I
104TH CONGRESS
2D SESSION
H. R. 3441
To amend the Internal Revenue Code of 1986 to reform and rename the
earned income tax credit.
IN THE HOUSE OF REPRESENTATIVES
MAY 10, 1996
Mr. HUTCHINSON (for himself, Mr. BALLENGER, Mr. ARMEY, Mr. TALENT,
Mr. GOSS, Mr. LARGENT, Mr. GRAHAM, Mr. PETE GEREN of Texas, Mr.
HOEKSTRA, Mr. ZELIFF, Mr. NORWOOD, Mr. BAKER of California, Mr.
COBLE, Mr. CALVERT, Mr. SENSENBRENNER, and Mr. DOOLITTLE) in-
troduced the following bill; which was referred to the Committee on Ways
and Means
A BILL
To amend the Internal Revenue Code of 1986 to reform
and rename the earned income tax credit.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Minimum Wage for Families Act’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title and table of contents.
Sec. 2. Congressional findings.
Sec. 3. Renaming of credit.
Sec. 4. Working families support credit denied to individuals not authorized to
be employed in the United States.
Sec. 5. Repeal of credit for individuals without children.
Sec. 6. Termination of classification of students over age 18 as qualifying chil-
dren.
Sec. 7. Rules relating to denial of working families support credit on basis of
disqualified income.
Sec. 8. Modification of adjusted gross income definition for working families
support credit.
Sec. 9. Modification of credit amount and phaseout.
Sec. 10. Installment payments of working families support credit.
Sec. 11. Provisions to improve tax compliance.
Sec. 12. Study on advance payments.
Sec. 13. Study on conversion of food stamps to cash payment and coordination
with working families support credit payments.
SEC. 2. CONGRESSIONAL FINDINGS.
The Congress finds as follows:
(1) The original intent of the Earned Income
Tax Credit (EITC), created in 1975, was to reduce
the tax burden on low-income families and it has
proven effective.
(2) Subsequent tax reforms have actually re-
moved most families earning below poverty income
from the Federal income tax rolls.
(3) The EITC provides low-income working
families with large lump-sum cash refunds of up to
$3,600 each year.
(4) Studies show that the EITC targets its ben-
efits toward poor households below the poverty line,
as it is designed to do.
(5) The EITC does not eliminate jobs and tar-
gets benefits at low-income families, and is therefore
SEC. 3. RENAMING OF CREDIT.
(a) IN GENERAL.—The heading of section 32 of the
Internal Revenue Code of 1986 is amended to read as fol-
lows:
‘‘SEC. 32. WORKING FAMILIES SUPPORT CREDIT.’’
(b) CONFORMING AMENDMENTS.—Each of the fol-
lowing provisions of such Code is amended by striking
‘‘earned income credit’’ and inserting ‘‘working families
support credit’’:
(1) Section 32(g).
(2) Section 3507.
(3) Section 6012(a)(8).
(4) Paragraphs (7) and (10) of section 6051(a).
(c) CLERICAL AMENDMENTS.—
(1) The table of sections for subpart C of part
IV of subchapter A of chapter 1 of such Code is
amended by striking the item relating to section 32
and inserting the following new item:
‘‘Sec. 32. Working families support credit.’’
(2) The table of sections for chapter 25 of such
Code is amended by striking the item relating to sec-
tion 3507 and inserting the following new item:
‘‘Sec. 3507. Advance payment of working families support credit.’’
SEC. 4. WORKING FAMILIES SUPPORT CREDIT DENIED TO
INDIVIDUALS NOT AUTHORIZED TO BE EM-
PLOYED IN THE UNITED STATES.
(a) IN GENERAL.—Section 32(c)(1) of the Internal
Revenue Code of 1986 (relating to individuals eligible to
claim credit) is amended by adding at the end the follow-
ing new subparagraph:
‘‘(F) IDENTIFICATION NUMBER REQUIRE-
MENT.—The term ‘eligible individual’ does not
include any individual who does not include on
the return of tax for the taxable year—
‘‘(i) such individual’s taxpayer identi-
fication number, and
‘‘(ii) if the individual is married (with-
in the meaning of section 7703), the tax-
payer identification number of such indi-
vidual’s spouse.’’.
