DESCRIPTION OF THE CHAIRMAN’S

AMENDMENT IN THE NATURE OF A SUBSTITUTE TO H.R. 6

Scheduled for Markup

before the

HOUSE COMMITTEE ON WAYS AND MEANS

on March 22, 2001

Prepared by 

the Staff of the

JOINT COMMITTEE ON TAXATION

JCX-16-01

March 21, 2001
(i)

CONTENTS

Page

INTRODUCTION.......................................................................................................... 1

I. STANDARD DEDUCTION MARRIAGE PENALTY RELIEF ............................. 2

II. EXPANSION OF THE 15-PERCENT RATE BRACKET FOR MARRIED

COUPLES FILING JOINT RETURNS .................................................................... 4

III. MARRIAGE PENALTY RELIEF AND SIMPLIFICATION RELATING TO

THE EARNED INCOME CREDIT .......................................................................... 8

IV. INCREASE AND EXPANSION OF THE CHILD TAX CREDIT.......................... 10

V. TRANSFER TO SOCIAL SECURITY AND MEDICARE TRUST FUNDS.......... 12
1

INTRODUCTION

The House Committee on Ways and Means has scheduled a markup for March 22, 2001, 

on the provisions of H.R. 6, the Marriage Tax Elimination Act of 2001.

This document,1 prepared by the staff of the Joint Committee on Taxation, contains a 

description of present law and the provisions of a Chairman’s amendment in the nature of a 

substitute to the provisions of H.R. 6.

 

1

 This document may be cited as follows: Joint Committee on Taxation, Description of 

the Chairman’s Amendment in the Nature of a Substitute to H.R. 6 (JCX-16-01), March 21, 

2001.
2

I. STANDARD DEDUCTION MARRIAGE PENALTY RELIEF

Present Law

Marriage penalty

A married couple generally is treated as one tax unit that must pay tax on the couple's 

total taxable income. Although married couples may elect to file separate returns, the rate 

schedules and other provisions are structured so that filing separate returns usually results in a 

higher tax than filing a joint return. Other rate schedules apply to single persons and to single 

heads of households.

A "marriage penalty" exists when the combined tax liability of a married couple filing a 

joint return is greater than the sum of the tax liabilities of each individual computed as if they 

were not married. A "marriage bonus" exists when the combined tax liability of a married 

couple filing a joint return is less than the sum of the tax liabilities of each individual computed 

as if they were not married.

Basic standard deduction

Taxpayers who do not itemize deductions may choose the basic standard deduction (and 

additional standard deductions, if applicable), 2 which is subtracted from adjusted gross income 

("AGI") in arriving at taxable income. The size of the basic standard deduction varies according 

to filing status and is indexed for inflation. For 2001, the size of the basic standard deduction for 

each filing status is shown in Table 1., below.

 

2

 Additional standard deductions are allowed with respect to any individual who is 

elderly (age 65 or over) or blind.
3

Table 1.--Basic Standard Deduction Amounts

Filing status

Basic

standard deduction

Married, joint return.................. $7,600

Head of household return.......... $6,650

Single return.............................. $4,550

Married, separate return............ $3,800

For 2001, the basic standard deduction amount for single filers is 60 percent of the basic 

standard deduction amount for married couples filing joint returns. Thus, two unmarried 

individuals have standard deductions whose sum exceeds the standard deduction for a married 

couple filing a joint return.

Description of Proposal

The proposal would increase the basic standard deduction for a married couple filing a 

joint return to twice the basic standard deduction for an unmarried individual filing a single 

return. The basic standard deduction for a married taxpayer filing separately would continue to 

equal one-half of the basic standard deduction for a married couple filing jointly; thus, the basic 

standard deduction for unmarried individuals filing a single return and for married couples filing 

separately would be the same.

Effective Date

The proposal would be effective for taxable years beginning after December 31, 2001.
4

II. EXPANSION OF THE 15-PERCENT RATE BRACKET FOR

MARRIED COUPLES FILING JOINT RETURNS

Present Law

In general

Under the Federal individual income tax system, an individual who is a citizen or resident 

of the United States generally is subject to tax on worldwide taxable income. Taxable income is 

total gross income less certain exclusions, exemptions, and deductions. An individual may claim 

either a standard deduction or itemized deductions. 

An individual’s income tax liability is determined by computing his or her regular 

income tax liability and, if applicable, alternative minimum tax liability. 

Regular income tax liability

Regular income tax liability is determined by applying the regular income tax rate 

schedules (or tax tables) to the individual’s taxable income and then is reduced by any applicable 

tax credits. The regular income tax rate schedules are divided into several ranges of income, 

known as income brackets, and the marginal tax rate increases as the individual’s income 

increases. The income bracket amounts are adjusted annually for inflation. Separate rate 

schedules apply based on filing status: single individuals (other than heads of households and 

surviving spouses), heads of households, married individuals filing joint returns (including 

surviving spouses), married individuals filing separate returns, and estates and trusts. Lower 

rates may apply to capital gains.

