I
107TH CONGRESS
1ST SESSION
H. R. 1264
To amend the Internal Revenue Code of 1986 to provide individual income
tax rate reductions, tax relief to families with children, marriage penalty
relief, and to immediately eliminate the estate tax for two-thirds of
all decedents currently subject to the estate tax.
IN THE HOUSE OF REPRESENTATIVES
MARCH 28, 2001
Mr. RANGEL (for himself and Mr. PASCRELL) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
individual income tax rate reductions, tax relief to fami-
lies with children, marriage penalty relief, and to imme-
diately eliminate the estate tax for two-thirds of all dece-
dents currently subject to the estate tax.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Tax Reduction Act of 2001’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
(c) 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.
TITLE 
I—INDIVIDUAL 
INCOME
TAX RATE REDUCTIONS; EX-
PANSION OF EARNED INCOME
CREDIT ASSISTANCE
SEC. 101. INDIVIDUAL INCOME TAX RATE REDUCTIONS.
(a) IN GENERAL.—Section 1 is amended by adding
at the end the following new subsection:
‘‘(i) 12 PERCENT RATE BRACKET.—
‘‘(1) IN GENERAL.—In the case of taxable years
beginning after December 31, 2000—
‘‘(A) the rate of tax under subsections (a),
(b), (c), and (d) on taxable income not over the
initial bracket amount shall be 12 percent, and
‘‘(B) the 15 percent rate of tax shall apply
only to taxable income over the initial bracket
amount.
‘‘(2) INITIAL BRACKET AMOUNT.—For purposes
of this subsection—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the initial bracket amount
is—
‘‘(i) $20,000 in the case of subsection
(a),
‘‘(ii) 80 percent of the dollar amount
in clause (i) in the case of subsection (b),
and
‘‘(iii) 50 percent of the dollar amount
in clause (i) in the case of subsections (c)
and (d).
‘‘(B) 
PHASEIN.—The 
initial 
bracket
amount is—
‘‘(i) 1⁄4 the amount otherwise applica-
ble under subparagraph (A) in the case of
taxable years beginning during 2001, and
‘‘(ii) 1⁄2 such amount otherwise appli-
cable under subparagraph (A) in the case
of taxable years beginning during 2002.
‘‘(3) INFLATION ADJUSTMENT.—
‘‘(A) IN
GENERAL.—In the case of any
taxable year beginning in a calendar year after
2003, the $20,000 amount under paragraph
(2)(A)(i) shall be increased by an amount equal
to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment de-
termined under subsection (f)(3) for the
calendar year in which the taxable year be-
gins, determined by substituting ‘calendar
year 2002’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof.
‘‘(B) ROUNDING RULES.—If any amount
after adjustment under subparagraph (A) is not
a multiple of $50, such amount shall be round-
ed to the next lowest multiple of $50.
‘‘(4) ADJUSTMENT OF TABLES.—The Secretary
shall adjust the tables prescribed under subsection
(f) to carry out this subsection.’’
(b) ADJUSTMENT
IN
COMPUTATION
OF
ALTER-
NATIVE MINIMUM TAX.—Paragraph (2) of section 55(a)
is amended to read as follows:
‘‘(2) the sum of—
‘‘(A) the regular tax for the taxable year,
plus
‘‘(B) in the case of an individual, 3 percent
of so much of the individual’s taxable income
for the taxable year as is taxed at 12 percent.’’
(c) REPEAL OF REDUCTION OF REFUNDABLE TAX
CREDITS.—
(1) Subsection (d) of section 24 is amended by
striking paragraph (2) and redesignating paragraph
(3) as paragraph (2).
(2) Section 32 is amended by striking sub-
section (h).
(d) CONFORMING AMENDMENT.—Subclause (II) of
section 1(g)(7)(B)(ii) is amended by striking ‘‘15 percent’’
and inserting ‘‘12 percent’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
(f) PROTECTION OF SOCIAL SECURITY AND MEDI-
CARE.—The amounts transferred to any trust fund under
the Social Security Act shall be determined as if this Act
had not been enacted.
SEC. 102. MODIFICATIONS TO EARNED INCOME TAX CRED-
IT.
