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[House Report 107-457]
[From the U.S. Government Publishing Office]

107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     107-457

======================================================================

 
          ENCOURAGING WORK AND SUPPORTING MARRIAGE ACT OF 2002

                                _______
                                

  May 14, 2002.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 4626]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4626) to amend the Internal Revenue Code of 1986 to 
accelerate the marriage penalty relief in the standard 
deduction, and to modify the work opportunity tax credit and 
the welfare-to-work tax credit, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.

                                CONTENTS

                                                                   Page
 I. Summary and Background............................................3
        A. Purpose and Summary...................................     3
        B. Background and Need for Legislation...................     4
        C. Legislative History...................................     4
II. Explanation of the Bill...........................................4
III.Votes of the Committee...........................................10

IV. Budget Effects of the Bill.......................................10
        A. Committee Estimate of Budgetary Effects...............    10
        B. Budget Authority and Tax Expenditures.................    12
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................    12
 V. Other Matters To Be Discussed Under the Rules of the House.......13
        A. Committee Oversight Findings and Recommendations......    13
        B. Statement of General Performance Goals and Objectives.    14
        C. Constitutional Authority Statement....................    14
        D. Information Relating to Unfunded Mandates.............    14
        E. Applicability of House Rule XX15(b)...................    14
        F. Tax Complexity Analysis...............................    14
VI. Changes in Existing Law Made by the Bill as Reported.............17

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Encouraging Work and Supporting 
Marriage Act of 2002''.

            TITLE I--ACCELERATION OF MARRIAGE PENALTY RELIEF

SEC. 101. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR JOINT 
                    RETURNS.

  (a) In General.--Paragraph (7) of section 63(c) of the Internal 
Revenue Code of 1986, as amended by section 301 of the Economic Growth 
and Tax Relief Reconciliation Act of 2001, is amended to read as 
follows:
          ``(7) Applicable percentage.--For purposes of paragraph (2), 
        the applicable percentage shall be determined in accordance 
        with the following table:

                ``For taxable years beginning
                                                         The applicable
                  in calendar year--
                                                        percentage is--
                  2003 or 2004.............................        170 
                  2005.....................................        174 
                  2006.....................................        184 
                  2007.....................................        187 
                  2008.....................................        190 
                  2009 and thereafter......................     200.''.

  (b) Conforming Amendment.--Subsection (d) of section 301 of the 
Economic Growth and Tax Relief Reconciliation Act of 2001 is amended by 
striking ``December 31, 2004'' and inserting ``December 31, 2002''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2002.

TITLE II--MODIFICATIONS TO WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK 
                                 CREDIT

SEC. 201. MODIFICATIONS TO WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK 
                    CREDIT.

  (a) Eligibility of Ex-Felons Determined Without Regard to Family 
Income.--Paragraph (4) of section 51(d) of the Internal Revenue Code of 
1986 is amended by adding ``and'' at the end of subparagraph (A), by 
striking ``, and'' at the end of subparagraph (B) and inserting a 
period, and by striking all that follows subparagraph (B).
  (b) Increase in Maximum Age for Eligibility of Food Stamp 
Recipients.--Clause (i) of section 51(d)(8)(A) of such Code is amended 
by striking ``25'' and inserting ``30''.
  (c) Clarification of Treatment of Individuals Under Individual Work 
Plans.--Subparagraph (B) of section 51(d)(6) of such Code (relating to 
vocational rehabilitation referral) is amended by striking ``or'' at 
the end of clause (i), by striking the period at the end of clause (ii) 
and inserting ``, or'', and by adding at the end the following new 
clause:
                          ``(iii) an individual work plan developed and 
                        implemented by an employment network pursuant 
                        to subsection (g) of section 1148 of the Social 
                        Security Act with respect to which the 
                        requirements of such subsection are met.''
  (d) Effective Date.--The amendments made by this section shall apply 
to individuals who begin work for the employer after December 31, 2002.

SEC. 202. CONSOLIDATION OF WORK OPPORTUNITY CREDIT WITH WELFARE-TO-WORK 
                    CREDIT.

  (a) In General.--Paragraph (1) of section 51(d) of the Internal 
Revenue Code of 1986 is amended by striking ``or'' at the end of 
subparagraph (G), by striking the period at the end of subparagraph (H) 
and inserting ``, or'', and by adding at the end the following new 
subparagraph:
                  ``(I) a long-term family assistance recipient.''
  (b) Long-Term Family Assistance Recipient.--Subsection (d) of section 
51 of such Code is amended by redesignating paragraphs (10) through 
(12) as paragraphs (11) through (13), respectively, and by inserting 
after paragraph (9) the following new paragraph:
          ``(10) Long-term family assistance recipient.--The term 
        `long-term family assistance recipient' means any individual 
        who is certified by the designated local agency--
                  ``(A) as being a member of a family receiving 
                assistance under a IV-A program (as defined in 
                paragraph (2)(B)) for at least the 18-month period 
                ending on the hiring date,
                  ``(B)(i) as being a member of a family receiving such 
                assistance for 18 months beginning after August 5, 
                1997, and
                  ``(ii) as having a hiring date which is not more than 
                2 years after the end of the earliest such 18-month 
                period, or
                  ``(C)(i) as being a member of a family which ceased 
                to be eligible for such assistance by reason of any 
                limitation imposed by Federal or State law on the 
                maximum period such assistance is payable to a family, 
                and
                  ``(ii) as having a hiring date which is not more than 
                2 years after the date of such cessation.''
  (c) Increased Credit for Employment of Long-Term Family Assistance 
Recipients.--Section 51 of such Code is amended by inserting after 
subsection (d) the following new subsection:
  ``(e) Credit for Second-Year Wages for Employment of Long-Term Family 
Assistance Recipients.--
          ``(1) In general.--With respect to the employment of a long-
        term family assistance recipient--
                  ``(A) the amount of the work opportunity credit 
                determined under this section for the taxable year 
                shall include 40 percent of the qualified second-year 
                wages for such year, and
                  ``(B) in lieu of applying subsection (b)(3), the 
                amount of the qualified first-year wages, and the 
                amount of qualified second-year wages, which may be 
                taken into account with respect to such a recipient 
                shall not exceed $10,000 per year.
          ``(2) Qualified second-year wages.--For purposes of this 
        subsection, the term `qualified second-year wages' means 
        qualified wages--
                  ``(A) which are paid to a long-term family assistance 
                recipient, and
                  ``(B) which are attributable to service rendered 
                during the 1-year period beginning on the day after the 
                last day of the 1-year period with respect to such 
                recipient determined under subsection (b)(2).
          ``(3) Special rules for agricultural and railway labor.--If 
        such recipient is an employee to whom subparagraph (A) or (B) 
        of subsection (h)(1) applies, rules similar to the rules of 
        such subparagraphs shall apply except that--
                  ``(A) such subparagraph (A) shall be applied by 
                substituting `$10,000' for `$6,000', and
                  ``(B) such subparagraph (B) shall be applied by 
                substituting `$833.33' for `$500'.''
  (d) Repeal of Separate Welfare-to-Work Credit.--
          (1) In general.--Section 51A of such Code is hereby repealed.
          (2) Clerical Amendment.--The table of sections for subpart F 
        of part IV of subchapter A of chapter 1 of such Code is amended 
        by striking the item relating to section 51A.
  (e) Effective Date.--The amendments made by this section shall apply 
to individuals who begin work for the employer after December 31, 2002.

