House Report 107-29 - MARRIAGE PENALTY AND FAMILY TAX RELIEF ACT OF 2001

[House Report 107-29]
[From the U.S. Government Publishing Office]

107th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 107-29

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

MARRIAGE PENALTY AND FAMILY TAX RELIEF ACT OF 2001

_______

March 27, 2001.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Thomas, from the Committee on Ways and Means, submitted the
following

R E P O R T

together with

DISSENTING VIEWS

[To accompany H.R. 6]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the
bill (H.R. 6) to amend the Internal Revenue Code of 1986 to
reduce the marriage penalty by providing for adjustments to the
standard deduction, 15-percent rate bracket, and earned income
credit and to allow the nonrefundable personal credits against
regular and minimum tax liability, having considered the same,
report favorably thereon with amendments and recommend that the
bill as amended do pass.

CONTENTS

Page
I. Summary and Background...........................................5
A. Purpose and Summary................................. 5
B. Background and Need for Legislation................. 5
C. Legislative History................................. 5
II. Explanation of the Bill..........................................6
A. Standard Deduction Marriage Tax Penalty Relief...... 6
B. Expansion of the 15-Percent Rate Bracket for Married
Couples Filing Joint Returns....................... 7
C. Marriage Penalty Relief and Simplification Relating
to the Earned Income Credit........................ 10
D. Increase and Expansion of the Child Tax Credit...... 12
E. Transfer to Social Security and Medicare Trust Funds 14
III. Votes of the Committee..........................................14
IV. Budget Effects of the Bill......................................15
A. Committee Estimates of Budgetary Effects............ 15
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 16
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 16
V. Other Matters To Be Discussed Under the Rules of the House......18
A. Committee Oversight Findings and Recommendations.... 18
B. Statement of General Performance Goals and
Objectives......................................... 18
C. Constitutional Authority Statement.................. 18
D. Information Relating to Unfunded Mandates........... 19
E. Applicability of House Rule XXI 5(b)................ 19
F. Tax Complexity Analysis............................. 19
VI. Changes in Existing Law Made by the Bill as Reported............25
VII. Dissenting Views................................................33
The amendments are as follows:
Strike all after the enacting clause and insert the
following:

SECTION 1. SHORT TITLE, ETC.

(a) Short Title.--This Act may be cited as the ``Marriage Penalty and
Family Tax Relief Act of 2001''.
(b) Section 15 Not To Apply.--No amendment made by this Act shall be
treated as a change in a rate of tax for purposes of section 15 of the
Internal Revenue Code of 1986.

SEC. 2. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

(a) In General.--Paragraph (2) of section 63(c) of the Internal
Revenue Code of 1986 (relating to standard deduction) is amended--
(1) by striking ``$5,000'' in subparagraph (A) and inserting
``200 percent of the dollar amount in effect under subparagraph
(C) for the taxable year'';
(2) by adding ``or'' at the end of subparagraph (B);
(3) by striking ``in the case of'' and all that follows in
subparagraph (C) and inserting ``in any other case.''; and
(4) by striking subparagraph (D).
(b) Technical Amendments.--
(1) Subparagraph (B) of section 1(f )(6) of such Code is
amended by striking ``(other than with'' and all that follows
through ``shall be applied'' and inserting ``(other than with
respect to sections 63(c)(4) and 151(d)(4)(A)) shall be
applied''.
(2) Paragraph (4) of section 63(c) of such Code is amended by
adding at the end the following flush sentence:
``The preceding sentence shall not apply to the amount referred
to in paragraph (2)(A).''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2001.

SEC. 3. PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.

(a) In General.--Subsection (f ) of section 1 of the Internal Revenue
Code of 1986 (relating to adjustments in tax tables so that inflation
will not result in tax increases) is amended by adding at the end the
following new paragraph:
``(8) Phaseout of marriage penalty in 15-percent bracket.--
``(A) In general.--With respect to taxable years
beginning after December 31, 2003, in prescribing the
tables under paragraph (1)--
``(i) the maximum taxable income in the
lowest rate bracket in the table contained in
subsection (a) (and the minimum taxable income
in the next higher taxable income bracket in
such table) shall be the applicable percentage
of the maximum taxable income in the lowest
rate bracket in the table contained in
subsection (c) (after any other adjustment
under this subsection), and
``(ii) the comparable taxable income amounts
in the table contained in subsection (d) shall
be \1/2\ of the amounts determined under clause
(i).
``(B) Applicable percentage.--For purposes of
subparagraph (A), the applicable percentage shall be
determined in accordance with the following table:

``For taxable years beginning
The applicable
in calendar year--
percentage is--
2004..................................... 172
2005..................................... 178
2006..................................... 183
2007..................................... 189
2008..................................... 195
2009 and thereafter...................... 200.

``(C) Rounding.--If any amount determined under
subparagraph (A)(i) is not a multiple of $50, such
amount shall be rounded to the next lowest multiple of
$50.''.
(b) Repeal of Reduction of Refundable Tax Credits.--
(1) Subsection (d) of section 24 of such Code is amended by
striking paragraph (2) and redesignating paragraph (3) as
paragraph (2).
(2) Section 32 of such Code is amended by striking subsection
(h).
(c) Increase in Alternative Minimum Tax Exemption Amount for Joint
Returns.--
(1) In general.--Subsection (d) of section 55 of such Code is
amended by adding at the end the following new paragraph:
``(4) Adjustment of exemption amount for joint returns.--
``(A) In general.--The dollar amount applicable under
paragraph (1)(A) for 2008 and each even-numbered
calendar year thereafter--
``(i) shall be $500 greater than the dollar
amount applicable under paragraph (1)(A) for
the prior even-numbered calendar year, and
``(ii) shall apply to taxable years beginning
in such even-numbered calendar year and in the
succeeding calendar year.
In no event shall the dollar amount applicable under
paragraph (1)(A) exceed twice the dollar amount
applicable under paragraph (1)(B).
``(B) Exemption amounts for 2005, 2006, and 2007.--
The dollar amount applicable under paragraph (1)(A)
shall be--
``(i) $46,000 for taxable years beginning in
2005, and
``(ii) $46,500 for taxable years beginning in
2006 or 2007.''
(2) Conforming amendments.--
(A) Paragraph (1) of section 55(d) of such Code is
amended by striking ``and'' at the end of subparagraph
(B), by striking subparagraph (C), and by inserting
after subparagraph (B) the following new subparagraphs:
``(C) 50 percent of the dollar amount applicable
under paragraph (1)(A) in the case of a married
individual who files a separate return, and
``(D) $22,500 in the case of an estate or trust.''
(B) Subparagraph (C) of section 55(d)(3) of such Code
is amended by striking ``paragraph (1)(C)'' and
inserting ``subparagraph (C) or (D) of paragraph (1)''.
(C) The last sentence of section 55(d)(3) of such
Code is amended--
(i) by striking ``paragraph (1)(C)(i)'' and
inserting ``paragraph (1)(C)'', and
(ii) by striking ``$165,000 or (ii) $22,500''
and inserting ``the minimum amount of such
income (as so determined) for which the
exemption amount under paragraph (1)(C) is
zero, or (ii) such exemption amount (determined
without regard to this paragraph)''.
(d) Technical Amendments.--
(1) Subparagraph (A) of section 1(f )(2) of such Code is
amended by inserting ``except as provided in paragraph (8),''
before ``by increasing''.
(2) The heading for subsection (f ) of section 1 of such Code
is amended by inserting ``Phaseout of Marriage Penalty in 15-
Percent Bracket;'' before ``Adjustments''.
(e) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years beginning after December 31, 2003.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to taxable years beginning after December 31, 2001.
(3) Subsection (c).--The amendments made by subsection (c)
shall apply to taxable years beginning after December 31, 2004.

SEC. 4. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT; EARNED INCOME
TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS INCOME.

(a) In General.--Paragraph (2) of section 32(b) of the Internal
Revenue Code of 1986 (relating to percentages and amounts) is amended--
(1) by striking ``Amounts.--The earned'' and inserting
``Amounts.--
``(A) In general.--Subject to subparagraph (B), the
earned''; and
(2) by adding at the end the following new subparagraph:
``(B) Joint returns.--In the case of a joint return,
the earned income amount determined under subparagraph
(A) shall be 110 percent of the otherwise applicable
amount. If any amount determined under the preceding
sentence is not a multiple of $10, such amount shall be
rounded to the nearest multiple of $10.''
(b) Earned Income To Include Only Amounts Includible in Gross
Income.--Clause (i) of section 32(c)(2)(A) of such Code (defining
earned income) is amended by inserting ``, but only if such amounts are
includible in gross income for the taxable year'' after ``other
employee compensation''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2001.

SEC. 5. MODIFICATIONS TO CHILD TAX CREDIT.

(a) Increase in Per Child Amount.--Subsection (a) of section 24 of
the Internal Revenue Code of 1986 (relating to child tax credit) is
amended to read as follows:
``(a) Allowance of Credit.--
``(1) In general.--There shall be allowed as a credit against
the tax imposed by this chapter for the taxable year with
respect to each qualifying child of the taxpayer an amount
equal to the per child amount.
``(2) Per child amount.--For purposes of paragraph (1), the
per child amount shall be determined as follows:

``In the case of any taxable year The per child amount is--
beginning in--
2001 and 2002................................. $ 600
2003.......................................... 700
2004.......................................... 800
2005.......................................... 900
2006 or thereafter............................ 1,000.''.