(a) INCREASES
IN PERCENTAGES
AND AMOUNTS
USED TO DETERMINE CREDIT; MARRIAGE PENALTY RE-
LIEF.—
(1) IN GENERAL.—Subsection (b) of section 32
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:
‘‘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
18.98
2 or more qualifying children ......
21.06
24.06
No qualifying children .................
7.65
7.65
7.65
‘‘(2) AMOUNTS.—
‘‘(A) IN
GENERAL.—The earned income
amount and the initial 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:
1 qualifying child .......................................................
$8,140
$13,470
2 or more qualifying children ....................................
$10,820
$13,470
No qualifying children ...............................................
$4,900
$6,130.
In the case of a joint return where there is at
least 1 qualifying child, the initial phaseout
amount shall be $2,500 greater than the
amount otherwise applicable under the pre-
ceding sentence.
‘‘(B) FINAL
PHASEOUT
AMOUNT.—The
final phaseout amount is $26,000 ($28,500 in
the case of a joint return).’’
(2) 
MODIFICATION
OF
COMPUTATION
OF
PHASEOUT.—Paragraph (2) of section 32(a) is
amended to read as follows:
‘‘(2) PHASEOUT OF CREDIT.—The amount of
the credit allowable to a taxpayer under paragraph
(1) for any taxable year shall be reduced (but not
below zero) by the sum of—
‘‘(A) the initial phaseout percentage of so
much of the total income (or, if greater, the
earned income) of the taxpayer for the taxable
year as exceeds the initial phaseout amount but
does not exceed the final phaseout amount, plus
‘‘(B) the final phaseout percentage of so
much of the total income (or, if greater, the
earned income) of the taxpayer for the taxable
year as exceeds the final phaseout amount.’’
(3) TOTAL INCOME.—Paragraph (5) of section
32(c) is amended to read as follows:
‘‘(5) TOTAL INCOME.—The term ‘total income’
means adjusted gross income determined without re-
gard to—
‘‘(A) the deductions referred to in para-
graphs (6), (7), (9), (10), (15), (16), and (17)
of section 62(a),
‘‘(B) the deduction allowed by section
162(l), and
‘‘(C) the deduction allowed by section
164(f).’’
(4) CONFORMING AMENDMENTS.—
(A) Subsection (j) of section 32 is amend-
ed to read as follows:
‘‘(j) INFLATION ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning after 2002, each of the dollar
amounts in subsection (b)(2) shall be increased by
an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3), for the calendar
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 2001’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
‘‘(2) ROUNDING.—If any dollar amount, after
being increased under paragraph (1), is not a mul-
tiple of $10, such dollar amount shall be rounded to
the nearest multiple of $10.’’
(B) Subparagraph (C) of section 32(c)(1)
is amended by striking ‘‘modified adjusted
gross income’’ and inserting ‘‘total income’’.
(C) Paragraph (2) of section 32(f) is
amended to read as follows:
‘‘(2) REQUIREMENTS FOR TABLES.—
‘‘(A) IN GENERAL.—The provisions of sub-
section (a)(1) and the provisions of subsection
(a)(2) shall be reflected in separate tables pre-
scribed under paragraph (1).
‘‘(B) SUBSECTION (a)(1) TABLE.—The ta-
bles prescribed under paragraph (1) to reflect
the provisions of subsection (a)(1) shall have in-
come brackets of not greater than $50 each for
earned income between $0 and the earned in-
come amount.
‘‘(C) SUBSECTION (a)(2) TABLE.—The ta-
bles prescribed under paragraph (1) to reflect
the provisions of subsection (a)(2) shall have in-
come brackets of not greater than $50 each for
total income (or, if greater, the earned income)
above the initial phaseout threshold.’’
(b) REPEAL OF DENIAL OF CREDIT WHERE INVEST-
MENT INCOME.—Section 32 is amended by striking sub-
section (i).
(c) EARNED INCOME TO INCLUDE ONLY AMOUNTS
INCLUDIBLE IN GROSS INCOME.—
(1) IN GENERAL.—Section 32(c)(2)(A)(i) (de-
fining earned income) is amended by inserting ‘‘, but
only if such amounts are includible in gross income
for the taxable year’’ after ‘‘other employee com-
pensation’’.
