[House Report 107-7]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                      107-7

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



 
               ECONOMIC GROWTH AND TAX RELIEF ACT OF 2001

                                _______
                                

 March 6, 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. 3]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3) to amend the Internal Revenue Code of 1986 to 
reduce individual income tax rates, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background...........................................3
          A. Purpose and Summary.................................     3
          B. Background and Need for Legislation.................     4
          C. Legislative History.................................     4
 II. Explanation of the Bill..........................................4
III. Votes of the Committee...........................................9
 IV. Budget Effects of the Bill......................................11
          A. Committee Estimates of Budgetary Effects............    11
          B. Budget Authority and Tax Expenditures...............    12
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    12
  V. Other Matters To Be Discussed Under the Rules of the House......16
          A. Committee Oversight Findings and Recommendations....    16
          B. Summary of Findings and Recommendations of the 
              Committee on Government Reform and Oversight.......    16
          C. Constitutional Authority Statement..................    16
          D. Information Relating to Unfunded Mandates...........    16
          E. Applicability of House Rule XX15(b).................    16
          F. Tax Complexity Analysis.............................    17
 VI. Changes in Existing Law Made by the Bill, as Reported...........20
VII. Dissenting Views................................................27

  The amendment is 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 ``Economic Growth and 
Tax Relief 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 section 2 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. REDUCTION IN INCOME TAX RATES FOR INDIVIDUALS.

  (a) In General.--Section 1 is amended by adding at the end the 
following new subsection:
  ``(i) Rate Reductions After 2000.--
          ``(1) New lowest rate bracket.--
                  ``(A) In general.--In the case of taxable years 
                beginning after December 31, 2000--
                          ``(i) the rate of tax under subsections (a), 
                        (b), (c), and (d) on taxable income not over 
                        the initial bracket amount shall be 12 percent 
                        (as modified by paragraph (2)), and
                          ``(ii) the 15 percent rate of tax shall apply 
                        only to taxable income over the initial bracket 
                        amount.
                  ``(B) Initial bracket amount.--For purposes of this 
                subsection, the initial bracket amount is--
                          ``(i) $12,000 in the case of subsection (a),
                          ``(ii) $10,000 in the case of subsection (b), 
                        and
                          ``(iii) \1/2\ the amount applicable under 
                        clause (i) in the case of subsections (c) and 
                        (d).
                  ``(C) Inflation adjustment.--In prescribing the 
                tables under subsection (f) which apply with respect to 
                taxable years beginning in calendar years after 2001--
                          ``(i) the Secretary shall make no adjustment 
                        to the initial bracket amount for any taxable 
                        year beginning before January 1, 2007,
                          ``(ii) the cost-of-living adjustment used in 
                        making adjustments to the initial bracket 
                        amount for any taxable year beginning after 
                        December 31, 2006, shall be determined under 
                        subsection (f)(3) by substituting `2005' for 
                        `1992' in subparagraph (B) thereof, and
                          ``(iii) such adjustment shall not apply to 
                        the amount referred to in subparagraph 
                        (B)(iii).
                If any amount after adjustment under the preceding 
                sentence is not a multiple of $50, such amount shall be 
                rounded to the next lowest multiple of $50.
          ``(2) Reductions in rates after 2001.--In the case of taxable 
        years beginning in a calendar year after 2001, the 
        corresponding percentage specified for such calendar year in 
        the following table shall be substituted for the otherwise 
        applicable tax rate in the tables under subsections (a), (b), 
        (c), (d), and, to the extent applicable, (e).


----------------------------------------------------------------------------------------------------------------
                                                                       The corresponding percentages shall  be
                                   ``In the case of taxable years     substituted for the following percentages:
                                   beginning during calendar year:  --------------------------------------------
                                                                       12%      28%      31%      36%     39.6%
----------------------------------------------------------------------------------------------------------------
                                 2002..............................    12%      27%      30%      35%      38%
                                 2003..............................    11%      27%      29%      35%      37%
                                 2004..............................    11%      26%      28%      34%      36%
                                 2005..............................    11%      26%      27%      34%      35%
                                 2006 and thereafter...............    10%      25%      25%      33%      33%
----------------------------------------------------------------------------------------------------------------