                       I. SUMMARY AND BACKGROUND

                         A. Purpose and Summary

    The bill, H.R. 4626, as amended (the ``Encouraging Work and 
Supporting Marriage Act of 2002''), provides income tax relief 
to American families and encourages employment of individuals 
whose lack of work history or other factors otherwise serves as 
a disincentive to employment.
    The bill provides net tax reductions of over $900 million 
over fiscal years 2003-2007. This will provide needed marriage 
penalty tax relief for over 21 million American taxpayers and 
encourage employers to hire certain individuals who otherwise 
may have significant barriers to employment.
    The bill accelerates an increase of the basic standard 
deduction for married couples filing joint returns. 
Specifically, the bill increases the basic standard deduction 
for married couples filing joint returns to 170 percent of the 
standard deduction for single individuals for 2003 and 2004. 
Finally, the bill combines and expands the work opportunity tax 
credit and the welfare to work tax credit.

                 B. Background and Need for Legislation

    The provisions approved by the Committee reflect the need 
for additional marriage penalty relief for American families. 
The provisions also should serve to encourage employment of 
certain targeted groups. Finally, the combination of the work 
opportunity tax credit and welfare to work tax credit will 
simplify the operation of the credits for employers.

                         C. Legislative History

                            Committee Action

    The Committee on Ways and Means marked up the provisions of 
the bill on May 2, 2001, and approved the provisions, as 
amended, on May 2, 2001, by a voice vote, with a quorum 
present.

                      II. EXPLANATION OF THE BILL

A. Acceleration of the Basic Standard Deduction Marriage Penalty Relief

(Sec. 101 of the bill and sec. 63 of the Code)

                              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.
    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),\1\ 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 adjusted annually for inflation. For 2002, 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 the sum of which exceeds the standard deduction for 
a married couple filing a joint return.
---------------------------------------------------------------------------
    \1\ Additional standard deductions are allowed with respect to any 
individual who is elderly (age 65 or over) or blind.
---------------------------------------------------------------------------
    Present law provides that the basic standard deduction for 
a married couple filing a joint return will be increased to 
twice the basic standard deduction for an unmarried individual 
filing a single return. This increase in the basic standard 
deduction is phased in over five years beginning in 2005, and 
will be fully phased in by 2009. Table 1, below, shows the 
standard deduction for married couples filing a joint return as 
a percentage of the standard deduction for single individuals.

 TABLE 1.--PHASE-IN OF THE INCREASE OF THE BASIC STANDARD DEDUCTION FOR
                  MARRIED COUPLES FILING JOINT RETURNS
------------------------------------------------------------------------
                                                             Standard
                                                           deduction for
                                                           joint returns
                      Calendar year                        as percentage
                                                            of standard
                                                           deduction for
                                                          single returns
------------------------------------------------------------------------
2002--2004..............................................             167
2005....................................................             174
2006....................................................             184
2007....................................................             187
2008....................................................             190
2009 and later..........................................             200
------------------------------------------------------------------------

                           Reasons for Change

    The Committee continues to be concerned about the inequity 
that arises when two single individuals marry and experience a 
tax increase solely by reason of their marriage. The increase 
in the standard deduction under the bill will mitigate this 
marriage penalty and will benefit 21 million married couples. 
It also allows 300,000 couples who currently itemize their 
deductions to realize the simplification benefits of using the 
larger basic standard deduction in 2003 and 2004.

                        Explanation of Provision

    The bill accelerates the increase of the basic standard 
deduction for married couples filing joint returns. Table 2, 
below, shows the standard deduction for married couples filing 
a joint return as a percentage of the standard deduction for 
single individuals during the phase-in period as modified under 
the bill.

 TABLE 2.--PHASE-IN OF THE INCREASE OF THE BASIC STANDARD DEDUCTION FOR
                  MARRIED COUPLES FILING JOINT RETURNS
------------------------------------------------------------------------
                                                             Standard
                                                           deduction for
                                                           joint returns
                      Calendar year                        as percentage
                                                            of standard
                                                           deduction for
                                                          single returns
------------------------------------------------------------------------
2002....................................................             167
2003-2004...............................................             170
2005....................................................             174
2006....................................................             184
2007....................................................             187
2008....................................................             190
2009 and later..........................................             200
------------------------------------------------------------------------

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2002.