For 2001, the regular income tax rate schedules for individuals are shown in Table 2., 

below. The bracket breakpoints for single individuals are approximately 60 percent of the rate 

bracket breakpoints for married couples filing joint returns.3 The rate bracket breakpoints for 

married individuals filing separate returns are exactly one-half of the rate brackets for married 

individuals filing joint returns. A separate, compressed rate schedule applies to estates and 

trusts.

 

3

 The rate bracket breakpoint for the 39.6 percent marginal tax rate is the same for single 

individuals and married couples filing joint returns.
5

Table 2.--Individual Regular Income Tax Rates for 2001

If taxable income is: Then regular income tax equals:

Single individuals

$0-27,050............................................. 15 percent of taxable income

$27,050-$65,550................................... $4,057.50, plus 28% of the amount over $27,050

$65,550-$136,750................................. $14,837.50, plus 31% of the amount over $65,550

$136,750-$297,350 ............................... $36,909.50, plus 36% of the amount over $136,750

Over $297,350...................................... $94,725.50, plus 39.6% of the amount over $297,350

Heads of households

$0-$36,250........................................... 15 percent of taxable income

$36,250-$93,650................................... $5,437.50, plus 28% of the amount over $36,250

$93,650-$151,650................................. $21,509.50, plus 31% of the amount over $93,650

$151,650-$297,350 ............................... $39,489.50, plus 36% of the amount over $151,650

Over $297,350...................................... $91,941.50, plus 39.6% of the amount over $297,350

Married individuals filing joint returns

$0-$45,200........................................... 15 percent of taxable income

$45,200-$109,250................................. $6,780.00, plus 28% of the amount over $45,200

$109,250-$166,500 ............................... $24,714.50, plus 31% of the amount over $109,250

$166,500-$297,350 ............................... $42,461.50, plus 36% of the amount over $166,500

Over $297,350...................................... $89,567.50, plus 39.6% of the amount over $297,350

Alternative minimum tax liability

In general

An individual’s alternative minimum tax equals the excess of the individual’s tentative 

alternative minimum tax liability over his or her regular income tax liability. Tentative 

alternative minimum tax liability is determined by applying specified rates (shown in Table 3., 

below) to alternative minimum taxable income in excess of phased-out exemption amounts 

($45,000 for married couples filing joint returns and $33,750 for unmarried individuals filing a 

single return). Alternative minimum taxable income generally is the individual’s regular taxable 

income increased by certain preference items and other adjustments. The basic structure of the 

alternative minimum tax (such as exemption amounts and rate brackets) is not adjusted annually 

for inflation. The lower regular income tax rates on capital gains also apply under the alternative 

minimum tax.
6

Table 3.--Individual Alternative Minimum Tax Rates

If alternative minimum taxable income in 

excess of the applicable exemption amount 

is: Then tentative alternative minimum tax equals:

$0-175,000........................................... 26 percent of alternative minimum taxable income in 

excess of the applicable exemption amount

Over $175,000...................................... $45,500, plus 28% of the amount over $175,000

Limitation on nonrefundable credits

Through 2001, an individual generally may reduce his or her tentative alternative 

minimum tax liability by nonrefundable personal tax credits (such as the $500 child tax credit 

and the adoption tax credit). For taxable years beginning after December 31, 2001, 

nonrefundable personal tax credits may not reduce an individual’s income tax liability below his 

or her tentative alternative minimum tax liability.

AMT offset of refundable tax credits

An individual’s alternative minimum tax liability reduces the amount of the refundable 

earned income credit and, for taxable years beginning after December 31, 2001, the amount of 

the refundable child credit for families with three or more children.

Description of Proposal

Increase in 15-percent regular income tax bracket

The proposal would increase the size of the 15-percent regular income tax rate bracket for 

a married couple filing a joint return to twice the size of the corresponding rate bracket for an 

unmarried individual filing a single return. This increase would be phased in over six years as 

shown in Table 4., below. Therefore, this provision would be fully effective (i.e., the size of the 

lowest regular income tax rate bracket for a married couple filing a joint return would be twice 

the size of the lowest regular income tax rate bracket for an unmarried individual filing a single 

return) for taxable years beginning after December 31, 2008.
7

Table 4. -- Increase in Size of 15-Percent Rate Bracket

for Married Couples Filing a Joint Return

Taxable year

Size of 15-percent rate bracket for

married couple filing joint return as

percentage of rate bracket

for unmarried individuals

2004 172

2005 178

2006 183

2007 189

2008 195

2009 and thereafter 200

AMT relief

The AMT exemption amount ($45,000) for a married couple filing a joint return would 

be increased by $1,000 in 2005, by an additional $500 in 2006, and by an additional $500 in 

every other year thereafter (i.e., in 2008, 2010, etc.), but in no event would the exemption 

amount exceed twice the exemption amount for unmarried individuals filing single returns. The 

exemption amount for married individuals filing a separate return would be one-half the 

exemption amount for a married couple filing a joint return. 

