I

104TH CONGRESS

2D SESSION H. R. 3441

To amend the Internal Revenue Code of 1986 to reform and rename the

earned income tax credit.

IN THE HOUSE OF REPRESENTATIVES

MAY 10, 1996

Mr. HUTCHINSON (for himself, Mr. BALLENGER, Mr. ARMEY, Mr. TALENT,

Mr. GOSS, Mr. LARGENT, Mr. GRAHAM, Mr. PETE GEREN of Texas, Mr.

HOEKSTRA, Mr. ZELIFF, Mr. NORWOOD, Mr. BAKER of California, Mr.

COBLE, Mr. CALVERT, Mr. SENSENBRENNER, and Mr. DOOLITTLE) introduced the following bill; which was referred to the Committee on Ways

and Means

A BILL

To amend the Internal Revenue Code of 1986 to reform

and rename the earned income tax credit.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Minimum Wage for Families Act’’.

6 (b) TABLE OF CONTENTS.—The table of contents for

7 this Act is as follows:

Sec. 1. Short title and table of contents.

Sec. 2. Congressional findings.

Sec. 3. Renaming of credit.
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Sec. 4. Working families support credit denied to individuals not authorized to

be employed in the United States.

Sec. 5. Repeal of credit for individuals without children.

Sec. 6. Termination of classification of students over age 18 as qualifying children.

Sec. 7. Rules relating to denial of working families support credit on basis of

disqualified income.

Sec. 8. Modification of adjusted gross income definition for working families

support credit.

Sec. 9. Modification of credit amount and phaseout.

Sec. 10. Installment payments of working families support credit.

Sec. 11. Provisions to improve tax compliance.

Sec. 12. Study on advance payments.

Sec. 13. Study on conversion of food stamps to cash payment and coordination

with working families support credit payments.

1 SEC. 2. CONGRESSIONAL FINDINGS.

2 The Congress finds as follows:

3 (1) The original intent of the Earned Income

4 Tax Credit (EITC), created in 1975, was to reduce

5 the tax burden on low-income families and it has

6 proven effective.

7 (2) Subsequent tax reforms have actually re8 moved most families earning below poverty income

9 from the Federal income tax rolls.

10 (3) The EITC provides low-income working

11 families with large lump-sum cash refunds of up to

12 $3,600 each year.

13 (4) Studies show that the EITC targets its ben14 efits toward poor households below the poverty line,

15 as it is designed to do.

16 (5) The EITC does not eliminate jobs and tar17 gets benefits at low-income families, and is therefore
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1 of greater assistance in erasing poverty than is rais2 ing the minimum wage.

3 (6) The ‘‘Minimum Wage for Families Act’’ will

4 redesign the Earned Income Tax Credit, rename the

5 credit as the Working Families Support Credit, and

6 further encourage the work ethic and reduce depend7 ency on welfare. Under the Working Families Sup8 port Credit, families would qualify for up to $4,455

9 each year in benefits.

10 (7) In the case of a family with 1 child, under

11 the Working Family Support Credit a full-time mini12 mum wage worker would earn an estimated wage of

13 $5.47 an hour.

14 (8) In the case of a family with 2 children,

15 under the Working Family Support Credit a full16 time minimum wage worker would earn an estimated

17 wage of $6.37 an hour.

18 (9) Therefore, the Working Family Support

19 Credit is an effective way to increase take-home pay

20 of workers without any of the economic disadvan21 tages associated with a minimum wage increase.

22 (10) Therefore, the ‘‘Minimum Wage for Fami23 lies Act’’ is a better way to lift the incomes of poor

24 families than a broad, sweeping increase in the Fed25 eral minimum wage.
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1 SEC. 3. RENAMING OF CREDIT.

2 (a) IN GENERAL.—The heading of section 32 of the

3 Internal Revenue Code of 1986 is amended to read as fol4 lows:

5 ‘‘SEC. 32. WORKING FAMILIES SUPPORT CREDIT.’’

