deductions and personal exemptions and are not timing in nature.

**B.  Data on the Individual Minimum Tax**

**Data on taxpayers affected by the AMT**

	Relatively few individuals have been subject to the AMT in the past.  However, thenumber of individuals taxpayers subject to the AMT is projected to increase significantly in thefuture.  This is expected to occur because of the absence of inflation indexing in the calculationof the minimum tax exemption amounts.  Table 3 presents individual AMT data and projectionsfor the 1987-2009 tax years.

**Table 3.-Individual Income Tax Returns With TaxLiability Under the Individual Alternative Minimum Tax,1987-2009, Actual and Projected**
**Year****Number ofreturns payingAMT (millions)****Percentage of filed returnspaying AMT****Excess of AMTliability over regulartax liability ($billions)**19870.1400.11.719880.1340.11.019890.1170.10.819900.1320.10.819910.2440.21.219920.2870.31.419930.3350.32.119940.3690.32.219950.4140.42.319960.4780.42.81997data not availabledata not availabledata not available1998data not availabledata not availabledata not available19990.8230.63.620000.9420.73.820011.1700.94.320021.4021.14.920031.8341.45.720042.4111.86.920053.0752.38.320064.0853.010.220075.4123.912.920086.9184.915.820099.0436.319.8Note:  These statistics represent taxpayers who actually pay AMT and do not include taxpayers whose regular taxliabilities are affected by the AMT through tax credit limitations.  See Tables 7, 8, and 9 for such data.
Source:  Internal Revenue Service, *Statistics of Income*, 1987-1996; projections for years 1999-2009 from JointCommittee on Taxation Staff estimates.

	Tables 4 and 5 below report how individual AMT taxpayers are estimated to bedistributed across various income classes in 2000 and 2008.

**Table 4.--Distribution of Individual AMT Taxpayers with AMT Liability under Present Law, 2000****Income category1****Number of returns(thousands)****AMT taxpayersas apercentage ofall taxpayers**Less than $10,000	(2)(3)$10,000 to less than $20,000	1(3)$20,000 to less than $30,000	2(3)$30,000 to less than $40,000	150.1$40,000 to less than $50,000	150.1$50,000 to less than $75,000	790.4$75,000 to less than $100,000	1351.3$100,000 to less than $200,000	3003.5$200,000 and over	38915.1**Total (all taxpayers)****937****0.7**(1)The income concept used to place tax returns into income categories is AGI plus: (a) tax-exempt interest; (b)employer contributions to health plans and life insurance; (c) employer share of FICA tax; (d) workerscompensation; (e) nontaxable Social Security benefits; (f) insurance value of Medicare benefits; (g) AMTpreference items; and (h) excluded income of U.S. citizens living abroad.  Categories are measured at 1999 levels. Excludes individuals who are dependents of other taxpayers and taxpayers with negative income, resulting indifferences with Table 3.
(2)Less than 500.

(3)Less than .05 percent.

Details may not add to totals due to rounding.

Source:  Staff of the Joint Committee on Taxation.

**Table 5.--Distribution of Individual AMT Taxpayerswith AMT Liability under Present Law, 2008**
**Income category1****Number of returns(millions)****AMT taxpayersas apercentage ofall taxpayers**Less than $10,000	0.001(2)$10,000 to less than $20,000	0.001(2)$20,000 to less than $30,000	0.0140.1$30,000 to less than $40,000	0.1140.6$40,000 to less than $50,000	0.1701.2$50,000 to less than $75,000	1.0604.4$75,000 to less than $100,000	1.66112.3$100,000 to less than $200,000	2.56822.9$200,000 and over	1.31940.6**Total (all taxpayers)****6.906****4.6**

(1)Same income concept as used in Table 4, measured at 1999 levels.
(2)  Less than .05 percent.

Details may not add due to rounding.

Source:  Staff of the Joint Committee on Taxation.

	The increase in the number of taxpayers subject to the AMT largely can be attributed tothe fact that the personal exemptions, standard deduction, and tax bracket break points of theregular tax are indexed for inflation, while the AMT exemption amounts and tax bracket breakpoint are not indexed for inflation.  Proposals that would increase or index these amounts woulddecrease the number of taxpayers subject to the AMT and reduce the tax burden of thoseindividuals otherwise subject to the AMT.(63)  Even with indexing, one would expect some growthin AMT taxpayers as real (i.e., inflation-adjusted) incomes rise over time.

	The lack of indexing in the AMT also explains the increase of AMT taxpayers in themiddle-income categories.  Under present law, the relatively large AMT exemption amounts(64)shelter most of a low- or middle-income taxpayer's AMTI from tax.  However, over time, withinflation, a taxpayer's income is expected to grow in nominal dollars.  Most of this inflatedincome of a middle-income individual will remain subject to tax at a 15-percent rate for regulartax purposes because the personal exemptions, standard deduction, and tax bracket break pointsof the regular tax are indexed for inflation.  However, for AMT purposes, relatively less of thetaxpayer's inflated income will be sheltered by the unindexed AMT exemption amount and theamount not sheltered will become subject to the higher AMT rate of 26 percent. Because theAMT exemption amounts are phased out over relatively high levels of AMTI, indexing theseamounts would provide benefits to taxpayers in all income classes.(65)

	Table 6 demonstrates the results if the AMT exemption amounts were indexed forinflation, starting in 1999.  With indexing, the number of taxpayers subject to AMT and theamount of AMT collected is expected to remain relatively constant. 

**Table 6.--Projected Individual Income Tax Returns With Tax Liability Underthe Individual AMT If Exemptions Were Indexed, 1999-2008**
**Year****Number of returnspaying AMT(millions)****Percentage of filedreturns paying AMT****Excess of AMTliability over regulartax liability($billions)**19990.7470.63.420000.7230.63.420010.7580.63.620020.7690.63.720030.7750.63.820040.8180.64.120050.8510.64.420060.8870.74.720070.9410.75.220080.9580.75.520091.0160.75.9
Source: Staff of the Joint Committee on Taxation.
	As described above, the AMT acts as a floor with respect to the utilization ofnonrefundable credits in that a taxpayer is allowed to reduce his or her regular tax liability withotherwise allowable credits only to the extent the taxpayer's regular tax exceeds his or hertentative minimum tax.  Tables 7, 8, and 9, below, demonstrate the estimated effects of the AMTon all nonrefundable tax credits, the child credit, and the education credits, respectively. Projections on the child and education credits are provided because these credits were onlyrecently enacted by the Congress in 1997.  These credits significantly increased the number oftaxpayers eligible for nonrefundable credits, and they were targeted toward taxpayers withmiddle incomes.

	Consistent with the projections in Table 3, relatively few taxpayers currently have taxcredit utilization that is limited because of the AMT.  However, over time, the number oftaxpayers subject to this limitation is expected to increase.  This pattern is consistent with theexpected increase in the number of AMT taxpayers.

