[House Report 107-31]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     107-31

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



 
PROVIDING FOR CONSIDERATION OF H.R. 6, MARRIAGE PENALTY AND FAMILY TAX 
                           RELIEF ACT OF 2001

                                _______
                                

   March 28, 2001.--Referred to the House Calendar and ordered to be 
                                printed

                                _______
                                

Ms. Pryce of Ohio, from the Committee on Rules, submitted the following

                              R E P O R T

                       [To accompany H. Res. 104]

    The Committee on Rules, having had under consideration 
House Resolution 104, by a nonrecord vote, report the same to 
the House with the recommendation that the resolution be 
adopted.

                summary of provisions of the resolution

    The resolution provides for consideration in the House of 
H.R. 6, the Marriage Penalty and Family Tax Relief Act of 2001, 
under a modified closed rule. The rule provides one hour of 
debate equally divided and controlled by the chairman and 
ranking minority member of the Committee on Ways and Means. The 
rule waives all points of order against consideration of the 
bill.
    The rule provides that the amendment recommended by the 
Committee on Ways and Means now printed in the bill shall be 
considered as adopted. The rule further provides for 
consideration of the amendment in the nature of a substitute, 
printed in this report, if offered by Representative Rangel or 
his designee, which shall be considered as read and shall be 
separately debatable for one hour equally divided and 
controlled by the proponent and an opponent. The rule waives 
all points of order against the amendment in the nature of a 
substitute. Finally, the rule provides one motion to recommit 
with or without instructions.
    The waiver of all points of order includes a waiver of 
clause 4(a) of rule XIII (requiring a three-day layover of the 
committee report), a waiver of section 302 of the Congressional 
Budget Act of 1974 (prohibiting consideration of legislation 
providing new budget authority in excess of a committee's 
allocation of such authority) and section 303 of the 
Congressional Budget Act of 1974 (prohibiting consideration of 
legislation, as reported, providing new budget authority, 
changes in revenues, or changes in the public debt for a fiscal 
year until the budget resolution for that year has been agreed 
to).
    The waiver of clause 4(a) of rule XIII is needed because 
the report was not available until Wednesday, March 28 and the 
bill may be considered by the House as early as Thursday, March 
29. The waiver of section 302 is necessary because, according 
to the Joint Committee on Taxation, the bill would increase 
direct spending by $5.1 billion over the 2001-2006 period. The 
waiver of section 303 is necessary because Congress has not yet 
completed consideration of a budget resolution for FY 2002 and, 
according to the Joint Committee on Taxation, the bill would 
decrease revenues and increase direct spending in FY 2002.
    The waiver of all points of order against consideration of 
the minority substitute is necessary for the same general 
reasons as are necessary for the bill.

                   summary of amendment made in order

    Rangel--Democratic Substitute. Creates a new 12 percent tax 
rate (phased-in through 2003) for the first $20,000 of taxable 
income, equivalent to the approximately $41,000 of total income 
for a couple with two children. (The lower rate applies to the 
first $10,000 of taxable income on a single return.) Increases 
the earned income tax credit by $272 for families with one 
child and $320 for families with two or more children. Creates 
a standard deduction for married couples equal to twice the 
standard available to single individuals (the current law 
standard deduction of $7,800 per couple is increased to 
$9,300). Provides marriage penalty relief in the earned income 
credit and the rate reductions. Costs $585 billion over ten 
years.

             text of amendment made in order under the rule

 An Amendment To Be Offered by Representative Rangel of New York, or a 
                   Designee, Debatable for 60 Minutes

  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  (a) Short Title.--This Act may be cited as the ``Tax 
Reduction Act of 2001''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is 
expressed in terms of an amendment to, or repeal of, a section 
or other provision, the reference shall be considered to be 
made to a section or other provision of the Internal Revenue 
Code of 1986.
  (c) Section 15 Not To Apply.--No amendment made by this Act 
shall be treated as a change in a rate of tax for purposes of 
section 15 of the Internal Revenue Code of 1986.

