89–006

107TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 107–29

MARRIAGE PENALTY AND FAMILY TAX RELIEF ACT OF 2001

MARCH 27, 2001.—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

together with

DISSENTING VIEWS

[To accompany H.R. 6]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the

bill (H.R. 6) to amend the Internal Revenue Code of 1986 to reduce

the marriage penalty by providing for adjustments to the standard

deduction, 15-percent rate bracket, and earned income credit and

to allow the nonrefundable personal credits against regular and

minimum tax liability, having considered the same, report favorably thereon with amendments and recommend that the bill as

amended do pass.

CONTENTS

Page

I. Summary and Background ........................................................................... 5

A. Purpose and Summary .................................................................... 5

B. Background and Need for Legislation ............................................ 5

C. Legislative History ........................................................................... 5

II. Explanation of the Bill .................................................................................. 6

A. Standard Deduction Marriage Tax Penalty Relief ........................ 6

B. Expansion of the 15-Percent Rate Bracket for Married Couples

Filing Joint Returns ....................................................................... 7

C. Marriage Penalty Relief and Simplification Relating to the

Earned Income Credit .................................................................... 10

D. Increase and Expansion of the Child Tax Credit .......................... 12

E. Transfer to Social Security and Medicare Trust Funds ................ 14

III. Votes of the Committee ................................................................................. 14

IV. Budget Effects of the Bill .............................................................................. 15

A. Committee Estimates of Budgetary Effects ................................... 15

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B. Statement Regarding New Budget Authority and Tax Expenditures Budget Authority .................................................................. 16

C. Cost Estimate Prepared by the Congressional Budget Office ...... 16

V. Other Matters To Be Discussed Under the Rules of the House ................ 18

A. Committee Oversight Findings and Recommendations ................ 18

B. Statement of General Performance Goals and Objectives ............ 18

C. Constitutional Authority Statement ............................................... 18

D. Information Relating to Unfunded Mandates ............................... 19

E. Applicability of House Rule XXI 5(b) .............................................. 19

F. Tax Complexity Analysis ................................................................. 19

VI. Changes in Existing Law Made by the Bill as Reported ............................ 25

VII. Dissenting Views ........................................................................................... 33

The amendments are as follows:

Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE, ETC.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Marriage Penalty and Family

Tax Relief Act of 2001’’.

(b) SECTION 15 NOT TO APPLY.—No amendment made by this Act shall be treated

as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code

of 1986.

SEC. 2. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

(a) IN GENERAL.—Paragraph (2) of section 63(c) of the Internal Revenue Code of

1986 (relating to standard deduction) is amended—

(1) by striking ‘‘$5,000’’ in subparagraph (A) and inserting ‘‘200 percent of the

dollar amount in effect under subparagraph (C) for the taxable year’’;

(2) by adding ‘‘or’’ at the end of subparagraph (B);

(3) by striking ‘‘in the case of’’ and all that follows in subparagraph (C) and

inserting ‘‘in any other case.’’; and

(4) by striking subparagraph (D).

(b) TECHNICAL AMENDMENTS.—

(1) Subparagraph (B) of section 1(f )(6) of such Code is amended by striking

‘‘(other than with’’ and all that follows through ‘‘shall be applied’’ and inserting

‘‘(other than with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be applied’’.

(2) Paragraph (4) of section 63(c) of such Code is amended by adding at the

end the following flush sentence:

‘‘The preceding sentence shall not apply to the amount referred to in paragraph

(2)(A).’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 3. PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.

(a) IN GENERAL.—Subsection (f ) of section 1 of the Internal Revenue Code of 1986

(relating to adjustments in tax tables so that inflation will not result in tax increases) is amended by adding at the end the following new paragraph:

‘‘(8) PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.—

‘‘(A) IN GENERAL.—With respect to taxable years beginning after December 31, 2003, in prescribing the tables under paragraph (1)—

‘‘(i) the maximum taxable income in the lowest rate bracket in the

table contained in subsection (a) (and the minimum taxable income in

the next higher taxable income bracket in such table) shall be the applicable percentage of the maximum taxable income in the lowest rate

bracket in the table contained in subsection (c) (after any other adjustment under this subsection), and

‘‘(ii) the comparable taxable income amounts in the table contained

in subsection (d) shall be 1⁄2 of the amounts determined under clause

(i).

‘‘(B) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following

table:

‘‘For taxable years beginning The applicable

in calendar year— percentage is—

2004 ................................................................................................................................................ 172

2005 ................................................................................................................................................ 178

2006 ................................................................................................................................................ 183

2007 ................................................................................................................................................ 189

2008 ................................................................................................................................................ 195

2009 and thereafter ...................................................................................................................... 200.

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‘‘(C) ROUNDING.—If any amount determined under subparagraph (A)(i) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.’’. (b) REPEAL OF REDUCTION OF REFUNDABLE TAX CREDITS.— (1) Subsection (d) of section 24 of such Code is amended by striking paragraph (2) and redesignating paragraph (3) as paragraph (2).

(2) Section 32 of such Code is amended by striking subsection (h).

(c) INCREASE IN ALTERNATIVE MINIMUM TAX EXEMPTION AMOUNT FOR JOINT RE- TURNS.—

(1) IN GENERAL.—Subsection (d) of section 55 of such Code is amended by adding at the end the following new paragraph: ‘‘(4) ADJUSTMENT OF EXEMPTION AMOUNT FOR JOINT RETURNS.— ‘‘(A) IN GENERAL.—The dollar amount applicable under paragraph (1)(A)

for 2008 and each even-numbered calendar year thereafter— ‘‘(i) shall be $500 greater than the dollar amount applicable under

paragraph (1)(A) for the prior even-numbered calendar year, and ‘‘(ii) shall apply to taxable years beginning in such even-numbered

calendar year and in the succeeding calendar year.

In no event shall the dollar amount applicable under paragraph (1)(A) exceed twice the dollar amount applicable under paragraph (1)(B). ‘‘(B) EXEMPTION AMOUNTS FOR 2005, 2006, AND 2007.—The dollar amount

applicable under paragraph (1)(A) shall be— ‘‘(i) $46,000 for taxable years beginning in 2005, and

‘‘(ii) $46,500 for taxable years beginning in 2006 or 2007.’’ (2) CONFORMING AMENDMENTS.— (A) Paragraph (1) of section 55(d) of such Code is amended by striking ‘‘and’’ at the end of subparagraph (B), by striking subparagraph (C), and

by inserting after subparagraph (B) the following new subparagraphs: ‘‘(C) 50 percent of the dollar amount applicable under paragraph (1)(A)

in the case of a married individual who files a separate return, and ‘‘(D) $22,500 in the case of an estate or trust.’’ (B) Subparagraph (C) of section 55(d)(3) of such Code is amended by

striking ‘‘paragraph (1)(C)’’ and inserting ‘‘subparagraph (C) or (D) of paragraph (1)’’. (C) The last sentence of section 55(d)(3) of such Code is amended— (i) by striking ‘‘paragraph (1)(C)(i)’’ and inserting ‘‘paragraph (1)(C)’’, and

(ii) by striking ‘‘$165,000 or (ii) $22,500’’ and inserting ‘‘the minimum

amount of such income (as so determined) for which the exemption

amount under paragraph (1)(C) is zero, or (ii) such exemption amount

(determined without regard to this paragraph)’’. (d) TECHNICAL AMENDMENTS.— (1) Subparagraph (A) of section 1(f )(2) of such Code is amended by inserting ‘‘except as provided in paragraph (8),’’ before ‘‘by increasing’’. (2) The heading for subsection (f ) of section 1 of such Code is amended by

inserting ‘‘PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET;’’ before ‘‘ADJUSTMENTS’’. (e) EFFECTIVE DATES.— (1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2003.

(2) SUBSECTION (b).—The amendments made by subsection (b) shall apply to

taxable years beginning after December 31, 2001.

(3) SUBSECTION (c).—The amendments made by subsection (c) shall apply to

taxable years beginning after December 31, 2004.

SEC. 4. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT; EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS INCOME.

(a) IN GENERAL.—Paragraph (2) of section 32(b) of the Internal Revenue Code of

1986 (relating to percentages and amounts) is amended— (1) by striking ‘‘AMOUNTS.—The earned’’ and inserting ‘‘AMOUNTS.— ‘‘(A) IN GENERAL.—Subject to subparagraph (B), the earned’’; and

(2) by adding at the end the following new subparagraph:

‘‘(B) JOINT RETURNS.—In the case of a joint return, the earned income

amount determined under subparagraph (A) shall be 110 percent of the otherwise applicable amount. If any amount determined under the preceding

sentence is not a multiple of $10, such amount shall be rounded to the

nearest multiple of $10.’’

(b) EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS INCOME.—

Clause (i) of section 32(c)(2)(A) of such Code (defining earned income) is amended

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by inserting ‘‘, but only if such amounts are includible in gross income for the taxable year’’ after ‘‘other employee compensation’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 5. MODIFICATIONS TO CHILD TAX CREDIT.

(a) INCREASE IN PER CHILD AMOUNT.—Subsection (a) of section 24 of the Internal

Revenue Code of 1986 (relating to child tax credit) is amended to read as follows:

‘‘(a) ALLOWANCE OF CREDIT.—

‘‘(1) IN GENERAL.—There shall be allowed as a credit against the tax imposed

by this chapter for the taxable year with respect to each qualifying child of the

taxpayer an amount equal to the per child amount.

