[Senate Report 106-253]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 484
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-253

======================================================================



 
                    MARRIAGE TAX RELIEF ACT OF 2000

                                _______
                                

                 April 4, 2000.--Ordered to be printed

                                _______
                                

    Mr. Roth, from the Committee on Finance, submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                         [To accompany S. 2346]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Finance reported an original bill (S. 
2346) to amend the Internal Revenue Code of 1986 to provide 
marriage tax relief by providing for adjustments to the basic 
standard deduction, the 15-percent and 28-percent rate 
brackets, and the earned income credit, and for other purposes, 
having considered the same, reports favorably thereon and 
recommends that the bill do pass.

                                CONTENTS

                                                                   Page
  I. Legislative Background...........................................2
 II. Explanation of the Bill..........................................2
        A. Standard Deduction for Married Couples Set at Two 
            Times the Standard Deduction for Single Individuals 
            (sec. 2).............................................     2
        B. 15-Percent and 28-Percent Rate Tax Brackets for 
            Married Couples Set at Two Times the Corresponding 
            Tax Brackets for Single Individuals (sec. 3).........     4
        C. Increase the Beginning Point and Ending Point of the 
            Earned Income Credit Phaseout for Married Couples 
            (sec. 4).............................................     5
        D. Preserve Family Tax Credits from the Alternative 
            Minimum Tax (sec. 5).................................     7
III. Budget Effects of the Bill.......................................8
        A. Committee Estimates...................................     8
        B. Budget Authority and Tax Expenditures.................    10
        C. Consultation with the Congressional Budget Office.....    10
 IV. Votes of the Committee..........................................13
  V. Regulatory Impact and Other Matters.............................14
        A. Regulatory Impact.....................................    14
        B. Unfunded Mandates Statement...........................    14
        C. Tax Complexity Analysis...............................    14
 VI. Minority Views..................................................19
VII. Changes to Existing Law Made by the Bill as Reported............21

                       I. LEGISLATIVE BACKGROUND


Committee markup

    The Senate Committee on Finance marked up an original bill 
(the ``Marriage Tax Relief Act of 2000'') on March 30, 2000, 
and approved the provisions on March 30, 2000 by a roll call 
vote of 11 yeas and 8 nays, with a quorum present.

                      II. EXPLANATION OF THE BILL


A. Standard Deduction for Married Couples Set at Two Times the Standard 
                    Deduction for Single Individuals


              (sec. 2 of the bill and sec. 63 of the Code)


                              Present Law

Marriage penalty and marriage bonus in general

    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 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.
    While the size of any marriage penalty or bonus under 
present law depends upon the individuals' incomes, number of 
dependents, and itemized deductions, as a general rule married 
couples whose incomes are split more evenly than 70-30 suffer a 
marriage penalty. Married couples whose incomes are largely 
attributable to one spouse generally receive a marriage bonus.
    Under present law, the size of the standard deduction and 
the tax bracket breakpoints follow certain customary ratios 
across filing statuses. The standard deduction and tax bracket 
breakpoints for single filers are roughly 60 percent of those 
for joint filers.\1\ Thus, two single individuals have standard 
deductions whose sum exceeds the standard deduction for a 
married couple filing a joint return.
---------------------------------------------------------------------------
    \1\ This is not true for the 39.6-percent rate. The beginning point 
of this rate bracket is the same for all taxpayers regardless of filing 
status.
---------------------------------------------------------------------------

Basic standard deduction \2\

    Taxpayers who do not itemize deductions may choose the 
basic standard deduction (and additional standard deductions, 
if applicable), 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 2000, the size of the basic standard 
deduction for each filing status is shown in the following 
table:
---------------------------------------------------------------------------
    \2\ Additional standard deductions are allowed with respect to any 
individual who is elderly (age 65 or over) or blind.
---------------------------------------------------------------------------

Table 1.--Basic standard deduction amounts

                                                          Basic standard
        Filing status                                          deduction
Single return.................................................    $4,400
Head of household return......................................     6,450
Married, joint return.........................................     7,350
Married, separate return......................................     3,675

    For 2000, the basic standard deduction for joint returns is 
1.67 times the basic standard deduction for single returns.