**Table 7.--Projected Individual Income Tax Returns With Nonrefundable Tax Credits, 2000 and 2008**

**(in millions)**********Taxable year 2000****Taxable year 2008**Returns with nonrefundable credits46.949.0Returns receiving full credits18.215.1Returns receiving zero or less than full credits28.733.9Returns affected by the AMT1.16.0
Source: Staff of the Joint Committee on Taxation.
**Table 8.--Projected Individual Income Tax Returns With Child Credits, 2000 and 2008**1

(in millions)
**Taxable year 2000****Taxable year 2008**Returns with dependents under age 1739.440.6Returns receiving full child credit20.515.8Returns receiving zero or less than full childcredit18.924.8Returns affected by the AMT0.65.01Includes refundable portion of the credit.
Source:  Staff of the Joint Committee on Taxation. 

**Table 9.--Projected Individual Income Tax ReturnsWith HOPE and Lifetime Learning Credits, 2000 and 2008**

(in millions)
******Taxable year 2000****Taxable year 2008**Returns with tuition expense15.216.1Returns receiving full education credit5.75.1Returns receiving zero or less than full educationcredit9.511.3Returns affected by the AMT0.51.8Source:  Staff of the Joint Committee on Taxation.
**C.  Complexity of the Individual Minimum Tax**

	The AMT requires a calculation of a second income tax base and computation of a tax onthat base, so the present tax system, with an AMT, is not as simple to administer or comply withas the same system would be without an AMT.  Relatively few taxpayers currently are subject tothe AMT.(66)  However, the data on taxpayers subject to the AMT understates the extent to whichthe AMT imposes a compliance burden on taxpayers.  Many taxpayers must calculate whether, infact, they are liable for the AMT or whether the utilization of certain credits is limited by theAMT.  The IRS has provided a 12-line worksheet to see if the taxpayer needs to fill in the AMTForm 6251.  In addition, the IRS instructions instruct the taxpayer to fill in Form 6251 if thetaxpayer has any of 13 listed preferences.  The Form 6251 itself contains 50 lines to compute theminimum tax.  In addition, taxpayers claiming credits must fill out worksheets to see if theircredits are limited by the AMT.

	The projections in Table 3, above, show that many more individuals will be subject to orotherwise affected by the AMT in the future.  Thus, more individuals will face the addedcomplexity of the AMT in the future.  This increase in number of taxpayers affected by the AMToccurs because the exemption amount and the tax bracket break point for the AMT are notindexed for inflation.

	There are no studies that specifically measure compliance costs arising from theindividual AMT.  Indirect evidence of the complexity imposed by the individual AMT may bethe increased utilization of the services of paid tax preparers by individual taxpayers subject tothe individual AMT.  If taxpayers subject to the AMT are more likely to have complicatedfinancial affairs, they might use paid tax preparers even in the absence of the AMT.  However,Tables 4 and 5 indicate that middle-income taxpayers, whose financial affairs are less likely to becomplicated, are more likely to become subject to the AMT in the future and thus may be facedwith more complicated tax compliance burdens.

**II.  CORPORATE ALTERNATIVE MINIMUM TAX**

**A.  Present Law**

**In general**

	Present law imposes a minimum tax on a corporation to the extent the corporation'sminimum tax liability exceeds its regular tax liability.  This alternative minimum tax ("AMT") isimposed on corporations at the rate of 20 percent on the alternative minimum taxable income("AMTI") in excess of a $40,000 phased-out exemption amount.  The exemption amount isphased-out by an amount equal to 25 percent of the amount that the corporation's AMTI exceeds$150,000.

	AMTI is the taxpayer's taxable income increased by certain preference items and adjustedby determining the tax treatment of certain items in a manner that negates the deferral of incomeresulting from the regular tax treatment of those items.

	A corporation with average gross receipts of less that $7.5 million for the prior threetaxable years is exempt from the corporate minimum tax.  The $7.5 million threshold is reducedto $5 million for the corporation's first 3-taxable year period.

**Preference items in computing AMTI**

	The corporate minimum tax preference items are:

	(1)  The excess of the deduction for percentage depletion over the adjusted basis of theproperty at the end of the taxable year.  This preference does not apply to percentage depletionallowed with respect to oil and gas properties.

	(2)  The amount by which excess intangible drilling costs arising in the taxable yearexceed 65 percent of the net income from oil, gas, and geothermal properties.  This preferencedoes not apply to an independent producer to the extent the preference would not reduce theproducer's AMTI by more than 40 percent.

	(3)  Tax-exempt interest income on private activity bonds (other than qualified 501(c)(3)bonds) issued after August 7, 1986.

	(4)  Accelerated depreciation or amortization on certain property placed in service beforeJanuary 1, 1987.

**Adjustments in computing AMTI**

	The adjustments that corporations must make in computing AMTI are:

	(1)  Depreciation on property placed in service after 1986 and before January 1, 1999,must be computed by using the generally longer class lives prescribed by the alternativedepreciation system of section 168(g) and either (a) the straight-line method in the case ofproperty subject to the straight-line method under the regular tax or (b) the 150-percent decliningbalance method in the case of other property.  Depreciation on property placed in service afterDecember 31, 1998, is computed by using the regular tax recovery periods and the AMT methodsdescribed in the previous sentence.

	(2)  Mining exploration and development costs must be capitalized and amortized over a10-year period.

	(3)  Taxable income from a long-term contract (other than a home construction contract)must be computed using the percentage of completion method of accounting.

	(4)  The amortization deduction allowed for pollution control facilities placed in servicebefore January 1, 1999 (generally determined using 60-month amortization for a portion of thecost of the facility under the regular tax), must be calculated under the alternative depreciationsystem (generally, using longer class lives and the straight-line method).  The amortizationdeduction allowed for pollution control facilities placed in service after December 31, 1998, iscalculated using the regular tax recovery periods and the straight-line method.

	(5)  The special rules applicable to Merchant Marine construction funds are notapplicable.

	(6)  The special deduction allowable under section 833(b) Blue Cross and Blue Shieldorganizations is not allowed.

	(7)  The adjusted current earnings adjustment, described below.

**Adjusted current earning ("ACE") adjustment**

	The adjusted current earnings adjustment is the amount equal to 75 percent of the amountby which the adjusted current earnings ("ACE") of a corporation exceeds its AMTI (determinedwithout the ACE adjustment and the alternative tax net operating loss deduction.  In determiningACE the following rules apply:

	(1)  For property placed in service before 1994, depreciation generally is determinedusing the straight-line method and the class life determined under the alternative depreciationsystem.

	(2)  Any amount that is excluded from gross income under the regular tax but is includedfor purposes of determining earnings and profits is included in determining ACE.

	(3)  The inside build-up of a life insurance contract is included in ACE (and the relatedpremiums are deductible).

	(4)  Intangible drilling costs of integrated oil companies must be capitalized andamortized over a 60-month period.

	(5)  The regular tax rules of section 173 (allowing circulation expenses to be amortized)and section 248 (allowing organizational expenses to be amortized) do not apply.

	(6)  Inventory must be calculated using the FIFO, rather than LIFO, method.

	(7)  The installment sales method generally may not be used.

	(8)  No loss may be recognized on the exchange of any pool of debt obligations foranother pool of debt obligations having substantially the same effective interest rates andmaturities.