‘‘(2) PER CHILD AMOUNT.—For purposes of paragraph (1), the per child amount

shall be determined as follows:

‘‘In the case of any taxable year beginning in— The per child amount is—

2001 and 2002 ................................................................................................................................ $ 600

2003 ................................................................................................................................................. 700

2004 ................................................................................................................................................. 800

2005 ................................................................................................................................................. 900

2006 or thereafter .......................................................................................................................... 1,000.’’.

(b) CREDIT ALLOWED AGAINST ALTERNATIVE MINIMUM TAX.—

(1) IN GENERAL.—Subsection (b) of section 24 of such Code is amended by adding at the end the following new paragraph:

(2) CONFORMING AMENDMENTS.—

(A) The heading for section 24(b) of such Code is amended to read as follows: ‘‘LIMITATIONS.—’’.

(B) The heading for section 24(b)(1) of such Code is amended to read as

follows: ‘‘LIMITATION BASED ON ADJUSTED GROSS INCOME.—’’.

(C) Section 24(d) of such Code is amended—

(i) by striking ‘‘section 26(a)’’ each place it appears and inserting

‘‘subsection (b)(3)’’, and

(ii) in paragraph (1)(B) by striking ‘‘aggregate amount of credits allowed by this subpart’’ and inserting ‘‘amount of credit allowed by this

section’’.

(D) Paragraph (1) of section 26(a) of such Code is amended by inserting

‘‘(other than section 24)’’ after ‘‘this subpart’’.

(E) Subsection (c) of section 23 of such Code is amended by striking ‘‘and

section 1400C’’ and inserting ‘‘and sections 24 and 1400C’’.

(F) Subparagraph (C) of section 25(e)(1) of such Code is amended by inserting ‘‘, 24,’’ after ‘‘sections 23’’.

(G) Section 904(h) of such Code is amended by inserting ‘‘(other than section 24)’’ after ‘‘chapter’’.

(H) Subsection (d) of section 1400C of such Code is amended by inserting

‘‘and section 24’’ after ‘‘this section’’.

(c) ADDITIONAL CREDIT FOR FAMILIES WITH 3 OR MORE CHILDREN AVAILABLE TO

ALL FAMILIES.—Subsection (d) of section 24 of such Code is amended—

(1) in paragraph (1) by striking ‘‘In the case of a taxpayer with three or more

qualifying children for any taxable year, the’’ and inserting ‘‘The’’, and

(2) in the subsection heading by striking ‘‘WITH 3 OR MORE CHILDREN’’ and

inserting ‘‘PAYING SOCIAL SECURITY TAXES’’.

(d) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made

by this section shall apply to taxable years beginning after December 31, 2000.

(2) SUBSECTION (b).—The amendments made by subsection (b) shall apply to

taxable years beginning after December 31, 2001.

SEC. 6. PROTECTION OF SOCIAL SECURITY AND MEDICARE.

The amounts transferred to any trust fund under the Social Security Act shall be

determined as if this Act had not been enacted.

Amend the title so as to read:

A bill to amend the Internal Revenue Code of 1986 to reduce the marriage penalty

by providing for adjustments to the standard deduction, the 15-percent rate bracket,

and the earned income credit, to increase the child credit, and for other purposes.

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I. SUMMARY AND BACKGROUND

A. PURPOSE AND SUMMARY

The bill, H.R. 6, as amended (the ‘‘Marriage Penalty and Family

Tax Relief Act of 2001’’), provides relief from the marriage tax penalty and additional tax relief to American families with children.

The bill provides net tax reductions of over $116 billion over fiscal years 2001–2006. This will provide needed marriage tax penalty

and family tax relief for over 43 million American taxpayers in

2002 (60 million in 2010), return a portion of the tax revenues not

needed to fund government programs, and foster economic prosperity in the 21st century.

The bill makes several changes to reduce the marriage tax penalty, provide family tax relief, and alleviate the burden of the alternative minimum tax. Specifically, the bill increases the basic standard deduction and the size of the 15-percent regular income tax

rate bracket for married couples filing joint returns to twice that

for unmarried individuals. Also, the bill increases the alternative

minimum tax exemption amount and the earned income credit for

married couples filing joint returns. The bill (1) doubles the size of

the child credit; (2) makes the child credit refundable without regard to the number of qualifying children; and (3) allows the child

credit against the alternative minimum tax. Finally, the bill repeals the provisions that reduce the refundable child credit and the

earned income credit by the individual’s alternative minimum tax.

B. BACKGROUND AND NEED FOR LEGISLATION

The provisions approved by the Committee reflect the need for

marriage tax penalty and family tax relief for American families in

a fiscally prudent matter. The provisions also should serve to improve the economy and return an appropriate amount of the projected budget surplus to the American taxpayer. The estimated revenue effects of the provisions comply with the most recent Congressional Budget Office revisions of budget surplus projections.

C. LEGISLATIVE HISTORY

COMMITTEE ACTION

The Committee on Ways and Means marked up the provisions of

the bill on March 22, 2001, and reported the provisions, as amended, on March 22, 2001, by a roll call vote of 23 yeas and 16 nays,

with a quorum present.

COMMITTEE HEARING

A full Committee hearing on the related provisions of the President’s individual income tax proposals was held on March 21, 2001.

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

(age 65 or over) or blind.

II. EXPLANATION OF THE BILL

A. STANDARD DEDUCTION MARRIAGE TAX PENALTY RELIEF

PRESENT LAW

Marriage tax 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 of the Federal tax laws are structured so that filing separate returns usually results in a higher tax than filing a joint return. Other rate schedules apply to single persons and to single

heads of households.

A ‘‘marriage penalty’’ exists when the combined tax liability of a

married couple filing a joint return is greater than the sum of the

tax liabilities of each individual computed as if they were not married. A ‘‘marriage bonus’’ exists when the combined tax liability of

a married couple filing a joint return is less than the sum of the

tax liabilities of each individual computed as if they were not married.

Basic standard deduction

Taxpayers who do not itemize deductions may choose the basic

standard deduction,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 indexed

for inflation. For 2001, the size of the basic standard deduction for

each filing status is shown in Table 1, below.

TABLE 1.—BASIC STANDARD DEDUCTION AMOUNTS

Filing status Basic standard deduction

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

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

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

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

For 2001, the basic standard deduction amount for single filers

is 60 percent of the basic standard deduction amount for married

couples filing joint returns. Thus, two unmarried individuals have

standard deductions whose sum exceeds the standard deduction for

a married couple filing a joint return.

REASONS FOR CHANGE

The Committee is concerned about the inequity that arises when

two working single individuals marry and experience a tax increase

solely by reason of their marriage. Any attempt to address the marriage tax penalty involves the balancing of several competing principles, including equal tax treatment of married couples with equal

incomes, the determination of equitable relative tax burdens of single individuals and married couples with equal incomes, and the

goal of simplicity in compliance and administration. The ComVerDate 11-MAY-2000 07:10 Mar 28, 2001 Jkt 089006 PO 00000 Frm 00006 Fmt 6659 Sfmt 6602 E:\HR\OC\HR029.XXX pfrm04 PsN: HR029
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mittee believes that an increase in the standard deduction for married couples filing a joint return in conjunction with the other provisions of the bill is a responsible reduction of a marriage tax penalty. The increase in the standard deduction provides tax relief to

approximately 23 million married couples filing joint returns in

2002. Further, approximately 2 million couples who currently

itemize their deductions will realize the simplification benefits of

using the larger basic standard deduction in 2002.

EXPLANATION OF PROVISION

The provision increases the basic standard deduction for a married couple filing a joint return to twice the basic standard deduction for an unmarried individual filing a single return. The basic

standard deduction for a married taxpayer filing separately continues to equal one-half of the basic standard deduction for a married couple filing jointly; thus, the basic standard deduction for unmarried individuals filing a single return and for married couples

filing separately is the same.

EFFECTIVE DATE

The provision is effective for taxable years beginning after December 31, 2001.

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

COUPLES FILING JOINT RETURNS

PRESENT LAW

In general

Under the Federal individual income tax system, an individual

who is a citizen or resident of the United States generally is subject

to tax on worldwide taxable income. Taxable income is total gross

income less certain exclusions, exemptions, and deductions. An individual may claim either a standard deduction or itemized deductions.

An individual’s income tax liability is determined by computing

his or her regular income tax liability and, if applicable, alternative

minimum tax liability.

Regular income tax liability

Regular income tax liability is determined by applying the regular income tax rate schedules (or tax tables) to the individual’s

taxable income and then is reduced by any applicable tax credits.

The regular income tax rate schedules are divided into several

ranges of income, known as income brackets, and the marginal tax

rate increases as the individual’s income increases. The income

bracket amounts are adjusted annually for inflation. Separate rate

schedules apply based on filing status: single individuals (other

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

spouses), married individuals filing separate returns, and estates

and trusts. Lower rates may apply to capital gains.

For 2001, the regular income tax rate schedules for individuals

are shown in Table 2, below. The bracket breakpoints for single individuals are approximately 60 percent of the rate bracket

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2The rate bracket breakpoint for the 39.6 percent marginal tax rate is the same for single

individuals and married couples filing joint returns.

breakpoints for married couples filing joint returns.2 The rate

bracket breakpoints for married individuals filing separate returns

are exactly one-half of the rate brackets for married individuals filing joint returns. A separate, compressed rate schedule applies to

estates and trusts.