                           Reasons for Change

    The Committee is concerned that the present-law income tax 
code treats married couples unfairly. This inequitable 
treatment, commonly referred to as the marriage tax penalty, 
may undermine respect for the family and discourage formation 
of families. In attempting to alleviate the marriage tax 
penalty, the Committee is forced to balance several competing 
principles, such as equal tax treatment of married couples with 
the same overall income levels as well as the relative tax 
burdens of single individuals and married couples with the same 
income.
    The Committee 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 first step towards alleviating the marriage tax 
penalty and providing marriage tax relief. When fully 
effective, this provision provides tax relief to approximately 
25 million couples filing joint returns, including more than 
six million returns filed by senior citizens.\3\
---------------------------------------------------------------------------
    \3\ Source: Joint Committee on Taxation staff projections of the 
number of tax returns affected.
---------------------------------------------------------------------------
    This provision also has the added benefit of simplifying 
the tax code. Approximately three million couples who currently 
itemize their deductions will realize the simplification 
benefits of using the increased basic standard deduction under 
the bill.\4\
---------------------------------------------------------------------------
    \4\ Source: Joint Committee on Taxation staff projections of the 
number of tax returns affected.
---------------------------------------------------------------------------

                        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 a single individual beginning in 2001. 
The basic standard deduction for a married taxpayer filing 
separately will continue to equal one-half of the basic 
standard deduction for a married couple filing jointly.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2000.

B. 15-Percent and 28-Percent Rate Tax Brackets for Married Couples Set 
   at Two Times the Corresponding Tax Brackets for Single Individuals


              (sec. 3 of the bill and sec. 1 of the Code)


                              Present Law

    To determine regular income tax liability, a taxpayer 
generally must apply the tax rate schedules (or the tax tables) 
to his or her taxable income. The rate schedules are broken 
into several ranges of income, known as income brackets, and 
the marginal tax rate increases as a taxpayer's income 
increases. The income bracket amounts are indexed for 
inflation. Separate rate schedules apply based on an 
individual's filing status. In order to limit multiple uses of 
a graduated rate schedule within a family, the net unearned 
income of a child under age 14 may be taxed as if it were the 
parent's income. For 2000, the individual regular income tax 
rate schedules are shown below. These rates apply to ordinary 
income; separate rates apply to capital gains.

         TABLE 2.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2000
------------------------------------------------------------------------
          If taxable income is                Then income tax equals
------------------------------------------------------------------------
                           Single individuals

$0-26,250..............................  15 percent of taxable income.
$26,250-$63,550........................  $3,937.50, plus 28% of the
                                          amount over $26,250.
$63,550-$132,600.......................  $14,381.50 plus 31% of the
                                          amount over $63,550.
$132,600-$288,350......................  $35,787 plus 36% of the amount
                                          over $132,600.
Over $288,350..........................  $91,857 plus 39.6% of the
                                          amount over $288,350.

                           Heads of households

$0-$35,150.............................  15 percent of taxable income.
$35,150-$90,800........................  $5,272.50 plus 28% of the
                                          amount over $35,150.
$90,800-$147,050.......................  $20,854.50 plus 31% of the
                                          amount over $90,800.
$147,050-$288,350......................  $38,292 plus 36% of the amount
                                          over $147,050.
Over $288,350..........................  $89,160 plus 39.6% of the
                                          amount over $288,350.

              Married individuals filing joint returns \5\

$0-$43,850.............................  15 percent of taxable income.
$43,850-$105,950.......................  $6,577.50 plus 28% of the
                                          amount over $43,850.
$105,950-$161,450......................  $23,965.50 plus 31% of the
                                          amount over $105,950.
$161,450-$288,350......................  $41,170.50 plus 36% of the
                                          amount over $161,450.
Over $288,350..........................  $86,854.50 plus 39.6% of the
                                          amount over $288,350.
------------------------------------------------------------------------
\5\ Married individuals filing separately must apply a separate rate
  structure with tax rate brackets one-half the width of those for
  married individuals filing joint returns.

                           Reasons for Change

    The rate structure in the Code is responsible for causing 
the greatest dollar amount of marriage tax penalty. After 
weighing the principles of equal treatment of married couples 
with the same overall income and the relative tax burdens of 
singles and couples with the same income, the Committee 
believes that the rate structure for married couples filing a 
joint return should be modified. The expansion of the 15-
percent and 28-percent rate brackets, in conjunction with the 
other provisions of the bill, will greatly alleviate the 
effects of the marriage tax penalty and provide marriage tax 
relief.
    When fully effective, this provision will provide tax 
relief to 21 million couples filing joint returns including 3 
million returns filed by senior citizens.\6\
---------------------------------------------------------------------------
    \6\ Source: Joint Committee on Taxation staff projections on the 
number of tax returns affected.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision increases the size of the 15-percent and 28-
percent regular income tax rate brackets for a married couple 
filing a joint return to twice the size of the corresponding 
rate brackets for a single individual. This increase is phased 
in over six years as shown in the following table. Therefore, 
this provision is fully effective (i.e., the size of the 15-
percent and 28-percent regular income tax rate brackets for a 
married couple filing a joint return is twice the size of the 
corresponding regular income tax rate brackets for a single 
individual) for taxable years beginning after December 31, 
2006.