	(9)  Depletion (other than for oil and gas) must be calculated using the cost, rather thanthe percentage, method.

	(10)  In certain cases, the assets of a corporation that has undergone an ownership changemust be stepped-down to their fair market values.

**Other rules**

	The combination of the taxpayer's net operating loss carryover and foreign tax creditscannot reduce the taxpayer's tentative minimum tax by more than 90 percent of the amountdetermined without these items.

	The various nonrefundable business credits allowed under the regular tax generally arenot allowed against the AMT.

	If a corporation  is subject to AMT in any year, the amount of tax exceeding thetaxpayer's regular tax liability is allowed as a credit (the "AMT credit") in any subsequent taxableyear to the extent the taxpayer's regular tax liability exceeds its tentative minimum tax in suchsubsequent year.(67)

**B.  Legislative Background**

	The corporate AMT was enacted by the Tax Reform Act of 1986 to ensure that nocorporation with substantial economic income could avoid significant tax liability by usingexclusions, deductions and credits.(68)  The tax was effective beginning in 1987 and the ACEadjustment described under present law was effective beginning in 1990, replacing a bookincome adjustment that was in effect for 1987-1989.

	Since the enactment of the corporate AMT, several changes to the tax have been made. The principal changes involve the computation of depreciation.  The ACE depreciationadjustment requiring the use of straight-line depreciation for tangible personal property wasrepealed by the Omnibus Budget Reconciliation Act of 1993, for property placed in service after1993.  The Taxpayer Relief Act of 1997 ("the 1997 Act") allowed the use of regular tax ACRSlives in computing AMT depreciation for property placed in service after 1998.

	Other changes include the repeal of the oil and gas preferences for percentage depletionand intangible drilling costs for corporations other than integrated oil companies by the EnergyPolicy Act of 1992.  The 1997 Act repealed the corporate AMT for small corporations. Numerous other smaller changes have been made to the corporate AMT since its enactment in1986.

**C.  Analysis of Issues**

**1.  Background**

	As the preceding discussion suggests, the Congress has made substantial revisions to thecorporate AMT since its enactment.  Under prior law prior law, larger firms were more likely tobe subject to the AMT than were smaller firms and firms in more capital intensive industrieswere more likely to be subject to the AMT than were firms in less capital intensive industries. This outcome would be expected by the design of the prior-law AMT.  The AMT included as anadjustment the difference between accelerated depreciation claimed under the regular tax systemand depreciation calculated under the AMT's less generous allowance schedules.  As described inPart II.A. of this document, other AMT preferences and adjustments deferred the recovery ofother capital costs that are deductible under the regular tax. Thus, the greater a corporation'scapital assets, the greater its total value of accelerated depreciation and other capital-relatedpreferences and adjustments, and the greater the likelihood the corporation would have been anAMT taxpayer.  For the same reason, a capital-intensive business was more likely to be subject tothe AMT than would a less capital-intensive business with equal gross revenues.  The U.S.General Accounting Office ("GAO") estimated that in 1992 25 percent of all corporate assetswere owned by corporations subject to the AMT.(69)  In 1993, both the manufacturing and thetransportation and public utility industries had more than half of industry assets in corporationsthat were subject to the AMT.(70)

	The prior-law corporate AMT was paid by relatively few corporations.  For example, in1990, approximately 32,000 of 2.1 million corporate income tax returns included an AMTliability.  However, even those corporations that did not make AMT tax payments may have hadtheir overall tax liability increase as result of increasing the corporation's tax liability by limitingthe amount of credits the firm could claim against its regular income tax.  The AMT liabilityforms a floor (the tentative minimum tax) that may limit the amount of credits the firm couldclaim against its regular taxes.  Table 10 reports corporate AMT taxpayers and those othercorporations limited by the tentative minimum tax as a percentage of all corporate income taxreturns between 1987 and 1993.

**Table 10.--Corporate AMT Taxpayers as a Percentageof All Corporate Returns, 1987-1993**
**Year****Percentage ofAMT taxpayers****Percentage of regulartax taxpayersconstrained by tentativeminimum tax****Total**19870.980.661.6419881.100.551.6519891.150.571.7219901.520.542.0619911.460.411.8719921.350.611.9619931.430.662.09Source:  Andrew B. Lyon, *Cracking the Code: Making Sense of the Corporate Alternative Minimum Tax* (Washington, D.C.: The Brookings Institution), 1997, Table 6-3.
	In 1992, total corporate income tax revenue was $96.8 billion.  Of this amount, AMTpayments contributed $4.9 billion, and $2.3 billion in credits for prior AMT paid were claimed. The net, $2.6 billion, comprised 2.6 percent of all corporate income tax payments.

	As noted above, the 1993 Act eliminated the ACE depreciation adjustment for propertyplaced in service after 1993 and the 1997 Act allowed the use of regular tax ACRS lives incomputing depreciation for property placed in service after 1998.  Over time, these changesshould reduce the number of corporate AMT taxpayers and the AMT liabilities relative to thedata reported here for 1992 and earlier.  These changes also should make it less likely that, allelse equal, capital intensive businesses are subject to the AMT.

	Recognizing the importance of the treatment of depreciation and other capital costs underthe AMT may also explain the apparent counter-cyclic pattern of Table 3 (second column), wherethe percentage of corporate AMT taxpayers increased as the economy experienced recession anddeclined with recovery.  Fixed capital assets produce a schedule of depreciation deductions thatis invariant to economic conditions.  As the economy enters a recession, business receipts fall. Consequently, corporate income as measured under the regular tax declines,  but depreciationdeductions generally remain the same.(71)  Because, in simple terms, a taxpayer becomes subject tothe AMT when its AMT tax preferences and adjustments become large relative to its regulartaxable income,(72) a recession increases the likelihood that a business will become an AMTtaxpayer.  However, the data for the period 1989 through 1992 may overstate the potential for acounter-cyclical relationship between the corporate AMT  and macroeconomic performance. During this period the ACE adjustment replaced the book adjustment causing a substantialincrease in capital cost adjustments under the ACE adjustment.  Nevertheless, the recent changesin the corporate AMT would be expected to reduce any counter-cyclic effect of the AMT.

**2.  Discussion of issues**

**Overview**

	In general, the AMT applies a lower marginal rate of tax to a broader tax base.  Thus, theAMT may simultaneously lower the taxpayer's marginal tax rate (the amount of tax liabilityarising from an additional, or marginal, dollar of income) while increasing the taxpayer's averagerate of tax (total tax divided by total income).  Strictly speaking, the corporate AMT (and to someextent the individual AMT) is not a separate tax but is a calculation that assesses a larger incometax liability today in return for a reduced income tax liability in the future.  Each dollar ofcorporate AMT paid today generates credits that may be applied against future regular incometax liabilities.  However, because AMT credits accrue in nominal dollars, the time value ofmoney erodes the future value of such credits.  As a consequence, the AMT increases the real taxliability of AMT taxpayers.