B. Modification of the Work Opportunity Tax Credit and Welfare-To-Work 
                               Tax Credit

(Sec. 201 of the bill and secs. 51 and 51A of the Code)

                              Present Law

Work opportunity tax credit

            Targeted groups eligible for the credit
    The work opportunity tax credit is available on an elective 
basis for employers hiring individuals from one or more of 
eight targeted groups. The eight targeted groups are: (1) 
certain families eligible to receive benefits under the 
Temporary Assistance for Needy Families (``TANF'') Program; (2) 
high-risk youth; (3) qualified ex-felons; (4) vocational 
rehabilitation referrals; (5) qualified summer youth employees; 
(6) qualified veterans; (7) qualified food stamp recipients; 
and (8) persons receiving certain Supplemental Security Income 
(SSI) benefits.
    A qualified ex-felon is an individual certified as: (1) 
having been convicted of a felony under State or Federal law; 
(2) being a member of an economically disadvantaged family; and 
(3) having a hiring date within one year of the later of 
release from prison or conviction.
    Vocational rehabilitation referrals are those individuals 
who have a physical or mental disability that constitutes a 
substantial handicap to employment, and who are referred to the 
employer while receiving, or after completing, vocational 
rehabilitation services under an individualized, written 
rehabilitation plan under a State plan approved under the 
Rehabilitation Act of 1973 or under a rehabilitation plan for 
veterans carried out under Chapter 31 of Title 38, U.S. Code. 
Certification is provided by the designated local employment 
agency upon assurances from the vocation rehabilitation agency 
that the employee has met the above conditions.
    Qualified food stamp recipients are individuals who have 
attained age 18 but have not attained age 25 that are certified 
as being a member of a family either currently or recently 
receiving assistance under an eligible food stamp program.
            Qualified wages
    Generally, qualified wages are defined as cash wages paid 
by the employer to a member of a targeted group. The employer's 
deduction for wages is reduced by the amount of the credit.
            Calculation of the credit
    The credit equals 40 percent (25 percent for employment of 
less than 400 hours) of qualified first-year wages. Generally, 
qualified first-year wages are qualified wages (not in excess 
of $6,000) attributable to service rendered by a member of a 
targeted group during the one-year period beginning with the 
day the individual began work for the employer. Therefore, the 
maximum credit per employee is $2,400 (40 percent of the first 
$6,000 of qualified first-year wages). With respect to 
qualified summer youth employees, the maximum credit is $1,200 
(40 percent of the first $3,000 of qualified first-year wages).
            Minimum employment period
    No credit is allowed for qualified wages paid to employees 
who work less than 120 hours in the first year of employment.

Coordination of the work opportunity tax credit and the welfare-to-work 
        tax credit

    An employer cannot claim the work opportunity tax credit 
with respect to wages of any employee on which the employer 
claims the welfare-to-work tax credit.

Other rules

    The work opportunity tax credit is not allowed for wages 
paid to a relative or dependent of the taxpayer. Similarly, 
wages paid to replacement workers during a strike or lockout 
are not eligible for the work opportunity tax credit. Wages 
paid to any employee during any period for which the employer 
received on-the-job training program payments with respect to 
that employee are not eligible for the work opportunity tax 
credit. The work opportunity tax credit generally is not 
allowed for wages paid to individuals who had previously been 
employed by the employer. In addition, many other technical 
rules apply.

Welfare-to-work tax credit

            Targeted group eligible for the credit
    The welfare-to-work tax credit is available on an elective 
basis to employers of qualified long-term family assistance 
recipients. Qualified long-term family assistance recipients 
are: (1) members of a family that has received TANF benefits 
for at least 18 consecutive months ending on the hiring date; 
(2) members of a family that has received such TANF benefits 
for a total of at least 18 months (whether or not consecutive) 
after August 5, 1997 (the date of enactment of the welfare-to-
work tax credit) if the individual is hired within 2 years 
after the date that the 18-month total is reached; and (3) 
members of a family who is no longer eligible for TANF benefits 
because of either Federal or State time limits, if the 
individual is hired within 2 years after the Federal or State 
time limits made the family ineligible for TANF benefits.
            Qualified wages
    Qualified wages for purposes of the welfare-to-work tax 
credit are defined more broadly than under the work opportunity 
tax credit. In contrast to the definition of wages for the work 
opportunity tax credit which includes only cash wages, the 
definition of wages for the welfare-to-work tax credit includes 
cash wages paid to an employee plus amounts paid by the 
employer for: (1) educational assistance excludable under a 
section 127 program; (2) certain health plan coverage for the 
employee that is excludable from income under sections 105 and 
106 for income tax purposes, but not more than the applicable 
premium defined under section 4980B(f)(4); and (3) dependent 
care assistance excludable under section 129. The employer's 
deduction for wages is reduced by the amount of the credit.
            Calculation of the credit
    The welfare-to-work tax credit is available on an elective 
basis to employers of qualified long-term family assistance 
recipients during the first two years of employment. The 
maximum credit is 35 percent of the first $10,000 of qualified 
first-year wages and 50 percent of the first $10,000 of 
qualified second-year wages. Qualified first-year wages are 
defined as qualified wages (not in excess of $10,000) 
attributable to service rendered by a member of the targeted 
group during the one-year period beginning with the day the 
individual began work for the employer. Qualified second-year 
wages are defined as qualified wages (not in excess of $10,000) 
attributable to service rendered by a member of the targeted 
group during the one-year period beginning immediately after 
the first year of that individual's employment for the 
employer. The maximum credit is $8,500 per qualified employee.
            Minimum employment period
    No credit is allowed for qualified wages paid to a member 
of the targeted group unless the member works at least 400 
hours or 180 days in the first year of employment.