6 (b) CONFORMING AMENDMENTS.—Each of the fol7 lowing provisions of such Code is amended by striking

8 ‘‘earned income credit’’ and inserting ‘‘working families

9 support credit’’:

10 (1) Section 32(g).

11 (2) Section 3507.

12 (3) Section 6012(a)(8).

13 (4) Paragraphs (7) and (10) of section 6051(a).

14 (c) CLERICAL AMENDMENTS.—

15 (1) The table of sections for subpart C of part

16 IV of subchapter A of chapter 1 of such Code is

17 amended by striking the item relating to section 32

18 and inserting the following new item:

‘‘Sec. 32. Working families support credit.’’

19 (2) The table of sections for chapter 25 of such

20 Code is amended by striking the item relating to sec21 tion 3507 and inserting the following new item:

‘‘Sec. 3507. Advance payment of working families support credit.’’
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1 SEC. 4. WORKING FAMILIES SUPPORT CREDIT DENIED TO

2 INDIVIDUALS NOT AUTHORIZED TO BE EM3 PLOYED IN THE UNITED STATES.

4 (a) IN GENERAL.—Section 32(c)(1) of the Internal

5 Revenue Code of 1986 (relating to individuals eligible to

6 claim credit) is amended by adding at the end the follow7 ing new subparagraph:

8 ‘‘(F) IDENTIFICATION NUMBER REQUIRE9 MENT.—The term ‘eligible individual’ does not

10 include any individual who does not include on

11 the return of tax for the taxable year—

12 ‘‘(i) such individual’s taxpayer identi13 fication number, and

14 ‘‘(ii) if the individual is married (with15 in the meaning of section 7703), the tax16 payer identification number of such indi17 vidual’s spouse.’’.

18 (b) SPECIAL IDENTIFICATION NUMBER.—Section 32

19 of such Code is amended by adding at the end the follow20 ing new subsection:

21 ‘‘(l) IDENTIFICATION NUMBERS.—Solely for pur22 poses of subsections (c)(1)(F) and (c)(3)(D), a taxpayer

23 identification number means a social security number is24 sued to an individual by the Social Security Administra25 tion (other than a social security number issued pursuant

26 to clause (II) (or that portion of clause (III) that relates
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1 to clause (II)) of section 205(c)(2)(B)(i) of the Social Se2 curity Act).’’.

3 (c) EXTENSION OF PROCEDURES APPLICABLE TO

4 MATHEMATICAL OR CLERICAL ERRORS.—Section

5 6213(g)(2) of such Code (relating to the definition of

6 mathematical or clerical errors) is amended by striking

7 ‘‘and’’ at the end of subparagraph (D), by striking the

8 period at the end of subparagraph (E) and inserting a

9 comma, and by inserting after subparagraph (E) the fol10 lowing new subparagraphs:

11 ‘‘(F) an omission of a correct taxpayer

12 identification number required under section 32

13 (relating to the working families support credit)

14 to be included on a return, and

15 ‘‘(G) an entry on a return claiming the

16 credit under section 32 with respect to net

17 earnings from self-employment described in sec18 tion 32(c)(2)(A) to the extent the tax imposed

19 by section 1401 (relating to self-employment

20 tax) on such net earnings has not been paid.’’.

21 (d) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to taxable years beginning after

23 December 31, 1995.
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1 SEC. 5. REPEAL OF CREDIT FOR INDIVIDUALS WITHOUT

2 CHILDREN.

3 (a) IN GENERAL.—Subparagraph (A) of section

4 32(c)(1) of the Internal Revenue Code of 1986 (defining

5 eligible individual) is amended to read as follows:

6 ‘‘(A) IN GENERAL.—The term ‘eligible in7 dividual’ means any individual who has a quali8 fying child for the taxable year.’’.