TABLE 2.—INDIVIDUAL REGULAR INCOME TAX RATES FOR 2001

If taxable income is Then regular income tax equals

Single individuals

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

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

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

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

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

Heads of households

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

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

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

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

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

Married individuals filing joint returns

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

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

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

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

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

Alternative minimum tax liability

In general

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

individual’s tentative alternative minimum tax liability over his or

her regular income tax liability. Tentative alternative minimum

tax liability is determined by applying specified rates (shown in

Table 3, below) to alternative minimum taxable income in excess

of phased-out exemption amounts ($45,000 for married couples filing joint returns and $33,750 for unmarried individuals filing a single return). Alternative minimum taxable income generally is the

individual’s regular taxable income increased by certain preference

items and other adjustments. The basic structure of the alternative

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

adjusted annually for inflation. The lower regular income tax rates

on capital gains also apply under the alternative minimum tax.

TABLE 3.—INDIVIDUAL ALTERNATIVE MINIMUM TAX RATES

If alternative minimum taxable income in excess of the applicable

exemption amount is Then tentative alternative minimum tax equals

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

the applicable exemption amount.

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

Limitation on nonrefundable credits

Through 2001, an individual generally may reduce his or her tentative alternative minimum tax liability by nonrefundable personal

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tax credits (such as the $500 child tax credit and the adoption tax

credit). For taxable years beginning after December 31, 2001, nonrefundable personal tax credits may not reduce an individual’s income tax liability below his or her tentative alternative minimum

tax liability.

AMT offset of refundable tax credits

An individual’s alternative minimum tax liability reduces the

amount of the refundable earned income credit and, for taxable

years beginning after December 31, 2001, the amount of the refundable child credit for families with three or more children.

REASONS FOR CHANGE

The Committee believes that the expansion of the 15-percent rate

bracket for married couples filing joint returns, in conjunction with

the other provisions of the bill, will further alleviate the effects of

the present-law marriage tax penalty. These provisions significantly reduce the most widely applicable marriage penalties in

present law. Also, the Committee believes that the AMT presents

a looming threat to fair and simple taxation of America’s taxpayers.

While the AMT problem has its roots in legislation enacted by prior

Congresses, this Committee intends to make positive strides to reduce the structural AMT problem. This provision is an important

step in this ongoing effort. Finally, the Committee believes that

families should be able to use the refundable credits without limitation by the minimum tax. In addition, eliminating the reduction

of the refundable credits by the minimum tax will result in significant simplification.

EXPLANATION OF PROVISION

Increase in 15–percent regular income tax bracket

The provision increases the size of the 15–percent regular income

tax rate bracket for a married couple filing a joint return to twice

the size of the corresponding rate bracket for an unmarried individual filing a single return. This increase is phased in over six

years as shown in Table 4, below. Therefore, this provision is fully

effective (i.e., the size of the lowest regular income tax rate bracket

for a married couple filing a joint return is twice the size of the

lowest regular income tax rate bracket for an unmarried individual

filing a single return) for taxable years beginning after December

31, 2008.

TABLE 4.—INCREASE IN SIZE OF 15–PERCENT RATE BRACKET FOR MARRIED COUPLES FILING A

JOINT RETURN

Taxable year

Size of 15–percent rate bracket for married couple filing joint return as

percentage of rate

bracket for unmarried individuals

2004 ........................................................................................................................................................... 172

2005 ........................................................................................................................................................... 178

2006 ........................................................................................................................................................... 183

2007 ........................................................................................................................................................... 189

2008 ........................................................................................................................................................... 195

2009 and thereafter .................................................................................................................................. 200

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AMT relief

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

a joint return is increased by $1,000 in 2005, by an additional $500

in 2006, and by an additional $500 in every other year thereafter

(i.e., in 2008, 2010, etc.), but in no event can the exemption amount

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

filing a separate return is one-half the exemption amount for a

married couple filing a joint return.

The provision also repeals the present-law provision that offsets

the refundable child credit and the earned income credit by the

amount of the alternative minimum tax.

EFFECTIVE DATE

The increase in the size of the 15-percent rate bracket is effective

for taxable years beginning after December 31, 2003. The increase

in the AMT exemption is effective for taxable years beginning after

December 31, 2004. Finally, the provision to repeal the AMT offset

of the refundable child credit and the earned income credit is effective for taxable years after December 31, 2001.

C. MARRIAGE PENALTY RELIEF AND SIMPLIFICATION RELATING TO

THE EARNED INCOME CREDIT

PRESENT LAW

Eligible low-income workers are able to claim a refundable

earned income credit (‘‘EIC’’). The amount of the credit an eligible

taxpayer may claim depends upon the taxpayer’s income and

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

Definition of earned income

To claim the EIC, the taxpayer must have earned income.

Earned income consists of wages, salaries, other employee compensation, and net earnings from self-employment. Employee compensation includes anything of value received by the taxpayer from

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

as earned income for EIC purposes include the following: (1) elective deferrals under a cash or deferred arrangement or section

403(b) annuity (sec. 402(g)); (2) employer contributions for nontaxable fringe benefits, including contributions for accident and

health insurance (sec. 106), dependent care (sec. 129), adoption assistance (sec. 137), educational assistance (sec. 127), and miscellaneous fringe benefits (sec. 132); (3) salary reduction contributions

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

the convenience of the employer (sec. 119), and (5) housing allowance or rental value of a parsonage for the clergy (sec. 107). Some

of these items are not required to be reported on the Wage and Tax

Statement (Form W–2), making it difficult for the taxpayer to ascertain the correct amount of nontaxable earned income.

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3 ‘‘Modified AGI’’ means AGI determined without regard to certain losses and increased by certain amounts not includible in gross income. The losses disregarded are: (1) net capital losses

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

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

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

For purposes of (4), amounts attributable to a business that consists of the performance of services by the taxpayer as an employee are not taken into account. The amounts added to AGI

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

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

or trustee-to-trustee transfers). Sec. 32(c)(5). 4The table is based on Rev. Proc. 2001–13.

Calculation of the credit

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

increases. The credit phases out for individuals with earned income

(or if greater, modified AGI) over certain levels. In the case of a

married individual who files a joint return, the EIC both for the

phasein and phaseout is calculated based on the couples’ combined

income. The EIC is not available to married taxpayers filing separate returns.

The credit is determined by multiplying the credit rate by the

taxpayer’s earned income up to a specified earned income amount.

The maximum amount of the credit is the product of the credit rate

and the earned income amount. The maximum credit amount applies to taxpayers with (1) earnings at or above the earned income

amount and (2) modified AGI 3 (or earnings, if greater) at or below

the phase-out threshold level.

For taxpayers with modified AGI (or earned income, if greater)

in excess of the phase-out threshold, the credit amount is reduced

by the phase-out rate multiplied by the amount of earned income

(or modified AGI, if greater) in excess of the phase-out threshold.

In other words, the credit amount is reduced, falling to $0 at the

‘‘breakeven’’ income level, the point where a specified percentage of

‘‘excess’’ income above the phase-out threshold exactly offsets the

maximum amount of the credit. The earned income amount and

the phase-out threshold are indexed for inflation. Table 5., below,

shows the EIC parameters for taxable year 2001.4

TABLE 5.—EARNED INCOME CREDIT PARAMETERS (2001)

Two or more

qualifying

children

One qualifying

child

No qualifying

children

Credit rate (percent) ............................................................................................... 40.00% 34.00% 7.65%

Earned income amount ........................................................................................... $10,020 $7,140 $4,760

Maximum credit ...................................................................................................... $4,008 $2,428 $364

Phase out begins .................................................................................................... $13,090 $13,090 $5,950

Phase out rate (percent) ........................................................................................ 21.06% 15.98% 7.65%

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

REASONS FOR CHANGE

The Committee believes that the present-law earned income

amount penalizes some individuals because they receive a smaller

EIC when they marry than if they had not married. The Committee believes increasing the earned income amount for married

taxpayers who file a joint return will help to alleviate this penalty.

The definition of earned income is a source of complexity insofar

as it includes nontaxable forms of employee compensation. Present

law requires both the IRS and taxpayers to keep track of nonVerDate 11-MAY-2000 07:10 Mar 28, 2001 Jkt 089006 PO 00000 Frm 00011 Fmt 6659 Sfmt 6602 E:\HR\OC\HR029.XXX pfrm04 PsN: HR029
12

taxable amounts for determining EIC eligibility even though such

amounts are generally not necessary for other tax purposes. Further, not all forms of nontaxable earned income are reported on

Form W–2. As a result, a taxpayer may not know the correct

amount of nontaxable earned income received during the year. Further, the IRS cannot easily determine such amounts. The Committee believes that significant simplification would result from redefining earned income to exclude amounts not includable in gross

income.

EXPLANATION OF PROVISION

For married taxpayers who file a joint return, the provision increases the earned income amount used to calculate the EIC to 110

percent of the earned income amount for all other taxpayers eligible for the EIC.

The provision also simplifies the definition of earned income by

excluding nontaxable earned income amounts from the definition of

earned income for EIC purposes. Thus, under the provision, earned

income includes wages, salaries, tips, and other employee compensation, if includible in gross income for the taxable year, plus

net earnings from self-employment.

The provision repeals the present-law provision that reduces the

EIC by the amount of an individual’s alternative minimum tax.

EFFECTIVE DATE

The provision is effective for taxable years beginning after December 31, 2001.