Coordination of the work opportunity tax credit and the welfare-to-work 
        tax credit

    An employer cannot claim the work opportunity tax credit 
with respect to wages of any employee on which the employer 
claims the welfare-to-work tax credit.

Other rules

    The welfare-to-work tax credit incorporates directly or by 
reference many of the other rules contained in the work 
opportunity tax credit.

                           Reasons for Change

    The Committee wishes to increase the employment 
opportunities of certain individuals and promote simplification 
of the Federal tax laws. Simplifying the work opportunity and 
welfare-to-work tax credits achieving both objectives. 
Simplification reduces burdens on employers that already claim 
the credits. In addition, simplification may benefit 
individuals in the targeted groups by reducing one possible 
disincentive for employers to claim the credit. The Committee 
bill also increases employment opportunities for individuals 
directly by expanding the definition of three of the targeted 
groups.
    The work opportunity and welfare-to-work tax credits have 
sources of complexity under present law. Employers of members 
of the targeted groups must comply with two different though 
very similar sets of rules to determine the amount of their 
work opportunity tax credit and welfare-to-work tax credit. 
Some large employers may be eligible for one or both credits 
with respect to a fraction of their employees, yet fail to 
claim the credits due to their complexity. Most small employers 
do not claim either credit. While the certification process may 
account for much of the perceived complexity of the two 
credits, the other differences in the credit requirements 
(e.g., definition of qualified wages and minimum employment 
rules) may also act as a disincentive to employer 
participation. The fact that so many members of one or more 
targeted groups under the work opportunity tax credit also 
qualify as qualified long-term family assistance recipients is 
an additional source of complexity. In that instance, an 
employer must calculate both the work opportunity tax credit 
and welfare-to-work tax credit with respect to that employee to 
determine which credit is most advantageous to claim on the 
first year of employment for that individual.
    Combining the credits and harmonizing the rules will 
eliminate burdensome calculations and often-duplicative 
compliance responsibilities. Employers will be able to look to 
a uniform set of rules with regard to the employment of members 
of any of the targeted groups.

                        Explanation of Provision

Combined credit

            Targeted groups eligible for the combined credit
    The bill combines the work opportunity and welfare to work 
tax credits. The combined credit is available on an elective 
basis for employers hiring individuals from one or more of all 
nine present-law targeted groups.\2\
---------------------------------------------------------------------------
    \2\ The Committee recognizes that a transition to the combined 
credit will require additional taxpayer education. It is anticipated 
that the Treasury Department take all appropriate action (e.g., timely 
taxpayer guidance and distribution of new forms) to help employers 
efficiently claim the combined credit.
---------------------------------------------------------------------------
    The bill repeals the requirement that a qualified ex-felon 
be a member of an economically disadvantaged family for 
purposes of eligibility for the tax credit. Under the bill, a 
qualified ex-felon is an individual certified as: (1) having 
been convicted of a felony under State or Federal law; and (2) 
having a hiring date within one year of the later of release 
from prison or conviction.
    The bill adds an additional type of individual eligible for 
the credit under the category of vocational rehabilitation 
referrals. Under the bill, certain individuals who have a 
physical or mental disability that constitutes a substantial 
handicap to employment and who are receiving vocational 
services or have completed an individual work plan developed by 
a private employment network as defined under section 1148(f) 
of the Social Security Act qualify as members of the vocational 
rehabilitation referral targeted group.
    The bill increases the age limit for qualified food stamp 
recipients by five years. Under the bill a food stamp recipient 
is an individual who has attained age 18 but has not attained 
age 30 who is certified as being a member of a family either 
currently or recently receiving assistance under an eligible 
food stamp program.
            Qualified wages
    Generally, qualified wages are defined as cash wages paid 
by the employer to a member of a targeted group. Qualified 
first-year wages for the eight work opportunity tax credit 
categories, as modified by this proposal, remain capped at 
$6,000. No credit is allowed for second-year wages. In the case 
of long-term family assistance recipients, the cap of $6,000 
isincreased to $10,000 for both qualified first-year wages and 
qualified second-year wages. The employer's deduction for wages is 
reduced by the amount of the credit.
            Calculation of the credit
    First-year wages.--The present-law work opportunity tax 
credit rules are retained for the eight categories currently 
eligible for the work opportunity tax credit. Specifically, the 
credit equals 40 percent (25 percent for employment of less 
than 400 hours) of qualified first-year wages. Generally, 
qualified first-year wages are qualified wages (not in excess 
of $6,000) attributable to service rendered by a member of a 
targeted group during the one-year period beginning with the 
day the individual begins work for the employer. Therefore, the 
maximum credit per employee for members of the eight work 
opportunity tax credit targeted groups remains $2,400 (40 
percent of the first $6,000 of qualified first-year wages). 
With respect to qualified summer youth employees, the maximum 
credit remains $1,200 (40 percent of the first $3,000 of 
qualified first-year wages).
    In the case of long-term family assistance recipients, the 
credit equals 40 percent (25 percent for employment of less 
than 400 hours) of qualified first-year wages. The maximum 
credit is $4,000 (40 percent of the first $10,000 of qualified 
first-year wages) with respect to long-term family assistance 
recipients.
    Second year wages.--In the case of long-term family 
assistance recipients the maximum credit is 40 percent of the 
first $10,000 of qualified second-year wages.
            Minimum employment period
    No credit is allowed for qualified wages paid to employees 
who work less than 120 hours in the first year of employment.

Coordination of the work opportunity tax credit and the welfare-to-work 
        tax credit

    Coordination is no longer necessary because the two credits 
are combined under the bill.

                             Effective Date

    The provision is effective for wages paid or incurred with 
respect to qualified individuals who begin work for an employer 
after December 31, 2002.

                      III. VOTES OF THE COMMITTEE

    The bill was ordered reported by a voice vote, with a 
quorum present.