9 (b) CONFORMING AMENDMENTS.—Each of the tables

10 contained in paragraphs (1) and (2) of section 32(b) of

11 such Code is amended by striking the items relating to

12 no qualifying children.

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to taxable years beginning after

15 December 31, 1995.

16 SEC. 6. TERMINATION OF CLASSIFICATION OF STUDENTS

17 OVER AGE 18 AS QUALIFYING CHILDREN.

18 (a) IN GENERAL.—Subparagraph (C) of section

19 32(c)(3) of the Internal Revenue Code of 1986 is amend20 ed—

21 (1) in clause (i), by adding ‘‘or’’ at the end,

22 (2) by striking clause (ii), and

23 (3) by redesignating clause (iii) as clause (ii).

24 (b) EFFECTIVE DATE.—The amendments made by

25 this section shall apply to taxable years beginning after

26 December 31, 1995.
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1 SEC. 7. RULES RELATING TO DENIAL OF WORKING FAMI2 LIES SUPPORT CREDIT ON BASIS OF DIS3 QUALIFIED INCOME.

4 (a) DEFINITION OF DISQUALIFIED INCOME.—Para5 graph (2) of section 32(i) of the Internal Revenue Code

6 of 1986 (defining disqualified income) is amended by

7 striking ‘‘and’’ at the end of subparagraph (B), by striking

8 the period at the end of subparagraph (C) and inserting

9 ‘‘, and’’, and by adding at the end the following new sub10 paragraph:

11 ‘‘(D) the excess (if any) of—

12 ‘‘(i) the aggregate income from all

13 passive activities for the taxable year (de14 termined without regard to any amount de15 scribed in a preceding subparagraph of this

16 paragraph), over

17 ‘‘(ii) the aggregate losses from all pas18 sive activities for the taxable year (as so

19 determined).

20 For purposes of subparagraph (D), the term ‘passive

21 activity’ has the meaning given such term by section

22 469.’’.

23 (b) EFFECTIVE DATE.—The amendments made by

24 this section shall apply to taxable years beginning after

25 December 31, 1995.
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1 SEC. 8. MODIFICATION OF ADJUSTED GROSS INCOME DEFI2 NITION FOR WORKING FAMILIES SUPPORT

3 CREDIT.

4 (a) IN GENERAL.—Subsections (a)(2), (c)(1)(C), and

5 (f)(2)(B) of section 32 of the Internal Revenue Code of

6 1986, as amended by the preceding sections, are each

7 amended by striking ‘‘adjusted gross income’’ each place

8 it appears and inserting ‘‘modified adjusted gross in9 come’’.

10 (b) MODIFIED ADJUSTED GROSS INCOME DE11 FINED.—Section 32(c) of such Code (relating to defini12 tions and special rules) is amended by adding at the end

13 the following new paragraph:

14 ‘‘(5) MODIFIED ADJUSTED GROSS INCOME.—

15 ‘‘(A) IN GENERAL.—The term ‘modified

16 adjusted gross income’ means adjusted gross in17 come—

18 ‘‘(i) increased by the sum of the

19 amounts described in subparagraph (B),

20 and

21 ‘‘(ii) determined without regard to—

22 ‘‘(I) the amounts described in

23 subparagraph (C), and

24 ‘‘(II) the deduction allowed under

25 section 172.
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1 ‘‘(B) NONTAXABLE INCOME TAKEN INTO

2 ACCOUNT.—Amounts described in this subpara3 graph are—

4 ‘‘(i) amounts which—

5 ‘‘(I) are received during the tax6 able year by (or on behalf of) a spouse

7 pursuant to a divorce or separation

8 instrument (as defined in section

9 71(b)(2)), and

10 ‘‘(II) under the terms of the in11 strument are fixed as payable for the

12 support of the children of the payor

13 spouse (as determined under section

14 71(c)),

15 but only to the extent such amounts exceed

16 $6,000,

17 ‘‘(ii) interest received or accrued dur18 ing the taxable year which is exempt from

19 tax imposed by this chapter,

20 ‘‘(iii) amounts received as a pension

21 or annuity, and any distributions or pay22 ments received from an individual retire23 ment plan, by the taxpayer during the tax24 able year to the extent not included in

25 gross income, and
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1 ‘‘(iv) social security benefits (as de2 fined in section 86(d)) received by the tax3 payer during the taxable year to the extent

4 not included in gross income.