(b) Credit Allowed Against Alternative Minimum Tax.--
(1) In general.--Subsection (b) of section 24 of such Code is
amended by adding at the end the following new paragraph:
(2) Conforming amendments.--
(A) The heading for section 24(b) of such Code is
amended to read as follows: ``Limitations.--''.
(B) The heading for section 24(b)(1) of such Code is
amended to read as follows: ``Limitation based on
adjusted gross income.--''.
(C) Section 24(d) of such Code is amended--
(i) by striking ``section 26(a)'' each place
it appears and inserting ``subsection (b)(3)'',
and
(ii) in paragraph (1)(B) by striking
``aggregate amount of credits allowed by this
subpart'' and inserting ``amount of credit
allowed by this section''.
(D) Paragraph (1) of section 26(a) of such Code is
amended by inserting ``(other than section 24)'' after
``this subpart''.
(E) Subsection (c) of section 23 of such Code is
amended by striking ``and section 1400C'' and inserting
``and sections 24 and 1400C''.
(F) Subparagraph (C) of section 25(e)(1) of such Code
is amended by inserting ``, 24,'' after ``sections
23''.
(G) Section 904(h) of such Code is amended by
inserting ``(other than section 24)'' after
``chapter''.
(H) Subsection (d) of section 1400C of such Code is
amended by inserting ``and section 24'' after ``this
section''.
(c) Additional Credit for Families With 3 or More Children Available
to All Families.--Subsection (d) of section 24 of such Code is
amended--
(1) in paragraph (1) by striking ``In the case of a taxpayer
with three or more qualifying children for any taxable year,
the'' and inserting ``The'', and
(2) in the subsection heading by striking ``With 3 or More
Children'' and inserting ``Paying Social Security Taxes''.
(d) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2000.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to taxable years beginning after December 31, 2001.

SEC. 6. PROTECTION OF SOCIAL SECURITY AND MEDICARE.

The amounts transferred to any trust fund under the Social Security
Act shall be determined as if this Act had not been enacted.

Amend the title so as to read:

A bill to amend the Internal Revenue Code of 1986 to reduce
the marriage penalty by providing for adjustments to the
standard deduction, the 15-percent rate bracket, and the earned
income credit, to increase the child credit, and for other
purposes.

I. SUMMARY AND BACKGROUND

A. Purpose and Summary

The bill, H.R. 6, as amended (the ``Marriage Penalty and
Family Tax Relief Act of 2001''), provides relief from the
marriage tax penalty and additional tax relief to American
families with children.
The bill provides net tax reductions of over $116 billion
over fiscal years 2001-2006. This will provide needed marriage
tax penalty and family tax relief for over 43 million American
taxpayers in 2002 (60 million in 2010), return a portion of the
tax revenues not needed to fund government programs, and foster
economic prosperity in the 21st century.
The bill makes several changes to reduce the marriage tax
penalty, provide family tax relief, and alleviate the burden of
the alternative minimum tax. Specifically, the bill increases
the basic standard deduction and the size of the 15-percent
regular income tax rate bracket for married couples filing
joint returns to twice that for unmarried individuals. Also,
the bill increases the alternative minimum tax exemption amount
and the earned income credit for married couples filing joint
returns. The bill (1) doubles the size of the child credit; (2)
makes the child credit refundable without regard to the number
of qualifying children; and (3) allows the child credit against
the alternative minimum tax. Finally, the bill repeals the
provisions that reduce the refundable child credit and the
earned income credit by the individual's alternative minimum
tax.

B. Background and Need for Legislation

The provisions approved by the Committee reflect the need
for marriage tax penalty and family tax relief for American
families in a fiscally prudent matter. The provisions also
should serve to improve the economy and return an appropriate
amount of the projected budget surplus to the American
taxpayer. The estimated revenue effects of the provisions
comply with the most recent Congressional Budget Office
revisions of budget surplus projections.

C. Legislative History

COMMITTEE ACTION

The Committee on Ways and Means marked up the provisions of
the bill on March 22, 2001, and reported the provisions, as
amended, on March 22, 2001, by a roll call vote of 23 yeas and
16 nays, with a quorum present.

COMMITTEE HEARING

A full Committee hearing on the related provisions of the
President's individual income tax proposals was held on March
21, 2001.

II. EXPLANATION OF THE BILL

A. Standard Deduction Marriage Tax Penalty Relief

PRESENT LAW

Marriage tax penalty

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 of the Federal tax laws 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.

Basic standard deduction

Taxpayers who do not itemize deductions may choose the
basic standard deduction,\1\ 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 2001, the size of the
basic standard deduction for each filing status is shown in
Table 1, below.
---------------------------------------------------------------------------
\1\ Additional standard deductions are also allowed with respect to
any individual who is elderly (age 65 or over) or blind.

TABLE 1.--BASIC STANDARD DEDUCTION AMOUNTS
------------------------------------------------------------------------
Basic
Filing status standard
deduction
------------------------------------------------------------------------
Married, joint return...................................... $7,600
Head of household return................................... 6,650
Single return.............................................. 4,550
Married, separate return................................... 3,800
------------------------------------------------------------------------

For 2001, the basic standard deduction amount for single
filers is 60 percent of the basic standard deduction amount for
married couples filing joint returns. Thus, two unmarried
individuals have standard deductions whose sum exceeds the
standard deduction for a married couple filing a joint return.

REASONS FOR CHANGE

The Committee is concerned about the inequity that arises
when two working single individuals marry and experience a tax
increase solely by reason of their marriage. Any attempt to
address the marriage tax penalty involves the balancing of
several competing principles, including equal tax treatment of
married couples with equal incomes, the determination of
equitable relative tax burdens of single individuals and
married couples with equal incomes, and the goal of simplicity
in compliance and administration. 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 reduction of a marriage tax
penalty. The increase in the standard deduction provides tax
relief to approximately 23 million married couples filing joint
returns in 2002. Further, approximately 2 million couples who
currently itemize their deductions will realize the
simplification benefits of using the larger basic standard
deduction in 2002.

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 an unmarried individual filing a single
return. The basic standard deduction for a married taxpayer
filing separately continues to equal one-half of the basic
standard deduction for a married couple filing jointly; thus,
the basic standard deduction for unmarried individuals filing a
single return and for married couples filing separately is the
same.

EFFECTIVE DATE

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

B. Expansion of the 15-Percent Rate Bracket for Married Couples Filing
Joint Returns

PRESENT LAW

In general

Under the Federal individual income tax system, an
individual who is a citizen or resident of the United States
generally is subject to tax on worldwide taxable income.
Taxable income is total gross income less certain exclusions,
exemptions, and deductions. An individual may claim either a
standard deduction or itemized deductions.
An individual's income tax liability is determined by
computing his or her regular income tax liability and, if
applicable, alternative minimum tax liability.

Regular income tax liability

Regular income tax liability is determined by applying the
regular income tax rate schedules (or tax tables) to the
individual's taxable income and then is reduced by any
applicable tax credits. The regular income tax rate schedules
are divided into several ranges of income, known as income
brackets, and the marginal tax rate increases as the
individual's income increases. The income bracket amounts are
adjusted annually for inflation. Separate rate schedules apply
based on filing status: single individuals (other than heads of
households and surviving spouses), heads of households, married
individuals filing joint returns (including surviving spouses),
married individuals filing separate returns, and estates and
trusts. Lower rates may apply to capital gains.
For 2001, the regular income tax rate schedules for
individuals are shown in Table 2, below. The bracket
breakpoints for single individuals are approximately 60 percent
of the rate bracket breakpoints for married couples filing
joint returns.\2\ The rate bracket breakpoints for married
individuals filing separate returns are exactly one-half of the
rate brackets for married individuals filing joint returns. A
separate, compressed rate schedule applies to estates and
trusts.
---------------------------------------------------------------------------
\2\ The rate bracket breakpoint for the 39.6 percent marginal tax
rate is the same for single individuals and married couples filing
joint returns.

TABLE 2.--INDIVIDUAL REGULAR INCOME TAX RATES FOR 2001
----------------------------------------------------------------------------------------------------------------
If taxable income is Then regular income tax equals
----------------------------------------------------------------------------------------------------------------
Single individuals

$0-27,050................................. 15 percent of taxable income.
$27,050-$65,550........................... $4,057.50, plus 28% of the amount over $27,050.
$65,550-$136,750.......................... $14,837.50, plus 31% of the amount over $65,550.
$136,750-$297,350......................... $36,909.50, plus 36% of the amount over $136,750.
Over $297,350............................. $94,725.50, plus 39.6% of the amount over $297,350.

Heads of households

$0-$36,250................................ 15 percent of taxable income.
$36,250-$93,650........................... $5,437.50, plus 28% of the amount over $36,250.
$93,650-$151,650.......................... $21,509.50, plus 31% of the amount over $93,650.
$151,650-$297,350......................... $39,489.50, plus 36% of the amount over $151,650.
Over $297,350............................. $91,941.50, plus 39.6% of the amount over $297,350.