                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 4626 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2003-2007:

ESTIMATED REVENUE EFFECTS OF THE CHAIRMAN'S AMENDMENT TO H.R. 4626, THE ``ENCOURAGING WORK AND SUPPORTING MARRIAGE ACT OF 2002,'' SCHEDULED FOR MARKUP BY THE COMMITTEE ON WAYS AND MEANS ON MAY
                                                                                             2, 2002
                                                                        [Fiscal Years 2003-2012, in millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                  Provision                                  Effective                  2003     2004     2005     2006     2007     2008     2009     2010     2011     2012   2003-07  2003-12
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Accelerate the Increase in the Standard        tyba 12/31/02........................     -241     -465     -155  .......  .......  .......  .......  .......  .......  .......     -861     -861
 Deduction for Married Couples Filing Jointly
 (the standard deduction would increase to:
 170% of the amount of the deduction for
 single filers in 2003 and 2004).
Modification of the Work Opportunity Tax
 Credit (``WOTC'') and the Welfare-to-Work
 Tax Credit (``WWTC''):
    1. Combine the WOTC and the WWTC; target   wpoifibwa 12/31/02...................       -6       -7       -1    (\2\)    (\3\)    (\3\)    (\2\)    (\2\)  .......  .......      -13      -13
     groups are the 8 groups currently
     covered under the WOTC and long-term
     TANF recipients currently covered under
     the WWTC; present-law WOTC definition of
     wages; 40% credit with respect to
     employment of 400 or more hours and 25%
     credit for between 120-400 hours, no
     credit for less than 120 hours; first
     year credit applies to first $6,000 of
     wages for WOTC groups and first $10,000
     of wages for WWTC group; WWTC group
     would be eligible for a 40% credit on
     first $10,000 for 2nd year of employment
     \1\.
    2. Eliminate the family income test that   wpoifibwa 12/31/02...................       -1       -1    (\3\)    (\3\)    (\3\)  .......  .......  .......  .......  .......       -2       -2
     applies to ex-felons under the WOTC \1\.
    3. Increase the WOTC eligibility age for   wpoifibwa 12/31/02...................       -8      -12       -5       -2       -2       -1    (\3\)  .......  .......  .......      -29      -30
     food stamp recipients from 25 to 30 \1\.
    4. Modify definition of a vocational       wpoifibwa 12/31/02...................       -1       -1    (\3\)    (\3\)    (\3\)  .......  .......  .......  .......  .......       -2       -2
     rehabilitation referral \1\.
      Total of Modification of the WOTC and    .....................................      -16      -21       -6       -2       -2       -1    (\3\)    (\2\)  .......  .......      -46      -47
       WWTC.
      Net Total..............................  .....................................     -257     -486     -161       -2       -2       -1    (\3\)    (\2\)  .......  .......     -907     -908
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Proposal expires, like present-law WOTC and WWTC, on December 31, 2003.
\2\ Gain of less than $500,000.
\3\ Loss of less than $500,000.

Legend for ``Effective'' column: tyba = taxable years beginning after; wpoifibwa = wages paid or incurred for individuals beginning work after.

 Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority (as detailed 
in the statement by the Congressional Budget Office (``CBO''); 
see Part IV.C., below). The Committee further states that the 
revenue reducing income tax provisions involve increased tax 
expenditures. (See amounts in table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 9, 2002.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4626, the 
Encouraging Work and Supporting Marriage Act of 2002.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Erin 
Whitaker.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 4626--Encouraging Work and Supporting Marriage Act of 2002

    Summary: The Congressional Budget Office and the Joint 
Committee on Taxation (JCT) estimate that enacting H.R. 4626 
would reduce revenues by $257 million in fiscal year 2003, by 
$907 million over the 2003-2007 period, and by $908 million 
over the 2003-2012 period. Because the bill would affect 
receipts, pay-as-you-go procedures would apply.
    H.R. 4626 would provide increases in the standard deduction 
for married taxpayers filing jointly that would take effect 
before the increases enacted in the Economic Growth and Tax 
Relief Reconciliation Act of 2001 (EGTRRA). As a result, the 
standard deduction would increase in the years 2003 and 2004 
above the amounts applicable under current law. The bill also 
would combine the work opportunity tax credit with the welfare-
to-work tax credit for employers who hire employees from one of 
nine targeted groups. The combined credit would expire at the 
end of 2003, like the separate credits under current law. The 
credit would be calculated in the same manner as under current 
law for employees in those groups targeted under the work 
opportunity tax credit. For employees in those groups targeted 
under the welfare-to-work tax credit, the credit would equal 40 
percent of qualified first year wages, or 25 percent of such 
wages if the employee were to work less than 400 hours.
    In addition, the bill would eliminate the requirement that 
ex-felons be members of lower-income earning families in order 
for their employers to receive the credit, increase the age 
limit from 25 to 30 for food stamp recipients so that their 
employers are still eligible for the credit, and make eligible 
certain individuals with substantial handicaps to employment 
who are receiving vocational services as members of the 
vocational rehabilitation targeted group.
    H.R. 4626 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 4626 is shown in the following table. 
All estimates of the revenue effects of the bill were provided 
by JCT. The provision of the bill that would have the greatest 
impact on revenues would increase the standard deduction for 
married taxpayers filing jointly in 2003 and 2004. This 
provision would, if enacted, reduce revenues by $241 million in 
2003, by $861 million over the 2003-2007 period, and by the 
same amount over the 2003-2012 period.

----------------------------------------------------------------------------------------------------------------
                                                            By fiscal year, in millions of dollars--
                                               -----------------------------------------------------------------
                                                   2002       2003       2004       2005       2006       2007
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Estimated Revenues............................          0       -257       -486       -161         -2         -2
----------------------------------------------------------------------------------------------------------------

    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in governmental receipts that are subject to pay-as-
you-go procedures are shown in the following table. For the 
purposes of enforcing pay-as-you-go procedures, only the 
effects through 2006 are counted.