D. INCREASE AND EXPANSION OF THE CHILD TAX CREDIT

PRESENT LAW

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

each qualifying child under the age of 17. In general, a qualifying

child is an individual for whom the taxpayer can claim a dependency exemption and who is the taxpayer’s son or daughter (or descendent of either), stepson or stepdaughter, or eligible foster child.

The child tax credit is phased out for individuals with income

over certain thresholds. Specifically, the otherwise allowable child

tax credit is reduced by $50 for each $1,000 (or fraction thereof) of

modified AGI over $75,000 for single individuals or heads of households, $110,000 for married individuals filing joint returns, and

$55,000 for married individuals filing separate returns. Modified

AGI is the taxpayer’s total gross income plus certain amounts excluded from gross income (i.e., excluded income of U.S. citizens or

residents living abroad (sec. 911); residents of Guam, American

Samoa, and the Northern Mariana Islands (sec. 931); and residents

of Puerto Rico (sec. 933)). The length of the phase-out range depends on the number of qualifying children. For example, the

phase-out range for a single individual with one qualifying child is

between $75,000 and $85,000 of modified AGI. The phase-out range

for a single individual with two qualifying children is between

$75,000 and $95,000.

In general, the child tax credit is nonrefundable. However, for

families with three or more qualifying children, the child tax credit

is refundable up to the amount by which the taxpayer’s employee

13

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

one-half of the individual’s self-employment taxes (i.e., SECA taxes) exceeds the taxpayer’s EIC.

share of social security taxes (i.e., FICA and HI taxes) 5 exceeds the

taxpayer’s EIC.

Through 2001, the child tax credit generally reduces the individual’s regular income tax and alternative minimum tax. Starting

with taxable years beginning after December 31, 2001, the nonrefundable child tax credit is allowed only to the extent that the

individual’s regular income tax liability exceeds the individual’s

tentative alternative minimum tax, and the refundable child tax

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

REASONS FOR CHANGE

The Committee believes that a tax credit for families with children recognizes the importance of helping families raise children.

This provision doubles the child tax credit in order to provide additional tax relief to families to help offset the significant costs of

raising a child. The Committee also believes that all families (rather than only families with three or more children) should be allowed a refundable child credit regardless of the number of qualifying children. This will extend family tax relief to many families

that otherwise would not benefit from the child credit. Finally, the

Committee believes that the benefits of the child credit should not

be denied to taxpayers who are subject to the AMT. It is estimated

that approximately 25 million taxpayers with children will benefit

from the increases in the child tax credit each year.

EXPLANATION OF PROVISION

The provision increases the child tax credit to $1,000, phased in

over six years, beginning in 2001. Table 6, below, shows the proposed increase in the amount of the child tax credit under the provision.

TABLE 6.—PROPOSED INCREASE OF THE CHILD TAX CREDIT

Taxable year

Credit amount

per child

2001

2001 ......................................................................................................................................................................... $600

2002 ......................................................................................................................................................................... 600

2003 ......................................................................................................................................................................... 700

2004 ......................................................................................................................................................................... 800

2005 ......................................................................................................................................................................... 900

2006 and thereafter ................................................................................................................................................. 1,000

In addition, the provision extends the present-law refundability

of the child tax credit to families with fewer than three children.

The provision allows the child tax credit to the extent of the full

amount of the individual’s regular income tax and alternative minimum tax, and the refundable child tax credit will no longer be reduced by the amount of the alternative minimum tax.

EFFECTIVE DATE

The provision is generally effective for taxable years beginning

after December 31, 2000.

14

E. TRANSFER TO SOCIAL SECURITY AND MEDICARE TRUST FUNDS

PRESENT LAW

Under present law, the Federal income tax collected with respect

to a portion of social security benefits included in gross income is

transferred either to the Social Security trust fund or the Medicare

trust fund.

REASONS FOR CHANGE

The Committee finds it appropriate to ensure that the solvency

of the Social Security and Medicare Trust Funds is not negatively

impacted by the provisions of the bill.

EXPLANATION OF PROVISION

Under the provision, the amounts transferred to the Social Security and Medicare Trust Funds are determined as if the other provisions in the bill were not enacted. Thus, there is no reduction in

transfers to these funds as a result of these provisions.

EFFECTIVE DATE

The provision is effective on the date of enactment.

III. VOTES OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of the

House of Representatives, the following statements are made concerning the votes of the Committee on Ways and Means in its consideration of the bill, H.R. 6.

MOTION TO REPORT THE BILL

The bill, H.R. 6, as amended, was ordered favorably reported by

a roll call vote of 23 yeas to 16 nays (with a quorum being present).

The vote was as follows:

Representatives Yea Nay Present Representatives Yea Nay Present

Mr. Thomas ........................... X ........... ............. Mr. Rangel ........................... ........... X .............

Mr. Crane .............................. X ........... ............. Mr. Stark .............................. ........... X .............

Mr. Shaw ............................... X ........... ............. Mr. Matsui ............................ ........... X .............

Mrs. Johnson ......................... X ........... ............. Mr. Coyne ............................. ........... X .............

Mr. Houghton ........................ X ........... ............. Mr. Levin .............................. ........... X .............

Mr. Herger ............................. X ........... ............. Mr. Cardin ............................ ........... X .............

Mr. McCrery ........................... X ........... ............. Mr. McDermott ..................... ........... X .............

Mr. Camp .............................. X ........... ............. Mr. Kleczka ........................... ........... X .............

Mr. Ramstad ......................... X ........... ............. Mr. Lewis (GA) ..................... ........... X .............

Mr. Nussle ............................. X ........... ............. Mr. Neal ............................... ........... X .............

Mr. Johnson ........................... X ........... ............. Mr. McNulty .......................... ........... X .............

Ms. Dunn .............................. X ........... ............. Mr. Jefferson ........................ ........... X .............

Mr. Collins ............................ X ........... ............. Mr. Tanner ............................ ........... X .............

Mr. Portman .......................... ........... ........... ............. Mr. Becerra .......................... ........... ........... .............

Mr. English ........................... X ........... ............. Mrs. Thurman ....................... ........... X .............

Mr. Watkins ........................... X ........... ............. Mr. Doggett .......................... ........... X .............

Mr. Hayworth ......................... X ........... ............. Mr. Pomeroy ......................... ........... X .............

Mr. Weller .............................. X ........... .............

Mr. Hulshof ........................... X ........... .............

Mr. McInnis ........................... X ........... .............

Mr. Lewis (KY) ...................... X ........... .............

Mr. Foley ............................... X ........... .............

Mr. Brady .............................. X ........... .............

Mr. Ryan ............................... X ........... .............

15

VOTES ON AMENDMENTS

A roll call vote was conducted on the following amendment to the

Chairman’s amendment in the nature of a substitute.

A substitute amendment by Mr. Rangel, was defeated by a roll

call vote of 13 yeas to 26 nays. The vote was as follows:

Representatives Yea Nay Present Representatives Yea Nay Present

Mr. Thomas ........................... ........... X ............. Mr. Rangel ........................... X ........... .............

Mr. Crane .............................. ........... X ............. Mr. Stark .............................. X ........... .............

Mr. Shaw ............................... ........... X ............. Mr. Matsui ............................ X ........... .............

Mrs. Johnson ......................... ........... X ............. Mr. Coyne ............................. X ........... .............

Mr. Houghton ........................ ........... X ............. Mr. Levin .............................. X ........... .............

Mr. Herger ............................. ........... X ............. Mr. Cardin ............................ X ........... .............

Mr. McCrery ........................... ........... X ............. Mr. McDermott ..................... X ........... .............

Mr. Camp .............................. ........... X ............. Mr. Kleczka ........................... X ........... .............

Mr. Ramstad ......................... ........... X ............. Mr. Lewis (GA) ..................... X ........... .............

Mr. Nussle ............................. ........... X ............. Mr. Neal ............................... X ........... .............

Mr. Johnson ........................... ........... X ............. Mr. McNulty .......................... X ........... .............

Ms. Dunn .............................. ........... X ............. Mr. Jefferson ........................ X ........... .............

Mr. Collins ............................ ........... X ............. Mr. Tanner ............................ ........... X .............

Mr. Portman .......................... ........... ........... ............. Mr. Becerra .......................... ........... ...........

Mr. English ........................... ........... X ............. Mrs. Thurman ....................... ........... X .............

Mr. Watkins ........................... ........... X ............. Mr. Doggett .......................... ........... X .............

Mr. Hayworth ......................... ........... X ............. Mr. Pomeroy ......................... X ........... .............

Mr. Weller .............................. ........... X

Mr. Hulshof ........................... ........... X

Mr. McInnis ........................... ........... X

Mr. Lewis (KY) ...................... ........... X

Mr. Foley ............................... ........... X

Mr. Brady .............................. ........... X

Mr. Ryan ............................... ........... X .............

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. 6 as reported.