    [Joint return rate bracket as a percentage of single return rate 
                                bracket]

Taxable year:
    2002.......................................................... 170.3
    2003.......................................................... 173.8
    2004.......................................................... 180.0
    2005.......................................................... 183.2
    2006.......................................................... 185.0
    2007 and thereafter...........................................   200

                             Effective Date

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

 C. Increase the Beginning Point and Ending Point of the Earned Income 
                  Credit Phaseout for Married Couples


              (sec. 4 of the bill and sec. 32 of the Code)


                              Present Law

    Certain eligible low-income workers are entitled to claim a 
refundable earned income credit (``EIC'') on their income tax 
return. A refundable credit is a credit that not only reduces 
an individual's income tax liability but allows refunds to the 
individual of amounts in excess of income tax liability. The 
amount of the credit an eligible individual may claim depends 
upon whether the individual has one, more than one, or no 
qualifying children, and is determined by multiplying the 
credit rate by the individual's earned income up to an earned 
income amount. The maximum amount of the credit is the product 
of the credit rate and the earned income amount. The credit is 
phased out above certain income levels. For individuals with 
earned income (or modified AGI, if greater) in excess of the 
beginning of the phaseout, the maximum credit amount is reduced 
by the phase-out rate multiplied by the earned income (or 
modified AGI, if greater) in excess of the beginning of the 
phaseout. For individuals with earned income (or modified AGI, 
if greater) in excess of the end of the phaseout, no credit is 
allowed. In the case of a married individual who files a joint 
return, the income for purposes of these tests is the combined 
income of the couple.
    The parameters of the credit for 2000 are provided in the 
following table.

                                TABLE 3.--EARNED INCOME CREDIT PARAMETERS (2000)
----------------------------------------------------------------------------------------------------------------
                                                                    Two or more
                                                                    qualifying    One qualifying   No qualifying
                                                                     children          child         children
----------------------------------------------------------------------------------------------------------------
Credit rate (percent)...........................................           40.00           34.00            7.65
Earned income amount............................................          $9,720          $6,920          $4,610
Maximum credit..................................................          $3,888          $2,353            $353
Phase-out begins................................................         $12,690         $12,690          $5,770
Phase-out rate (percent)........................................           21.06           15.98            7.65
Phase-out ends..................................................         $31,152         $27,413         $10,380
----------------------------------------------------------------------------------------------------------------

                           Reasons for Change

    The Committee believes that the present-law EIC phaseout 
unfairly penalizes some individuals because they receive a 
smaller EIC when they marry than if they had not married. The 
Committee believes that this provision will help alleviate the 
marriage tax penalty and provide marriage tax relief to many 
families receiving the EIC. Reducing this inequity will also 
extend theEIC to almost one million married couples who do not 
currently qualify for the credit.\7\
---------------------------------------------------------------------------
    \7\ Source: Joint Committee on Taxation staff projections of the 
number of tax returns affected.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision increases the beginning and ending income 
levels of the phase-out of the EIC for married couples filing a 
joint return by $2,500. The beginning and ending income levels 
of the phase-out of the EIC (including the $2,500 increase for 
joint returns) will continue to be indexed for inflation, as 
under present law. The effect of the provision is to increase 
the EIC for taxpayers in the income phase-out by an amount up 
to $2,500 times the phase-out rate. For example, for couples 
with two or more qualifying children, the maximum increase in 
the EIC as a result of the proposal is $2,500 times 21.06 
percent, or $526.50. The provision also expands the number of 
married couples eligible for the EIC. Specifically, the $2,500 
increase makes married couples with earnings up to $2,500 
beyond the present-law phase-out eligible for the EIC.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2000.