  TITLE I--INDIVIDUAL INCOME TAX RATE REDUCTIONS; EXPANSION OF EARNED 
                        INCOME CREDIT ASSISTANCE

SEC. 101. INDIVIDUAL INCOME TAX RATE REDUCTIONS.

  (a) In General.--Section 1 is amended by adding at the end 
the following new subsection:
  ``(i) 12 Percent Rate Bracket.--
          ``(1) In general.--In the case of taxable years 
        beginning after December 31, 2000--
                  ``(A) the rate of tax under subsections (a), 
                (b), (c), and (d) on taxable income not over 
                the initial bracket amount shall be 12 percent, 
                and
                  ``(B) the 15 percent rate of tax shall apply 
                only to taxable income over the initial bracket 
                amount.
          ``(2) Initial bracket amount.--For purposes of this 
        subsection--
                  ``(A) In general.--Except as provided in 
                subparagraph (B), the initial bracket amount 
                is--
                          ``(i) $20,000 in the case of 
                        subsection (a),
                          ``(ii) 80 percent of the dollar 
                        amount in clause (i) in the case of 
                        subsection (b), and
                          ``(iii) 50 percent of the dollar 
                        amount in clause (i) in the case of 
                        subsections (c) and (d).
                  ``(B) Phasein.--The initial bracket amount 
                is--
                          ``(i) \1/4\ the amount otherwise 
                        applicable under subparagraph (A) in 
                        the case of taxable years beginning 
                        during 2001, and
                          ``(ii) \1/2\ such amount otherwise 
                        applicable under subparagraph (A) in 
                        the case of taxable years beginning 
                        during 2002.
          ``(3) Inflation adjustment.--
                  ``(A) In general.--In the case of any taxable 
                year beginning in a calendar year after 2003, 
                the $20,000 amount under paragraph (2)(A)(i) 
                shall be increased by an amount equal to--
                          ``(i) such dollar amount, multiplied 
                        by
                          ``(ii) the cost-of-living adjustment 
                        determined under subsection (f)(3) for 
                        the calendar year in which the taxable 
                        year begins, determined by substituting 
                        `calendar year 2002' for `calendar year 
                        1992' in subparagraph (B) thereof.
                  ``(B) Rounding rules.--If any amount after 
                adjustment under subparagraph (A) is not a 
                multiple of $50, such amount shall be rounded 
                to the next lowest multiple of $50.
          ``(4) Adjustment of tables.--The Secretary shall 
        adjust the tables prescribed under subsection (f) to 
        carry out this subsection.''
  (b) Adjustment in Computation of Alternative Minimum Tax.--
Paragraph (2) of section 55(a) is amended to read as follows:
          ``(2) the sum of--
                  ``(A) the regular tax for the taxable year, 
                plus
                  ``(B) in the case of an individual, 3 percent 
                of so much of the individual's taxable income 
                for the taxable year as is taxed at 12 
                percent.''
  (c) Repeal of Reduction of Refundable Tax Credits.--
          (1) Subsection (d) of section 24 is amended by 
        striking paragraph (2) and redesignating paragraph (3) 
        as paragraph (2).
          (2) Section 32 is amended by striking subsection (h).
  (d) Conforming Amendment.--Subclause (II) of section 
1(g)(7)(B)(ii) is amended by striking ``15 percent'' and 
inserting ``12 percent''.
  (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.
  (f) Protection of Social Security and Medicare.--The amounts 
transferred to any trust fund under the Social Security Act 
shall be determined as if this Act had not been enacted.

SEC. 102. MODIFICATIONS TO EARNED INCOME TAX CREDIT.