The bill is estimated to have the following effects on budget receipts for fiscal years 2001–2006:

ESTIMATED REVENUE EFFECTS OF H.R. 6, THE ‘‘MARRIAGE PENALTY AND FAMILY TAX RELIEF ACT

OF 2001,’’ AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS

[Fiscal years 2001–2006, in billions of dollars]

Provision Effective 2001 2002 2003 2004 2005 2006 2001–06

1. Standard deduction set at 2

times single for married filing

jointly.

tyba 12/31/01 ............ ¥4.0 ¥6.0 ¥6.2 ¥6.1 ¥6.3 ¥28.6

2. 15% rate bracket set at 2 times

single for married filing jointly

beginning in 2004; 6-year

phasein, repeal AMT offset of

refundable credits; increase in

AMT exemption amount ($1,000

in 2005, and $500 in 2006 and

every other year thereafter).

tyba 12/31/01 &

tyba 12/31/04

............ ¥0.1 ¥0.3 ¥3.2 ¥7.9 ¥13.1 ¥24.5

16

ESTIMATED REVENUE EFFECTS OF H.R. 6, THE ‘‘MARRIAGE PENALTY AND FAMILY TAX RELIEF ACT

OF 2001,’’ AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS—Continued

[Fiscal years 2001–2006, in billions of dollars]

Provision Effective 2001 2002 2003 2004 2005 2006 2001–06

3. Increase the earned income limit

for purposes of the EIC for married filing joint returns by 10%;

simplified computation of

earned income.

tyba 12/31/01 ............ (1) ¥1.4 ¥1.5 ¥1.5 ¥1.5 ¥5.9

4. Increase the child tax credit to

$600 in 2001 and 2002, $700

in 2003, $800 in 2004, $900 in

2005, and $1,000 in 2006;

apply large family refundability

rule to all families; allow credits

fully against the AMT.

tyba 12/31/00 (1) ¥5.8 ¥6.4 ¥10.6 ¥15.1 ¥19.5 ¥57.4

5. Transfer to Social Security and

Medicare Trust Funds.

DOE No Revenue Effect

Net total 2 ........................................ (1) ¥9.9 ¥14.1 ¥21.5 ¥30.6 ¥40.4 ¥116.4

1 Loss of less than $50 million.

2 Estimate includes the following effects on fiscal year outlays—2001: (3); 2002: 1.5; 2003: 3.0; 2004: 3.7; 2005: 4.4; 2006: 5.1; 2001–06: 17.7. 3 Less than $50 million.

Legend for ‘‘Effective’’ column: DOE=date of enactment; tyba=taxable years beginning 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 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, March 26, 2001.

Hon. BILL 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. 6, the Marriage Penalty

and Family Tax Relief Act of 2001.

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.

17

H.R. 6—Marriage Penalty and Family Tax Relief Act of 2001

Summary: The Marriage Penalty and Family Tax Relief Act of

2001 would increase the basic standard deduction for a married

couple filing a joint return to twice that of a taxpayer filing a single

return. Also, starting in 2004, the bill would expand gradually the

15-percent regular income tax rate bracket for a married couple filing a joint return so that the bracket becomes twice the size of the

rate bracket of a taxpayer filing a single return in 2009 and thereafter. In addition, the bill would increase the alternative minimum

tax (AMT) exemption amount for a married couple filing a joint return by $1,000 in 2005, by an additional $500 in 2006, and by an

additional $500 every other year thereafter.

H.R. 6 also would repeal the provision in current law that offsets

the refundable child credit and earned income credit by the amount

of the AMT. For married taxpayers who file a joint return, the bill

would increase the amount of earned income used to calculate the

earned income credit (EIC) to 110 percent of the amount used by

all other taxpayers eligible for the EIC. In addition, starting in

2001, the bill would gradually increase the child tax credit, which

would reach $1,000 per qualifying child in 2006 and remain at that

level thereafter. The bill would also make refundable a portion of

the child tax credit for all families, not just those with three or

more children as under current law. Unless otherwise noted, provisions in the bill would be effective on January 1, 2002.

The Joint Committee on Taxation (JCT) estimates that the bill

would decrease revenues by $4 million in 2001, by $98.9 billion

over the 2001–2006 period, and by $354.4 billion over the 2001–

2011 period. In addition, JCT estimates that the bill would increase

direct spending by about $1 million in 2001, by $17.6 billion over

the 2001–2006 period, and by $44.9 billion over the 2001–2011 period. Because the bill would affect receipts and direct spending,

pay-as-you-go procedures would apply.

The bill contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA).

Estimated cost to the Federal Government: The estimated budgetary impact of H.R. 6 is shown in the following table. JCT provided at revenue and outlay estimates of provisions for the bill.

By fiscal year, in millions of dollars—

2001 2002 2003 2004 2005 2006

CHANGES IN REVENUES

Estimated Revenues ............................................. ¥4 ¥8,456 ¥11,199 ¥17,843 ¥26,182 ¥35,255

CHANGES IN DIRECT SPENDING

Estmated Budget Authority .................................. 1 1,463 2,950 3,673 4,368 5,101

Estimated Outlays ................................................ 1 1,463 2,950 3,673 4,368 5,101

Source: Revenues and outlays are estimated by the Joint Committee on Taxation. Budget authority is estimated by the Congressional Budget Office.

Most of the budgetary effects of H.R. 6 are reductions in revenues. However, H.R. 6 also would increase outlays by increasing

the child tax credit and making it refundable for taxpayers with

one or two children, and by increasing the earned income amount

used by married taxpayers to calculate the EIC. Those changes

would increase child and earned income tax credits, both of which

are refundable under the tax code and counted in the budget as

18

outlays to the extent that taxpayers receive net payments. In addition, H.R. 6 would reduce the amount of taxes owed by increasing

the standard deduction and expanding the 15-percent tax bracket,

among other changes, resulting in a large portion of tax credits

being refundable—and thus recorded as outlays rather than reductions in revenues.

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 outlays and 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 in the current

year, the budget year, and the succeeding four years are counted.

By fiscal year, in millions of dollars—

2001 2002 2003 2004 2005 2006 2007 2008 0009 2010 2011

Changes in receipts ¥4 ¥8,456 ¥11,199 ¥17,843 ¥26,182 ¥35,244 ¥42,516 ¥47,645 ¥52,324 ¥54,947 ¥58,002

Changes in outlays .. 1 1,463 2,950 3,673 4,368 5,101 5,772 5,650 5,449 5,303 5,149

Intergovernmental and private-sector impact: JCT has determined that the bill contains no intergovernmental or private-sector

mandates as defined in UMRA.

Estimate prepared by: Erin Whitker.

Estimate approved by: G. Thomas Woodward, Assistant Director

for Tax Analysis. Robert A. Sunshine, Assistant Director for Budget

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 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.

19

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, or 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 (sec. 2 of the bill)

Summary description of provision

The bill increases the basic standard deduction for married taxpayers filing a joint return to twice the basic standard deduction

for an unmarried individual for taxable years beginning after December 31, 2001.

Number of affected taxpayers

It is estimated that the provision will affect approximately 23

million individual returns.

20

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 million 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 or 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.

2. Expansion of the 15-percent rate bracket (sec. 3 of the bill)

Summary description of provision

The provision increases the size of the 15-percent regular income

tax rate bracket for married individuals filing a joint return to

twice the size of the corresponding rate bracket for unmarried individuals. This increase is phased in over six years, starting with

taxable years beginning after December 31, 2003. It is fully effective for taxable years beginning after December 31, 2008.

Number of affected taxpayers

It is estimated that the provision will affect approximately 20

million individual tax returns.

Discussion

It is not anticipated that individuals will need to keep additional

records due to this provision. The increased size of the 15-percent

regular income tax rate bracket for married individuals filing joint

returns should not result in an increase in disputes with the IRS,

nor will regulatory guidance be necessary to implement this provision.

21

3. Increase the child tax credit (sec. 5 of the bill)

Summary description of provision

The provision increases the child tax credit from $500 to $1,000,

phased in over a six-year period beginning in 2001, extends

refundability of the credit to families with fewer than three children, allows the credit to the extent of the full regular tax and alternative minimum tax, and repeals the provision that reduces the

refundable child credit by the individual’s alternative minimum

tax.

Number of affected taxpayers

It is estimated that the provisions will affect approximately 25

million individual tax returns.

Discussion

Individuals should not have to keep additional records due to

this provision, nor will additional regulatory guidance be necessary

to implement this provision. More taxpayers will have to perform

the additional calculations necessary to determine eligibility for the

refundable child credit but this should not lead to an increase in

disputes with the IRS. For taxpayer’s with less than two children,

however, the provision can be expected to increase tax preparation

costs and the number of individuals using a tax preparation service. (See, also, the discussion of the interactive effect of the child

credit and the individual alternative minimum tax, below.)

4. The effect of the alternative minimum tax rules

The provisions relating to the increased standard deduction, the

expanded 15-percent rate bracket, and the increased child tax credit are affected by the alternative minimum tax rules. Although the

bill provides relief from the alternative minimum tax, additional individuals will need to make the necessary calculations to determine

the applicability of the alternative minimum tax rules. It is estimated that for the year 2010, two million additional individual income tax returns that will benefit from the increased standard deduction, expanded 15-percent rate bracket, and increased child tax

credit would be affected by the alternative minimum tax. For these

taxpayers, it could be expected that the interaction of the provisions with the alternative minimum tax rules would result in an

increase in tax preparation costs and in the number of individuals

using a tax preparation service.

The bill also provides that the alternative minimum tax exemption amount for married individuals filing a joint return is increased. This should reduce complexity for affected taxpayers. It is

estimated that, for the year 2010, the provision increasing the alternative minimum tax exemption amount will apply to fifteen million individual income tax returns. Some of these taxpayers will no

longer be affected by the alternative minimum tax.

22

DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE, Washington, DC, March 26, 2001.

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 provisions from the House Committee on Ways and Means markup of

the ‘‘Marriage Penalty and Family Tax Relief Act of 2001’’ that you

identified for complexity analysis in your letter of March 21, 2001.

Our comments are based on the description of those provisions in

JCX–16–01, Joint Committee on Taxation, Description of the

Chairman’s Amendment in the Nature of a Substitute to H.R. 6,

March 21, 2001.