The proposal also would repeal the present-law provision that offsets the refundable child 

credit and the earned income credit by the amount of the alternative minimum tax.

Effective Date

The increase in the size of the 15-percent rate bracket would be effective for taxable 

years beginning after December 31, 2003. The increase in the AMT exemption would be

effective for taxable years beginning after December 31, 2004. Finally, the proposal to repeal 

the AMT offset for the refundable child credit and the earned income credit would be effective 

for taxable years after December 31, 2001.
8

III. MARRIAGE PENALTY RELIEF AND SIMPLIFICATION

RELATING TO THE EARNED INCOME CREDIT

Present Law

Eligible low-income workers are able to claim a refundable earned income credit 

(“EIC”). The amount of the credit an eligible taxpayer may claim depends upon the taxpayer’s 

income and whether the taxpayer has one, more than one, or no qualifying children. 

Definition of earned income

To claim the EIC, the taxpayer must have earned income. Earned income consists of 

wages, salaries, other employee compensation, and net earnings from self-employment. 

Employee compensation includes anything of value received by the taxpayer from the employer 

in return for services of the employee, including nontaxable earned income. Nontaxable forms 

of compensation treated as earned income for EIC purposes include the following: (1) elective 

deferrals under a cash or deferred arrangement or section 403(b) annuity (sec. 402(g)); (2) 

employer contributions for nontaxable fringe benefits, including contributions for accident and 

health insurance (sec. 106), dependent care (sec. 129), adoption assistance (sec. 137), educational 

assistance (sec. 127), and miscellaneous fringe benefits (sec. 132); (3) salary reduction 

contributions under a cafeteria plan (sec. 125); (4) meals and lodging provided for the 

convenience of the employer (sec. 119), and (5) housing allowance or rental value of a parsonage 

for the clergy (sec. 107). Some of these items are not required to be reported on the Wage and 

Tax Statement (Form W-2), making it difficult for the taxpayer to ascertain the correct amount of 

nontaxable earned income.

Calculation of the credit

The maximum EIC is phased in as an individual’s earned income increases. The credit 

phases out for individuals with earned income (or if greater, modified AGI) over certain levels. 

In the case of a married individual who files a joint return, the EIC both for the phasein and 

phaseout is calculated based on the couples’ combined income. The EIC is not available to 

married taxpayers filing separate returns.

The credit is determined by multiplying the credit rate by the taxpayer's earned income 

up to a specified earned income amount. The maximum amount of the credit is the product of 

the credit rate and the earned income amount. The maximum credit amount applies to taxpayers 

with (1) earnings at or above the earned income amount and (2) modified AGI4 (or earnings, if 

greater) at or below the phaseout threshold level.

 

4

“Modified AGI” means AGI determined without regard to certain losses and increased 

by certain amounts not includible in gross income. The losses disregarded are: (1) net capital 

losses (up to $3,000); (2) net losses from estates and trusts; (3) net losses from nonbusiness rents 

and royalties; (4) 75 percent of the net losses from businesses, computed separately with respect 

to sole proprietorships (other than farming), farming sole proprietorships, and other businesses. 

For purposes of (4), amounts attributable to a business that consists of the performance of 
9

For taxpayers with modified AGI (or earned income, if greater) in excess of the phaseout 

threshold, the credit amount is reduced by the phaseout rate multiplied by the amount of earned 

income (or modified AGI, if greater) in excess of the phaseout threshold. In other words, the 

credit amount is reduced, falling to $0 at the “breakeven” income level, the point where a 

specified percentage of “excess” income above the phaseout threshold offsets exactly the 

maximum amount of the credit. The earned income amount and the phaseout threshold are 

indexed for inflation. Table 5., below, shows the EIC parameters for taxable year 2001.5

Table 5.--Earned Income Credit Parameters (2001)

Two or more 

qualifying 

children

One qualifying

child

No qualifying 

children

Credit rate (percent)....................................

Earned income amount................................

Maximum credit .........................................

40.00%

$10,020

$4,008

34.00%

$7,130

$2,424

7.65%

$4,760

$364

Phase out begins.........................................

Phase out rate (percent)...............................