5 Clause (iii) shall not include any amount which

6 is not includible in gross income by reason of

7 section 402(c), 403(a)(4), 403(b)(8), 408(d)

8 (3), (4), or (5), or 457(e)(10).

9 ‘‘(C) CERTAIN AMOUNTS DISREGARDED.—

10 An amount is described in this subparagraph if

11 it is—

12 ‘‘(i) the amount of losses from sales

13 or exchanges of capital assets in excess of

14 gains from such sales or exchanges to the

15 extent such amount does not exceed the

16 amount under section 1211(b)(1),

17 ‘‘(ii) the net loss from the carrying on

18 of trades or businesses, computed sepa19 rately with respect to—

20 ‘‘(I) trades or businesses (other

21 than farming) conducted as sole pro22 prietorships,

23 ‘‘(II) trades or businesses of

24 farming conducted as sole proprietor25 ships, and
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1 ‘‘(III) other trades or business,

2 ‘‘(iii) the net loss from estates and

3 trusts, and

4 ‘‘(iv) the excess (if any) of amounts

5 described in subsection (i)(2)(C)(ii) over

6 the amounts described in subsection

7 (i)(2)(C)(i) (relating to nonbusiness rents

8 and royalties).

9 For purposes of clause (ii), there shall not be

10 taken into account items which are attributable

11 to a trade or business which consists of the per12 formance of services by the taxpayer as an em13 ployee.’’.

14 (c) EFFECTIVE DATE.—The amendments made by

15 this section shall apply to taxable years beginning after

16 December 31, 1995.

17 SEC. 9. MODIFICATION OF CREDIT AMOUNT AND PHASE18 OUT.

19 (a) MODIFICATION OF PHASEOUT.—Subparagraph

20 (B) of section 32(a)(2) of the Internal Revenue Code of

21 1986 is amended to read as follows:

22 ‘‘(B) the sum of—

23 ‘‘(i) the initial phaseout percentage of

24 so much of the modified adjusted gross in25 come (or, if greater, the earned income) of
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1 the taxpayer for the taxable year as ex2 ceeds the initial phaseout amount but does

3 not exceed the final phaseout amount, plus

4 ‘‘(ii) the final phaseout percentage of

5 so much of the modified adjusted gross in6 come (or, if greater, the earned income) of

7 the taxpayer for the taxable year as ex8 ceeds the final phaseout amount.’’.

9 (b) CHANGES TO PERCENTAGES AND AMOUNTS.—

10 (1) IN GENERAL.—Subsection (b) of section 32

11 of such Code is amended to read as follows:

12 ‘‘(b) PERCENTAGES AND AMOUNTS.—

13 ‘‘(1) PERCENTAGES.—The credit percentage,

14 the initial phaseout percentage, and the final phase15 out percentage shall be determined as follows:

16 ‘‘(A) IN GENERAL.—In the case of taxable

17 years beginning after 1999:

‘‘In the case of an eligible individual

with:

The credit percentage is:The initial phaseout percentage is:The final phaseout percentage is:

1 qualifying child ......................... 40 15.98 23.776

2 or more qualifying children ....... 50 21.06 41.253

18 ‘‘(B) TRANSITIONAL PERCENTAGES FOR

19 1998 AND 1999.—In the case of taxable years be20 ginning in 1998 or 1999:
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‘‘In the case of an eligible individual

with:

The credit percentage is:The initial phaseout percentage is:The final phaseout percentage is:

1 qualifying child ......................... 37 15.98 22.318

2 or more qualifying children ....... 45 21.06 35.448

1 ‘‘(2) AMOUNTS.—The earned income amount,

2 the initial phaseout amount, and the final phaseout

3 amount shall be determined as follows:

‘‘In the case of an eligible individual

with:

The earned income amount is:The initial phaseout amount is:The final phaseout amount is:

1 qualifying child ......................... $6,330 $11,610 $14,850

2 or more qualifying children ....... $8,890 $11,610 $17,750’’.