Due to the short turnaround time, our comments are provisional

and subject to change upon a more complete and in-depth analysis

of the provisions.

Sincerely,

CHARLES O. ROSSOTTI.

Enclosure.

COMPLEXITY ANALYSIS OF MARRIAGE PENALTY AND FAMILY

TAX RELIEF ACT OF 2001

STANDARD DEDUCTION

Provision

Increase the basic standard deduction for a married couple filing a join return to twice the basic standard deduction for an unmarried individual filing a single return, effective for tax years beginning after December 31, 2001.

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 2002. 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 necessitated by this provision would be

included during that process.

• Compared with current law, the larger standard deduction would reduce the number of taxpayers who itemize

deductions by 3.1 million in 2006 and by 2.9 million in

2011.

• As a result of this provision, the number of taxpayers

affected by the alternative minimum tax (AMT) would

change, as explained in the separate discussion of the

AMT at the end of this analysis.

23

15-PERCENT RATE BRACKET

Provision

Increase the width of the 15-percent regular income tax

rate bracket for a married couple filing a join return to

twice the width of the corresponding rate bracket for an

unmarried individual filing a single return. The increase is

phased in over 6 years (2004–2009) and is fully effective

in 2009.

IRS and Treasury comments

• The increase in the width of the 15-percent rate bracket for married taxpayers would be incorporated in the tax

tables and the tax rate schedules shown in the instructions

for Forms 1040, 1040A, 1040EZ, 1040NR, 1040NR–EZ,

and on Form 1040–ES for each year during the phase-in

period (2004–2009). No new forms would be required.

• Programming changes would be required to reflect the

expanded 15-percent rate bracket. Currently, the IRS tax

computation programs are updated annually to incorporate

mandated inflation adjustments. Programming changes

necessitated by the provision would be included during

that process.

• As a result of this provision, the number of taxpayers

affected by the AMT would change, as explained in the

separate discussion of the AMT at the end of this analysis.

AMT EXEMPTION

Provision

Increase the AMT exemption amount for a married couple filing a joint return by: (a) $1,000 in 2005, (b) an additional $500 in 2006, and (c) an additional $500 in every

other year thereafter (i.e., 2008, 2010, etc.) until the exemption amount is twice the AMT exemption amount for

an unmarried individual filing a single return.

IRS and Treasury comments

• The increase in the AMT exemption amount for married taxpayers would be incorporated on Forms 6251 and

1040–ES and in the instructions for Form 6251, 1040,

1040A, and 1040NR for 2005 and later years. The increase

would also be reflected on Form 8801 for 2006 and later

years. No new forms would be required.

• Programming changes would be required to reflect the

increased exemption amount. Currently, the IRS tax computation programs are updated annually to incorporate

mandated inflation adjustments. Programming changes

necessitated by this provision would be included during

that process. • The increase in the AMT exemption amount, by itself,

would reduce the number of AMT filers and the number of

taxpayers who would have to make AMT calculations only

to find that they do not have any AMT liability. See the

separate discussion at the end of this analysis for the imVerDate 11-MAY-2000 07:10 Mar 28, 2001 Jkt 089006 PO 00000 Frm 00023 Fmt 6659 Sfmt 6969 E:\HR\OC\HR029.XXX pfrm04 PsN: HR029
24

pact of this bill on the number of taxpayers whose tax liability would be affected by the AMT.

CHILD TAX CREDIT

Provision

Increase the amount of the child tax credit to $1,000 for

each qualifying child. The higher level of the credit is

phased in over 6 years beginning in 2001 as follows: (a)

$600 in 2001 and 2002, (b) $700 in 2003, (c) $800 in 2004,

(d) $900 in 2005, and (e) $1,000 in 2006 and thereafter.

Extend the present-law refundable child tax credit to

families with fewer than three children, allow the child tax

credit to the extent of the full amount of the individual’s

regular income tax and AMT, repeal the present-law provision (scheduled to first take effect in 2002) that reduces

the refundable credits by the amount of the AMT. Effective

generally for tax years beginning after December 31, 2001.

IRS and Treasury comments

• No new forms would be required as a result of any of

the above child tax credit provisions.

• The increase in the amount of the child tax credit

would be incorporated in the instructions for Forms 1040,

1040A, and 1040NR for 2001 and later years. This increase also affects the amount of the refundable child tax

credit for residents of Puerto Rico and would be reflected

in the instructions for Forms 1040–PR and 1040–SS for

2001 and later years.

• The extension of the refundable child tax credit to

families with fewer than three qualifying children would

be incorporated in the instructions for Forms 1040, 1040A,

1040NR, 1040–PR, 1040–SS, and 8812 for 2001.

• The increase in the amount of the credit would also be

incorporated on Form 1040–ES for 2003 and later years.

The IRS would have to advise taxpayers who made estimated tax payments for 2001 how they can adjust subsequent estimated tax payments for 2001 to reflect the increased credit.

• Because the proposal to allow the child tax credit to

the extent of the full amount of the individual’s regular income tax and AMT merely extends the law in effect for

2000 and 2001, implementing the proposal would require

no changes to IRS forms, publications or programming.

Failure to enact this proposal would significantly increase

burden for all taxpayers in determining the amount, if

any, of their child tax credit for 2002 and thereafter. See

the separate discussion at the end of this analysis for the

impact of this bill on the number of taxpayers with tax liability affected by the AMT.

• Because the present-law AMT reduction of the refundable child tax credit is not scheduled to take effect until

2002 (i.e., there is no reduction for 2001), the proposal to

repeal the reduction would have little or no impact on IRS

forms, publications or programming. Failure to enact this

25

proposal would require the addition of two lines on Form

8812 for 2002. • Programming changes would be required to reflect the

increased credit amount and the extension of the refundable credit to families with fewer than three children. Currently, the IRS tax computation programs are updated annually to incorporate mandated inflation adjustments. Programming changes necessitated by this provision would be

included during that process.

IMPACT OF THE BILL’S PROVISIONS ON THE AMT

• Compared to current law, for tax years 2002 through

2007 the provisions of the bill would reduce the number of

taxpayers whose liability is affected by the AMT. However,

beginning in 2008, the provisions of the bill would increase

the number of taxpayers whose liability is affected by the

AMT.

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 I—TAX ON INDIVIDUALS

* * * * * * *

SECTION 1. TAX IMPOSED.

(a) * * *

* * * * * * *

(f) PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET;

ADJUSTMENTS IN TAX TABLES SO THAT INFLATION WILL NOT RESULT IN TAX INCREASES.—

(1) * * *

(2) METHOD OF PRESCRIBING TABLES.—The table which under

paragraph (1) is to apply in lieu of the table contained in subVerDate 11-MAY-2000 07:10 Mar 28, 2001 Jkt 089006 PO 00000 Frm 00025 Fmt 6659 Sfmt 6601 E:\HR\OC\HR029.XXX pfrm04 PsN: HR029
26

section (a), (b), (c), (d), or (e), as the case may be, with respect

to taxable years beginning in any calendar year shall be

prescribed—

(A) except as provided in paragraph (8), by increasing

the minimum and maximum dollar amounts for each rate

bracket for which a tax is imposed under such table by the

cost-of-living adjustment for such calendar year,

* * * * * * *

(6) ROUNDING.—

(A) * * *

(B) TABLE FOR MARRIED INDIVIDUALS FILING SEPARATELY.—In the case of a married individual filing a separate return, subparagraph (A) ø(other than with respect to

subsection (c)(4) of section 63 (as it applies to subsections

(c)(5)(A) and (f) of such section) and section 151(d)(4)(A))

shall be applied¿ (other than with respect to sections

63(c)(4) and 151(d)(4)(A)) shall be applied by substituting

‘‘$25’’ for ‘‘$50’’ each place it appears.

* * * * * * *

(8) PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.—

(A) IN GENERAL.—With respect to taxable years beginning

after December 31, 2003, in prescribing the tables under

paragraph (1)— (i) the maximum taxable income in the lowest rate

bracket in the table contained in subsection (a) (and

the minimum taxable income in the next higher taxable

income bracket in such table) shall be the applicable

percentage of the maximum taxable income in the lowest rate bracket in the table contained in subsection (c)

(after any other adjustment under this subsection), and

(ii) the comparable taxable income amounts in the

table contained in subsection (d) shall be 1⁄2 of the

amounts determined under clause (i).

(B) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A), the applicable percentage shall be determined in

accordance with the following table:

For taxable years beginning The applicable

in calendar year— percentage is—

2004 ................................................................................................ 172

2005 ................................................................................................ 178

2006 ................................................................................................ 183

2007 ................................................................................................ 189

2008 ................................................................................................ 195

2009 and thereafter ........................................................................ 200.

(C) ROUNDING.—If any amount determined under subparagraph (A)(i) is not a multiple of $50, such amount

shall be rounded to the next lowest multiple of $50.

* * * * * * *

PART IV—CREDITS AGAINST TAX

* * * * * * *

27

Subpart A—Nonrefundable Personal Credits

* * * * * * *

SEC. 23. ADOPTION EXPENSES.