$13,090

21.06%

$13,090

15.98%

$5,950

7.65%

Phase out ends............................................ $32,121 $28,281 $10,710

Description of Proposal

For married taxpayers who file a joint return, the proposal would increase the earned 

income amount used to calculate the EIC to 110 percent of the earned income amount for all 

other taxpayers eligible for the EIC.

The proposal also would simplify the definition of earned income by excluding 

nontaxable earned income amounts from the definition of earned income for EIC purposes. 

Thus, under the proposal, earned income would include wages, salaries, tips, and other employee 

compensation, if includible in gross income for the taxable year, plus net earnings from selfemployment.

The proposal would repeal the present-law provision that reduces the EIC by the amount 

of an individual’s alternative minimum tax.

Effective Date

The proposal would be effective for taxable years beginning after December 31, 2001.

 

services by the taxpayer as an employee are not taken into account. The amounts added to AGI 

to arrive at modified AGI include: (1) tax-exempt interest; and (2) nontaxable distributions from 

pensions, annuities, and individual retirement plans (but not nontaxable rollover distributions or 

trustee-to-trustee transfers). Sec. 32(c)(5). 

5

 The table is based on Rev. Proc. 2001-13.
10

IV. INCREASE AND EXPANSION OF THE CHILD TAX CREDIT

Present Law

Under present law, an individual may claim a $500 tax credit for each qualifying child 

under the age of 17. In general, a qualifying child is an individual for whom the taxpayer can 

claim a dependency exemption and who is the taxpayer’s son or daughter (or descendent of 

either), stepson or stepdaughter, or eligible foster child.

The child tax credit is phased out for individuals with income over certain thresholds. 

Specifically, the otherwise allowable child tax credit is reduced by $50 for each $1,000 (or 

fraction thereof) of modified AGI over $75,000 for single individuals or heads of households, 

$110,000 for married individuals filing joint returns, and $55,000 for married individuals filing 

separate returns. Modified AGI is the taxpayer’s total gross income plus certain amounts 

excluded from gross income (i.e., excluded income of U.S. citizens or residents living abroad 

(sec. 911); residents of Guam, American Samoa, and the Northern Mariana Islands (sec. 931); 

and residents of Puerto Rico (sec. 933)). The length of the phase-out range depends on the 

number of qualifying children. For example, the phase-out range for a single individual with one 

qualifying child is between $75,000 and $85,000 of modified AGI. The phase-out range for a 

single individual with two qualifying children is between $75,000 and $95,000.

The child tax credit is not adjusted annually for inflation.

In general, the child tax credit is nonrefundable. However, for families with three or 

more qualifying children, the child tax credit is refundable up to the amount by which the 

taxpayer’s employee share of social security taxes (i.e., FICA and HI taxes)6 exceeds the 

taxpayer’s EIC.

Through 2001, the child tax credit generally reduces the individual’s regular income tax 

and alternative minimum tax. Starting with taxable years beginning after December 31, 2001, 

the nonrefundable child tax credit is allowed only to the extent that the individual’s regular 

income tax liability exceeds the individual’s tentative alternative minimum tax, and the 

refundable child tax credit is reduced by the amount of the individual’s alternative minimum tax. 

Description of Proposal

The proposal would increase the child tax credit to $1,000, phased in over six years, 

beginning in 2001. Table 6., below, shows the proposed increase in the amount of the child tax 

credit under the proposal.

 

6

 In the case of self-employed individuals, the credit is refundable up to the amount by 

which one-half of the individual’s self-employment taxes (i.e., SECA taxes) exceedsthe 

taxpayer’s EIC. 
11

Table 6.--Proposed Increase of the Child Tax Credit

Taxable Year

Credit Amount Per 

Child

2001 $600

2002 $600

2003 $700

2004 $800

2005 $900

2006 and thereafter $1,000

In addition, the proposal would extend the present-law refundability of the child tax 

credit to families with fewer than three children.

The proposal would allow the child tax credit to the extent of the full amount of the

individual’s regular income tax and alternative minimum tax and the refundable child tax credit 

would no longer be reduced by the amount of the alternative minimum tax.

Effective Date

The proposal would generally be effective for taxable years beginning after December 

31, 2000.
12

V. TRANSFER TO SOCIAL SECURITY AND MEDICARE TRUST FUNDS

Present Law

Under present law, the tax collected under section 86 with respect to a portion of social 

security benefits included in gross income is transferred either to the Social Security trust fund or 

the Medicare trust fund.

Description of Proposal

Under the proposal, the amounts transferred to the Social Security and Medicare trust 

funds are determined as if the other proposals in the bill were not enacted. Thus, there would be 

no reduction in transfers to these funds as a result of these proposals.

Effective Date

The proposal would be effective on the date of enactment.