[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3441 Introduced in House (IH)]







104th CONGRESS
  2d Session
                                H. R. 3441

  To amend the Internal Revenue Code of 1986 to reform and rename the 
                       earned income tax credit.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 10, 1996

Mr. Hutchinson (for himself, Mr. Ballenger, Mr. Armey, Mr. Talent, Mr. 
 Goss, Mr. Largent, Mr. Graham, Mr. Pete Geren of Texas, Mr. Hoekstra, 
   Mr. Zeliff, Mr. Norwood, Mr. Baker of California, Mr. Coble, Mr. 
Calvert, Mr. Sensenbrenner, and Mr. Doolittle) introduced the following 
      bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to reform and rename the 
                       earned income tax credit.

    Be it enacted by the Senate and House of Representatives 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 children.
Sec. 7. Rules relating to denial of working families support credit on 
                            basis of disqualified income.
Sec. 8. Modification of adjusted gross income definition for working 
                            families support credit.
Sec. 9. Modification of credit amount and phaseout.
Sec. 10. Installment payments of working families support credit.
Sec. 11. Provisions to improve tax compliance.
Sec. 12. Study on advance payments.
Sec. 13. Study on conversion of food stamps to cash payment and 
                            coordination with working families support 
                            credit payments.

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 removed 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 benefits toward 
        poor households below the poverty line, as it is designed to 
        do.
            (5) The EITC does not eliminate jobs and targets benefits 
        at low-income families, and is therefore of greater assistance 
        in erasing poverty than is raising the minimum wage.
            (6) The ``Minimum Wage for Families Act'' will redesign the 
        Earned Income Tax Credit, rename the credit as the Working 
        Families Support Credit, and further encourage the work ethic 
        and reduce dependency on welfare. Under the Working Families 
        Support Credit, families would qualify for up to $4,455 each 
        year in benefits.
            (7) In the case of a family with 1 child, under the Working 
        Family Support Credit a full-time minimum wage worker would 
        earn an estimated wage of $5.47 an hour.
            (8) In the case of a family with 2 children, under the 
        Working Family Support Credit a full-time minimum wage worker 
        would earn an estimated wage of $6.37 an hour.
            (9) Therefore, the Working Family Support Credit is an 
        effective way to increase take-home pay of workers without any 
        of the economic disadvantages associated with a minimum wage 
        increase.
            (10) Therefore, the ``Minimum Wage for Families Act'' is a 
        better way to lift the incomes of poor families than a broad, 
        sweeping increase in the Federal minimum wage.

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 follows:

``SEC. 32. WORKING FAMILIES SUPPORT CREDIT.''

    (b) Conforming Amendments.--Each of the following 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 section 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 EMPLOYED 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 following new subparagraph:
                    ``(F) Identification number requirement.--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 
                        identification number, and
                            ``(ii) if the individual is married (within 
                        the meaning of section 7703), the taxpayer 
                        identification number of such individual's 
                        spouse.''.
    (b) Special Identification Number.--Section 32 of such Code is 
amended by adding at the end the following new subsection:
    ``(l) Identification Numbers.--Solely for purposes of subsections 
(c)(1)(F) and (c)(3)(D), a taxpayer identification number means a 
social security number issued to an individual by the Social Security 
Administration (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 Security 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 following 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 section 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 individual' 
                means any individual who has a qualifying 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 amended--
            (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 FAMILIES SUPPORT CREDIT ON 
              BASIS OF DISQUALIFIED INCOME.

    (a) Definition of Disqualified Income.--Paragraph (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 subparagraph:
                    ``(D) the excess (if any) of--
                            ``(i) the aggregate income from all passive 
                        activities for the taxable year (determined 
                        without regard to any amount described in a 
                        preceding subparagraph of this paragraph), over
                            ``(ii) the aggregate losses from all 
                        passive 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 DEFINITION 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 
income''.
    (b) Modified Adjusted Gross Income Defined.--Section 32(c) of such 
Code (relating to definitions 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 income--
                            ``(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 subparagraph are--
                            ``(i) amounts which--
                                    ``(I) are received during the 
                                taxable 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 
                                instrument 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 during 
                        the taxable year which is exempt from tax 
                        imposed by this chapter,
                            ``(iii) amounts received as a pension or 
                        annuity, and any distributions or payments 
                        received from an individual retirement plan, by 
                        the taxpayer during the taxable year to the 
                        extent not included in gross income, and
                            ``(iv) social security benefits (as defined 
                        in section 86(d)) received by the taxpayer 
                        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 separately with 
                        respect to--
                                    ``(I) trades or businesses (other 
                                than farming) conducted as sole 
                                proprietorships,
                                    ``(II) trades or businesses of 
                                farming conducted as sole 
                                proprietorships, 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 performance of services 
                by the taxpayer as an employee.''.
    (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 PHASEOUT.

    (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 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
                            ``(ii) the final phaseout percentage of so 
                        much of the modified adjusted gross income (or, 
                        if greater, the earned income) of the taxpayer 
                        for the taxable year as exceeds 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 phaseout percentage shall be 
        determined as follows:
                    ``(A) In general.--In the case of taxable years 
                beginning after 1999:


                                                                                                                
   ``In the case of an eligible                                 The initial phaseout       The final phaseout   
         individual with:          The credit percentage is:       percentage is:            percentage is:     
                                                                                                                
1 qualifying child...............              40                       15.98                    23.776         
2 or more qualifying children....              50                       21.06                    41.253         
                                                                                                                

      
                    ``(B) Transitional percentages for 1998 and 1999.--
                In the case of taxable years beginning in 1998 or 1999:



                                                                                                                
   ``In the case of an eligible                                 The initial phaseout       The final phaseout   
         individual with:          The credit percentage is:       percentage is:            percentage is:     
                                                                                                                
1 qualifying child...............              37                       15.98                    22.318         
2 or more qualifying children....              45                       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     The earned income amount    The initial phaseout       The final phaseout   
         individual with:                     is:                    amount is:                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 
section 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 Qualifying Children.--
            ``(1) In general.-- For taxable years beginning 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 provided 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 January 1, 1998.

SEC. 10. INSTALLMENT PAYMENTS OF WORKING FAMILIES SUPPORT CREDIT.

    (a) In General.--Section 6402 of the Internal Revenue 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 Families Support Credit 
Refunds.--
            ``(1) In general.--The working families support 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 portion of any refund' means the amount of any 
overpayment which is to be refunded (after the application 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.--Notwithstanding 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 Preparers.--
            (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 penalties) is amended--
                    (A) by striking ``$50'' and ``$25,000'' in 
                subsections (a), (b), (c), (d), and (e) and inserting 
                ``$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 enactment of this 
Act, the Secretary of the Treasury shall submit to the Congress a 
report containing recommendations of means--
            (1) to encourage recipients of the working families support 
        credit to obtain advance payments with respect to such credit 
        under section 3507 of the Internal Revenue Code of 1986,
            (2) to reduce fraud in connection with such advance 
        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 
              PAYMENTS.

    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 results 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).
                                 <all>