----------------------------------------------------------------------------------------------------------------
                                                    By fiscal year, in millions of dollars--
                              ----------------------------------------------------------------------------------
                                2002    2003     2004     2005    2006   2007   2008   2009   2010   2011   2012
----------------------------------------------------------------------------------------------------------------
Changes in outlays...........                                    Not applicable
Changes in receipts..........      0     -257     -486     -161     -2     -2     -1      0      0      0      0
----------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 4626 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Erin Whitaker.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning the tax burden on individual 
taxpayers and the level of complexity in the tax system that 
the Committee concluded that it is appropriate and timely to 
enact the revenue provisions included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power to lay and collect Taxes, Duties, Imposts and 
Excises * * *''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, and tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    The following tax complexity analysis is provided pursuant 
to section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998, which requires the staff of the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service (``IRS'') and the Treasury Department) to 
provide a complexity analysis of tax legislation reported by 
the House Committee on Ways and Means, the Senate Committee on 
Finance, or a Conference Report containing tax provisions. The 
complexity analysis is required to report on the complexity and 
administrative issues raised by provisions that directly or 
indirectly amend the Internal Revenue Code and that have 
widespread applicability to individuals or small businesses. 
For each such provision identified by the staff of the Joint 
Committee on Taxation, a summary description of the provision 
is provided along with an estimate of the number and type of 
affected taxpayers, and a discussion regarding the relevant 
complexity and administrative issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and the Treasury 
Department regarding each of the provisions included in the 
complexity analysis, including a discussion of the likely 
effect on IRS forms and any expected impact on the IRS.

1. Standard deduction tax relief

Summary description of provision

    Present law provides for an increase in the basic standard 
deduction for married taxpayers filing a joint return to twice 
the basic standard deduction for an unmarried individual. The 
increase is phased-in over five years beginning in 2005 and 
will be fully phased-in for 2009 and thereafter. The bill will 
accelerate this increase of the basic standard deduction for 
married couples filing joint returns. Specifically, the bill 
increases the standard deduction for married couples filing 
joint returns to 170 percent of the standard deduction for 
single individuals for 2003 and 2004. The bill does not change 
the phase-in for 2005 and thereafter.

Number of affected taxpayers

    It is estimated that the provision will affect 
approximately 21 million individual returns.

Discussion

    It is not anticipated that individuals will need to keep 
additional records due to this provision. The higher basic 
standard deduction should not result in an increase in disputes 
with the IRS, nor will regulatory guidance be necessary to 
implement this provision. In addition, the provision should not 
increase individuals' tax preparation costs.
    Some taxpayers who currently itemize deductions may respond 
to the provision by claiming the increased standard deduction 
in lieu of itemizing. According to estimates by the staff of 
the Joint Committee on Taxation, approximately three hundred 
thousand individual tax returns will realize greater tax 
savings from the increased standard deduction than from 
itemizing their deductions. In addition to the tax savings, 
such taxpayers will no longer have to file Schedule A to Form 
1040 and a significant number of which will no longer need to 
engage in the record keeping inherent in itemizing below-the-
line deductions. Moreover, by claiming the standard deduction, 
such taxpayers may qualify to use simpler versions of the Form 
1040 (i.e., Form 1040EZ or Form 1040A) that are not available 
to individuals who itemize their deductions.These forms 
simplify the return preparation process by eliminating from the Form 
1040 those items that do not apply to particular taxpayers.
    This reduction in complexity and record keeping also may 
result in a decline in the number of individuals using a tax 
preparation service or a decline in the cost of using such a 
service. Furthermore, if the provision results in a taxpayer 
qualifying to use one of the simpler versions of the Form 1040, 
the taxpayer may be eligible to file a paperless Federal tax 
return by telephone. The provision also should reduce the 
number of disputes between taxpayers and the IRS regarding 
substantiation of itemized deductions.

                        Department of the Treasury,
                                  Internal Revenue Service,
                                       Washington, DC, May 6, 2002.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washington, DC.
    Dear Ms. Paull: Enclosed are the combined comments of the 
Internal Revenue Service and the Treasury Department on the 
provision from the House Committee on Ways and Means markup of 
H.R. 4626, the ``Encouraging Work and Supporting Marriage Act 
of 2002,'' that you identified for complexity analysis in your 
letter of May 2, 2002. Due to the short turnaround time, our 
comments are provisional and subject to change upon a more 
complete and in-depth analysis of the provision.
            Sincerely,
                                               Charles O. Rossotti.
    Enclosure.

   Complexity Analysis of H.R. 4626, Encouraging Work and Supporting 
                          Marriage Act of 2002

       Accelerate Increase in Standard Deduction for Joint Filers

Provision

    Present law provides for an increase in the basic standard 
deduction for married taxpayers filing a joint return to twice 
the basic standard deduction for an unmarried individual. The 
increase is phased in over five years beginning in 2005.
    The provision would increase the standard deduction for 
married couples filing joint returns to 170 percent of the 
standard deduction for single individuals for 2003 and 2004. 
The provision would not change the phase-in for 2005 and 
thereafter.