	As a pre-payment of tax rather than a separate tax,  the AMT should be assessed as part ofthe individual and corporate income taxes.  Analysts usually evaluate taxes in terms of: (1)equity--the fairness of the tax; (2) efficiency--the extent to which the tax distorts economicdecisions; (3) growth--the extent to which the tax system encourages or discourages economicgrowth; and (4) simplicity--the  ease of compliance and administration by affected taxpayers andthe IRS.

**Equity**

	In practice, the AMT has the effect of requiring more taxpayers to pay over some funds tothe Federal Treasury every year, than would be the case if only the regular income taxes applied. To the extent that taxpayers who outwardly appear to have the ability to pay taxes indeed do paytaxes, some observers conclude that the AMT increases the perceived fairness of the income taxsystem.  The Senate Finance Committee noted that this was one of the rationales for theenactment of the corporate AMT.

	In particular, both the perception and the reality of fairness have been harmed byinstances in which major companies have no taxes in years in which they reportedsubstantial earnings, and may even have paid substantial dividends toshareholders.  Even to the extent that theses instances may reflect deferral, ratherthan permanent avoidance, of corporate tax liability, the committee believes thatthey demonstrated a need for change.(73)

	To assess whether the AMT promotes the overall equity of the individual and corporateincome tax systems, it is necessary to look beyond who remits tax payments to the FederalTreasury to who bears the burden of the individual and corporate income taxes.  Regarding thecorporate income taxes, economists argue that corporations do not bear the burden of thecorporate income tax, but rather individuals bear the burden of the corporate income tax and allother taxes.  There is disagreement, however, over which individuals bear the burden ofcorporate income tax, whether it is customers in the form of higher prices, workers in the form ofreduced wages, owners of all capital in the form of lower after-tax returns on investment, orsome combination of these individuals.(74)  The uncertainty regarding the incidence of incometaxes on the returns to capital make it difficult to assess the effect the corporate AMT has on theequity of the burden of the income tax system.  As noted above, the AMT raises effective averagetax rates for affected taxpayers.

	Some analysts argue that the AMT promotes horizontal equity by taxing more equallytaxpayers who have the same economic capacity but choose to engage in different patterns of tax-favored activities.  Other analysts note that in a market economy, investment by individuals andcorporations would be expected to equilibrate risk-adjusted, after-tax returns.  As a consequence,the prices of tax-favored investments would be bid up (or their quantity increase) and the pricesof tax-disfavored investments would fall (or their quantity decrease).  In equilibrium, the pre-taxreturns of tax-favored and tax-disfavored investments would differ, but their after-tax returnswould be the same.(75)  For example, tax-exempt bonds trade at interest rates lower than otherwisecomparable taxable bonds.  This is because the tax-exempt borrower does not have to offer asgreat an interest rate to the lender to provide the lender with a competitive after-tax return.  Ifafter-tax returns equilibrate, analysts may questions whether a horizontal inequity existed prior tothe enactment of the AMT.

	Other analysts note that because, as explained above, the business cycle may movetaxpayers onto and off the AMT that the AMT may create its own horizontal inequities by taxingdifferent businesses differently based on the variability of their profits during the course of abusiness cycle.(76)

**Efficiency and growth**

	A tax system is efficient if it does not distort the choices that would be made in theabsence of the tax system.  No tax system can be fully efficient.  Whether the AMT contributes tothe efficiency of the United States tax system depends on the extent to which it reduces otherinefficiencies in the tax system and the extent to which it creates new inefficiencies.  Bydiscouraging some individuals and corporations from undertaking what are otherwise tax-favoredinvestments, efficiency may be increased.  However, the AMT generally does not eliminate tax-favored treatment of certain activities or investments, but rather limits which taxpayers may takefull advantage of the tax-favored treatment provided by the regular income tax.  Some analystshave noted that on efficiency grounds, "no one should care if ten companies each invest a little ina tax-preferred activity or one company invests a lot" in such an activity.(77)  However, underpresent law, the ten firms described above could each avoid the AMT while the one firm with theaggregated investment could be subject to the AMT.  In addition, limiting which corporationscan profitably undertake tax-favored activities could lead to more efficient investors finding theactivity unprofitable, while less efficient investors find the activity profitable.   Moreover, sometax-favored activities may be permitted as part of the regular income tax as a way reduce someother inefficiency in the economy.  These arguments might suggest that efficiency could be betterimproved by changes in the regular income taxes.

	In the mid-1980s there was concern that the regular income tax system created differenteffective tax rates on capital investment depending upon the source of finance and type ofequipment being purchased by the investor.  It has been argued that such differentials in effectivetax rates reduce the efficiency of investment in the United States.  For example, the regularincome tax has been criticized as favoring debt-financed investments at the expense of equity-financed investments. Subsequent to the Tax Reform Act of 1986, analysts debated whether theAMT made taxation of income from investment, more neutral and more efficient, or less neutraland less efficient.(78)  The efficiency of investment under the reduced scope of the present-lawcorporate AMT remains an open question.

	The AMT may affect the level of investment in the United States and thereby affecteconomic growth.  Under prior law, there was some evidence that firms temporarily on the AMTexperienced a greater variance in effective tax rates than did other firms.(79)  This variance anduncertainty regarding taxation could have inhibited investment.  The reduced scope of present-law corporate AMT may promote more certainty for taxpayers regarding the tax burden theirinvestments are likely to bear and lead to increased aggregate investment.  The AMT also mayaffect aggregate investment by other means.  By increasing average tax rates (the total tax paid bycertain taxpayers), the AMT may reduce the cash flow of potential investors.  If as some analystsbelieve, investors' cash flows are important to the investment decision, the AMT may reduceaggregate investment.

**Simplicity and compliance**

	The AMT requires a calculation of a second income tax base(80) and computation of a taxon that base, so the present tax system, with an AMT, is not as simple to administer or complywith as would the same system without an AMT.   As detailed above, relatively few corporatetaxpayers are subject to the AMT.  However, that observation understates the extent to which theAMT imposes a compliance burden on taxpayers.  Many taxpayers must undertake the AMTcalculation to determine whether, in fact, they are liable.  For example, the GAO reported thatwhile only 28,000 corporations actually paid corporate AMT in 1992, 400,000 corporations filedthe AMT form.(81)  The 400,000 figure would understate the number of corporations that did thenecessary calculations to determine whether they had an AMT liability.

	Survey evidence has suggested that the compliance cost to taxpayers required by theAMT may be large.  One analysis of tax compliance costs of large businesses finds that beingsubject to the AMT adds 16.9 percent to the personnel and nonpersonnel compliance costs ofcomplying with Federal income taxes.(82)  The average total income tax compliance cost reportedin the survey was approximately $1 million, implying that complying with the corporate AMTmay require additional expenditures of $160,000 annually by large businesses.   While a largenumber, compliance costs generally are larger for larger businesses which often have morecomplex business arrangements.  The AMT is not the mostly costly aspect of  tax compliance. The same study identifies approximately 40 percent of total compliance costs as arising fromforeign-source income and that having an ongoing appeal or tax litigation increases compliancecosts by 18 to 28 percent.

