[Congressional Record Volume 144, Number 73 (Tuesday, June 9, 1998)]
[Senate]
[Pages S5790-S5791]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DASCHLE (for himself and Mr. Johnson):
  S. 2147. A bill to amend the Internal Revenue Code of 1986 to provide 
a deduction for two-earner married couples, to allow self-employed 
individuals a 100-percent deduction for health insurance costs, and for 
other purposes; to the Committee on Finance.


                      marriage penalty tax relief

  Mr. DASCHLE. Mr. President, it is my pleasure today to introduce 
legislation to encourage family and work and to facilitate the purchase 
of affordable health insurance by self-employed individuals.
  It is no secret to many married Americans that the tax code often 
penalizes marriage. An estimated 21 million American couples with two 
breadwinners pay more than if they had remained single and filed 
separate tax returns--an average of nearly $1,400 more.
  The marriage penalty is justifiably one of the most unpopular aspects 
of our tax system, second only to the complexity of the tax code. The 
federal government should be encouraging family and work, not 
discouraging them through disincentives in the tax code or any other 
area of public policy.
  The bill I am introducing today would significantly reduce the added 
tax burden that many middle and lower income couples face when both 
spouses work. It will do so by providing an above-the-line 20 percent 
deduction against the earnings of the lesser earning spouse. The 20 
percent deduction would be phased out between family adjusted gross 
incomes of $50,000 and $60,000. It would also be applied against the 
calculation of earned income for the purpose of determining eligibility 
for the Earned Income Credit, increasing the size of these refundable 
credits for a large number of families with incomes between $10,000 and 
$30,000. Finally, the bill would accelerate the date at which health 
insurance costs incurred by the self-employed become fully deductible. 
This is necessary to place farmers and small businessmen and women on 
the same footing as large, established companies when they purchase 
health insurance.
  Congress has wrestled with the marriage penalty problem several times 
during the past century in an attempt to reconcile two goals that 
cannot always be satisfied simultaneously in the context of a 
progressive tax system. The first is to ensure that a couple's total 
tax is the same, irrespective of the breakdown of earnings between 
spouses. The second is to ensure that couples will be taxed the same 
irrespective of whether they are married or still single.
  Before 1969, the tax code treated married couples as if they were 
composed of two single individuals. This avoided penalties on marriage, 
but it created higher rates on single taxpayers than married couples in 
cases in which one spouse earned all or most of the couple's income. 
Joint returns were computed by applying the normal rates to one-half of 
the couple's aggregate taxable income and multiplying the resulting 
amount by two. Single taxpayers' returns were computed by applying the 
normal rates to the full taxable income, causing a greater amount of 
the income to be taxed at a higher marginal rate.
  When Congress acted in 1969 to redress the perceived inequity to 
single taxpayers, it created the modern-day marriage penalty by causing 
some married couples who file a joint return to pay more tax than would 
two single persons with the same total income. Congress based its 
action on the assumption that a married couple's expenses are lower 
than those of two single persons having separate households.
  The time has come to reexamine this tradeoff, which was made nearly 
thirty years ago. Doing so, however, will require us to confront hard 
budgetary realities. Complete elimination of the marriage penalty 
without also eliminating the marriage bonus would cost an estimated $29 
billion per year, a sum that is far in excess of what can be afforded 
while maintaining our commitment to a balanced budget and the use of 
budget surpluses for Social Security reform. While the drive to pay 
down the national debt and save Social Security will make comprehensive 
reform of the marriage penalty difficult any time soon, more targeted 
efforts are not only possible, they are the right thing to do.
  We have an historic opportunity to redress the unjustified added tax 
burden we place on some married couples without undermining our 
commitment to pass an effective national tobacco policy and enact 
reforms to save Social Security. My bill would sharply reduce the 
marriage tax penalty for most couples with incomes of less than $60,000 
at a fraction of the budgetary cost of other marriage penalty tax 
proposals, such as that offered by Senator Gramm of Texas to increase 
deductions for all married couples. The reason is that these other 
proposals fail to distinguish between couples who incur a penalty and 
those who enjoy a marriage bonus. The Congressional Budget Office 
estimates that about 29 million families, those in which one spouse 
earns much more than the other, currently pay less than if they had 
filed single returns--an average of $1,300 less. Senator Gramm's 
proposal and others like it dilute the amount of tax relief they are 
able to deliver to penalized couples by providing just as much of a tax 
cut to couples who receive a bonus.
  By targeting its tax relief more directly on the couples who 
experience a marriage penalty, my bill would reduce this penalty far 
more for most families with incomes below $60,000 than competing 
approaches. For Example, in the case of a couple making $35,000, split 
$20,000 and $15,000 between the two spouses, my proposal would provide 
an additional tax deduction of $3,000 (i.e., 15% of $15,000). This is 
over twice as much marriage penalty tax relief as could be provided at 
a comparable cost by a proposal to increase the deduction for all joint 
filers. Similarly, for a couple making $50,000 divided evenly between 
the two spouses, my bill would provide a $5,000 deduction (20% of 
$25,000), representing more than three times as much tax as a proposal 
that costs the same but extends a supplemental deduction to all married 
couples.
  We simply do not have the luxury of applying tax relief 
indiscriminately if we are to make good on our other commitments, 
whether they be passage of an effective tobacco bill that reduces youth 
smoking or preservation of budget surpluses for the difficult task of 
shoring up the financing of the Social Security system. The legislation 
I introduce today is aimed at demonstrating that we can reconcile our 
competing priorities. We can do right by married couples incurring a 
tax penalty and farmers and small businesses who must purchase their 
own health insurance at the same that we do right by our children and 
our growing population of seniors.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2147

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. DEDUCTION FOR TWO-EARNER MARRIED COUPLES.