(b) SPECIAL IDENTIFICATION NUMBER.—Section 32
of such Code is amended by adding at the end the follow-
ing new subsection:
‘‘(l) IDENTIFICATION NUMBERS.—Solely for pur-
poses of subsections (c)(1)(F) and (c)(3)(D), a taxpayer
identification number means a social security number is-
sued to an individual by the Social Security Administra-
tion (other than a social security number issued pursuant
to clause (II) (or that portion of clause (III) that relates
to clause (II)) of section 205(c)(2)(B)(i) of the Social Se-
curity Act).’’.
(c) EXTENSION OF PROCEDURES APPLICABLE TO
MATHEMATICAL
OR
CLERICAL
ERRORS.—Section
6213(g)(2) of such Code (relating to the definition of
mathematical or clerical errors) is amended by striking
‘‘and’’ at the end of subparagraph (D), by striking the
period at the end of subparagraph (E) and inserting a
comma, and by inserting after subparagraph (E) the fol-
lowing new subparagraphs:
‘‘(F) an omission of a correct taxpayer
identification number required under section 32
(relating to the working families support credit)
to be included on a return, and
‘‘(G) an entry on a return claiming the
credit under section 32 with respect to net
earnings from self-employment described in sec-
tion 32(c)(2)(A) to the extent the tax imposed
by section 1401 (relating to self-employment
tax) on such net earnings has not been paid.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 5. REPEAL OF CREDIT FOR INDIVIDUALS WITHOUT
CHILDREN.
(a) IN GENERAL.—Subparagraph (A) of section
32(c)(1) of the Internal Revenue Code of 1986 (defining
eligible individual) is amended to read as follows:
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means any individual who has a quali-
fying child for the taxable year.’’.
(b) CONFORMING AMENDMENTS.—Each of the tables
contained in paragraphs (1) and (2) of section 32(b) of
such Code is amended by striking the items relating to
no qualifying children.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 6. TERMINATION OF CLASSIFICATION OF STUDENTS
OVER AGE 18 AS QUALIFYING CHILDREN.
(a) IN GENERAL.—Subparagraph (C) of section
32(c)(3) of the Internal Revenue Code of 1986 is amend-
ed—
(1) in clause (i), by adding ‘‘or’’ at the end,
(2) by striking clause (ii), and
(3) by redesignating clause (iii) as clause (ii).
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 7. RULES RELATING TO DENIAL OF WORKING FAMI-
LIES SUPPORT CREDIT ON BASIS OF DIS-
QUALIFIED INCOME.
(a) DEFINITION OF DISQUALIFIED INCOME.—Para-
graph (2) of section 32(i) of the Internal Revenue Code
of 1986 (defining disqualified income) is amended by
striking ‘‘and’’ at the end of subparagraph (B), by striking
the period at the end of subparagraph (C) and inserting
‘‘, and’’, and by adding at the end the following new sub-
paragraph:
‘‘(D) the excess (if any) of—
‘‘(i) the aggregate income from all
passive activities for the taxable year (de-
termined without regard to any amount de-
scribed in a preceding subparagraph of this
paragraph), over
‘‘(ii) the aggregate losses from all pas-
sive activities for the taxable year (as so
determined).
For purposes of subparagraph (D), the term ‘passive
activity’ has the meaning given such term by section
469.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 8. MODIFICATION OF ADJUSTED GROSS INCOME DEFI-
NITION FOR WORKING FAMILIES SUPPORT
CREDIT.
(a) IN GENERAL.—Subsections (a)(2), (c)(1)(C), and
(f)(2)(B) of section 32 of the Internal Revenue Code of
1986, as amended by the preceding sections, are each
amended by striking ‘‘adjusted gross income’’ each place
it appears and inserting ‘‘modified adjusted gross in-
come’’.