(2) 
CONFORMING
AMENDMENT.—Section
32(c)(2)(B) is amended by striking ‘‘and’’ at the end
of clause (iv), by striking the period at the end of
clause (v) and inserting ‘‘, and’’, and by adding at
the end the following new clause:
‘‘(vi) the requirement under subpara-
graph (A)(i) that an amount be includible
in gross income shall not apply if such
amount is exempt from tax under section
7873 or is derived directly from restricted
and allotted land under the Act of Feb-
ruary 8, 1887 (commonly known as the In-
dian General Allotment Act) (25 U.S.C.
331 et seq.) or from land held under Acts
or treaties containing an exception provi-
sion similar to the Indian General Allot-
ment Act.’’
(d) MODIFICATION
OF JOINT RETURN REQUIRE-
MENT.—Subsection (d) of section 32 is amended to read
as follows:
‘‘(d) MARRIED INDIVIDUALS.—
‘‘(1) IN GENERAL.—If the taxpayer is married
at the close of the taxable year, the credit shall be
allowed under subsection (a) only if the taxpayer
and his spouse file a joint return for the taxable
year.
‘‘(2) MARITAL STATUS.—For purposes of para-
graph (1), an individual legally separated from his
spouse under a decree of divorce or of separate
maintenance shall not be considered as married.
‘‘(3) CERTAIN
MARRIED
INDIVIDUALS
LIVING
APART.—For purposes of paragraph (1), if—
‘‘(A) an individual —
‘‘(i) is married and files a separate re-
turn, and
‘‘(ii) has a qualifying child who is a
son, daughter, stepson, or stepdaughter of
such individual, and
‘‘(B) during the last 6 months of such tax-
able year, such individual and such individual’s
spouse do not have the same principal place of
abode,
such individual shall not be considered as married.’’
(e) EXPANSION OF MATHEMATICAL ERROR AUTHOR-
ITY.—Paragraph (2) of section 6213(g) is amended by
striking ‘‘and’’ at the end of subparagraph (K), by striking
the period at the end of subparagraph (L) and inserting
‘‘, and’’, and by inserting after subparagraph (L) the fol-
lowing new subparagraph:
‘‘(M) the entry on the return claiming the
credit under section 32 with respect to a child
if, according to the Federal Case Registry of
Child Support Orders established under section
453(h) of the Social Security Act, the taxpayer
is a noncustodial parent of such child.’’
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
TITLE II—MARRIAGE PENALTY
RELIEF
SEC. 201. MARRIAGE PENALTY RELIEF.
(a) STANDARD DEDUCTION.—
(1) IN
GENERAL.—Paragraph (2) of section
63(c) (relating to standard deduction) is amended—
(A) by striking ‘‘$5,000’’ in subparagraph
(A) and inserting ‘‘twice the dollar amount in
effect under subparagraph (C) for the taxable
year’’,
(B) by adding ‘‘or’’ at the end of subpara-
graph (B),
(C) by striking ‘‘in the case of’’ and all
that follows in subparagraph (C) and inserting
‘‘in any other case.’’, and
(D) by striking subparagraph (D).
(2) INCREASE ALLOWED AS DEDUCTION IN DE-
TERMINING
MINIMUM
TAX.—Subparagraph (E) of
section 56(b)(1) is amended by adding at the end
the following new sentence: ‘‘The preceding sentence
shall not apply to so much of the standard deduction
under subparagraph (A) of section 63(c)(2) as ex-
ceeds the amount which would be such deduction but
for the amendment made by section 201(a)(1) of the
Tax Reduction Act of 2001.’’
(3) TECHNICAL AMENDMENTS.—
(A) Subparagraph (B) of section 1(f)(6) is
amended by striking ‘‘(other than with’’ and all
that follows through ‘‘shall be applied’’ and in-
serting ‘‘(other than with respect to sections
63(c)(4) and 151(d)(4)(A)) shall be applied’’.
(B) Paragraph (4) of section 63(c) 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).’’.