    D. Preserve Family Tax Credits From the Alternative Minimum Tax


     (sec. 5 of the bill and secs. 24, 26, 32, and 904 of the Code)


                              Present Law

In general

    Present law provides for certain nonrefundable personal tax 
credits (i.e., the dependent care credit, the credit for the 
elderly and disabled, the adoption credit, the child credit, 
the credit for interest on certain home mortgages, the HOPE 
Scholarship and Lifetime Learning credits, and the D.C. 
homebuyer's credit). Except for taxable years beginning during 
1998-2001, these credits are allowed only to the extent that 
the individual's regular income tax liability exceeds the 
individual's tentative minimum tax, determined without regard 
to the minimum tax foreign tax credit. For taxable years 
beginning during 1998 and 1999, these credits are allowed to 
the extent of the full amount of the individual's regular tax 
(without regard to the tentative minimum tax). For taxable 
years beginning during 2000 and 2001, the nonrefundable 
personal credits may offset both the regular tax and the 
minimum tax.\8\
---------------------------------------------------------------------------
    \8\ The foreign tax credit is allowed before the personal credits 
in computing the regular tax for these years.
---------------------------------------------------------------------------
    An individual's tentative minimum tax is an amount equal to 
(1) 26 percent of the first $175,000 ($87,500 in the case of a 
married individual filing a separate return) of alternative 
minimum taxable income (``AMTI'') in excess of a phased-out 
exemption amount plus (2) 28 percent of the remaining AMTI, if 
any. The maximum tax rates on net capital gain used in 
computing the tentative minimum tax are the same as under the 
regular tax. AMTI is the individual's taxable income adjusted 
to take account of specified preferences and adjustments. The 
exemption amounts are: (1) $45,000 in the case of married 
individuals filing a joint return and surviving spouses; (2) 
$33,750 in the case of other unmarried individuals; and (3) 
$22,500 in the case of married individuals filing a separate 
return, estates and trusts. The exemption amounts are phased 
out by an amount equal to 25 percent of the amount by which the 
individual's AMTI exceeds (1) $150,000 in the case of married 
individuals filing a joint return and surviving spouses, (2) 
$112,500 in the case of other unmarried individuals, and (3) 
$75,000 in the case of married individuals filing separate 
returns or an estate or a trust. These amounts are not indexed 
for inflation.

Reduction of refundable credits by alternative minimum tax

    Refundable credits may offset tax liability determined 
under present-law tax rates and allow refunds to an individual 
in excess of income tax liability. However, the refundable 
child credit (beginning in taxable years beginning after 
December 31, 2001) and the earned income credit are reduced by 
the amount of the individual's alternative minimum tax.

                           Reasons for Change

    The Committee is concerned that many family tax credits are 
being cut back or eliminated because of the alternative minimum 
tax. The Committee believes that these nonrefundable personal 
credits (e.g., the child credit or the HOPE and Lifetime 
Learning credits) should be preserved from the effects of the 
minimum tax. Families also should be able to use the refundable 
credits without limitation by reason of the minimum tax.
    This provision will also have the added benefit of 
simplifying the Tax Code. Millions of taxpayers will no longer 
face the burden of calculating the alternative minimum tax.

                        Explanation of Provision

    The provision permanently extends the present-law temporary 
provision that allows the nonrefundable personal credits to 
offset both the regular tax and the minimum tax.\9\
---------------------------------------------------------------------------
    \9\ The foreign tax credit will continue to be allowed before the 
personal credits in computing the regular tax.
---------------------------------------------------------------------------
    Also, the provision permanently repeals the reduction of 
the refundable credits by the amount of an individual's 
alternative minimum tax.

                             Effective Date

    The provisions are effective for taxable years beginning 
after December 31, 2001.

                    III. BUDGET EFFECTS OF THE BILL


                         A. Committee Estimates

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, the following statement is made 
concerning the estimated budget effects of the provisions of 
the bill as reported.
    The bill, as reported, is estimated to have the following 
budget effects for fiscal years 2001-2010.