4 (2) CONFORMING AMENDMENT.—Subsection (j)

5 of section 32 of such Code is amended—

6 (A) by striking ‘‘subsection (b)(2)(A)’’ and

7 inserting ‘‘subsection (b)(2)’’,

8 (B) by striking ‘‘1994’’ and inserting

9 ‘‘1996’’, and

10 (C) by striking ‘‘1993’’ and inserting

11 ‘‘1995’’.

12 (c) TEMPORARY INCREASE IN CREDIT FOR LOWER13 INCOME FAMILIES HAVING 2 OR MORE QUALIFYING

14 CHILDREN.—Section 32 of such Code (as amended by sec15 tion 4(b)) is amended by adding at the end the following

16 new subsection:

17 ‘‘(m) INCREASE IN CREDIT FOR 1996 AND 1997 FOR

18 LOWER-INCOME FAMILIES HAVING 2 OR MORE QUALIFY19 ING CHILDREN.—
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1 ‘‘(1) IN GENERAL.— For taxable years begin2 ning in 1996 or 1997, if an eligible individual has

3 2 or more qualifying children then for purposes of

4 applying paragraphs (1) and (2)(A) of subsection

5 (a)—

6 ‘‘(A) the amount of the taxpayer’s earned

income shall be treated as being equal to 10 7 ⁄9 of

8 such income (determined without regard to this

9 paragraph), and

10 ‘‘(B) the earned income amount shall be

treated as being equal to 10 11 ⁄9 of such amount

12 (determined without regard to this paragraph).

13 ‘‘(2) PHASEOUT OF BENEFIT.—If the applicable

14 income of the taxpayer for the taxable year exceeds

15 $14,000 ($17,000 in the case of a joint return), the

16 amount of each increase under paragraph (1) shall

17 be reduced (but not below zero) by an amount which

18 bears the same ratio to such increase (determined

19 without regard to this paragraph) as such excess

20 bears to $4,000.

21 ‘‘(3) APPLICABLE INCOME.—For purposes of

22 this subsection, the term ‘applicable income’ means

23 modified adjusted gross income or, if greater, earned

24 income.’’

25 (d) EFFECTIVE DATES.—
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1 (1) PERMANENT CHANGES.—Except as pro2 vided in paragraph (2), the amendments made by

3 this section shall apply to taxable years beginning

4 after December 31, 1997.

5 (2) TEMPORARY INCREASE.—The amendment

6 made by subsection (c) shall apply to taxable years

7 beginning after December 31, 1995, and before Jan8 uary 1, 1998.

9 SEC. 10. INSTALLMENT PAYMENTS OF WORKING FAMILIES

10 SUPPORT CREDIT.

11 (a) IN GENERAL.—Section 6402 of the Internal Rev12 enue Code of 1986 (relating to authority to make credits

13 or refunds) is amended by adding at the end the following

14 new subsection:

15 ‘‘(j) INSTALLMENT PAYMENTS OF WORKING FAMI16 LIES SUPPORT CREDIT REFUNDS.—

17 ‘‘(1) IN GENERAL.—The working families sup18 port credit portion of any refund shall be paid in

19 substantially equal monthly installments over a 12-

20 month period beginning not later than the third

21 month which begins after the month in which the

22 taxpayer’s return is filed.