(b) MODIFIED
ADJUSTED
GROSS
INCOME
DE-
FINED.—Section 32(c) of such Code (relating to defini-
tions and special rules) is amended by adding at the end
the following new paragraph:
‘‘(5) MODIFIED ADJUSTED GROSS INCOME.—
‘‘(A) IN
GENERAL.—The term ‘modified
adjusted gross income’ means adjusted gross in-
come—
‘‘(i) increased by the sum of the
amounts described in subparagraph (B),
and
‘‘(ii) determined without regard to—
‘‘(I) the amounts described in
subparagraph (C), and
‘‘(II) the deduction allowed under
section 172.
‘‘(B) NONTAXABLE INCOME TAKEN INTO
ACCOUNT.—Amounts described in this subpara-
graph are—
‘‘(i) amounts which—
‘‘(I) are received during the tax-
able year by (or on behalf of) a spouse
pursuant to a divorce or separation
instrument (as defined in section
71(b)(2)), and
‘‘(II) under the terms of the in-
strument are fixed as payable for the
support of the children of the payor
spouse (as determined under section
71(c)),
but only to the extent such amounts exceed
$6,000,
‘‘(ii) interest received or accrued dur-
ing the taxable year which is exempt from
tax imposed by this chapter,
‘‘(iii) amounts received as a pension
or annuity, and any distributions or pay-
ments received from an individual retire-
ment plan, by the taxpayer during the tax-
able year to the extent not included in
gross income, and
‘‘(iv) social security benefits (as de-
fined in section 86(d)) received by the tax-
payer during the taxable year to the extent
not included in gross income.
Clause (iii) shall not include any amount which
is not includible in gross income by reason of
section 402(c), 403(a)(4), 403(b)(8), 408(d)
(3), (4), or (5), or 457(e)(10).
‘‘(C) CERTAIN AMOUNTS DISREGARDED.—
An amount is described in this subparagraph if
it is—
‘‘(i) the amount of losses from sales
or exchanges of capital assets in excess of
gains from such sales or exchanges to the
extent such amount does not exceed the
amount under section 1211(b)(1),
‘‘(ii) the net loss from the carrying on
of trades or businesses, computed sepa-
rately with respect to—
‘‘(I) trades or businesses (other
than farming) conducted as sole pro-
prietorships,
‘‘(II) trades or businesses of
farming conducted as sole proprietor-
ships, and
‘‘(III) other trades or business,
‘‘(iii) the net loss from estates and
trusts, and
‘‘(iv) the excess (if any) of amounts
described in subsection (i)(2)(C)(ii) over
the 
amounts 
described 
in 
subsection
(i)(2)(C)(i) (relating to nonbusiness rents
and royalties).
For purposes of clause (ii), there shall not be
taken into account items which are attributable
to a trade or business which consists of the per-
formance of services by the taxpayer as an em-
ployee.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 9. MODIFICATION OF CREDIT AMOUNT AND PHASE-
OUT.
(a) MODIFICATION
OF PHASEOUT.—Subparagraph
(B) of section 32(a)(2) of the Internal Revenue Code of
1986 is amended to read as follows:
‘‘(B) the sum of—
‘‘(i) the initial phaseout percentage of
so much of the modified adjusted gross in-
come (or, if greater, the earned income) of
the taxpayer for the taxable year as ex-
ceeds the initial phaseout amount but does
not exceed the final phaseout amount, plus
‘‘(ii) the final phaseout percentage of
so much of the modified adjusted gross in-
come (or, if greater, the earned income) of
the taxpayer for the taxable year as ex-
ceeds the final phaseout amount.’’.