                          ESTIMATED REVENUE EFFECTS OF THE ``MARRIAGE TAX RELIEF ACT OF 2000,'' AS ORDERED TO BE REPORTED BY THE COMMITTEE ON FINANCE ON MARCH 30, 2000
                                                                        [Fiscal years 2001-2010, in millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
              Provison                     Effective           2001       2002       2003       2004       2005       2006       2007       2008       2009       2010      2001-05     2001-10
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1. $2,500 increase to the beginning  tyba 12/31/00........         -8     -1,570     -1,541     -1,558     -1,588     -1,605     -1,649     -1,645     -1,630     -1,616      -6,265     -14,410
 and ending income levels for the
 EIC phaseout for married filing
 jointly \1\.
2. Standard deduction set at 2       tyba 12/31/00........     -4,105     -6,003     -6,383     -6,523     -6,793     -6,992     -7,116     -7,264     -7,462     -7,593     -29,807     -66,234
 times single for married filing
 jointly.
3. 15% and 28% rate bracket set at   tyba 12/31/01........  .........     -1,717     -4,370     -8,464    -11,381    -12,863    -19,502    -21,974    -21,577    -20,742     -25,932    -122,590
 2 times single for married filing
 jointly, phased in over 6 years.
4. Permanent extension of AMT        tyba 12/31/01........  .........       -305     -1,638     -2,312     -3,491     -4,682     -5,788     -7,534     -8,812    -10,035      -7,746     -44,597
 treatment of refundable and
 nonrefundable personal credits.
                                    ------------------------------------------------------------------------------------------------------------------------------------------------------------
      Net Total....................  .....................     -4,113     -9,595    -13,932    -18,857    -23,253    -26,142    -34,055    -38,417    -39,481    -39,986     -69,750    -247,831
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimate includes the following effects on fiscal year outlays: 2001--7; 2002--1,345; 2003--1,311; 2004--1,321; 2005--1,343; 2006--1,354; 2007--1,382; 2008--1,375; 2009--1,361; 2010--
  1,349; 2001-05--5,327; 2001-10--12,148.

Legend for ``Effective'' column: tyba = taxable years beginning after.

Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

                B. Budget Authority and Tax Expenditures


Budget authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that the provisions of the bill as reported 
involve no new or increased budget authority.

Tax expenditures

    In compliance with section 308(a)(2) of the Budget Act, the 
Committee states that the revenue-reducing income tax 
provisions involve increased tax expenditures (See revenue 
table in Part III.A., above.)

          C. Consultation With the Congressional Budget Office

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget office has 
submitted a statement on this bill.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, April 3, 2000.
Hon. William V. Roth, Jr.,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the Marriage Tax Relief 
Act of 2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Hester 
Grippando.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

Marriage Tax Relief Act of 2000--

    Summary: The Marriage Tax Relief Act would increase the 
basic standard deduction for a married couple filing a joint 
return to twice that of a taxpayer filing a single return. The 
bill would also expand, over a six-year phase-in period, the 
15-percent and 28-percent regular income tax rate brackets for 
a married couple filing a joint return to twice the size of the 
corresponding brackets for an individual filing a single 
return. In addition, the bill would permanently extend the 
current Alternative Minimum Tax (AMT) treatment of refundable 
and non-refundable personal credits. Finally, the bill would 
increase by $2,500 the beginning and ending income levels for 
phasing out the Earned Income Credit (EIC) for married couples 
filing jointly.
    The Joint Committee on Taxation (JCT) estimates that the 
bill would decrease revenues by about $4 billion 2001, by about 
$64 billion over the 2001-2005 period, and by about $236 
billion over the 2001-2010 period. In addition, JCT estimates 
that the bill would increase direct spending--the outlay effect 
of the EIC changes--by about $7 million in 2001, by $5 billion 
over the 2001-2005 period, and by about $12 billion over the 
2001-2010 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 the bill is shown in the following table. 
JCT provided all revenue and outlay estimates of provisions for 
the bill.

----------------------------------------------------------------------------------------------------------------
                                                            By fiscal year, in millions of dollars--
                                               -----------------------------------------------------------------
                                                   2000       2001       2002       2003       2004       2005
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Estimated Revenues............................          0     -4,106     -8,250    -12,621    -17,536    -21,910

                                           CHANGES IN DIRECT SPENDING

Estimated Budget Authority....................          0          7      1,345      1,311      1,321      1,343
Estimated Outlays.............................          0          7      1,345      1,311      1,321      1,343
----------------------------------------------------------------------------------------------------------------
Source: Joint Committee on Taxation.