  (a) Increases in Percentages and Amounts Used to Determine 
Credit; Marriage Penalty Relief.--
          (1) In general.--Subsection (b) of section 32 is 
        amended to read as follows:
  ``(b) Percentages and Amounts.--
          ``(1) Percentages.--The credit percentage, the 
        initial phaseout percentage, and the final phaseout 
        percentage shall be determined as follows:


   ``In the case of an eligible                                 The initial phaseout       The final phaseout
         individual with:          The credit percentage is:       percentage is:            percentage is:

1 qualifying child...............              34                       15.98                     18.98
2 or more qualifying children....              40                       21.06                     24.06
No qualifying children...........             7.65                      7.65                      7.65


      
          ``(2) Amounts.--
                  ``(A) In general.--The earned income amount 
                and the initial phaseout amount shall be 
                determined as follows:


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

1 qualifying child..........         $8,140                $13,470
2 or more qualifying                 $10,820               $13,470
 children...................
No qualifying children......         $4,900                $6,130


      
                In the case of a joint return where there is at 
                least 1 qualifying child, the initial phaseout 
                amount shall be $2,500 greater than the amount 
                otherwise applicable under the preceding 
                sentence.
                  ``(B) Final phaseout amount.--The final 
                phaseout amount is $26,000 ($28,500 in the case 
                of a joint return).''
          (2) Modification of computation of phaseout.--
        Paragraph (2) of section 32(a) is amended to read as 
        follows:
          ``(2) Phaseout of credit.--The amount of the credit 
        allowable to a taxpayer under paragraph (1) for any 
        taxable year shall be reduced (but not below zero) by 
        the sum of--
                  ``(A) the initial phaseout percentage of so 
                much of the total income (or, if greater, the 
                earned income) of the taxpayer for the taxable 
                year as exceeds the initial phaseout amount but 
                does not exceed the final phaseout amount, plus
                  ``(B) the final phaseout percentage of so 
                much of the total income (or, if greater, the 
                earned income) of the taxpayer for the taxable 
                year as exceeds the final phaseout amount.''
          (3) Total income.--Paragraph (5) of section 32(c) is 
        amended to read as follows:
          ``(5) Total income.--The term `total income' means 
        adjusted gross income determined without regard to--
                  ``(A) the deductions referred to in 
                paragraphs (6), (7), (9), (10), (15), (16), and 
                (17) of section 62(a),
                  ``(B) the deduction allowed by section 
                162(l), and
                  ``(C) the deduction allowed by section 
                164(f).''
          (4) Conforming amendments.--
                  (A) Subsection (j) of section 32 is amended 
                to read as follows:
  ``(j) Inflation Adjustment.--
          ``(1) In general.--In the case of any taxable year 
        beginning after 2002, each of the dollar amounts in 
        subsection (b)(2) shall be increased by an amount equal 
        to--
                  ``(A) such dollar amount, multiplied by
                  ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3), for the 
                calendar year in which the taxable year begins, 
                determined by substituting `calendar year 2001' 
                for `calendar year 1992' in subparagraph (B) 
                thereof.
          ``(2) Rounding.--If any dollar amount, after being 
        increased under paragraph (1), is not a multiple of 
        $10, such dollar amount shall be rounded to the nearest 
        multiple of $10.''
                  (B) Subparagraph (C) of section 32(c)(1) is 
                amended by striking ``modified adjusted gross 
                income'' and inserting ``total income''.
                  (C) Paragraph (2) of section 32(f) is amended 
                to read as follows:
          ``(2) Requirements for tables.--
                  ``(A) In general.--The provisions of 
                subsection (a)(1) and the provisions of 
                subsection (a)(2) shall be reflected in 
                separate tables prescribed under paragraph (1).
                  ``(B) Subsection (a)(1) table.--The tables 
                prescribed under paragraph (1) to reflect the 
                provisions of subsection (a)(1) shall have 
                income brackets of not greater than $50 each 
                for earned income between $0 and the earned 
                income amount.
                  ``(C) Subsection (a)(2) table.--The tables 
                prescribed under paragraph (1) to reflect the 
                provisions of subsection (a)(2) shall have 
                income brackets of not greater than $50 each 
                for total income (or, if greater, the earned 
                income) above the initial phaseout threshold.''
  (b) Repeal of Denial of Credit Where Investment Income.--
Section 32 is amended by striking subsection (i).
  (c) Earned Income To Include Only Amounts Includible in Gross 
Income.--
          (1) In general.--Section 32(c)(2)(A)(i) (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''.
          (2) Conforming amendment.--Section 32(c)(2)(B) is 
        amended by striking ``and'' at the end of clause (iv), 
        by striking the period at the end of clause (v) and 
        inserting ``, and'', and by adding at the end the 
        following new clause:
                          ``(vi) the requirement under 
                        subparagraph (A)(i) that an amount be 
                        includible in gross income shall not 
                        apply if such amount is exempt from tax 
                        under section 7873 or is derived 
                        directly from restricted and allotted 
                        land under the Act of February 8, 1887 
                        (commonly known as the Indian General 
                        Allotment Act) (25 U.S.C. 331 et seq.) 
                        or from land held under Acts or 
                        treaties containing an exception 
                        provision similar to the Indian General 
                        Allotment Act.''
  (d) Modification of Joint Return Requirement.--Subsection (d) 
of section 32 is amended to read as follows:
  ``(d) Married Individuals.--
          ``(1) In general.--If the taxpayer is married at the 
        close of the taxable year, the credit shall be allowed 
        under subsection (a) only if the taxpayer and his 
        spouse file a joint return for the taxable year.
          ``(2) Marital status.--For purposes of paragraph (1), 
        an individual legally separated from his spouse under a 
        decree of divorce or of separate maintenance shall not 
        be considered as married.
          ``(3) Certain married individuals living apart.--For 
        purposes of paragraph (1), if--
                  ``(A) an individual --
                          ``(i) is married and files a separate 
                        return, and
                          ``(ii) has a qualifying child who is 
                        a son, daughter, stepson, or 
                        stepdaughter of such individual, and
                  ``(B) during the last 6 months of such 
                taxable year, such individual and such 
                individual's spouse do not have the same 
                principal place of abode,
        such individual shall not be considered as married.''
  (e) Expansion of Mathematical Error Authority.--Paragraph (2) 
of section 6213(g) is amended by striking ``and'' at the end of 
subparagraph (K), by striking the period at the end of 
subparagraph (L) and inserting ``, and'', and by inserting 
after subparagraph (L) the following new subparagraph:
                  ``(M) the entry on the return claiming the 
                credit under section 32 with respect to a child 
                if, according to the Federal Case Registry of 
                Child Support Orders established under section 
                453(h) of the Social Security Act, the taxpayer 
                is a noncustodial parent of such child.''
  (f) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2001.