IRS and Treasury comments

     The increase in the basic standard deduction for 
married taxpayers would be incorporated in the instructions for 
Forms 1040, 1040A, 1040EZ, and on Forms 1040, 1040A, 1040EZ, 
and 1040-ES for 2003. No new forms would be required.
     Programming changes would be required to reflect 
the increased standard deduction for married taxpayers. 
Currently, IRS tax computation programs are updated annually to 
incorporate mandated inflation adjustments. Programming changes 
necessitate by this provision would be included during that 
process.
     The larger standard deduction would reduce the 
number of taxpayers who itemize deductions by nearly 300,000 in 
2003 and by nearly 400,000 in 2004.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *

                       Subtitle A--Income Taxes

           *       *       *       *       *       *       *

                 CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *

              Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *

                      PART IV--CREDIT AGAINST TAX

           *       *       *       *       *       *       *

         Subpart F--Rules for Computing Work Opportunity Credit

        Sec. 51.  Amount of credit.
        [Sec. 51A. Temporary incentives for employing long-term family 
                  assistance recipients.]
     * * * * * * *

SEC. 51. AMOUNT OF CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Members of Targeted Groups.--For purposes of this 
subpart--
          (1) In general.--An individual is a member of a 
        targeted group if such individual is--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) a qualified food stamp recipient, [or]
                  (H) a qualified SSI recipient[.], or
                  (I) a long-term family assistance recipient.

           *       *       *       *       *       *       *

          (4) Qualified ex-felon.--The term ``qualified ex-
        felon'' means any individual who is certified by the 
        designated local agency--
                  (A) as having been convicted of a felony 
                under any statute of the United States or any 
                State, and
                  (B) as having a hiring date which is not more 
                than 1 year after the last date on which such 
                individual was so convicted or was released 
                from prison[, and].
                  [(C) as being a member of a family which had 
                an income during the 6 months immediately 
                preceding the earlier of the month in which 
                such income determination occurs or the month 
                in which the hiring date occurs, which, on an 
                annual basis, would be 70 percent or less of 
                the Bureau of Labor Statistics lower living 
                standard.
        Any determination under subparagraph (C) shall be valid 
        for the 45-day period beginning on the date such 
        determination is made.]

           *       *       *       *       *       *       *

          (6) Vocational rehabilitation referral.--The term 
        ``vocational rehabilitation referral'' means any 
        individual who is certified by the designated local 
        agency as--
                  (A) * * *
                  (B) having been referred to the employer upon 
                completion of (or while receiving) 
                rehabilitative services pursuant to--
                          (i) an individualized written plan 
                        for employment under a State plan for 
                        vocational rehabilitation services 
                        approved under the Rehabilitation Act 
                        of 1973, [or]
                          (ii) a program of vocational 
                        rehabilitation carried out under 
                        chapter 31 of title 38, United States 
                        Code[.], or
                          (iii) an individual work plan 
                        developed and implemented by an 
                        employment network pursuant to 
                        subsection (g) of section 1148 of the 
                        Social Security Act with respect to 
                        which the requirements of such 
                        subsection are met.

           *       *       *       *       *       *       *

          (8) Qualified food stamp recipient.--
                  (A) In general.--The term ``qualified food 
                stamp recipient'' means any individual who is 
                certified by the designated local agency--
                          (i) as having attained age 18 but not 
                        age [25] 30 on the hiring date, and

           *       *       *       *       *       *       *

          (10) Long-term family assistance recipient.--The term 
        ``long-term family assistance recipient'' means any 
        individual who is certified by the designated local 
        agency--
                  (A) as being a member of a family receiving 
                assistance under a IV-A program (as defined in 
                paragraph (2)(B)) for at least the 18-month 
                period ending on the hiring date,
                  (B)(i) as being a member of a family 
                receiving such assistance for 18 months 
                beginning after August 5, 1997, and
                  (ii) as having a hiring date which is not 
                more than 2 years after the end of the earliest 
                such 18-month period, or
                  (C)(i) as being a member of a family which 
                ceased to be eligible for such assistance by 
                reason of any limitation imposed by Federal or 
                State law on the maximum period such assistance 
                is payable to a family, and
                  (ii) as having a hiring date which is not 
                more than 2 years after the date of such 
                cessation.
          [(10)] (11) Hiring date.--The term ``hiring date'' 
        means the day the individual is hired by the employer.
          [(11)] (12) Designated local agency.--The term 
        ``designated local agency'' means a State employment 
        security agency established in accordance with the Act 
        of June 6, 1933, as amended (29 U.S.C. 49-49n).
          [(12)] (13) Special rules for certifications.--
                  (A) In general.--An individual shall not be 
                treated as a member of a targeted group 
                unless--
                          (i) * * *

           *       *       *       *       *       *       *

  (e) Credit for Second-Year Wages for Employment of Long-Term 
Family Assistance Recipients.--
          (1) In general.--With respect to the employment of a 
        long-term family assistance recipient--
                  (A) the amount of the work opportunity credit 
                determined under this section for the taxable 
                year shall include 40 percent of the qualified 
                second-year wages for such year, and
                  (B) in lieu of applying subsection (b)(3), 
                the amount of the qualified first-year wages, 
                and the amount of qualified second-year wages, 
                which may be taken into account with respect to 
                such a recipient shall not exceed $10,000 per 
                year.
          (2) Qualified second-year wages.--For purposes of 
        this subsection, the term ``qualified second-year 
        wages'' means qualified wages--
                  (A) which are paid to a long-term family 
                assistance recipient, and
                  (B) which are attributable to service 
                rendered during the 1-year period beginning on 
                the day after the last day of the 1-year period 
                with respect to such recipient determined under 
                subsection (b)(2).
          (3) Special rules for agricultural and railway 
        labor.--If such recipient is an employee to whom 
        subparagraph (A) or (B) of subsection (h)(1) applies, 
        rules similar to the rules of such subparagraphs shall 
        apply except that--
                  (A) such subparagraph (A) shall be applied by 
                substituting ``$10,000'' for ``$6,000'', and
                  (B) such subparagraph (B) shall be applied by 
                substituting ``$833.33'' for ``$500''.

           *       *       *       *       *       *       *

[SEC. 51A. TEMPORARY INCENTIVES FOR EMPLOYING LONG-TERM FAMILY 
                    ASSISTANCE RECIPIENTS.