    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--
                                      ------------------------------------------------------------------------------------------------------------------
                                        2000    2001      2002       2003       2004       2005       2006       2007       2008       2009       2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts..................      0    -4,106    -8,250    -12,621    -17,536    -21,910    -24,788    -32,673    -37,042    -38,120    -38,637
Changes in outlays...................      0         7     1,345      1,311      1,321      1,343      1,354      1,382      1,375      1,361      1,349
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: As estimated 
by JCT, the bill contains no intergovernmental or private-
sector mandates as defined in UMRA.
    Previous CBO estimate: On February 7, 2000, CBO prepared a 
cost estimate for H.R. 6, a similar bill ordered reported by 
the House Committee on Ways and Means. The version ordered 
reported by the Finance Committee would result in a greater 
reduction in revenues than H.R. 6 largely because it would 
expand the 28 percent regular income tax bracket as well as the 
15 percent regular income tax bracket included in the House 
bill. The outlay increase from the Senate bill would be greater 
than from H.R. 6 because the Senate bill would change the 
income limits for the EIC by a larger amount.
    Estimate prepared by: Hester Grippando.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis. G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the following statements are made 
concerning the roll call votes in the Committee's consideration 
of the bill.

Motion to report the bill

    The bill was ordered favorably reported by a rollcall vote 
of 11 yeas and 8 nays on March 30, 2000. If proxies were 
allowed in reporting a measure, the vote would have been 11 
yeas and 9 nays. A quorum was present. The vote was as follows:
    Yeas--Senators Roth, Grassley, Hatch, Murkowski, Nickles, 
Gramm, Lott, Jeffords, Mack, Thompson, Coverdell.
    Nays--Senators Moynihan, Baucus, Rockefeller, Breaux, 
Conrad, Graham, Bryan, Kerrey (proxy), Robb.

Votes on other amendments

    An amendment in the nature of a substitute by Senator 
Moynihan to allow married couples to file as two single filers 
on the same return was defeated by a rollcall vote of 9 yeas 
and 11 nays. The vote was as follows:
    Yeas--Senators Moynihan, Baucus, Rockefeller, Breaux, 
Conrad (proxy), Graham, Bryan, Kerrey (proxy), Robb.
    Nays--Senators Roth, Grassley (proxy), Hatch, Murkowski 
(proxy), Nickles, Gramm (proxy), Lott, Jeffords, Mack, 
Thompson, Coverdell.
    An amendment by Senators Graham and Robb to delay the 
effective date of the tax relief until after the enactment of 
legislation that extends the solvency of the Social Security 
trust fund until 2075 and the Medicare Part A program through 
2025 was defeated by a rollcall vote of 9 yeas and 11 nays. The 
vote was as follows:
    Yeas--Senators Moynihan, Baucus, Rockefeller, Breaux, 
Conrad, Graham, Bryan, Kerrey (proxy), Robb.
    Nays--Senators Roth, Grassley, Hatch, Murkowski (proxy), 
Nickles, Gramm, Lott, Jeffords, Mack, Thompson, Coverdell.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill as 
reported.

Impact on individuals and businesses

    The bill: (1) increases the basic standard deduction for 
married couples filing a joint return; (2) increases the width 
of the 15-percent and 28-percent rate brackets for married 
couples filing a joint return; (3) increases the beginning and 
ending points of the phaseout of the earned income credit for 
married couples filing a joint return; and (4) permanently 
extends the provision that allows the nonrefundable personal 
credits to offset both the regular tax and the minimum tax and 
permanently repeals the reduction of the refundable credits by 
the amount of an individual's alternative minimum tax. These 
provisions will reduce the tax burden on affected individual 
taxpayers. The bill will have no impact on businesses.

Impact on personal privacy and paperwork

    The bill should not have any adverse impact on personal 
privacy. No additional paperwork will be required by the 
provisions of the bill.

                     B. Unfunded Mandates Statement

    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, and tribal 
governments.

                         C. 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 suchprovision 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 the 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 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 a 
married couple filing a joint return to twice the basic 
standard deduction for an unmarried individual for taxable 
years beginning after December 31, 2000.
            Number of affected taxpayers
    It is estimated that the provision will affect 
approximately twenty five million individual tax returns.

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 a particular 
taxpayer.
    This reduction in complexity and record keeping may also 
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 and 28-percent rate bracket for married 
        couples filing a joint return (sec. 3 of the bill)

            Summary description of provision
    The provision increases the size of the 15-percent and 28-
percent regular income tax rate brackets for married couple 
filing a joint return to twice the size of the corresponding 
rate brackets for an unmarried individual. This increase is 
phased in over six years beginning for taxable years beginning 
after December 31, 2001. It is fully effective for taxable 
years beginning after December 31, 2006.
            Number of affected taxpayers
    It is estimated that the provision will affect 
approximately twenty-one 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 and 28-percent regular income tax rate brackets 
for married couples filing joint returns should not result in 
an increase in disputes with the IRS, nor will regulatory 
guidance be necessary to implement this provision.