Married individuals filing joint returns

$0-$45,200................................ 15 percent of taxable income.
$45,200-$109,250.......................... $6,780.00, plus 28% of the amount over $45,200.
$109,250-$166,500......................... $24,714.50, plus 31% of the amount over $109,250.
$166,500-$297,350......................... $42,461.50, plus 36% of the amount over $166,500.
Over $297,350............................. $89,567.50, plus 39.6% of the amount over $297,350.
----------------------------------------------------------------------------------------------------------------

Alternative minimum tax liability

In general
An individual's alternative minimum tax equals the excess
of the individual's tentative alternative minimum tax liability
over his or her regular income tax liability. Tentative
alternative minimum tax liability is determined by applying
specified rates (shown in Table 3, below) to alternative
minimum taxable income in excess of phased-out exemption
amounts ($45,000 for married couples filing joint returns and
$33,750 for unmarried individuals filing a single return).
Alternative minimum taxable income generally is the
individual's regular taxable income increased by certain
preference items and other adjustments. The basic structure of
the alternative minimum tax (such as exemption amounts and rate
brackets) is not adjusted annually for inflation. The lower
regular income tax rates on capital gains also apply under the
alternative minimum tax.

TABLE 3.--INDIVIDUAL ALTERNATIVE MINIMUM TAX RATES
----------------------------------------------------------------------------------------------------------------
If alternative minimum taxable income in
excess of the applicable exemption amount Then tentative alternative minimum tax equals
is
----------------------------------------------------------------------------------------------------------------
$0-175,000................................ 26 percent of alternative minimum taxable income in excess of the
applicable exemption amount.
Over $175,000............................. $45,500, plus 28% of the amount over $175,000.
----------------------------------------------------------------------------------------------------------------

Limitation on nonrefundable credits
Through 2001, an individual generally may reduce his or her
tentative alternative minimum tax liability by nonrefundable
personal tax credits (such as the $500 child tax credit and the
adoption tax credit). For taxable years beginning after
December 31, 2001, nonrefundable personal tax credits may not
reduce an individual's income tax liability below his or her
tentative alternative minimum tax liability.
AMT offset of refundable tax credits
An individual's alternative minimum tax liability reduces
the amount of the refundable earned income credit and, for
taxable years beginning after December 31, 2001, the amount of
the refundable child credit for families with three or more
children.

Reasons for Change

The Committee believes that the expansion of the 15-percent
rate bracket for married couples filing joint returns, in
conjunction with the other provisions of the bill, will further
alleviate the effects of the present-law marriage tax penalty.
These provisions significantly reduce the most widely
applicable marriage penalties in present law. Also, the
Committee believes that the AMT presents a looming threat to
fair and simple taxation of America's taxpayers. While the AMT
problem has its roots in legislation enacted by prior
Congresses, this Committee intends to make positive strides to
reduce the structural AMT problem. This provision is an
important step in this ongoing effort. Finally, the Committee
believes that families should be able to use the refundable
credits without limitation by the minimum tax. In addition,
eliminating the reduction of the refundable credits by the
minimum tax will result in significant simplification.

Explanation of Provision

Increase in 15-percent regular income tax bracket

The provision increases the size of the 15-percent regular
income tax rate bracket for a married couple filing a joint
return to twice the size of the corresponding rate bracket for
an unmarried individual filing a single return. This increase
is phased in over six years as shown in Table 4, below.
Therefore, this provision is fully effective (i.e., the size of
the lowest regular income tax rate bracket for a married couple
filing a joint return is twice the size of the lowest regular
income tax rate bracket for an unmarried individual filing a
single return) for taxable years beginning after December 31,
2008.

TABLE 4.--INCREASE IN SIZE OF 15-PERCENT RATE BRACKET FOR MARRIED COUPLES FILING A JOINT RETURN
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Taxable year Size of 15-percent rate bracket for married couple filing joint return as percentage of rate bracket for unmarried individuals
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2004........................................ 172
2005........................................ 178
2006........................................ 183
2007........................................ 189
2008........................................ 195
2009 and thereafter......................... 200
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

AMT relief

The AMT exemption amount ($45,000) for a married couple
filing a joint return is increased by $1,000 in 2005, by an
additional $500 in 2006, and by an additional $500 in every
other year thereafter (i.e., in 2008, 2010, etc.), but in no
event can the exemption amount exceed twice the exemption
amount for unmarried individuals filing single returns. The
exemption amount for married individuals filing a separate
return is one-half the exemption amount for a married couple
filing a joint return.
The provision also repeals the present-law provision that
offsets the refundable child credit and the earned income
credit by the amount of the alternative minimum tax.

Effective Date

The increase in the size of the 15-percent rate bracket is
effective for taxable years beginning after December 31, 2003.
The increase in the AMT exemption is effective for taxable
years beginning after December 31, 2004. Finally, the provision
to repeal the AMT offset of the refundable child credit and the
earned income credit is effective for taxable years after
December 31, 2001.

C. Marriage Penalty Relief and Simplification Relating to the Earned
Income Credit

Present Law

Eligible low-income workers are able to claim a refundable
earned income credit (``EIC''). The amount of the credit an
eligible taxpayer may claim depends upon the taxpayer's income
and whether the taxpayer has one, more than one, or no
qualifying children.

Definition of earned income

To claim the EIC, the taxpayer must have earned income.
Earned income consists of wages, salaries, other employee
compensation, and net earnings from self-employment. Employee
compensation includes anything of value received by the
taxpayer from the employer in return for services of the
employee, including nontaxable earned income. Nontaxable forms
of compensation treated as earned income for EIC purposes
include the following: (1) elective deferrals under a cash or
deferred arrangement or section 403(b) annuity (sec. 402(g));
(2) employer contributions for nontaxable fringe benefits,
including contributions for accident and health insurance (sec.
106), dependent care (sec. 129), adoption assistance (sec.
137), educational assistance (sec. 127), and miscellaneous
fringe benefits (sec. 132); (3) salary reduction contributions
under a cafeteria plan (sec. 125); (4) meals and lodging
provided for the convenience of the employer (sec. 119), and
(5) housing allowance or rental value of a parsonage for the
clergy (sec. 107). Some of these items are not required to be
reported on the Wage and Tax Statement (Form W-2), making it
difficult for the taxpayer to ascertain the correct amount of
nontaxable earned income.

Calculation of the credit

The maximum EIC is phased in as an individual's earned
income increases. The credit phases out for individuals with
earned income (or if greater, modified AGI) over certain
levels. In the case of a married individual who files a joint
return, the EIC both for the phasein and phaseout is calculated
based on the couples' combined income. The EIC is not available
to married taxpayers filing separate returns.
The credit is determined by multiplying the credit rate by
the taxpayer's earned income up to a specified earned income
amount. The maximum amount of the credit is the product of the
credit rate and the earned income amount. The maximum credit
amount applies to taxpayers with (1) earnings at or above the
earned income amount and (2) modified AGI \3\ (or earnings, if
greater) at or below the phase-out threshold level.
---------------------------------------------------------------------------
\3\ ``Modified AGI'' means AGI determined without regard to certain
losses and increased by certain amounts not includible in gross income.
The losses disregarded are: (1) net capital losses (up to $3,000); (2)
net losses from estates and trusts; (3) net losses from nonbusiness
rents and royalties; (4) 75 percent of the net losses from businesses,
computed separately with respect to sole proprietorships (other than
farming), farming sole proprietorships, and other businesses. For
purposes of (4), amounts attributable to a business that consists of
the performance of services by the taxpayer as an employee are not
taken into account. The amounts added to AGI to arrive at modified AGI
include: (1) tax-exempt interest; and (2) nontaxable distributions from
pensions, annuities, and individual retirement plans (but not
nontaxable rollover distributions or trustee-to-trustee transfers).
Sec. 32(c)(5).
---------------------------------------------------------------------------
For taxpayers with modified AGI (or earned income, if
greater) in excess of the phase-out threshold, the credit
amount is reduced by the phase-out rate multiplied by the
amount of earned income (or modified AGI, if greater) in excess
of the phase-out threshold. In other words, the credit amount
is reduced, falling to $0 at the ``breakeven'' income level,
the point where a specified percentage of ``excess'' income
above the phase-out threshold exactly offsets the maximum
amount of the credit. The earned income amount and the phase-
out threshold are indexed for inflation. Table 5., below, shows
the EIC parameters for taxable year 2001.\4\
---------------------------------------------------------------------------
\4\ The table is based on Rev. Proc. 2001-13.

TABLE 5.--EARNED INCOME CREDIT PARAMETERS (2001)
------------------------------------------------------------------------
Two or more One No
qualifying qualifying qualifying
children child children
------------------------------------------------------------------------
Credit rate (percent)............ 40.00% 34.00% 7.65%
Earned income amount............. $10,020 $7,140 $4,760
Maximum credit................... $4,008 $2,428 $364
Phase out begins................. $13,090 $13,090 $5,950
Phase out rate (percent)......... 21.06% 15.98% 7.65%
Phase out ends................... $32,121 $28,281 $10,710
------------------------------------------------------------------------

Reasons for Change

The Committee believes that the present-law earned income
amount penalizes some individuals because they receive a
smaller EIC when they marry than if they had not married. The
Committee believes increasing the earned income amount for
married taxpayers who file a joint return will help to
alleviate this penalty.
The definition of earned income is a source of complexity
insofar as it includes nontaxable forms of employee
compensation. Present law requires both the IRS and taxpayers
to keep track of nontaxable amounts for determining EIC
eligibility even though such amounts are generally not
necessary for other tax purposes. Further, not all forms of
nontaxable earned income are reported on Form W-2. As a result,
a taxpayer may not know the correct amount of nontaxable earned
income received during the year. Further, the IRS cannot easily
determine such amounts. The Committee believes that significant
simplification would result from redefining earned income to
exclude amounts not includable in gross income.