(b) CHANGES TO PERCENTAGES AND AMOUNTS.—
(1) IN GENERAL.—Subsection (b) of section 32
of such Code is amended to read as follows:
‘‘(b) PERCENTAGES AND AMOUNTS.—
‘‘(1) PERCENTAGES.—The credit percentage,
the initial phaseout percentage, and the final phase-
out percentage shall be determined as follows:
‘‘(A) IN GENERAL.—In the case of taxable
years beginning after 1999:
‘‘In the case of an eligible individual
with:
The credit per-
centage is:
The initial phase-
out percentage is:
The final phase-
out percentage is:
1 qualifying child .........................
15.98
23.776
2 or more qualifying children .......
21.06
41.253
‘‘(B) TRANSITIONAL
PERCENTAGES
FOR
1998 AND 1999.—In the case of taxable years be-
ginning in 1998 or 1999:
‘‘In the case of an eligible individual
with:
The credit per-
centage is:
The initial phase-
out percentage is:
The final phase-
out percentage is:
1 qualifying child .........................
15.98
22.318
2 or more qualifying children .......
21.06
35.448
‘‘(2) AMOUNTS.—The earned income amount,
the initial phaseout amount, and the final phaseout
amount shall be determined as follows:
‘‘In the case of an eligible individual
with:
The earned in-
come amount is:
The initial phase-
out amount is:
The final phase-
out amount is:
1 qualifying child .........................
$6,330
$11,610
$14,850
2 or more qualifying children .......
$8,890
$11,610
$17,750’’.
(2) CONFORMING AMENDMENT.—Subsection (j)
of section 32 of such Code is amended—
(A) by striking ‘‘subsection (b)(2)(A)’’ and
inserting ‘‘subsection (b)(2)’’,
(B) by striking ‘‘1994’’ and inserting
‘‘1996’’, and
(C) by striking ‘‘1993’’ and inserting
‘‘1995’’.
(c) TEMPORARY INCREASE IN CREDIT FOR LOWER-
INCOME FAMILIES HAVING 2 OR MORE QUALIFYING
CHILDREN.—Section 32 of such Code (as amended by sec-
tion 4(b)) is amended by adding at the end the following
new subsection:
‘‘(m) INCREASE IN CREDIT FOR 1996 AND 1997 FOR
LOWER-INCOME FAMILIES HAVING 2 OR MORE QUALIFY-
ING CHILDREN.—
‘‘(1) IN GENERAL.— For taxable years begin-
ning in 1996 or 1997, if an eligible individual has
2 or more qualifying children then for purposes of
applying paragraphs (1) and (2)(A) of subsection
(a)—
‘‘(A) the amount of the taxpayer’s earned
income shall be treated as being equal to 10⁄9 of
such income (determined without regard to this
paragraph), and
‘‘(B) the earned income amount shall be
treated as being equal to 10⁄9 of such amount
(determined without regard to this paragraph).
‘‘(2) PHASEOUT OF BENEFIT.—If the applicable
income of the taxpayer for the taxable year exceeds
$14,000 ($17,000 in the case of a joint return), the
amount of each increase under paragraph (1) shall
be reduced (but not below zero) by an amount which
bears the same ratio to such increase (determined
without regard to this paragraph) as such excess
bears to $4,000.
‘‘(3) APPLICABLE
INCOME.—For purposes of
this subsection, the term ‘applicable income’ means
modified adjusted gross income or, if greater, earned
income.’’
(d) EFFECTIVE DATES.—
(1) PERMANENT
CHANGES.—Except as pro-
vided in paragraph (2), the amendments made by
this section shall apply to taxable years beginning
after December 31, 1997.
(2) TEMPORARY
INCREASE.—The amendment
made by subsection (c) shall apply to taxable years
beginning after December 31, 1995, and before Jan-
uary 1, 1998.
SEC. 10. INSTALLMENT PAYMENTS OF WORKING FAMILIES
SUPPORT CREDIT.