**PART FOUR:  EXPIRED AND EXPIRING FEDERAL TAX PROVISIONS, 1998-2008**

**A.  Provisions That Expired in 1998**
**Provision (Code section)****Expiration Date**1.	Nonconventional fuels tax credit forfuel from biomass and coal - facilitiesplaced in service pursuant to bindingcontracts before January 1, 1997 (sec.29)********6/30/98********2.	Moratorium on regulations regardingemployment taxes of limited partners(sec. 1402(a)(13) and sec. 935 of theTaxpayer Relief Act of 1997 (the"1997 Act"))********6/30/98********3.	Temporary increase in limit on coverover of rum excise tax revenues (from$10.50 to $11.30 per proof gallon) toPuerto Rico and the Virgin Islands(sec. 7652(f))********9/30/984.	Personal tax credits fully allowedagainst regular tax liability withoutregard to the alternative minimum tax(sec. 26)12/31/985.	Special rules for qualified mortgagebond-financial loans in Presidentiallydeclared disaster areas (sec.143(k)(11))****12/31/98
**B.  Provisions Expiring in 1999**
**Provision (Code section)****Expiration Date**1.	Tax credit for research andexperimentation expenses (sec. 41)6/30/992.	Work opportunity tax credit (sec. 51)6/30/993.	Welfare-to-work tax credit (sec. 51A)********6/30/994.	Tax credit for electricity productionfrom wind and closed-loop biomass--facilities placed in service date (sec.45(c))6/30/995.	Waiver of penalty for failure of smallbusiness to use Electronic FundsTransfer Payment System ("EFTPS")6/30/99(83)6.	Suspension of 100 percent-of-net-income limitation on percentagedepletion for oil and gas frommarginal wells (sec. 613A)12/31/997.	Qualified zone academy bonds (sec.1397E)12/31/998.	Exceptions under subpart F for activefinancing income (secs. 953 and 954)12/31/99
**C.  Provisions Expiring in 2000**
**Provision (Code section)****Expiration Date**1.	Exclusion for employer-providededucational assistance (sec. 127)5/31/002.	Enhanced deduction for corporatecontributions of computer equipmentto elementary and secondary schools(sec. 170(e)(6))12/31/003.	Expensing of "Brownfields"environmental remediation costs (sec.198)12/31/004.	Establishment of Medical SavingsAccounts ("MSAs") (sec. 220)12/31/00(84)5.	Tax credit for first-time D.C. homebuyers (sec. 1400C)12/31/006.	Transfers of excess pension assets toretiree health accounts (sec. 420)12/31/00
**D.  Provisions Expiring in 2001**
**Provision (Code section)****Expiration Date**1.	Tax on failure to comply with mentalhealth parity requirements applicableto group health plans (sec. 9812)9/29/012.	Tax credit for non-special needsadoption (sec. 23(d)(2)(B))12/31/013.	Exclusion for employer-providedadoption assistance (sec. 137(f))12/31/01
**E.  Provisions Expiring in 2002**
**Provision (Code section)****Expiration Date**1.	Combined employment tax reportingdemonstration project (sec. 976 of the1997 Act)8/5/022.	Tax incentives for investment in theDistrict of Columbia:	a.  Designation of D.C. EnterpriseZone; employment tax credit;additional expensing (sec. 1400)12/31/02	b.  Tax-exempt D.C. economicdevelopment bonds (sec. 1400A)12/31/02	c.  Zero percent capital gains rate forinvestment in D.C. for propertyacquired by 12/31/02; for gainsthrough 12/31/07 (sec. 1400B)12/31/023.	Luxury excise tax on passengerhighway automobiles (sec. 4001)12/31/02(85)
**F.  Provisions Expiring in 2003**
**Provision (Code section)****Expiration Date**1.	Disclosure of tax return informationfor administration of certain veteransprograms (sec. 6103(l)(7)(D)(viii))9/30/032.	Disclosure of tax return information tocarry out administration of incomecontingent repayment of student loans(sec. 6103(l)(13))9/30/033.	IRS user fees for letter rulings,determination letters, advance pricingagreements, and similar requests (sec.10511 of the Revenue Act of 1987, aslast amended by sec. 2 of P.L. 104-117)9/30/034.	Indian employment tax credit (sec.45A)12/31/035.	Accelerated depreciation for businessproperty on an Indian reservation (sec.168(j))12/31/036.	Joint Committee on Taxation annualreport and annual joint hearings onIRS strategic plans (secs. 4001 and4002 of the Internal Revenue ServiceRestructuring and Reform Act of1998)12/31/03
**G.  Provisions Expiring in 2004**
**Provision (Code section)****Expiration Date**1.	Empowerment zone tax incentives(employment tax credit, additionalexpensing, tax-exempt bonds)generally (secs. 1391, 1394, and 1396)
12/31/04(86)2.	Tax credit for qualified electricvehicles (sec. 30)12/31/04(87)3.	Deduction for clean-fuel vehicles andrefueling property (sec. 179A)12/31/04(88)
**H.  Provisions Expiring in 2005**
**Provision (Code section)****Expiration Date**1.	Leaking Underground Storage TankTrust Fund excise tax (sec.4081(d)(3))3/31/052. 	Highway Trust Fund excise tax rates:	a.  All but 4.3 cents per gallon of thetaxes on highway gasoline, diesel fuel,kerosene, and special motor fuels(secs. 4041(a) and 4081(d)(1))(89)9/30/05	b.  Tax on retail sale of heavy highwayvehicles (sec. 4051(c))9/30/05	c.  Tax on heavy truck tires (sec.4071(d))9/30/05	d.  Annual use tax on heavy highwayvehicles (sec. 4481)9/30/053.	Aquatic Resources Trust Fund andLand and Water Conservation Fundexcise tax on motorboat gasoline andspecial fuels (secs. 4041(a) and4081(a)(1))--all but 4.3 cents pergallon(90)9/30/054.	Puerto Rico economic activity taxcredit (sec. 30A)12/31/055.	Puerto Rico and possessions tax credit(sec. 936)12/31/05
**I.  Provisions Expiring in 2007(91)**
**Provision (Code section)****Expiration Date**1.	Airport and Airway Trust Fund excisetaxes:	a.  All but 4.3 cents per gallon of taxeson noncommercial aviation jet fueland noncommercial aviation gasoline(secs. 4041(c), 4081(d), and 4091)(92)9/30/07	b.  Domestic and international airpassenger ticket taxes (sec. 4261)9/30/07	c.  Air cargo tax (sec. 4271)9/30/072.	Reduced excise tax rates for alcoholfuels and alcohol fuels mixtures (secs.4041(b)(2) and (k), 4081(c), and4091(c))9/30/07(93)3.	Alcohol fuels income tax credits (sec.40)12/31/07(94)4.	FUTA surtax of 0.2 percent (sec.1301)12/31/075.	Empowerment zone employment taxcredit, for zones added by the 1997Act (sec. 1396)12/31/07 (95)
**J.  Provisions Expiring in 2008**
**Provision (Code section)****Expiration Date**1.	Empowerment zone expensing andtax-exempt bonds, for zones added bythe 1997 Act (secs. 1391 and 1394)December 31, 2008 (96)**FOOTNOTES**
1.   This document may be cited as follows: Joint Committee on Taxation,*Present Law andBackground Relating to the Marriage Tax Penalty, Education Tax Incentives, the AlternativeMinimum Tax, and Expiring Tax Provisions*(JCX-39-99), June 22, 1999*.*
2.   A bracket breakpoint is the dividing point between two marginal rate brackets. 
3.   For a complete discussion of various phase-in and phase-out rules, see Joint Committeeon Taxation, *Present Law and Analysis Relating to Individual Effective Marginal Tax Rates*(JCS-3-98), February 3, 1998.
4.   In the case of two individuals with very low wage income, marriage may increase theamount of the EIC available for a dependent child. If the individual with the dependent child is inthe phase-in range of the EIC, the aggregation of incomes upon marriage could increase theamount of the EIC. 
5.   An individual with $15,000 in wage income would have a regular tax liability of $473before credits.  The $500 nonrefundable child credit would reduce this liability to $0, and theremainder of the credit would go unused because it is a nonrefundable credit.  Additionally, anEIC of $1,906 would be allowed, for a net Federal tax liability of -$1,906.  If this individualmarries another individual in the same circumstances(i.e., one with the same income, dependents,and thus the same tax liability) their regular Federal income tax liability would be $1,770 on theircombined income of $30,000, and thus they would be eligible for the full child credit of $1000for the two children.  Additionally, they would receive an EIC of $122, for a net Federal incometax liability of $648.  The marriage penalty is thus $648 - (-$1,906 + - $1,906) = $4,460.
6.   The amount of the marriage penalty would have been even larger if each individual hadtwo or more children, for the reasons discussed.  This would be mitigated only somewhat by thefact that the resulting family would have 3 or more children and thus be permitted a refundablechild credit.