Explanation of Provision

For married taxpayers who file a joint return, the
provision increases the earned income amount used to calculate
the EIC to 110 percent of the earned income amount for all
other taxpayers eligible for the EIC.
The provision also simplifies the definition of earned
income by excluding nontaxable earned income amounts from the
definition of earned income for EIC purposes. Thus, under the
provision, earned income includes wages, salaries, tips, and
other employee compensation, if includible in gross income for
the taxable year, plus net earnings from self-employment.
The provision repeals the present-law provision that
reduces the EIC by the amount of an individual's alternative
minimum tax.

Effective Date

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

D. Increase and Expansion of the Child Tax Credit

Present Law

Under present law, an individual may claim a $500 tax
credit for each qualifying child under the age of 17. In
general, a qualifying child is an individual for whom the
taxpayer can claim a dependency exemption and who is the
taxpayer's son or daughter (or descendent of either), stepson
or stepdaughter, or eligible foster child.
The child tax credit is phased out for individuals with
income over certain thresholds. Specifically, the otherwise
allowable child tax credit is reduced by $50 for each $1,000
(or fraction thereof) of modified AGI over $75,000 for single
individuals or heads of households, $110,000 for married
individuals filing joint returns, and $55,000 for married
individuals filing separate returns. Modified AGI is the
taxpayer's total gross income plus certain amounts excluded
from gross income (i.e., excluded income of U.S. citizens or
residents living abroad (sec. 911); residents of Guam, American
Samoa, and the Northern Mariana Islands (sec. 931); and
residents of Puerto Rico (sec. 933)). The length of the phase-
out range depends on the number of qualifying children. For
example, the phase-out range for a single individual with one
qualifying child is between $75,000 and $85,000 of modified
AGI. The phase-out range for a single individual with two
qualifying children is between $75,000 and $95,000.
In general, the child tax credit is nonrefundable. However,
for families with three or more qualifying children, the child
tax credit is refundable up to the amount by which the
taxpayer's employee share of social security taxes (i.e., FICA
and HI taxes) \5\ exceeds the taxpayer's EIC.
---------------------------------------------------------------------------
\5\ In the case of self-employed individuals, the credit is
refundable up to the amount by which one-half of the individual's self-
employment taxes (i.e., SECA taxes) exceeds the taxpayer's EIC.
---------------------------------------------------------------------------
Through 2001, the child tax credit generally reduces the
individual's regular income tax and alternative minimum tax.
Starting with taxable years beginning after December 31, 2001,
the nonrefundable child tax credit is allowed only to the
extent that the individual's regular income tax liability
exceeds the individual's tentative alternative minimum tax, and
the refundable child tax credit is reduced by the amount of the
individual's alternative minimum tax.

Reasons for Change

The Committee believes that a tax credit for families with
children recognizes the importance of helping families raise
children. This provision doubles the child tax credit in order
to provide additional tax relief to families to help offset the
significant costs of raising a child. The Committee also
believes that all families (rather than only families with
three or more children) should be allowed a refundable child
credit regardless of the number of qualifying children. This
will extend family tax relief to many families that otherwise
would not benefit from the child credit. Finally, the Committee
believes that the benefits of the child credit should not be
denied to taxpayers who are subject to the AMT. It is estimated
that approximately 25 million taxpayers with children will
benefit from the increases in the child tax credit each year.

Explanation of Provision

The provision increases the child tax credit to $1,000,
phased in over six years, beginning in 2001. Table 6, below,
shows the proposed increase in the amount of the child tax
credit under the provision.

TABLE 6.--PROPOSED INCREASE OF THE CHILD TAX CREDIT
------------------------------------------------------------------------
Credit
Taxable year amount per
child 2001
------------------------------------------------------------------------
2001....................................................... $600
2002....................................................... 600
2003....................................................... 700
2004....................................................... 800
2005....................................................... 900
2006 and thereafter........................................ 1,000
------------------------------------------------------------------------

In addition, the provision extends the present-law
refundability of the child tax credit to families with fewer
than three children.
The provision allows the child tax credit to the extent of
the full amount of the individual's regular income tax and
alternative minimum tax, and the refundable child tax credit
will no longer be reduced by the amount of the alternative
minimum tax.

Effective Date

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

E. Transfer to Social Security and Medicare Trust Funds

Present Law

Under present law, the Federal income tax collected with
respect to a portion of social security benefits included in
gross income is transferred either to the Social Security trust
fund or the Medicare trust fund.

Reasons for Change

The Committee finds it appropriate to ensure that the
solvency of the Social Security and Medicare Trust Funds is not
negatively impacted by the provisions of the bill.

Explanation of Provision

Under the provision, the amounts transferred to the Social
Security and Medicare Trust Funds are determined as if the
other provisions in the bill were not enacted. Thus, there is
no reduction in transfers to these funds as a result of these
provisions.

Effective Date

The provision is effective on the date of enactment.

III. VOTES OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in its
consideration of the bill, H.R. 6.

MOTION TO REPORT THE BILL

The bill, H.R. 6, as amended, was ordered favorably
reported by a roll call vote of 23 yeas to 16 nays (with a
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Crane...................... X ........ ......... Mr. Stark........ ........ X .........
Mr. Shaw....................... X ........ ......... Mr. Matsui....... ........ X .........
Mrs. Johnson................... X ........ ......... Mr. Coyne........ ........ X .........
Mr. Houghton................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Herger..................... X ........ ......... Mr. Cardin....... ........ X .........
Mr. McCrery.................... X ........ ......... Mr. McDermott.... ........ X .........
Mr. Camp....................... X ........ ......... Mr. Kleczka...... ........ X .........
Mr. Ramstad.................... X ........ ......... Mr. Lewis (GA)... ........ X .........
Mr. Nussle..................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Johnson.................... X ........ ......... Mr. McNulty...... ........ X .........
Ms. Dunn....................... X ........ ......... Mr. Jefferson.... ........ X .........
Mr. Collins.................... X ........ ......... Mr. Tanner....... ........ X .........
Mr. Portman.................... ........ ........ ......... Mr. Becerra...... ........ ........ .........
Mr. English.................... X ........ ......... Mrs. Thurman..... ........ X .........
Mr. Watkins.................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Hayworth................... X ........ ......... Mr. Pomeroy...... ........ X .........
Mr. Weller..................... X ........ .........
Mr. Hulshof.................... X ........ .........
Mr. McInnis.................... X ........ .........
Mr. Lewis (KY)................. X ........ .........
Mr. Foley...................... X ........ .........
Mr. Brady...................... X ........ .........
Mr. Ryan....................... X ........ .........
----------------------------------------------------------------------------------------------------------------

VOTES ON AMENDMENTS

A roll call vote was conducted on the following amendment
to the Chairman's amendment in the nature of a substitute.
A substitute amendment by Mr. Rangel, was defeated by a
roll call vote of 13 yeas to 26 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Crane...................... ........ X ......... Mr. Stark........ X ........ .........
Mr. Shaw....................... ........ X ......... Mr. Matsui....... X ........ .........
Mrs. Johnson................... ........ X ......... Mr. Coyne........ X ........ .........
Mr. Houghton................... ........ X ......... Mr. Levin........ X ........ .........
Mr. Herger..................... ........ X ......... Mr. Cardin....... X ........ .........
Mr. McCrery.................... ........ X ......... Mr. McDermott.... X ........ .........
Mr. Camp....................... ........ X ......... Mr. Kleczka...... X ........ .........
Mr. Ramstad.................... ........ X ......... Mr. Lewis (GA)... X ........ .........
Mr. Nussle..................... ........ X ......... Mr. Neal......... X ........ .........
Mr. Johnson.................... ........ X ......... Mr. McNulty...... X ........ .........
Ms. Dunn....................... ........ X ......... Mr. Jefferson.... X ........ .........
Mr. Collins.................... ........ X ......... Mr. Tanner....... ........ X .........
Mr. Portman.................... ........ ........ ......... Mr. Becerra...... ........ ........
Mr. English.................... ........ X ......... Mrs. Thurman..... ........ X .........
Mr. Watkins.................... ........ X ......... Mr. Doggett...... ........ X .........
Mr. Hayworth................... ........ X ......... Mr. Pomeroy...... X ........ .........
Mr. Weller..................... ........ X
Mr. Hulshof.................... ........ X
Mr. McInnis.................... ........ X
Mr. Lewis (KY)................. ........ X
Mr. Foley...................... ........ X
Mr. Brady...................... ........ X
Mr. Ryan....................... ........ X .........
----------------------------------------------------------------------------------------------------------------

IV. BUDGET EFFECTS OF THE BILL

A. Committee Estimate of Budgetary Effects

In compliance with clause 3(d)(2) of the rule XIII of the
Rules of the House of Representatives, the following statement
is made concerning the effects on the budget of the revenue
provisions of the bill, H.R. 6 as reported.
The bill is estimated to have the following effects on
budget receipts for fiscal years 2001-2006:

ESTIMATED REVENUE EFFECTS OF H.R. 6, THE ``MARRIAGE PENALTY AND FAMILY TAX RELIEF ACT OF 2001,'' AS REPORTED BY
THE COMMITTEE ON WAYS AND MEANS
[Fiscal years 2001-2006, in billions of dollars]
----------------------------------------------------------------------------------------------------------------
Provision Effective 2001 2002 2003 2004 2005 2006 2001-06
----------------------------------------------------------------------------------------------------------------
1. Standard deduction set at tyba 12/31/01 ....... -4.0 -6.0 -6.2 -6.1 -6.3 -28.6
2 times single for married
filing jointly.
2. 15% rate bracket set at 2 tyba 12/31/01 & ....... -0.1 -0.3 -3.2 -7.9 -13.1 -24.5
times single for married tyba 12/31/04
filing jointly beginning in
2004; 6-year phasein, repeal
AMT offset of refundable
credits; increase in AMT
exemption amount ($1,000 in
2005, and $500 in 2006 and
every other year thereafter).
3. Increase the earned income tyba 12/31/01 ....... (\1\) -1.4 -1.5 -1.5 -1.5 -5.9
limit for purposes of the
EIC for married filing joint
returns by 10%; simplified
computation of earned income.
4. Increase the child tax tyba 12/31/00 (\1\) -5.8 -6.4 -10.6 -15.1 -19.5 -57.4
credit to $600 in 2001 and
2002, $700 in 2003, $800 in
2004, $900 in 2005, and
$1,000 in 2006; apply large
family refundability rule to
all families; allow credits
fully against the AMT.
5. Transfer to Social DOE No Revenue Effect
Security and Medicare Trust
Funds.
----------------------------------------------------------------
Net total \2\................ ................ (\1\) -9.9 -14.1 -21.5 -30.6 -40.4 -116.4
----------------------------------------------------------------------------------------------------------------
\1\ Loss of less than $50 million.
\2\ Estimate includes the following effects on fiscal year outlays--2001: (\3\); 2002: 1.5; 2003: 3.0; 2004:
3.7; 2005: 4.4; 2006: 5.1; 2001-06: 17.7.
\3\ Less than $50 million.

Legend for ``Effective'' column: DOE=date of enactment; tyba=taxable years beginning after.

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

Source: Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority

In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves new or increased budget authority (as detailed in
the statement by the Congressional Budget Office (``CBO''); see
Part IV.C., below). The Committee further states that the
revenue reducing income tax provisions involve increased tax
expenditures. (See amounts in table in Part IV.A., above.)

C. Cost Estimate Prepared by the Congressional Budget Office

In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.

U.S. Congress,
Congressional Budget Office,
Washington, DC, March 26, 2001.
Hon. Bill Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 6, the Marriage
Penalty and Family Tax Relief Act of 2001.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Erin
Whitaker.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.

H.R. 6--Marriage Penalty and Family Tax Relief Act of 2001

Summary: The Marriage Penalty and Family Tax Relief Act of
2001 would increase the basic standard deduction for a married
couple filing a joint return to twice that of a taxpayer filing
a single return. Also, starting in 2004, the bill would expand
gradually the 15-percent regular income tax rate bracket for a
married couple filing a joint return so that the bracket
becomes twice the size of the rate bracket of a taxpayer filing
a single return in 2009 and thereafter. In addition, the bill
would increase the alternative minimum tax (AMT) exemption
amount for a married couple filing a joint return by $1,000 in
2005, by an additional $500 in 2006, and by an additional $500
every other year thereafter.
H.R. 6 also would repeal the provision in current law that
offsets the refundable child credit and earned income credit by
the amount of the AMT. For married taxpayers who file a joint
return, the bill would increase the amount of earned income
used to calculate the earned income credit (EIC) to 110 percent
of the amount used by all other taxpayers eligible for the EIC.
In addition, starting in 2001, the bill would gradually
increase the child tax credit, which would reach $1,000 per
qualifying child in 2006 and remain at that level thereafter.
The bill would also make refundable a portion of the child tax
credit for all families, not just those with three or more
children as under current law. Unless otherwise noted,
provisions in the bill would be effective on January 1, 2002.
The Joint Committee on Taxation (JCT) estimates that the
bill would decrease revenues by $4 million in 2001, by $98.9
billion over the 2001-2006 period, and by $354.4 billion over
the 2001-2011 period. In addition, JCT estimates that the bill
would increase direct spending by about $1 million in 2001, by
$17.6 billion over the 2001-2006 period, and by $44.9 billion
over the 2001-2011 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 H.R. 6 is shown in the following table. JCT
provided at revenue and outlay estimates of provisions for the
bill.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------
2001 2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES

Estimated Revenues............................ -4 -8,456 -11,199 -17,843 -26,182 -35,255

CHANGES IN DIRECT SPENDING

Estmated Budget Authority..................... 1 1,463 2,950 3,673 4,368 5,101
Estimated Outlays............................. 1 1,463 2,950 3,673 4,368 5,101
----------------------------------------------------------------------------------------------------------------
Source: Revenues and outlays are estimated by the Joint Committee on Taxation. Budget authority is estimated by
the Congressional Budget Office.

Most of the budgetary effects of H.R. 6 are reductions in
revenues. However, H.R. 6 also would increase outlays by
increasing the child tax credit and making it refundable for
taxpayers with one or two children, and by increasing the
earned income amount used by married taxpayers to calculate the
EIC. Those changes would increase child and earned income tax
credits, both of which are refundable under the tax code and
counted in the budget as outlays to the extent that taxpayers
receive net payments. In addition, H.R. 6 would reduce the
amount of taxes owed by increasing the standard deduction and
expanding the 15-percent tax bracket, among other changes,
resulting in a large portion of tax credits being refundable--
and thus recorded as outlays rather than reductions in
revenues.
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--
-------------------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007 2008 0009 2010 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts................. -4 -8,456 -11,199 -17,843 -26,182 -35,244 -42,516 -47,645 -52,324 -54,947 -58,002
Changes in outlays.................. 1 1,463 2,950 3,673 4,368 5,101 5,772 5,650 5,449 5,303 5,149
--------------------------------------------------------------------------------------------------------------------------------------------------------

Intergovernmental and private-sector impact: JCT has
determined that the bill contains no intergovernmental or
private-sector mandates as defined in UMRA.
Estimate prepared by: Erin Whitker.
Estimate approved by: G. Thomas Woodward, Assistant
Director for Tax Analysis. Robert A. Sunshine, Assistant
Director for Budget Analysis.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

A. Committee Oversight Findings and Recommendations

With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was a result of the Committee's
oversight review concerning the tax burden on individual
taxpayers that the Committee concluded that it is appropriate
and timely to enact the revenue provisions included in the bill
as reported.

B. Statement of General Performance Goals and Objectives

With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.

C. Constitutional Authority Statement

With respect to clause 3(d)(1) of the rule XIII of the
Rules of the House of Representatives (relating to
Constitutional Authority), the Committee states that the
Committee's action in reporting this bill is derived from
Article I of the Constitution, Section 8 (``The Congress shall
have Power To lay and collect Taxes, Duties, Imposts and
Excises . . .''), and from the 16th Amendment to the
Constitution.

D. Information Relating to Unfunded Mandates

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, or tribal
governments.

E. Applicability of House Rule XXI 5(b)

Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the provisions of the bill, and states that
the provisions of the bill do not involve any Federal income
tax rate increases within the meaning of the rule.

F. Tax 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 such provision 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 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 and the Treasury
Department 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 married
taxpayers filing a joint return to twice the basic standard
deduction for an unmarried individual for taxable years
beginning after December 31, 2001.
Number of affected taxpayers
It is estimated that the provision will affect
approximately 23 million individual 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 particular
taxpayers.
This reduction in complexity and record keeping also may
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 simplerversions 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 rate bracket (sec. 3 of the bill)

Summary description of provision
The provision increases the size of the 15-percent regular
income tax rate bracket for married individuals filing a joint
return to twice the size of the corresponding rate bracket for
unmarried individuals. This increase is phased in over six
years, starting with taxable years beginning after December 31,
2003. It is fully effective for taxable years beginning after
December 31, 2008.
Number of affected taxpayers
It is estimated that the provision will affect
approximately 20 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 regular income tax rate bracket for married
individuals 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. Increase the child tax credit (sec. 5 of the bill)

Summary description of provision
The provision increases the child tax credit from $500 to
$1,000, phased in over a six-year period beginning in 2001,
extends refundability of the credit to families with fewer than
three children, allows the credit to the extent of the full
regular tax and alternative minimum tax, and repeals the
provision that reduces the refundable child credit by the
individual's alternative minimum tax.
Number of affected taxpayers
It is estimated that the provisions will affect
approximately 25 million individual tax returns.
Discussion
Individuals should not have to keep additional records due
to this provision, nor will additional regulatory guidance be
necessary to implement this provision. More taxpayers will have
to perform the additional calculations necessary to determine
eligibility for the refundable child credit but this should not
lead to an increase in disputes with the IRS. For taxpayer's
with less than two children, however, the provision can be
expected to increase tax preparation costs and the number of
individuals using a tax preparation service. (See, also, the
discussion of the interactive effect of the child credit and
the individual alternative minimum tax, below.)