       (a) In General.--Part VII of subchapter B of chapter 1 of 
     the Internal Revenue Code of

[[Page S5791]]

     1986 (relating to additional itemized deductions for 
     individuals) is amended by redesignating section 222 as 
     section 223 and by inserting after section 221 the following 
     new section:

     ``SEC. 222. DEDUCTION FOR MARRIED COUPLES TO ELIMINATE THE 
                   MARRIAGE PENALTY.

       ``(a) In General.--In the case of a joint return under 
     section 6013 for the taxable year, there shall be allowed as 
     a deduction an amount equal to the applicable percentage of 
     the qualified earned income of the spouse with the lower 
     qualified earned income for the taxable year.
       ``(b) Applicable Percentage.--For purposes of this 
     section--
       ``(1) In general.--The term `applicable percentage' means 
     20 percent, reduced by 2 percentage points for each $1,000 
     (or fraction thereof) by which the taxpayer's modified 
     adjusted gross income for the taxable year exceeds $50,000.
       ``(2) Transition rule for 1999 and 2000.--In the case of 
     taxable years beginning in 1999 and 2000, paragraph (1) shall 
     be applied by substituting `10 percent' for `20 percent' and 
     `1 percentage point' for `2 percentage points'.
       ``(3) Modified adjusted gross income.--For purposes of this 
     subsection, the term `modified adjusted gross income' means 
     adjusted gross income determined--
       ``(A) after application of sections 86,219, and 469, and
       ``(B) without regard to sections 135, 137, and 911 or the 
     deduction allowable under this section.
       ``(4) Cost-of-living adjustment.--In the case of any 
     taxable year beginning in a calendar year after 2002, the 
     $50,000 amount under paragraph (1) shall be increased by an 
     amount equal to such dollar amount multiplied by the cost-of-
     living adjustment determined under section 1(f)(3) for the 
     calendar year in which the taxable year begins, except that 
     subparagraph (B) thereof shall be applied by substituting 
     `calendar year 2002' for `calendar year 1992'. If any amount 
     as adjusted under this paragraph is not a multiple of $2,000, 
     such amount shall be rounded to the next lowest multiple of 
     $2,000.
       ``(c) Qualified Earned Income Defined.--
       ``(1) In general.--For purposes of this section, the term 
     `qualified earned income' means an amount equal to the excess 
     of--
       ``(A) the earned income of the spouse for the taxable year, 
     over
       ``(B) an amount equal to the sum of the deductions 
     described in paragraphs (1), (2), (7), and (25) of section 62 
     to the extent such deductions are properly allocable to or 
     chargeable against earned income described in subparagraph 
     (A).

     The amount of qualified earned income shall be determined 
     without regard to any community property laws.''
       ``(2) Earned income.--For purposes of paragraph (1), the 
     term `earned income' means income which is earned income 
     within the meaning of section 911(d)(2) or 401(c)(2)(C), 
     except that--
       ``(A) such term shall not include any amount--
       ``(i) not includible in gross income,
       ``(ii) received as a pension or annuity,
       ``(iii) paid or distributed out of an individual retirement 
     plan (within the meaning of section 7701(a)(37)),
       ``(iv) received as deferred compensation, or
       ``(v) received for services performed by an individual in 
     the employ of his spouse (within the meaning of section 
     3121(b)(3)(A)), and
       ``(B) section 911(d)(2)(B) shall be applied without regard 
     to the phrase `not in excess of 30 percent of his share of 
     net profits of such trade or business'.''
       (b) Deduction To Be Above-the-Line.--Section 62(a) of the 
     Internal Revenue Code of 1986 (defining adjusted gross 
     income) is amended by adding after paragraph (17) the 
     following new paragraph:
       ``(18) Deduction for two-earner married couples.--The 
     deduction allowed by section 222.''
       (c) Earned Income Credit Phaseout To Reflect Deduction.--
     Section 32(c)(2) of the Internal Revenue Code of 1986 
     (defining earned income) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Marriage penalty reduction.--Solely for purposes of 
     applying subsection (a)(2)(B), earned income for any taxable 
     year shall be reduced by an amount equal to the amount of the 
     deduction allowed to the taxpayer for such taxable year under 
     section 222.''
       (d) Clerical Amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 of such Code is amended by 
     striking the item relating to section 222 and inserting the 
     following new items:

``Sec. 222. Deduction for married couples to eliminate the marriage 
              penalty.
``Sec. 223. Cross reference.''

       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

     SEC. 2. DEDUCTION FOR HEALTH INSURANCE COSTS FOR SELF-
                   EMPLOYED INDIVIDUALS.

       (a) In General.--Paragraph (1) of section 162(l) of the 
     Internal Revenue Code of 1986 is amended to read as follows:
       ``(1) Allowance of deduction.--In the case of an individual 
     who is an employee within the meaning of section 401(c)(1), 
     there shall be allowed as a deduction under this section an 
     amount equal to 100 percent (75 percent in the case of 
     taxable years beginning in 1999 and 2000) of the amount paid 
     during the taxable year for insurance which constitutes 
     medical care for the taxpayer, his spouse, and dependents.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.
                                 ______