7.   In 1951, a separate rate schedule was created for unmarried heads of household withdependents ("head of household" status). Since the bracket breakpoints and standard deductionwere more than half of those for joint returns, marriage penalties arose for some taxpayerseligible for filing as head of household. 
8. *Lucas v. Earl*, 281 U.S. 111 (1930). 
9. *Poe v. Seaborn*, 282 U.S. 101 (1930). 
10.   Because income splitting had been available in community property States prior to1948, a marriage bonus had already existed in such States. 
11.   The basic assumptions assume that spouses divide unearned income and itemizeddeductions in proportion to their earnings.  The first child is assigned to the spouse with higherearnings, the second child to the lower-earning spouse, and all others to the higher earner.  Ifeligible, both spouses can file as head of household and claim the earned income credit.  Thebroader measure is the same as this basic measure except that the spouse with the higher earningsclaims all itemized deductions and the lower earner takes the appropriate standard deduction. The least broad measure is the same as the basic measure except that spouses must file singlereturns and cannot file as head of households.  For a complete discussion of the assumptions andanalysis, see Congressional Budget Office,*For Better or for Worse: Marriage and the FederalIncome Tax*, June 1997 ("CBO, *For Better or Worse*").
12. 12  Even if the bracket breakpoints and the standard deduction amounts for unmarriedtaxpayers (and for married taxpayers filing separate returns) were half of those for marriedcouples filing a joint return, the current tax system would not be marriage neutral.  Some marriedcouples would still have marriage bonuses.  As described below, the joint return in such a systemwould allow married couples to pay twice the tax of a single taxpayer having one-half thecouple's taxable income.  With progressive rates, this income splitting may result in reduced taxliabilities for some couples filing joint returns.  For example, consider a married couple whereone spouse has $60,000 of income and the other has none.  By filing a joint return, the couplepays the same tax as a pair of unmarried individuals each with $30,000 of income.  Withprogressive taxation, the tax liability on $30,000 would be less than half of the tax liability on$60,000.  Thus the married couple has a marriage bonus: the joint return results in a smaller taxliability than the combined tax liability of the spouses if they were not married.
13. 13  In such a system, the refundability of the tax credit combined with an equal marginaltax rate on all income would make irrelevant any splitting of income between the individuals. Refundability of the tax credit also would create progressivity in what would otherwise be aproportional tax.  Such a system could not have standard deductions. 
14.   This discussion assumes that the dilemma cannot be resolved by moving to aproportional tax system. 
15. 15  For some recent articles calling into question the justification for joint returns and theassumption of pooling of income among members of a household, see Marjorie E. Kornhauser,"Love, Money, and the IRS: Family, Income Sharing, and the Joint Income Tax Return," 45*Hastings Law Journal* 63 (1993); Edward J. McCaffery, "Taxation and the Family: A Fresh Lookat Behavioral Gender Biases in the Code," 40 *UCLA Law Rev*iew 983 (1993); and LawrenceZelenak, "Marriage and the Income Tax," 67 *Southern California Law Review* 399 (1994).
16.   As a single taxpayer, the man could claim the standard deduction of  $4,300  and onepersonal exemption of $2,750 for 1999, effectively exempting the first $7,050 of his earnings. This example ignores payroll taxes.
17.   See, Charles L. Ballard, John B. Shoven, and John Whalley, "General EquilibriumComputations of the Marginal Welfare Costs of Taxes in the United States," *American EconomicReview*, 75, March 1985, for a review of econometric studies on labor supply of so-calledprimary and secondary earners.  CBO, *For Better or Worse*, pp. 10-12, also reviews thisliterature.
18.   The decision to work additional hours may be less sensitive to changes in the marginaltax rate than the decision to enter the labor force.  See, Robert K. Triest, "The Effect of IncomeTaxation on Labor Supply in the United States,"  *The Journal of Human Resources*, 25, 1990.
19.   For example, the Virginia State income tax allows separate reporting of income bymarried couples on a combined tax return, with separate allocations of personal exemptions anddeductions as determined by the taxpayer.
20.   Thus, an eligible student who incurs $1,000 of qualified tuition and related expenses iseligible (subject to the AGI phaseout) for a $1,000 HOPE credit.  If an eligible student incurs$2,000 of qualified tuition and related expenses, then he or she is eligible for a $1,500 HOPEcredit. 
21.   The HOPE credit may not be claimed against a taxpayer's alternative minimum taxliability. 
22.   The coordination between the HOPE credit, Lifetime Learning Credit, and educationIRA provisions is discussed at I.F.2. below. 
23.   The coordination between the HOPE credit, Lifetime Learning Credit, and educationIRA provisions is discussed at I.F.2. below. 
24.   The HOPE credit is available only with respect to the first two years of a student'sundergraduate education. 
25.   Eligible higher educational institutions are defined in the same manner for purposes ofboth the HOPE and Lifetime Learning credits.
26.   The maximum allowable deduction for 1998 was $1,000.
27.   In addition, education IRAs are subject to the unrelated business income tax ("UBIT")imposed by section 511.
28.   This 10-percent additional tax does not apply if a distribution from an education IRA ismade on account of the death or disability of the designated beneficiary, or if made on account ofa scholarship received by the designated beneficiary.
29.   "Eligible educational institutions" are defined the same for purposes of education IRAs(described in I.F., above) and qualified State tuition programs.
30.   For this purpose, the term "member of the family" means the spouse of the beneficiaryand any persons described in paragraphs (1) through (8) of section 152(a)--e.g., sons, daughters,brothers, sisters, nephews and nieces, certain in-laws, etc--and any spouse of such persons.
31.   If the aggregate redemption amount (i.e., principal plus interest) of all Series EE bondsredeemed by the taxpayer during the taxable year exceeds the qualified education expensesincurred, then the excludable portion of interest income is based on the ratio that the educationexpenses bears to the aggregate redemption amount (sec. 135(b)). 
32.   For a detailed comparison of Roth IRAs and deductible IRAs, see Joint Committee onTaxation *Description and Analysis of Tax Proposals Relating to Individual Savings and IRAs*(JCS-2-97), March 3, 1997.
33.   Early distribution of converted amounts may also accelerate income inclusion ofconverted amounts that are taxable under the 4-year rule applicable to 1998 conversions.
34.   Hereinafter referred to as "State or local government bonds."
35.   Interest on this debt is included in calculating the "adjusted current earnings"preference of the corporate alternative minimum tax. 
36.   Interest on private activity bonds (other than qualified 501(c)(3) bonds) is a preferenceitem in calculating the alternative minimum tax.
37.   The 10-percent private business use and payment threshold is reduced to 5 percent forprivate business uses that are unrelated to a governmental purpose also being financed withproceeds of the bond issue. For example, a privately operated cafeteria in a government officebuilding financed as part of the building's construction could represent a related private businessuse. On the other hand, a separate, private manufacturing facility financed with proceeds of thesame bond issue would constitute an unrelated private business use of bond proceeds. 
38.   The annual State private activity bond volume limits are scheduled to increase to thegreater of $75 per resident of the State or $225 million in calendar year 2007.  The increase willbe phased in ratably beginning in calendar year 2003.  This increase was enacted by the Tax andTrade Relief Extension Act of 1998.
39.   The five States are Alaska, California, Oregon, Texas, and Wisconsin.