4. The effect of the alternative minimum tax rules

The provisions relating to the increased standard
deduction, the expanded 15-percent rate bracket, and the
increased child tax credit are affected by the alternative
minimum tax rules. Although the bill provides relief from the
alternative minimum tax, additional individuals will need to
make the necessary calculations to determine the applicability
of the alternative minimum tax rules. It is estimated that for
the year 2010, two million additional individual income tax
returns that will benefit from the increased standard
deduction, expanded 15-percent rate bracket, and increased
child tax credit would be affected by the alternative minimum
tax. For these taxpayers, 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.
The bill also provides that the alternative minimum tax
exemption amount for married individuals filing a joint return
is increased. This should reduce complexity for affected
taxpayers. It is estimated that, for the year 2010, the
provision increasing the alternative minimum tax exemption
amount will apply to fifteen million individual income tax
returns. Some of these taxpayers will no longer be affected by
the alternative minimum tax.

Department of the Treasury,
Internal Revenue Service,
Washington, DC, March 26, 2001.
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
provisions from the House Committee on Ways and Means markup of
the ``Marriage Penalty and Family Tax Relief Act of 2001'' that
you identified for complexity analysis in your letter of March
21, 2001. Our comments are based on the description of those
provisions in JCX-16-01, Joint Committee on Taxation,
Description of the Chairman's Amendment in the Nature of a
Substitute to H.R. 6, March 21, 2001.
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 Marriage Penalty and Family Tax Relief Act of
2001

STANDARD DEDUCTION

Provision
Increase the basic standard deduction for a married couple
filing a join return to twice the basic standard deduction for
an unmarried individual filing a single return, effective for
tax years beginning after December 31, 2001.
IRS and Treasury comments
The increase in the basic standard deduction for
married taxpayers would be incorporated in the instructions for
Forms 1040, 1040A, 1040EZ, and on Forms 1040, 1040A, 1040EZ,
and 1040-ES for 2002. 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.
Compared with current law, the larger standard
deduction would reduce the number of taxpayers who itemize
deductions by 3.1 million in 2006 and by 2.9 million in 2011.
As a result of this provision, the number of
taxpayers affected by the alternative minimum tax (AMT) would
change, as explained in the separate discussion of the AMT at
the end of this analysis.

15-PERCENT RATE BRACKET

Provision
Increase the width of the 15-percent regular income tax
rate bracket for a married couple filing a join return to twice
the width of the corresponding rate bracket for an unmarried
individual filing a single return. The increase is phased in
over 6 years (2004-2009) and is fully effective in 2009.
IRS and Treasury comments
The increase in the width of the 15-percent rate
bracket for married taxpayers would be incorporated in the tax
tables and the tax rate schedules shown in the instructions for
Forms 1040, 1040A, 1040EZ, 1040NR, 1040NR-EZ, and on Form 1040-
ES for each year during the phase-in period (2004-2009). No new
forms would be required.
Programming changes would be required to reflect
the expanded 15-percent rate bracket. Currently, the IRS tax
computation programs are updated annually to incorporate
mandated inflation adjustments. Programming changes
necessitated by the provision would be included during that
process.
As a result of this provision, the number of
taxpayers affected by the AMT would change, as explained in the
separate discussion of the AMT at the end of this analysis.

AMT EXEMPTION

Provision
Increase the AMT exemption amount for a married couple
filing a joint return by: (a) $1,000 in 2005, (b) an additional
$500 in 2006, and (c) an additional $500 in every other year
thereafter (i.e., 2008, 2010, etc.) until the exemption amount
is twice the AMT exemption amount for an unmarried individual
filing a single return.
IRS and Treasury comments
The increase in the AMT exemption amount for
married taxpayers would be incorporated on Forms 6251 and 1040-
ES and in the instructions for Form 6251, 1040, 1040A, and
1040NR for 2005 and later years. The increase would also be
reflected on Form 8801 for 2006 and later years. No new forms
would be required.
Programming changes would be required to reflect
the increased exemption amount. Currently, the 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 increase in the AMT exemption amount, by
itself, would reduce the number of AMT filers and the number of
taxpayers who would have to make AMT calculations only to find
that they do not have any AMT liability. See the separate
discussion at the end of this analysis for the impact of this
bill on the number of taxpayers whose tax liability would be
affected by the AMT.

CHILD TAX CREDIT

Provision
Increase the amount of the child tax credit to $1,000 for
each qualifying child. The higher level of the credit is phased
in over 6 years beginning in 2001 as follows: (a) $600 in 2001
and 2002, (b) $700 in 2003, (c) $800 in 2004, (d) $900 in 2005,
and (e) $1,000 in 2006 and thereafter.
Extend the present-law refundable child tax credit to
families with fewer than three children, allow the child tax
credit to the extent of the full amount of the individual's
regular income tax and AMT, repeal the present-law provision
(scheduled to first take effect in 2002) that reduces the
refundable credits by the amount of the AMT. Effective
generally for tax years beginning after December 31, 2001.
IRS and Treasury comments
No new forms would be required as a result of any
of the above child tax credit provisions.
The increase in the amount of the child tax credit
would be incorporated in the instructions for Forms 1040,
1040A, and 1040NR for 2001 and later years. This increase also
affects the amount of the refundable child tax credit for
residents of Puerto Rico and would be reflected in the
instructions for Forms 1040-PR and 1040-SS for 2001 and later
years.
The extension of the refundable child tax credit
to families with fewer than three qualifying children would be
incorporated in the instructions for Forms 1040, 1040A, 1040NR,
1040-PR, 1040-SS, and 8812 for 2001.
The increase in the amount of the credit would
also be incorporated on Form 1040-ES for 2003 and later years.
The IRS would have to advise taxpayers who made estimated tax
payments for 2001 how they can adjust subsequent estimated tax
payments for 2001 to reflect the increased credit.
Because the proposal to allow the child tax credit
to the extent of the full amount of the individual's regular
income tax and AMT merely extends the law in effect for 2000
and 2001, implementing the proposal would require no changes to
IRS forms, publications or programming. Failure to enact this
proposal would significantly increase burden for all taxpayers
in determining the amount, if any, of their child tax credit
for 2002 and thereafter. See the separate discussion at the end
of this analysis for the impact of this bill on the number of
taxpayers with tax liability affected by the AMT.
Because the present-law AMT reduction of the
refundable child tax credit is not scheduled to take effect
until 2002 (i.e., there is no reduction for 2001), the proposal
to repeal the reduction would have little or no impact on IRS
forms, publications or programming. Failure to enact this
proposal would require the addition of two lines on Form 8812
for 2002.
Programming changes would be required to reflect
the increased credit amount and the extension of the refundable
credit to families with fewer than three children. Currently,
the IRS tax computation programs are updated annually to
incorporate mandated inflation adjustments. Programming changes
necessitated by this provision would be included during that
process.

IMPACT OF THE BILL'S PROVISIONS ON THE AMT

Compared to current law, for tax years 2002
through 2007 the provisions of the bill would reduce the number
of taxpayers whose liability is affected by the AMT. However,
beginning in 2008, the provisions of the bill would increase
the number of taxpayers whose liability is affected by the AMT.

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

In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

* * * * * * *

Subtitle A--Income Taxes

* * * * * * *

CHAPTER 1--NORMAL TAXES AND SURTAXES

* * * * * * *

Subchapter A--Determination of Tax Liability

* * * * * * *

PART I--TAX ON INDIVIDUALS

* * * * * * *

SECTION 1. TAX IMPOSED.

(a) * * *

* * * * * * *

(f) Phaseout of Marriage Penalty in 15-Percent Bracket;
Adjustments in Tax Tables so That Inflation Will Not Result in
Tax Increases.--
(1) * * *
(2) Method of prescribing tables.--The table which
under paragraph (1) is to apply in lieu of the table
contained in subsection (a), (b), (c), (d), or (e), as
the case may be, with respect to taxable years
beginning in any calendar year shall be prescribed--
(A) except as provided in paragraph (8), by
increasing the minimum and maximum dollar
amounts for each rate bracket for which a tax
is imposed under such table by the cost-of-
living adjustment for such calendar year,

* * * * * * *

(6) Rounding.--
(A) * * *
(B) Table for married individuals filing
separately.--In the case of a married
individual filing a separate return,
subparagraph (A) [(other than with respect to
subsection (c)(4) of section 63 (as it applies
to subsections (c)(5)(A) and (f) of such
section) and section 151(d)(4)(A)) shall be
applied] (other than with respect to sections
63(c)(4) and 151(d)(4)(A)) shall be applied by
substituting ``$25'' for ``$50'' each place it
appears.

* * * * * * *

(8) Phaseout of marriage penalty in 15-percent
bracket.--
(A) In general.--With respect to taxable
years beginning after December 31, 2003, in
prescribing the tables under paragraph (1)--
(i) the maximum taxable income in the
lowest rate bracket in the table
contained in subsection (a) (and the
minimum taxable income in the next
higher taxable income bracket in such
table) shall be the applicable
percentage of the maximum taxable
income in the lowest rate bracket in
the table contained in subsection (c)
(after any other adjustment under this
subsection), and
(ii) the comparable taxable income
amounts in the table contained in
subsection (d) shall be \1/2\ of the
amounts determined under clause (i).
(B) Applicable percentage.--For purposes of
subparagraph (A), the applicable percentage
shall be determined in accordance with the
following table:

For taxable years beginning The applicable
in calendar year-- percentage is--
2004................................................ 172
2005................................................ 178
2006................................................ 183
2007................................................ 189
2008................................................ 195
2009 and thereafter................................. 200.