(a) * * *

* * * * * * *

(c) CARRYFORWARDS OF UNUSED CREDIT.—If the credit allowable

under subsection (a) for any taxable year exceeds the limitation imposed by section 26(a) for such taxable year reduced by the sum of

the credits allowable under this subpart (other than this section

øand section 1400C¿ and sections 24 and 1400C), such excess shall

be carried to the succeeding taxable year and added to the credit

allowable under subsection (a) for such taxable year. No credit may

be carried forward under this subsection to any taxable year following the fifth taxable year after the taxable year in which the

credit arose. For purposes of the preceding sentence, credits shall

be treated as used on a first-in first-out basis.

* * * * * * *

SEC. 24. CHILD TAX CREDIT.

ø(a) ALLOWANCE OF CREDIT.—There shall be allowed as a credit

against the tax imposed by this chapter for the taxable year with

respect to each qualifying child of the taxpayer an amount equal

to $500 ($400 in the case of taxable years beginning in 1998).¿

(a) ALLOWANCE OF CREDIT.— (1) IN GENERAL.—There shall be allowed as a credit against

the tax imposed by this chapter for the taxable year with respect

to each qualifying child of the taxpayer an amount equal to the

per child amount.

(2) PER CHILD AMOUNT.—For purposes of paragraph (1), the

per child amount shall be determined as follows:

In the case of any taxable year beginning in—The per child amount is—

2001 and 2002 .................................................................................. $ 600

2003 ................................................................................................... 700

2004 ................................................................................................... 800

2005 ................................................................................................... 900

2006 or thereafter ............................................................................. 1,000.

(b) øLIMITATION BASED ON ADJUSTED GROSS INCOME.—¿ LIMITATIONS.—

(1) øIN GENERAL.—¿ LIMITATION BASED ON ADJUSTED GROSS

INCOME.—The amount of the credit allowable under subsection

(a) shall be reduced (but not below zero) by $50 for each $1,000

(or fraction thereof) by which the taxpayer’s modified adjusted

gross income exceeds the threshold amount. For purposes of

the preceding sentence, the term ‘‘modified adjusted gross income’’ means adjusted gross income increased by any amount

excluded from gross income under section 911, 931, or 933.

* * * * * * *

(3) LIMITATION BASED ON AMOUNT OF TAX.—The credit allowed under subsection (a) for any taxable year shall not exceed

the excess of—

(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over

28

(B) the sum of the credits allowable under this subpart

(other than this section) and section 27 for the taxable year.

* * * * * * *

(d) ADDITIONAL CREDIT FOR FAMILIES øWITH 3 OR MORE CHILDREN¿ PAYING SOCIAL SECURITY TAXES.—

(1) IN GENERAL.—øIn the case of a taxpayer with three or

more qualifying children for any taxable year, the¿ The aggregate credits allowed under subpart C shall be increased by the

lesser of—

(A) the credit which would be allowed under this section

without regard to this subsection and the limitation under

øsection 26(a)¿ subsection (b)(3); or

(B) the amount by which the øaggregate amount of credits allowed by this subpart¿ amount of credit allowed by

this section (without regard to this subsection) would increase if the limitation imposed by øsection 26(a)¿ subsection (b)(3) were increased by the excess (if any) of—

(i) the taxpayer’s Social Security taxes for the taxable year, over

(ii) the credit allowed under section 32 (determined

without regard to subsection (n)) for the taxable year.

The amount of the credit allowed under this subsection shall

not be treated as a credit allowed under this subpart and shall

reduce the amount of credit otherwise allowable under subsection (a) without regard to øsection 26(a)¿ subsection (b)(3).

ø(2) REDUCTION OF CREDIT TO TAXPAYER SUBJECT TO ALTERNATIVE MINIMUM TAX.—For taxable years beginning after December 31, 2001, the credit determined under this subsection

for the taxable year shall be reduced by the excess (if any) of—

ø(A) the amount of tax imposed by section 55 (relating

to alternative minimum tax) with respect to such taxpayer

for such taxable year, over

ø(B) the amount of the reduction under section 32(h)

with respect to such taxpayer for such taxable year.¿

ø(3)¿ (2) SOCIAL SECURITY TAXES.—For purposes of paragraph (1)—

(A) * * *

* * * * * * *

SEC. 25. INTEREST ON CERTAIN HOME MORTGAGES.

(a) * * *

* * * * * * *

(e) SPECIAL RULES AND DEFINITIONS.—For purposes of this

section—

(1) CARRYFORWARD OF UNUSED CREDIT.—

(A) * * *

* * * * * * *

(C) Applicable tax limit.—For purposes of this paragraph, the term ‘‘applicable tax limit’’ means the limitation

imposed by section 26(a) for the taxable year reduced by

the sum of the credits allowable under this subpart (other

than this section and sections 23, 24, and 1400C) .

* * * * * * *

29

SEC. 26. LIMITATION BASED ON TAX LIABILITY; DEFINITION OF TAX

LIABILITY.

(a) LIMITATION BASED ON AMOUNT OF TAX.—

(1) IN GENERAL.—The aggregate amount of credits allowed by

this subpart (other than section 24) for the taxable year shall

not exceed the excess (if any) of—

(A) * * *

* * * * * * *

Subpart C—Refundable Credits

* * * * * * *

SEC. 32. EARNED INCOME.

(a) * * *

(b) PERCENTAGES AND AMOUNTS.—For purposes of subsection

(a)— (1) * * *

(2) øAMOUNTS.—The earned¿ AMOUNTS.— (A) IN GENERAL.—Subject to subparagraph (B), the

earned income amount and the phaseout amount shall be

determined as follows:

In the case of an eligible individual with:

The earned

income

amount is:

The phaseout amount

is:

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

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

No qualifying children ......................................... $4,220 $ 5,280

(B) JOINT RETURNS.—In the case of a joint return, the

earned income amount determined under subparagraph (A)

shall be 110 percent of the otherwise applicable amount. If

any amount determined under the preceding sentence is not

a multiple of $10, such amount shall be rounded to the

nearest multiple of $10.

(c) DEFINITIONS AND SPECIAL RULES.—For purposes of this

section—

(1) * * *

(2) EARNED INCOME.—

(A) The term ‘‘earned income’’ means—

(i) wages, salaries, tips, and other employee compensation, but only if such amounts are includible in

gross income for the taxable year, plus

* * * * * * *

ø(h) REDUCTION OF CREDIT TO TAXPAYERS SUBJECT TO ALTER- NATIVE MINIMUM TAX.—The credit allowed under this section for

the taxable year shall be reduced by the amount of tax imposed by

section 55 (relating to alternative minimum tax) with respect to

such taxpayer for such taxable year.¿

* * * * * * *

PART VI—ALTERNATIVE MINIMUM TAX

* * * * * * *

30

SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

(a) * * *

* * * * * * *

(d) EXEMPTION AMOUNT.—For purposes of this section—

(1) EXEMPTION AMOUNT FOR TAXPAYERS OTHER THAN CORPORATIONS.—In the case of a taxpayer other than a corporation, the term ‘‘exemption amount’’ means—

(A) * * *

(B) $33,750 in the case of an individual who—

(i) is not a married individual, and

(ii) is not a surviving spouse, øand¿

ø(C) $22,500 in the case of—

ø(i) a married individual who files a separate return,

or

ø(ii) an estate or trust.¿

(C) 50 percent of the dollar amount applicable under

paragraph (1)(A) in the case of a married individual who

files a separate return, and

(D) $22,500 in the case of an estate or trust.

For purposes of this paragraph, the term ‘‘surviving spouse’’ has

the meaning given to such term by section 2(a), and marital status

shall be determined under section 7703.

* * * * * * *

(3) PHASE-OUT OF EXEMPTION AMOUNT.—The exemption

amount of any taxpayer shall be reduced (but not below zero)

by an amount equal to 25 percent of the amount by which the

alternative minimum taxable income of the taxpayer exceeds—

(A) * * *

* * * * * * *

(C) $75,000 in the case of a taxpayer described in øparagraph (1)(C)¿ subparagraph (C) or (D) of paragraph (1).

In the case of a taxpayer described in paragraph (1)(C)ø(i)¿, alternative minimum taxable income shall be increased by the

lesser of (i) 25 percent of the excess of alternative minimum

taxable income (determined without regard to this sentence)

over ø$165,000 or (ii) $22,500¿ the minimum amount of such

income (as so determined) for which the exemption amount

under paragraph (1)(C) is zero, or (ii) such exemption amount

(determined without regard to this paragraph).

(4) ADJUSTMENT OF EXEMPTION AMOUNT FOR JOINT RETURNS.—

(A) IN GENERAL.—The dollar amount applicable under

paragraph (1)(A) for 2008 and each even-numbered calendar year thereafter—

(i) shall be $500 greater than the dollar amount applicable under paragraph (1)(A) for the prior evennumbered calendar year, and

(ii) shall apply to taxable years beginning in such

even-numbered calendar year and in the succeeding

calendar year.

In no event shall the dollar amount applicable under paragraph (1)(A) exceed twice the dollar amount applicable

under paragraph (1)(B).

31

(B) EXEMPTION AMOUNTS FOR 2005, 2006, AND 2007.—The

dollar amount applicable under paragraph (1)(A) shall

be— (i) $46,000 for taxable years beginning in 2005, and

(ii) $46,500 for taxable years beginning in 2006 or

2007.

* * * * * * *

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) * * *

(2) BASIC STANDARD DEDUCTION.—For purposes of paragraph

(1), the basic standard deduction is— (A) ø$5,000¿ 200 percent of the dollar amount in effect

under subparagraph (C) for the taxable year in the case

of— (i) a joint return, or

(ii) a surviving spouse (as defined in section 2(a)), (B) $4,400 in the case of a head of household (as defined

in section 2(b)), or

(C) $3,000 øin the case of an individual who is not married and who is not a surviving spouse or head of household, or¿ in any other case.