3. Interactive effect of the alternative minimum tax rules

    Both provisions (i.e., the standard deduction tax relief 
and the expanded 15-percent and 28-percent rate brackets) are 
affected by the alternative minimum tax (``AMT'') rules. 
Specifically, because neither provision makes corresponding 
changes to the alternative minimum tax regime other than the 
allowance of the nonrefundable personal credits against the 
AMT, additional individual taxpayers will need to make the 
necessary calculations to determine the applicability of the 
alternative minimum tax rules. It is estimated that for the 
year 2005, less than two million additional individual income 
tax returns who benefit from the provisions will be required to 
include a calculation of the tentative minimum tax and file the 
appropriate alternative minimum tax forms. By the year 2009, 
this number is expected to rise to over seven million 
additional individual income tax returns. At the same time, 
however, by 2009, there will be approximately two million 
individual income tax returns who will be alleviated the burden 
of the AMT calculations by virtue of the extension of the 
nonrefundable personal credits against the AMT.
    For taxpayers who have to calculate the tentative minimum 
tax and file the appropriate alternative minimum tax forms, 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.

                        Department of the Treasury,
                                  Internal Revenue Service,
                                    Washington, DC, March 31, 2000.
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 two 
provisions from the Senate Committee on Finance markup of ``The 
Marriage Tax Relief Act of 2000'' that you identified for 
complexity analysis in your letter of March 28, 2000. Our 
comments are based on the description of those provisions in 
JCX-34-00, Joint Committee on Taxation, Description of a 
Chairman's Mark of The Marriage Tax Relief Act of 2000, March 
28, 2000, as modified by JCX-39-00, March 30, 2000.
    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 Provisions From the Marriage Tax Relief Act of 
                                  2000


                           Standard Deduction

    Provision: Increase the basic standard deduction for a 
married couple filing a joint return to twice the basic 
standard deduction for an unmarried individual (effective for 
taxable years beginning after December 31, 2000).

IRS and Treasury comments

     The increase in the basic standard deduction for 
married taxpayers would be incorporated in the 2001 
instructions for Forms 1040, 1040A, and 1040EZ, and on the 2001 
Forms 1040, 1040A, 1040EZ, and 1040-ES. 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.
     The provision would increase the number of 
alternative minimum tax (AMT) filers, and would also cause 
additional taxpayers to perform AMT calculations only to 
determine that they do not have any AMT liability. Treasury 
estimates that for tax year 2010, the separate provision to 
make permanent the temporary provision to eliminate 
restrictions on the use of nonrefundable personal tax credits 
would decrease the number of taxpayers incurring liability due 
to the AMT by 3.7 million. With the AMT provision in place, the 
increase in the standard deduction together with the provision 
to increase the width of the 15-percent and 28-percent income 
tax rate brackets for married persons would increase the number 
of taxpayers with liability due to the AMT by 9.3 million. 
Thus, the net effect of the proposal is to increase the number 
of taxpayers with liability due to the AMT by 5.6 million.

                15-percent and 28-percent rate brackets

    Provision: Increase the maximum taxable income in the 15-
percent and 28-percent regular income tax rate brackets for a 
married couple filing a joint return to twice the maximum 
taxable income in those rate brackets for an unmarried 
individual (phased in over 6 years beginning in 2002).

IRS and Treasury comments

     The increase in the width of the 15-percent and 
28-percent rate brackets for married taxpayers would be 
incorporated into the tax tables and the tax rate schedules 
shown in the instructions for Form 1040, 1040A, 1040EZ, and 
1040NR, and on Form 1040-ES, for each year during the phase-in 
period (2002-2007). No new forms would be required.
     Programming changes would be required to reflect 
the wider 15-percent and 28-percent rate brackets for married 
taxpayers for each of the 6 tax years in the phase-in period. 
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.
     The provision would increase the number of AMT 
filers, and would also cause additional taxpayers to perform 
AMT calculations only to determine that they do not have any 
AMT liability. See comments on standard deduction for 
Treasury's estimate of the combined impact of this provision 
and the increase in the standard deduction on AMT filing for 
tax year 2010.