(C) Rounding.--If any amount determined under
subparagraph (A)(i) is not a multiple of $50,
such amount shall be rounded to the next lowest
multiple of $50.

* * * * * * *

PART IV--CREDITS AGAINST TAX

* * * * * * *

Subpart A--Nonrefundable Personal Credits

* * * * * * *

SEC. 23. ADOPTION EXPENSES.

(a) * * *

* * * * * * *

(c) Carryforwards of Unused Credit.--If the credit allowable
under subsection (a) for any taxable year exceeds the
limitation imposed by section 26(a) for such taxable year
reduced by the sum of the credits allowable under this subpart
(other than this section [and section 1400C] and sections 24
and 1400C), such excess shall be carried to the succeeding
taxable year and added to the credit allowable under subsection
(a) for such taxable year. No credit may be carried forward
under this subsection to any taxable year following the fifth
taxable year after the taxable year in which the credit arose.
For purposes of the preceding sentence, credits shall be
treated as used on a first-in first-out basis.

* * * * * * *

SEC. 24. CHILD TAX CREDIT.

[(a) Allowance of Credit.--There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year
with respect to each qualifying child of the taxpayer an amount
equal to $500 ($400 in the case of taxable years beginning in
1998).]
(a) Allowance of Credit.--
(1) In general.--There shall be allowed as a credit
against the tax imposed by this chapter for the taxable
year with respect to each qualifying child of the
taxpayer an amount equal to the per child amount.
(2) Per child amount.--For purposes of paragraph (1),
the per child amount shall be determined as follows:

In the case of any t The per child amount is--
2001 and 2002............................................. $ 600
2003...................................................... 700
2004...................................................... 800
2005...................................................... 900
2006 or thereafter........................................ 1,000.

(b) [Limitation Based on Adjusted Gross Income.--]
Limitations.--
(1) [In general.--] Limitation based on adjusted
gross income.--The amount of the credit allowable under
subsection (a) shall be reduced (but not below zero) by
$50 for each $1,000 (or fraction thereof) by which the
taxpayer's modified adjusted gross income exceeds the
threshold amount. For purposes of the preceding
sentence, the term ``modified adjusted gross income''
means adjusted gross income increased by any amount
excluded from gross income under section 911, 931, or
933.

* * * * * * *

(3) Limitation based on amount of tax.--The credit
allowed under subsection (a) for any taxable year shall
not exceed the excess of--
(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed
by section 55, over
(B) the sum of the credits allowable under
this subpart (other than this section) and
section 27 for the taxable year.

* * * * * * *

(d) Additional Credit for Families [With 3 or More Children]
Paying Social Security Taxes.--
(1) In general.--[In the case of a taxpayer with
three or more qualifying children for any taxable year,
the] The aggregate credits allowed under subpart C
shall be increased by the lesser of--
(A) the credit which would be allowed under
this section without regard to this subsection
and the limitation under [section 26(a)]
subsection (b)(3); or
(B) the amount by which the [aggregate amount
of credits allowed by this subpart] amount of
credit allowed by this section (without regard
to this subsection) would increase if the
limitation imposed by [section 26(a)]
subsection (b)(3) were increased by the excess
(if any) of--
(i) the taxpayer's Social Security
taxes for the taxable year, over
(ii) the credit allowed under section
32 (determined without regard to
subsection (n)) for the taxable year.
The amount of the credit allowed under this subsection
shall not be treated as a credit allowed under this
subpart and shall reduce the amount of credit otherwise
allowable under subsection (a) without regard to
[section 26(a)] subsection (b)(3).
[(2) Reduction of credit to taxpayer subject to
alternative minimum tax.--For taxable years beginning
after December 31, 2001, the credit determined under
this subsection for the taxable year shall be reduced
by the excess (if any) of--
[(A) the amount of tax imposed by section 55
(relating to alternative minimum tax) with
respect to such taxpayer for such taxable year,
over
[(B) the amount of the reduction under
section 32(h) with respect to such taxpayer for
such taxable year.]
[(3)] (2) Social security taxes.--For purposes of
paragraph (1)--
(A) * * *

* * * * * * *

SEC. 25. INTEREST ON CERTAIN HOME MORTGAGES.

(a) * * *

* * * * * * *

(e) Special Rules and Definitions.--For purposes of this
section--
(1) Carryforward of unused credit.--
(A) * * *

* * * * * * *

(C) Applicable tax limit.--For purposes of
this paragraph, the term ``applicable tax
limit'' means the limitation imposed by section
26(a) for the taxable year reduced by the sum
of the credits allowable under this subpart
(other than this section and sections 23, 24,
and 1400C) .

* * * * * * *

SEC. 26. LIMITATION BASED ON TAX LIABILITY; DEFINITION OF TAX
LIABILITY.

(a) Limitation Based on Amount of Tax.--
(1) In general.--The aggregate amount of credits
allowed by this subpart (other than section 24) for the
taxable year shall not exceed the excess (if any) of--
(A) * * *

* * * * * * *

Subpart C--Refundable Credits

* * * * * * *

SEC. 32. EARNED INCOME.

(a) * * *
(b) Percentages and Amounts.--For purposes of subsection
(a)--
(1) * * *
(2) [Amounts.--The earned] Amounts.--
(A) In general.--Subject to subparagraph (B),
the earned income amount and the phaseout
amount shall be determined as follows:

In the case of an eligible The earned income The phaseout
individual with: amount is: amount is:

1 qualifying child........... $6,330 $11,610
2 or more qualifying children $8,890 $11,610
No qualifying children....... $4,220 $ 5,280

(B) Joint returns.--In the case of a joint
return, the earned income amount determined
under subparagraph (A) shall be 110 percent of
the otherwise applicable amount. If any amount
determined under the preceding sentence is not
a multiple of $10, such amount shall be rounded
to the nearest multiple of $10.
(c) Definitions and Special Rules.--For purposes of this
section--
(1) * * *
(2) Earned income.--
(A) The term ``earned income'' means--
(i) wages, salaries, tips, and other
employee compensation, but only if such
amounts are includible in gross income
for the taxable year, plus

* * * * * * *

[(h) Reduction of Credit to Taxpayers Subject to Alternative
Minimum Tax.--The credit allowed under this section for the
taxable year shall be reduced by the amount of tax imposed by
section 55 (relating to alternative minimum tax) with respect
to such taxpayer for such taxable year.]

* * * * * * *

PART VI--ALTERNATIVE MINIMUM TAX

* * * * * * *

SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

(a) * * *

* * * * * * *

(d) Exemption Amount.--For purposes of this section--
(1) Exemption amount for taxpayers other than
corporations.--In the case of a taxpayer other than a
corporation, the term ``exemption amount'' means--
(A) * * *
(B) $33,750 in the case of an individual
who--
(i) is not a married individual, and
(ii) is not a surviving spouse, [and]
[(C) $22,500 in the case of--
[(i) a married individual who files a
separate return, or
[(ii) an estate or trust.]
(C) 50 percent of the dollar amount
applicable under paragraph (1)(A) in the case
of a married individual who files a separate
return, and
(D) $22,500 in the case of an estate or
trust.
For purposes of this paragraph, the term ``surviving spouse''
has the meaning given to such term by section 2(a), and marital
status shall be determined under section 7703.

* * * * * * *

(3) Phase-out of exemption amount.--The exemption
amount of any taxpayer shall be reduced (but not below
zero) by an amount equal to 25 percent of the amount by
which the alternative minimum taxable income of the
taxpayer exceeds--
(A) * * *

* * * * * * *

(C) $75,000 in the case of a taxpayer
described in [paragraph (1)(C)] subparagraph
(C) or (D) of paragraph (1).
In the case of a taxpayer described in paragraph
(1)(C)[(i)], alternative minimum taxable income shall
be increased by the lesser of (i) 25 percent of the
excess of alternative minimum taxable income
(determined without regard to this sentence) over
[$165,000 or (ii) $22,500] the minimum amount of such
income (as so determined) for which the exemption
amount under paragraph (1)(C) is zero, or (ii) such
exemption amount (determined without regard to this
paragraph).
(4) Adjustment of exemption amount for joint
returns.--
(A) In general.--The dollar amount applicable
under paragraph (1)(A) for 2008 and each even-
numbered calendar year thereafter--
(i) shall be $500 greater than the
dollar amount applicable under
paragraph (1)(A) for the prior even-
numbered calendar year, and
(ii) shall apply to taxable years
beginning in such even-numbered
calendar year and in the succeeding
calendar year.
In no event shall the dollar amount applicable
under paragraph (1)(A) exceed twice the dollar
amount applicable under paragraph (1)(B).
(B) Exemption amounts for 2005, 2006, and
2007.--The dollar amount applicable under
paragraph (1)(A) shall be--
(i) $46,000 for taxable years
beginning in 2005, and
(ii) $46,500 for taxable years
beginning in 2006 or 2007.

* * * * * * *

Subchapter B--Computation of Taxable Income

* * * * * * *

PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.

* * * * * * *

SEC. 63. TAXABLE INCOME DEFINED.