ø(D) $2,500 in the case of a married individual filing a

separate return.¿

* * * * * * *

(4) ADJUSTMENTS FOR INFLATION.—In the case of any taxable

year beginning in a calendar year after 1988, each dollar

amount contained in paragraph (2) or (5) or subsection (f) shall

be increased by an amount equal to— (A) * * *

* * * * * * *

The preceding sentence shall not apply to the amount referred

to in paragraph (2)(A).

* * * * * * *

Subchapter N—Tax Based on Income From

Sources Within or Without the United States

* * * * * * *

32

PART III—INCOME FROM SOURCES WITHOUT THE

UNITED STATES

* * * * * * *

Subpart A—Foreign Tax Credit

* * * * * * *

SEC. 904. LIMITATION ON CREDIT.

(a) * * *

* * * * * * *

(h) COORDINATION WITH NONREFUNDABLE PERSONAL CREDITS.— In the case of an individual, for purposes of subsection (a), the tax

against which the credit is taken is such tax reduced by the sum

of the credits allowable under subpart A of part IV of subchapter

A of this chapter (other than section 24). This subsection shall not

apply to taxable years beginning during 2000 or 2001.

* * * * * * *

Subchapter W—District of Columbia Enterprise

Zone

* * * * * * *

SEC. 1400C. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.

(a) * * *

* * * * * * *

(d) CARRYOVER OF CREDIT.—If the credit allowable under subsection (a) exceeds the limitation imposed by section 26(a) for such

taxable year reduced by the sum of the credits allowable under

subpart A of part IV of subchapter A (other than this section and

section 24), such excess shall be carried to the succeeding taxable

year and added to the credit allowable under subsection (a) for

such taxable year.

* * * * * * *

(33)

VII. DISSENTING VIEWS

The Democratic Members of the Committee on Ways and Means

strongly support marriage penalty relief and tax benefits for families with children. Our Democratic substitute provides them tax

benefits and it provides them in the context of an overall tax plan

that is fiscally responsible, fair, and honest. It also provides tax

benefits in the context of an overall budget framework that ensures

sufficient resources for many bipartisan priorities such as prescription drug benefits for older Americans.

The bill reported by the Republican Members of the Committee

is the second installment of an excessive overall tax plan that does

not meet any of the standards that we believe are necessary for tax

relief. The fact that the Republicans have chosen to pursue their

tax program in separate installments is evidence that even they

are troubled by its overall size and unfairness. Rather than deal

with these problems directly by changing their plan, they seek to

hide them by enacting the plan in installments. We continue to resist that strategy.

Our dissenting views to H.R. 3, the first installment of the Republican tax reduction, clearly set out our priorities. We do not intend to repeat that entire discussion here, but want to comment on

several specifics of this installment of the overall plan.

Fiscal responsibility

The House Republicans have responded to our demand for a

budget framework by proposing a bad framework which deliberately understates the funding that will be required for a Medicare prescription drug benefit, education, debt reduction, defense,

agriculture, veterans and other priorities. The House Republican

budget framework was not designed with a desire to determine realistically the funding priorities of the American people. It was designed with the single purpose of accommodating President Bush’s

$1.6 trillion tax reduction plan.

An example of the hypocrisy of the House budget resolution can

be seen from Attorney General Ashcroft’s comments following the

March 22, 2001 school shooting in El Cajon, California. He was

asked on national television what the Federal government can do

to prevent such shootings. He pointed out that the Federal COPS

Program provided funding to the locality in which the school was

located and that the program may have made possible the prompt

police action. The COPS program has been targeted for elimination

by the Republicans in their budget resolution.

As we mentioned in our prior dissenting views, the budget resolution is based on highly uncertain budget projections. Recent

events in the economy and reports of growing medical cost inflation

makes those budget projections even more suspect than they were

in January. We should not risk our economy or our ability to proVerDate 11-MAY-2000 07:10 Mar 28, 2001 Jkt 089006 PO 00000 Frm 00033 Fmt 6604 Sfmt 6604 E:\HR\OC\HR029.XXX pfrm04 PsN: HR029
34

tect Medicare and Social Security based on those uncertain projections.

On Monday of this week the Trustees of the Social Security and

Medicare Trust Funds released a report on the solvency of those

funds. In that report, they used economic assumptions far less optimistic than the economic assumptions underlying President Bush’s

tax reduction plan. The Republican’s are following the strategy of

using conservative economic assumptions to support their drive to

deny guaranteed benefits under the Social Security and Medicare

systems. At the same time, they are using very optimistic assumptions to justify their drive to provide enormous tax reductions to

the wealthiest segment of our society.

Fairness

We commend Chairman Thomas for the proposals in his bill that

would expand the Earned Income Tax Credit and that would eliminate some of the more egregious provisions of President Bush’s

child credit proposal. We are particularly pleased with his recognition of the important role of the EITC in providing work incentives.

It is a refreshing change after six years of unrelenting Republican

hostility to the program. We are hopeful that his bill marks the end

of partisan disputes on this issue and will lead to further attempts

to improve the program on a bipartisan basis.

However, the improvements made by the Chairman to the Bush

proposals do little to change the overall unfairness of the Republican tax plan. This legislation is one of several that will be combined to create excessive tax cuts which will provide a disproportionate amount of benefits to the wealthiest of our society.

Honesty

The rhetoric surrounding the Committee bill promises far larger

tax relief than the amount which actually would be delivered under

the small print of the bill. In this respect H.R. 6, the second installment of the Bush tax program, is no different from the first installment that already has been passed by the House.

The chairman has emphasized the fact that his bill provides partial refundability of the family credit. He does not mention the fact

that the partial refundability provision is extraordinarily complicated and will not benefit low income families because of its

interaction with the Earned Income Tax Credit. Families with two

children will receive no benefit from the partial refundability provision until their income exceeds $27,000. One assumes that

refundability will assist most low-income families. That is not the

case with the Republican bill.

The rhetoric surrounding the Committee bill promises a $1,000

family credit but does mention the fact that the credit increase is

not fully effective until 2006. Many families with children will

never see the full family credit because their children will be over

16 years old in 2006. Those families will face the unhappy news

that the Chairman’s bill does not continue the current law waiver

of the alternative minimum tax limitations on the credits for college expenses. They could lose $1,500 of tax savings for each child

in college benefits available currently because of this failure.

35

The rhetoric promises marriage penalty relief for families that do

not itemize deductions on their tax returns. Again, the rhetoric

fails to mention that no part of that relief is effective until 2004

and the relief is not fully effective until 2009. The rhetoric also

fails to mention that the alternative minimum tax will deny much

of that promised marriage penalty relief if the family happens to

reside in a State with income taxes.

Process

During the Committee markup, the Administration spokesperson

was asked whether the Administration supported the Committee

bill even though it made fairly significant changes to President

Bush’s proposals. He responded that the Administration supports

the Committee bill because it advances the process. His failure to

endorse the substance of the bill is indicated by the following table

that shows that the Congressional Republican tax plans can not fit

within the President’s $1.6 trillion 10-year-cost cap.The following

list shows how Republican tax-cut initiatives add up to much more

than is prudent.

The following list shows how Republican tax-cut initiatives add

up to much more than is prudent.

10-year cost in billions

Individual Income Tax Rate Reductions (H.R. 3 as passed by House) ....... $958

Committee bill with child credit increase and marriage penalty relief (to

be considered on Floor this week) .............................................................. 399

Phase-out of estate and gift taxes, as proposed in Bush budget ................. 267

Bush proposal for tax incentives for charitable contributions (allowing

charitable deduction to non-itemizers, allowing withdrawals from IRAs

for charitable purposes, and increasing limitation on corporate charitable contributions) ...................................................................................... 56

Bush education IRAs ....................................................................................... 6

Pension/IRA liberalizations passed by House last year. .............................. 64

Bush proposal for permanent extension of research credit. ......................... 50

Permanent extension of other expiring tax provisions, including work opportunity tax credit and treatment of foreign financial services businesses. ........................................................................................................... 43

Bush proposal for health-related tax benefits. .............................................. 123

Small business tax provisions as passed by the House last year. ............... 36

Minimal fix to alternative minimum tax required as a result of Republican rate reductions. ................................................................................... 292

Capital gains tax cut ....................................................................................... 103

Total tax reductions .............................................................................. 2,397

Debt service cost .............................................................................................. 556

Total budget effect ................................................................................ 2,953

36

The Bush Administration seems intent on reversing many of the

policies of the Clinton Administration. The Bush Administration already has weakened worker’s safety and environmental protections.

The Bush Administration also seems insistent on abandoning the

fiscal discipline that was an important part of the Clinton economic

program. The recent turmoil in the financial markets would lead

one to question the wisdom of that policy change. We are hopeful

that the Republican Members of Congress are willing to reexamine

the Bush program and attempt to reach bipartisan consensus of tax

relief.

CHARLES B. RANGEL.

ROBERT T. MATSUI.

BEN CARDIN.

SANDER M. LEVIN.

RICHARD E. NEAL.

WILLIAM J. COYNE.

MICHAEL R. MCNULTY.

XAVIER BERCERRA.

EARL POMEROY.

JIM MCDERMOTT.

JERRY KLECZKA.

JOHN LEWIS.

WILLIAM J. JEFFERSON.

PETE STARK.

KAREN L. THURMAN.

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