                           VI. MINORITY VIEWS

    Democratic Members of the Committee strongly support 
marriage penalty relief. However, the bill presented to the 
Committee is costly, inefficient, and fails to eliminate the 
marriage penalty. We, therefore, cannot support its enactment. 
Specifically, Democratic members of the Committee have the 
following objections to the bill.
    First, many Democratic members believe the best thing we 
can do with on-budget surpluses is to pay down the federal 
debt. All Democratic members agree that if we are going to have 
tax cuts, we should consider them in a comprehensive fashion 
that allows us to weigh priorities. Although the expected 10-
year budget surplus is only $893 billion, $395 billion in tax 
cuts have already passed one chamber or the other, including 
the House marriage penalty proposal. Assuming the Senate passes 
the marriage penalty bill as reported out of the Finance 
Committee, the total amount of tax cuts under consideration 
will rise to $461 billion. If all of those tax cuts were signed 
into law, the debt service costs associated with these bills 
would total approximately $105 billion, leaving a remaining on-
budget surplus of $327 billion. Before we decide to spend over 
half of the projected non-Social Security surplus on these tax 
cuts, we should develop a budget framework that would allocate 
sufficient funds for reducing the debt held by the public, 
bolstering Medicare and Social Security, and investing in other 
priority programs.
    Second, while several of the bill's provisions have merit 
as a tax policy matter, the bill is not targeted at eliminating 
the marriage penalty. Instead, the standard deduction and 
bracket expansion proposals would increase the marriage bonus 
for millions of couples. The Department of Treasury's analysis 
of the bill indicates that over half of the benefits of the 
bill would go to taxpayers already receiving a marriage bonus.
    Third, the bill does not comprehensively address the 
marriage penalty. Of the 65 known provisions in the tax code 
which have a marriage penalty effect, the Committee-passed bill 
eliminates only one and partially addresses two more. If the 
committee bill were enacted, we would still have made little 
progress in eliminating discrimination in the tax code based on 
marital status.
    Finally, because the bill does not completely extend its 
marriage penalty relief to the alternative minimum tax (the 
``AMT''), some 5 million additional taxpayers would become 
subject to the AMT as a result of the legislation.
    By contrast, the marriage penalty relief proposal offered 
by Democratic Finance Committee members addresses the problem 
of the marriage penalty in a targeted, fiscally responsible 
fashion. Democrats believe, first of all, that if we say we are 
going to address the marriage penalty, we must do it 
comprehensively. The Democratic alternative, which failed on a 
party line vote of 9-11, would give married couples the option 
of calculating their tax liability as single individuals or as 
a couple. When fully phased in (in 2010), this approach would 
eliminate the marriage penalty by allowing couples to choose to 
file as two single taxpayers if that status benefits them. 
Optional separate tax liability calculations would address all 
aspects of the marriage penalty, including penalties associated 
with such divergent matters as the taxation of Social Security 
benefits, education tax incentives, and retirement savings. 
Moreover, this proposal eliminates the penalty inherent in the 
Earned Income Tax Credit (the ``EITC'')--the most severe 
marriage penalty in the tax code--which creates a substantial 
disincentive to marry among EITC beneficiaries. Finally, the 
benefits of this approach would also extend to the AMT and 
would not expand marriage bonuses.
    The option to calculate tax liability as single individuals 
is not a new concept. Nine states and the District of Columbia 
allow married couples to pay taxes on their separate incomes as 
if they were single. And in 1994, 19 of the 27 OECD countries 
provided one rate schedule whether taxpayers were married or 
single. Countries such as Canada, Australia and the United 
Kingdom treat each individual as a taxpaying unit. Thus, in 
those countries marriage has little effect on the couple's tax 
liability.
    The Democratic marriage penalty proposal eliminates the 
marriage penalty in a fiscally responsible manner that allows 
room for other priorities--tax and non-tax--later in the year. 
The total cost of the Democratic marriage penalty proposal is 
approximately $150 billion over 10 years, compared to the 
Senate GOP proposal, which costs $248 billion over 10 years. If 
we are to address the issue, we should do so comprehensively 
and responsibly. We urge the Senate to consider the alternative 
proposed by Finance Committee Democrats.

                                   Chuck Robb.
                                   Richard H. Bryan.
                                   Bob Kerrey.
                                   Daniel P. Moynihan.
                                   Max Baucus.
                                   Kent Conrad.
                                   Bob Graham.
                                   Jay Rockefeller.
                                   John Breaux.

       VII. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of Rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                  
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