(a) IN GENERAL.—Section 6402 of the Internal Rev-
enue Code of 1986 (relating to authority to make credits
or refunds) is amended by adding at the end the following
new subsection:
‘‘(j) INSTALLMENT PAYMENTS OF WORKING FAMI-
LIES SUPPORT CREDIT REFUNDS.—
‘‘(1) IN GENERAL.—The working families sup-
port credit portion of any refund shall be paid in
substantially equal monthly installments over a 12-
month period beginning not later than the third
month which begins after the month in which the
taxpayer’s return is filed.
‘‘(2) WORKING
FAMILIES
SUPPORT
CREDIT
PORTION OF REFUND.—For purposes of paragraph
(1), the term ‘working families support credit por-
tion of any refund’ means the amount of any over-
payment which is to be refunded (after the applica-
tion of the preceding provisions of this section) to
the person who made the overpayment, to the extent
that such amount does not exceed the credit allowed
to the person under section 32 for such taxable year.
‘‘(3) EXCEPTION IF CREDIT IS $600 OR LESS.—
Paragraph (1) shall not apply with respect to any
person making an overpayment for a taxable year if
the credit allowed to such person under section 32
for such taxable year does not exceed $600.
‘‘(4) PROHIBITION
OF
INTEREST.—Notwith-
standing any other provision of this title, no interest
shall be allowed or paid on any installment paid by
reason of this subsection.’’
(b) CONFORMING AMENDMENT.—Subsection (a) of
section 6402 of such Code is amended by striking ‘‘(c)
and (d)’’ and inserting ‘‘(c), (d), and (j)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 11. PROVISIONS TO IMPROVE TAX COMPLIANCE.
(a) INCREASE IN PENALTIES FOR RETURN PREPAR-
ERS.—
(1) 
UNDERSTATEMENT
PENALTY.—Section
6694 of the Internal Revenue Code of 1986 (relating
to understatement of income tax liability by income
tax return preparer) is amended—
(A) by striking ‘‘$250’’ in subsection (a)
and inserting ‘‘$500’’, and
(B) by striking ‘‘$1,000’’ in subsection (b)
and inserting ‘‘$2,000’’.
(2) OTHER ASSESSABLE PENALTIES.—Section
6695 of such Code (relating to other assessable pen-
alties) is amended—
(A) by striking ‘‘$50’’ and ‘‘$25,000’’ in
subsections (a), (b), (c), (d), and (e) and insert-
ing ‘‘$100’’ and ‘‘$50,000’’, respectively, and
(B) by striking ‘‘$500’’ in subsection (f)
and inserting ‘‘$1,000’’.
(b) AIDING
AND
ABETTING
PENALTY.—Section
6701(b) of such Code (relating to amount of penalty) is
amended—
(1) by striking ‘‘$1,000’’ in paragraph (1) and
inserting ‘‘$2,000’’, and
(2) by striking ‘‘$10,000’’ in paragraph (2) and
inserting ‘‘$20,000’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to penalties with respect to taxable
years beginning after December 31, 1995.
SEC. 12. STUDY ON ADVANCE PAYMENTS.
Not later than 6 months after the date of the enact-
ment of this Act, the Secretary of the Treasury shall sub-
mit to the Congress a report containing recommendations
of means—
(1) to encourage recipients of the working fami-
lies support credit to obtain advance payments with
respect to such credit under section 3507 of the In-
ternal Revenue Code of 1986,
(2) to reduce fraud in connection with such ad-
vance payments, and
(3) to reduce the burdens on small businesses
with respect to such advance payments.
SEC. 13. STUDY ON CONVERSION OF FOOD STAMPS TO
CASH PAYMENT AND COORDINATION WITH
WORKING FAMILIES SUPPORT CREDIT PAY-
MENTS.
Not later than 1 year after the date of the enactment
of this Act, the Comptroller General of the United States
shall submit to the Congress a report containing the re-
sults of a study on the feasibility and effects of—
(1) converting food stamps under the Food
Stamp Act of 1977 into a cash payment, and
(2) making cash payments of such food stamp
benefits in the same payment as monthly payments
of the working families support credit made under
sections 32 and 6402 of the Internal Revenue Code
of 1986 (as amended by this Act).
Æ