                   TITLE II--MARRIAGE PENALTY RELIEF

SEC. 201. MARRIAGE PENALTY RELIEF.

  (a) Standard Deduction.--
          (1) In general.--Paragraph (2) of section 63(c) 
        (relating to standard deduction) is amended--
                  (A) by striking ``$5,000'' in subparagraph 
                (A) and inserting ``twice the dollar amount in 
                effect under subparagraph (C) for the taxable 
                year'',
                  (B) by adding ``or'' at the end of 
                subparagraph (B),
                  (C) by striking ``in the case of'' and all 
                that follows in subparagraph (C) and inserting 
                ``in any other case.'', and
                  (D) by striking subparagraph (D).
          (2) Increase allowed as deduction in determining 
        minimum tax.--Subparagraph (E) of section 56(b)(1) is 
        amended by adding at the end the following new 
        sentence: ``The preceding sentence shall not apply to 
        so much of the standard deduction under subparagraph 
        (A) of section 63(c)(2) as exceeds the amount which 
        would be such deduction but for the amendment made by 
        section 201(a)(1) of the Tax Reduction Act of 2001.
          (3) Technical amendments.--
                  (A) Subparagraph (B) of section 1(f)(6) is 
                amended by striking ``(other than with'' and 
                all that follows through ``shall be applied'' 
                and inserting ``(other than with respect to 
                sections 63(c)(4) and 151(d)(4)(A)) shall be 
                applied''.
                  (B) Paragraph (4) of section 63(c) is amended 
                by adding at the end the following flush 
                sentence:
        ``The preceding sentence shall not apply to the amount 
        referred to in paragraph (2)(A).''.
  (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

                                
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