  [(a) Determination of Amount.--For purposes of section 38, 
the amount of the welfare-to-work credit determined under this 
section for the taxable year shall be equal to--
          [(1) 35 percent of the qualified first-year wages for 
        such year, and
          [(2) 50 percent of the qualified second-year wages 
        for such year.
  [(b) Qualified Wages Defined.--For purposes of this section--
          [(1) In general.--The term ``qualified wages'' means 
        the wages paid or incurred by the employer during the 
        taxable year to individuals who are long-term family 
        assistance recipients.
          [(2) Qualified first-year wages.--The term 
        ``qualified first-year wages'' means, with respect to 
        any individual, qualified wages attributable to service 
        rendered during the 1-year period beginning with the 
        day the individual begins work for the employer.
          [(3) Qualified second-year wages.--The term 
        ``qualified second-year wages'' means, with respect to 
        any individual, qualified wages attributable to service 
        rendered during the 1-year period beginning on the day 
        after the last day of the 1-year period with respect to 
        such individual determined under paragraph (2).
          [(4) Only first $10,000 of wages per year taken into 
        account.--The amount of the qualified first-year wages, 
        and the amount of qualified second-year wages, which 
        may be taken into account with respect to any 
        individual shall not exceed $10,000 per year.
          [(5) Wages.--
                  [(A) In general.--The term ``wages'' has the 
                meaning given such term by section 51(c), 
                without regard to paragraph (4) thereof.
                  [(B) Certain amounts treated as wages.--The 
                term ``wages'' includes amounts paid or 
                incurred by the employer which are excludable 
                from such recipient's gross income under--
                          [(i) section 105 (relating to amounts 
                        received under accident and health 
                        plans),
                          [(ii) section 106 (relating to 
                        contributions by employer to accident 
                        and health plans),
                          [(iii) section 127 (relating to 
                        educational assistance programs), but 
                        only to the extent paid or incurred to 
                        a person not related to the employer, 
                        or
                          [(iv) section 129 (relating to 
                        dependent care assistance programs).
                The amount treated as wages by clause (i) or 
                (ii) for any period shall be based on the 
                reasonable cost of coverage for the period, but 
                shall not exceed the applicable premium for the 
                period under section 4980B(f)(4).
                  [(C) Special rules for agricultural and 
                railway labor.--If such recipient is an 
                employee to whom subparagraph (A) or (B) of 
                section 51(h)(1) applies, rules similar to the 
                rules of such subparagraphs shall apply except 
                that--
                          [(i) such subparagraph (A) shall be 
                        applied by substituting ``$10,000'' for 
                        ``$6,000'', and
                          [(ii) such subparagraph (B) shall be 
                        applied by substituting ``$833.33'' for 
                        ``$500''.
  [(c) Long-Term Family Assistance Recipients.--For purposes of 
this section--
          [(1) In general.--The term ``long-term family 
        assistance recipient'' means any individual who is 
        certified by the designated local agency (as defined in 
        section 51(d)(11)--
                  [(A) as being a member of a family receiving 
                assistance under a IV-A program (as defined in 
                section 51(d)(2)(B) for at least the 18-month 
                period ending on the hiring date,
                  [(B)(i) as being a member of a family 
                receiving such assistance for 18 months 
                beginning after the date of the enactment of 
                this section, and
                  [(ii) as having a hiring date which is not 
                more than 2 years after the end of the earliest 
                such 18-month period, or
                  [(C)(i) as being a member of a family which 
                ceased to be eligible after the date of the 
                enactment of this section for such assistance 
                by reason of any limitation imposed by Federal 
                or State law on the maximum period such 
                assistance is payable to a family, and
                  [(ii) as having a hiring date which is not 
                more than 2 years after the date of such 
                cessation.
          [(2) Hiring date.--The term ``hiring date'' has the 
        meaning given such term by section 51(d).
  [(d) Certain Rules To Apply.--
          [(1) In general.--Rules similar to the rules of 
        section 52, and subsections (d)(11), (f), (g), (i) (as 
        in effect on the day before the date of the enactment 
        of the Taxpayer Relief Act of 1997), (j), and (k) of 
        section 51, shall apply for purposes of this section.
          [(2) Credit to be part of general business credit, 
        etc.--References to section 51 in section 38(b), 
        280C(a), and 1396(c)(3) shall be treated as including 
        references to this section.
  [(e) Coordination With Work Opportunity Credit.--If a credit 
is allowed under this section to an employer with respect to an 
individual for any taxable year, then for purposes of applying 
section 51 to such employer, such individual shall not be 
treated as a member of a targeted group for such taxable year.
  [(f) Termination.--This section shall not apply to 
individuals who begin work for the employer after December 31, 
2003.]

           *       *       *       *       *       *       *

              Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *

  PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE 
                            INCOME, ETC.

           *       *       *       *       *       *       *

SEC. 63. TAXABLE INCOME DEFINED.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Standard Deduction.--For purposes of this subtitle--
          (1) * * *

           *       *       *       *       *       *       *

          [(7) Applicable percentage.--For purposes of 
        paragraph (2), the applicable percentage shall be 
        determined in accordance with the following table:

        [For taxable years beginning                      The applicable
          in calendar year--                             percentage is--
          2005................................................      174 
          2006................................................      184 
          2007................................................      187 
          2008................................................      190 
          2009 and thereafter.................................     200.]

          (7) Applicable percentage.--For purposes of paragraph 
        (2), the applicable percentage shall be determined in 
        accordance with the following table:

        For taxable years beginning                       The applicable
          in calendar year--                             percentage is--
          2003 or 2004........................................      170 
          2005................................................      174 
          2006................................................      184 
          2007................................................      187 
          2008................................................      190 
200.    2009 and thereafter.................................

           *       *       *       *       *       *       *

                              ----------                              

SECTION 301 OF THE ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 
                                  2001

SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 
[2004] 2002.

                                  
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