23 ‘‘(2) WORKING FAMILIES SUPPORT CREDIT

24 PORTION OF REFUND.—For purposes of paragraph

25 (1), the term ‘working families support credit por-
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1 tion of any refund’ means the amount of any over2 payment which is to be refunded (after the applica3 tion of the preceding provisions of this section) to

4 the person who made the overpayment, to the extent

5 that such amount does not exceed the credit allowed

6 to the person under section 32 for such taxable year.

7 ‘‘(3) EXCEPTION IF CREDIT IS $600 OR LESS.—

8 Paragraph (1) shall not apply with respect to any

9 person making an overpayment for a taxable year if

10 the credit allowed to such person under section 32

11 for such taxable year does not exceed $600.

12 ‘‘(4) PROHIBITION OF INTEREST.—Notwith13 standing any other provision of this title, no interest

14 shall be allowed or paid on any installment paid by

15 reason of this subsection.’’

16 (b) CONFORMING AMENDMENT.—Subsection (a) of

17 section 6402 of such Code is amended by striking ‘‘(c)

18 and (d)’’ and inserting ‘‘(c), (d), and (j)’’.

19 (c) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to taxable years beginning after

21 December 31, 1996.

22 SEC. 11. PROVISIONS TO IMPROVE TAX COMPLIANCE.

23 (a) INCREASE IN PENALTIES FOR RETURN PREPAR24 ERS.—
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1 (1) UNDERSTATEMENT PENALTY.—Section

2 6694 of the Internal Revenue Code of 1986 (relating

3 to understatement of income tax liability by income

4 tax return preparer) is amended—

5 (A) by striking ‘‘$250’’ in subsection (a)

6 and inserting ‘‘$500’’, and

7 (B) by striking ‘‘$1,000’’ in subsection (b)

8 and inserting ‘‘$2,000’’.

9 (2) OTHER ASSESSABLE PENALTIES.—Section

10 6695 of such Code (relating to other assessable pen11 alties) is amended—

12 (A) by striking ‘‘$50’’ and ‘‘$25,000’’ in

13 subsections (a), (b), (c), (d), and (e) and insert14 ing ‘‘$100’’ and ‘‘$50,000’’, respectively, and

15 (B) by striking ‘‘$500’’ in subsection (f)

16 and inserting ‘‘$1,000’’.

17 (b) AIDING AND ABETTING PENALTY.—Section

18 6701(b) of such Code (relating to amount of penalty) is

19 amended—

20 (1) by striking ‘‘$1,000’’ in paragraph (1) and

21 inserting ‘‘$2,000’’, and

22 (2) by striking ‘‘$10,000’’ in paragraph (2) and

23 inserting ‘‘$20,000’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to penalties with respect to taxable

3 years beginning after December 31, 1995.

4 SEC. 12. STUDY ON ADVANCE PAYMENTS.

5 Not later than 6 months after the date of the enact6 ment of this Act, the Secretary of the Treasury shall sub7 mit to the Congress a report containing recommendations

8 of means—

9 (1) to encourage recipients of the working fami10 lies support credit to obtain advance payments with

11 respect to such credit under section 3507 of the In12 ternal Revenue Code of 1986,

13 (2) to reduce fraud in connection with such ad14 vance payments, and

15 (3) to reduce the burdens on small businesses

16 with respect to such advance payments.

17 SEC. 13. STUDY ON CONVERSION OF FOOD STAMPS TO

18 CASH PAYMENT AND COORDINATION WITH

19 WORKING FAMILIES SUPPORT CREDIT PAY20 MENTS.

21 Not later than 1 year after the date of the enactment

22 of this Act, the Comptroller General of the United States

23 shall submit to the Congress a report containing the re24 sults of a study on the feasibility and effects of—
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1 (1) converting food stamps under the Food

2 Stamp Act of 1977 into a cash payment, and

3 (2) making cash payments of such food stamp

4 benefits in the same payment as monthly payments

5 of the working families support credit made under

6 sections 32 and 6402 of the Internal Revenue Code

7 of 1986 (as amended by this Act).

Æ