(a) * * *

* * * * * * *

(c) Standard Deduction.--For purposes of this subtitle--
(1) * * *
(2) Basic standard deduction.--For purposes of
paragraph (1), the basic standard deduction is--
(A) [$5,000] 200 percent of the dollar amount
in effect under subparagraph (C) for the
taxable year in the case of--
(i) a joint return, or
(ii) a surviving spouse (as defined
in section 2(a)),
(B) $4,400 in the case of a head of household
(as defined in section 2(b)), or
(C) $3,000 [in the case of an individual who
is not married and who is not a surviving
spouse or head of household, or] in any other
case.
[(D) $2,500 in the case of a married
individual filing a separate return.]

* * * * * * *

(4) Adjustments for inflation.--In the case of any
taxable year beginning in a calendar year after 1988,
each dollar amount contained in paragraph (2) or (5) or
subsection (f) shall be increased by an amount equal
to--
(A) * * *

* * * * * * *

The preceding sentence shall not apply to the amount
referred to in paragraph (2)(A).

* * * * * * *

Subchapter N--Tax Based on Income From Sources Within or Without the
United States

* * * * * * *

PART III--INCOME FROM SOURCES WITHOUT THE UNITED STATES

* * * * * * *

Subpart A--Foreign Tax Credit

* * * * * * *

SEC. 904. LIMITATION ON CREDIT.

(a) * * *

* * * * * * *

(h) Coordination With Nonrefundable Personal Credits.--In the
case of an individual, for purposes of subsection (a), the tax
against which the credit is taken is such tax reduced by the
sum of the credits allowable under subpart A of part IV of
subchapter A of this chapter (other than section 24). This
subsection shall not apply to taxable years beginning during
2000 or 2001.

* * * * * * *

Subchapter W--District of Columbia Enterprise Zone

* * * * * * *

SEC. 1400C. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.

(a) * * *

* * * * * * *

(d) Carryover of Credit.--If the credit allowable under
subsection (a) exceeds the limitation imposed by section 26(a)
for such taxable year reduced by the sum of the credits
allowable under subpart A of part IV of subchapter A (other
than this section and section 24), such excess shall be carried
to the succeeding taxable year and added to the credit
allowable under subsection (a) for such taxable year.

* * * * * * *

VII. DISSENTING VIEWS

The Democratic Members of the Committee on Ways and Means
strongly support marriage penalty relief and tax benefits for
families with children. Our Democratic substitute provides them
tax benefits and it provides them in the context of an overall
tax plan that is fiscally responsible, fair, and honest. It
also provides tax benefits in the context of an overall budget
framework that ensures sufficient resources for many bipartisan
priorities such as prescription drug benefits for older
Americans.
The bill reported by the Republican Members of the
Committee is the second installment of an excessive overall tax
plan that does not meet any of the standards that we believe
are necessary for tax relief. The fact that the Republicans
have chosen to pursue their tax program in separate
installments is evidence that even they are troubled by its
overall size and unfairness. Rather than deal with these
problems directly by changing their plan, they seek to hide
them by enacting the plan in installments. We continue to
resist that strategy.
Our dissenting views to H.R. 3, the first installment of
the Republican tax reduction, clearly set out our priorities.
We do not intend to repeat that entire discussion here, but
want to comment on several specifics of this installment of the
overall plan.
Fiscal responsibility
The House Republicans have responded to our demand for a
budget framework by proposing a bad framework which
deliberately understates the funding that will be required for
a Medicare prescription drug benefit, education, debt
reduction, defense, agriculture, veterans and other priorities.
The House Republican budget framework was not designed with a
desire to determine realistically the funding priorities of the
American people. It was designed with the single purpose of
accommodating President Bush's $1.6 trillion tax reduction
plan.
An example of the hypocrisy of the House budget resolution
can be seen from Attorney General Ashcroft's comments following
the March 22, 2001 school shooting in El Cajon, California. He
was asked on national television what the Federal government
can do to prevent such shootings. He pointed out that the
Federal COPS Program provided funding to the locality in which
the school was located and that the program may have made
possible the prompt police action. The COPS program has been
targeted for elimination by the Republicans in their budget
resolution.
As we mentioned in our prior dissenting views, the budget
resolution is based on highly uncertain budget projections.
Recent events in the economy and reports of growing medical
cost inflation makes those budget projections even more suspect
than they were in January. We should not risk our economy or
our ability to protect Medicare and Social Security based on
those uncertain projections.
On Monday of this week the Trustees of the Social Security
and Medicare Trust Funds released a report on the solvency of
those funds. In that report, they used economic assumptions far
less optimistic than the economic assumptions underlying
President Bush's tax reduction plan. The Republican's are
following the strategy of using conservative economic
assumptions to support their drive to deny guaranteed benefits
under the Social Security and Medicare systems. At the same
time, they are using very optimistic assumptions to justify
their drive to provide enormous tax reductions to the
wealthiest segment of our society.

Fairness

We commend Chairman Thomas for the proposals in his bill
that would expand the Earned Income Tax Credit and that would
eliminate some of the more egregious provisions of President
Bush's child credit proposal. We are particularly pleased with
his recognition of the important role of the EITC in providing
work incentives. It is a refreshing change after six years of
unrelenting Republican hostility to the program. We are hopeful
that his bill marks the end of partisan disputes on this issue
and will lead to further attempts to improve the program on a
bipartisan basis.
However, the improvements made by the Chairman to the Bush
proposals do little to change the overall unfairness of the
Republican tax plan. This legislation is one of several that
will be combined to create excessive tax cuts which will
provide a disproportionate amount of benefits to the wealthiest
of our society.

Honesty

The rhetoric surrounding the Committee bill promises far
larger tax relief than the amount which actually would be
delivered under the small print of the bill. In this respect
H.R. 6, the second installment of the Bush tax program, is no
different from the first installment that already has been
passed by the House.
The chairman has emphasized the fact that his bill provides
partial refundability of the family credit. He does not mention
the fact that the partial refundability provision is
extraordinarily complicated and will not benefit low income
families because of its interaction with the Earned Income Tax
Credit. Families with two children will receive no benefit from
the partial refundability provision until their income exceeds
$27,000. One assumes that refundability will assist most low-
income families. That is not the case with the Republican bill.
The rhetoric surrounding the Committee bill promises a
$1,000 family credit but does mention the fact that the credit
increase is not fully effective until 2006. Many families with
children will never see the full family credit because their
children will be over 16 years old in 2006. Those families will
face the unhappy news that the Chairman's bill does not
continue the current law waiver of the alternative minimum tax
limitations on the credits for college expenses. They could
lose $1,500 of tax savings for each child in college benefits
available currently because of this failure.
The rhetoric promises marriage penalty relief for families
that do not itemize deductions on their tax returns. Again, the
rhetoric fails to mention that no part of that relief is
effective until 2004 and the relief is not fully effective
until 2009. The rhetoric also fails to mention that the
alternative minimum tax will deny much of that promised
marriage penalty relief if the family happens to reside in a
State with income taxes.

Process

During the Committee markup, the Administration
spokesperson was asked whether the Administration supported the
Committee bill even though it made fairly significant changes
to President Bush's proposals. He responded that the
Administration supports the Committee bill because it advances
the process. His failure to endorse the substance of the bill
is indicated by the following table that shows that the
Congressional Republican tax plans can not fit within the
President's $1.6 trillion 10-year-cost cap.The following list
shows how Republican tax-cut initiatives add up to much more
than is prudent.
The following list shows how Republican tax-cut initiatives
add up to much more than is prudent.

10-year cost in billions
Individual Income Tax Rate Reductions (H.R. 3 as passed by
House).................................................... $958
Committee bill with child credit increase and marriage penalty
relief (to be considered on Floor this week).............. 399
Phase-out of estate and gift taxes, as proposed in Bush budget 267
Bush proposal for tax incentives for charitable contributions
(allowing charitable deduction to non-itemizers, allowing
withdrawals from IRAs for charitable purposes, and
increasing limitation on corporate charitable
contributions)............................................ 56
Bush education IRAs........................................... 6
Pension/IRA liberalizations passed by House last year......... 64
Bush proposal for permanent extension of research credit...... 50
Permanent extension of other expiring tax provisions,
including work opportunity tax credit and treatment of
foreign financial services businesses..................... 43
Bush proposal for health-related tax benefits................. 123
Small business tax provisions as passed by the House last
year...................................................... 36
Minimal fix to alternative minimum tax required as a result of
Republican rate reductions................................ 292
Capital gains tax cut......................................... 103
--------------------------------------------------------------
____________________________________________________

Total tax reductions.................................... 2,397
Debt service cost............................................. 556
--------------------------------------------------------------
____________________________________________________

Total budget effect..................................... 2,953

The Bush Administration seems intent on reversing many of
the policies of the Clinton Administration. The Bush
Administration already has weakened worker's safety and
environmental protections. The Bush Administration also seems
insistent on abandoning the fiscal discipline that was an
important part of the Clinton economic program. The recent
turmoil in the financial markets would lead one to question the
wisdom of that policy change. We are hopeful that the
Republican Members of Congress are willing to reexamine the
Bush program and attempt to reach bipartisan consensus of tax
relief.

Charles B. Rangel.
Robert T. Matsui.
Ben Cardin.
Sander M. Levin.
Richard E. Neal.
William J. Coyne.
Michael R. McNulty.
Xavier Bercerra.
Earl Pomeroy.
Jim McDermott.
Jerry Kleczka.
John Lewis.
William J. Jefferson.
Pete Stark.
Karen L. Thurman.