40.   In the case of governmental bonds (including bonds to finance public schools) the six-month expenditure exception is treated as satisfied if at least 95 percent of the proceeds is spentwithin six months and the remaining five percent is spent within 12 months after the bonds areissued.
41.   Retainage amounts are limited to no more than 5 percent of the bond proceeds, andthese amounts must be spent for the purpose of the borrowing no later than 36 months after thebonds are issued.  Issuers qualifying for this "construction bond" exception may elect to besubject to a fixed penalty payment regime in lieu of rebate if they fail to satisfy the spendingrequirements.
42.   The Small Business Job Protection Act of 1996 permitted issuance of the additional $5million in public school bonds by small governments.  Previously, small governments weredefined as general purpose governments that issued no more than $5 million of governmentalbonds, without regard to the purpose of the financing.
43.   See, Rev. Proc. 98-9, 1998-3 I.R.B. 56, which sets forth the maximum face amount ofqualified zone academy bonds that was permitted to be issued for each State during 1998.
44.   Department of Education. National Center for Education Statistics,  *Digest ofEducation Statistics 1997*. 
45.   "Total cost" includes tuition and fees, and on-campus room and board costs. 
46.   Department of Education. National Center for Education Statistics, *Digest ofEducation Statistics 1997.*
47.   Certain income limits restrict some benefits.  Part I, above, describes tax benefits underpresent law that subsidize education. 
48.   For a more complete discussion of the notion of "positive externality," see Harvey S.Rosen, *Public Finance* (Homewood, Illinois: Irwin), 1988, pp. 142-146. Rosen discusses thenotion of positive externality as applied to education. Rosen notes (pp. 144-145), "That collegeincreases productivity may be true, but *as long as the earnings of college graduates reflect theirhigher productivity, there is no externality* [Rosen's emphasis]." 
49.   Kevin Murphy and Finis Welch, "Wage Premiums for College Graduates: RecentGrowth and Possible Explanations," *Education Researcher*, 18, May 1989, pp. 17-26. Murphyand Welch document that, between 1981 and 1986, the average wage of workers with 16 years ofschooling was 58.4 percent higher than the average wage of workers with 12 years of schooling.This college wage premium represented the largest such premium during the period of theirstudy, 1963 through 1986. 
50.   For a cautionary note on the importance of the subsidy given, see Dennis Zimmerman,"Expenditure-Tax Incidence Studies, Public Higher Education, and Equity,"*National TaxJournal*, 26, March 1973. Zimmerman finds that the subsidy structure can just as easily promotea less equal distribution of lifetime income. 
51.   Table 2 reports that Federal, State and local, and private expenditures accounted for72.8 percent of post-secondary educational revenues for the 1994-95 academic year. Tuitionaccounted for 27.2 percent. 
52.   See Michael J. Boskin, "Notes on the Tax Treatment of Human Capital," inDepartment of the Treasury, *Conference on Tax Research, 1975* (Washington, D.C.: Departmentof the Treasury), 1977, pp. 185-195. 
53.   For a discussion of government policy towards human capital investment, see C.Eugene Steuerle, "How Should Government Allocate Subsidies for Human Capital?" AmericanEconomic Review, 86, May 1996, pp. 353-357. 
54.   Of course, the actual government expenditures themselves represent a wealth transferto the student.  It is only the income tax treatment of such expenditures (that is, not countingthem as income to the student) that is the equivalent of expensing.
55.    Exceptions include the direct payment of education expenses with earnings fromeducation IRAs or interest earned on U.S. savings bonds by low- and middle-income taxpayers. Such payments are permitted an exclusion from income tax.  By not counting such interest orearnings in income, they (the earnings components, but not the principal) are afforded treatmentequivalent to expensing.  Other tax benefits for direct expenditures on education expenses, suchas the deductibility of certain interest expense or penalty free withdrawals from IRAs, provideonly minor benefits in comparison to expensing or amortization treatment of the full amount ofeducation expenses.
56.   Specifically, the cost to the taxpayer of a dollar of expenditure on education that ispermitted to be deducted is (1-*t)* times the amount of the expenditure, where *t*is the taxpayer'smarginal tax rate.  For a taxpayer in the 28-percent tax bracket, a thousand dollar expenditure oneducation that is permitted to be deducted is only $720 (the tax benefit of the deduction is thus$280).   If the taxpayer is allowed a credit for the thousand dollar expenditure, there is no cost tothe taxpayer of the thousand dollar expenditure (that is, the tax benefit is the full $1,000).  Ingeneral, a taxpayer will prefer expensing treatment if his or her marginal tax rate exceeds thepercentage value of the credit.
57.   Expensing is more generous cost recovery than is capitalization and amortization.Under simplifying assumptions, the expensing of investment is economically equivalent to thenontaxation of the returns to that investment. Amortization attempts to measure, and taxannually, the return to the investment. 
58.   Additionally, the Lifetime Learning credit provides a subsidy whose value in relationto expensing will vary depending on the marginal tax rate of the taxpayer.  A taxpayer in amarginal rate bracket in excess of the value of the credit (20 percent under present law) wouldprefer expensing of such expenditures, whereas a taxpayer with a marginal rate bracket less thanthe value of the credit would prefer the present credit to expensing.
59.   As noted previously, exceptions include the direct payment of education expenses withearnings from education IRAs or interest earned on U.S. savings bonds by low- andmiddle-income taxpayers.  Again, it is only the earnings from such accounts, not the principal,that is afforded the favorable tax treatment.
60.   Given the passage of section 469 by the Tax Reform Act of 1986 (relating to thedeductibility of losses from passive activities), these provisions are largely "deadwood."
61.   No adjustment is required if the taxpayer materially participates in the activity thatrelates to the research and experimental expenditures.
62.   For 1998 only, the nonrefundable personal credits were not limited by the tentativeminimum tax, and the refundable child credit was not reduced by the minimum tax.
63.   Both the House- and Senate-passed versions of H.R. 2014, the "Taxpayer Relief Act of1997," would have increased or indexed the exemption amounts of the individual AMT.However, the final conference agreement on H.R. 2014 as passed by the Congress and signed bythe President, did not contain any provision to change the AMT exemption amounts (P.L. 105-34, August 5, 1997).    
64.   The exemptions amounts are $45,000 in the case of married individuals filing a jointreturn and surviving spouses; $33,750 in the case of other unmarried individuals; and $22,500 inthe case of married individuals filing a separate return.
65.   The phase-out ranges are $150,000 to $330,000 of AMTI for married individuals filinga joint return and surviving spouses; $112,500 to $262,500 of AMTI for other unmarriedindividuals; and $75,000 to $165,000 of AMTI for married individuals filing singly.
66.   See Table 3, above.
67.   The AMT credit also includes certain credits disallowed under sections 29 (relating tononconventional fuels) and 30 (relating to electric vehicles).
68.   See H. Rept. 99-426, pp. 305-306, and S. Rept. 99-313, p. 518.
69.   General Accounting Office, *Experience With the Corporate Alternative Minimum Tax*,(GAO/GGD-95-88), April 1995, p. 36.
70.   Andrew B. Lyon, *Cracking the Code: Making Sense of the Corporate AlternativeMinimum Tax* (Washington, D.C.: The Brookings Institution), 1997, p. 115.
71.   A business may reduce its purchases of capital equipment during a recession, therebyreducing deductions for depreciation over time.
72.   A taxpayer pays the AMT if its AMT tax liability exceeds its regular tax liability.  LetY represent a corporation's regular taxable income.  Let P represent AMT preferences.  Thenalternative minimum taxable income is (Y+P), and ignoring graduated marginal tax rates underthe regular tax, a taxpayer is subject to the AMT when:

				(.20)(Y+P) > (.35)Y.

Simplifying, this is equivalent to:

				(.20) P > (.15)Y

			or	P/Y > .75.

As preferences become large relative to income, the taxpayer is more likely to be subject to theAMT.
73.   Senate Committee on Finance, *Report on H.R. 3838, the "Tax Reform Act of 1986, "* p.519.
74.   For a discussion of incidence of the corporate income tax and taxes on the return tocapital, see, Joint Committee on Taxation, *Methodology and Issues in Measuring Changes in theDistribution of Tax Burdens* (JCS-7-93), June 14, 1993, pp. 44-51.
75.   Andrew B. Lyon, "The Alternative Minimum Tax:  Equity, Efficiency, and IncentiveEffects," in *Economic Effects of the Corporate Alternative Minimum Tax* (Washington, D.C.: American Council for Capital Formation Center for Policy Research),  1991, pp. 51-82.
76.   Charles R. Hulten, "Commentary," in *Economic Effects of the Corporate AlternativeMinimum Tax* (Washington, D.C.:  American Council for Capital Formation Center for PolicyResearch),  1991, pp. 84-88.
77.   Michael J. Graetz and Emil M. Sunley, "Minimum Taxes and Comprehensive TaxReform," in Henry J. Aaron, Harvey Galper, and Joseph A. Pechman (eds.) *Uneasy Compromise: Problems of a Hybrid Income-Consumption Tax* (Washington, D.C.:  The Brookings Institution),1988, p. 406.
78.   For example, see B. Douglas Bernheim, "Incentive Effects of the CorporateAlternative Minimum Tax," in Lawrence H. Summers (ed.), *Tax Policy and the Economy*, 3,(Cambridge: The MIT Press), 1989 and Andrew B. Lyon, *"*Investment Incentives under theAlternative Minimum Tax,*" National Tax Journal*, 43, December 1990, pp. 451-465.
79.   Lyon, *"Investment Incentives under the Alternative Minimum Tax."*
80.   The ACE adjustment causes corporations to have three tax bases.
81.   GAO, *Experience With the Corporate Alte*r*native Minimum Tax*, p. 3.
82.   Joel Slemrod and Marsha Blumenthal, "The Income Tax Compliance Cost of BigBusiness," *Public Finance Quarterly*, 24 (October 1996), pp. 411-438.
83.   The Internal Revenue Service has administratively extended the waiver through June30, 1999.  IRS Notice 98-68, November 18, 1998.  The previous statutory waiver expired June30, 1998; see section 931 of the 1997 Act.
84.   The ability of individuals to establish MSAs may expire earlier than December 31,2000, if certain numerical limits on the number of MSAs established are exceeded.
85.   The luxury excise tax on automobiles phases down as follows:  6 percent in 1999, 5percent in 2000, 4 percent in 2001, and 3 percent in 2002.
86.   This expiration date does not apply to new empowerment zones added by the 1997Act, which expire later.  See, I. Provisions Expiring in 2007 and J. Provisions Expiring in 2008,below.
87.   The credit phases down for vehicles placed in service after December 31, 2001.  Thecredit is reduced by 25 percent in 2002, 50 percent in 2003, and 75 percent in 2004.  No credit isavailable after 2004. 
88.   The deduction phases down for vehicles placed in service after December 31, 2001. The deduction is reduced by 25 percent in 2002, 50 percent in 2003, and 75 percent in 2004.  Nodeduction is allowed after 2004. 
89.   The 4.3-cents-per-gallon rate is permanent.
90.   The 4.3-cents-per-gallon rate is permanent.
91.   There are no Federal tax provisions expiring in calendar year 2006.
92.   The 4.3-cents-per-gallon rate is permanent.
93.   The reduced rates expire earlier if the tax rate on gasoline and other motor fuels dropsto 4.3 cents per gallon, which is currently scheduled to occur after September 30, 2005, unlessthe Highway Trust Fund tax rates are extended beyond that date.
94.   The income tax credits expire earlier if the tax rate on gasoline and other motor fuelsdrops to 4.3 cents per gallon, which is currently scheduled to occur after September 30, 2005,unless the Highway Trust Fund tax rates are extended beyond that date.
95.   The empowerment zone employment tax credit is only available to the two additionalurban empowerment zones that were designated by February 1, 1998.
96.   Empowerment zone tax incentives generally expire 10 years after zone designation;thus, the empowerment zones whose designations took effect in 1998 expireDecember 31, 2008.** |
|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|