          ``(3) Adjustment of tables.--The Secretary shall adjust the 
        tables prescribed under subsection (f) to carry out this 
        subsection.''
  (b) 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).
  (c) Conforming Amendments.--
          (1) Subparagraph (B) of section 1(g)(7) is amended--
                  (A) by striking ``15 percent'' in clause (ii)(II) and 
                inserting ``the first bracket percentage'', and
                  (B) by adding at the end the following flush 
                sentence:
                ``For purposes of clause (ii), the first bracket 
                percentage is the percentage applicable to the lowest 
                income bracket in the table under subsection (c).''
          (2) Section 1(h) is amended--
                  (A) by striking ``28 percent'' both places it appears 
                in paragraphs (1)(A)(ii)(I) and (1)(B)(i) and inserting 
                ``25 percent'', and
                  (B) by striking paragraph (13).
          (3) Section 15 is amended by adding at the end the following 
        new subsection:
  ``(f) Rate Reductions Enacted by Economic Growth and Tax Relief Act 
of 2001.--This section shall not apply to any change in rates under 
subsection (i) of section 1 (relating to rate reductions after 2000).''
          (4) Section 531 is amended by striking ``equal to'' and all 
        that follows and inserting ``equal to the product of the 
        highest rate of tax under section 1(c) and the accumulated 
        taxable income.''.
          (5) Section 541 is amended by striking ``equal to'' and all 
        that follows and inserting ``equal to the product of the 
        highest rate of tax under section 1(c) and the undistributed 
        personal holding company income.''.
          (6) Section 3402(p)(1)(B) is amended by striking ``7, 15, 28, 
        or 31 percent'' and inserting ``7 percent, any percentage 
        applicable to any of the 3 lowest income brackets in the table 
        under section 1(c),''.
          (7) Section 3402(p)(2) is amended by striking ``equal to 15 
        percent of such payment'' and inserting ``equal to the product 
        of the lowest rate of tax under section 1(c) and such 
        payment''.
          (8) Section 3402(q)(1) is amended by striking ``equal to 28 
        percent of such payment'' and inserting ``equal to the product 
        of the third to the lowest rate of tax under section 1(c) and 
        such payment''.
          (9) Section 3402(r)(3) is amended by striking ``31 percent'' 
        and inserting ``the third to the lowest rate of tax under 
        section 1(c)''.
          (10) Section 3406(a)(1) is amended by striking ``equal to 31 
        percent of such payment'' and inserting ``equal to the product 
        of the third to the lowest rate of tax under section 1(c) and 
        such payment''.
          (11) Section 13273 of the Revenue Reconciliation Act of 1993 
        is amended by striking ``28 percent'' and inserting ``the third 
        to the lowest rate of tax under section 1(c) of the Internal 
        Revenue Code of 1986''.
  (d) Effective Dates.--
          (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) Amendments to withholding provisions.--The amendments 
        made by paragraphs (6), (7), (8), (9), (10), and (11) of 
        subsection (c) shall apply to amounts paid after the 60th day 
        after the date of the enactment of this Act.

SEC. 3. 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.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 3, as amended (the ``Economic Growth and Tax 
Relief Act of 2001'') provides income tax relief to American 
taxpayers.
    The bill provides net tax reductions of over $363 billion 
over fiscal years 2001-2006. This will provide needed income 
tax relief for over 100 million American taxpayers, return the 
tax revenues not needed to fund government programs, and foster 
economic prosperity in the 21st century.
    The bill creates a new low-rate regular income tax bracket 
for a portion of the taxable income that is currently taxed at 
15 percent. The bill reduces the other income tax rates and 
consolidates rate brackets. By 2006, the present-law rate 
structure of five regular income tax rates (15 percent, 28 
percent, 31 percent, 36 percent, and 39.6 percent) are reduced 
to four rates of 10 percent, 15 percent, 25 percent, and 33 
percent. The bill also repeals the provisions that reduce the 
refundable child credit and the earned income credit by the 
amount of the individual's alternative minimum tax. The bill is 
generally effective for taxable years beginning after December 
31, 2000, and is fully effective for taxable years beginning 
after December 31, 2005.

                 B. Background and Need for Legislation

    The provisions approved by the Committee reflect the need 
for tax relief for American taxpayers 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 provision comply with the most recent Congressional 
Budget Office revisions of budget surplus projections, and 
represent a prudent first step in reducing overall levels of 
Federal taxation.

                         C. Legislative History

    The Committee on Ways and Means marked up the provisions of 
the bill on March 1, 2001, and approved the provisions, as 
amended, on March 1, 2001, by a roll call vote of 23 yeas and 
15 nays, with a quorum present.

                      II. EXPLANATION OF THE BILL


                              PRESENT LAW

    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 1., below. 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.

                             TABLE 1.--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 2., below) to alternative 
minimum taxable income in excess of specified exemption 
amounts. 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 2.--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.

                  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 bill makes the first down payment on 
President Bush's pledge to deliver $1.6 trillion in tax relief 
to the American people. The Committee bill provides immediate 
tax relief to American taxpayers in the form of a new rate 
bracket for the first $6,000 of taxable income for single 
individuals and the first $12,000 of taxable income for married 
couples filing a joint return. This new 10-percent rate bracket 
will be phased in, beginning in 2001. In addition, the 
Committee bill phases in reductions in all individual income 
tax rates over five years. The Committee bill will provide tax 
relief to more than 100 million income tax returns of 
individuals, including at least 16 million returns of 
individuals with business income.
    The Committee believes that providing tax relief to the 
American people is appropriate for a number of reasons. The 
Congressional Budget Office (``CBO'') projects budget surpluses 
of $5.0 trillion over the next 10 fiscal years (2001-2010). 
Federal revenues have been rising as a share of the gross 
domestic product (``GDP''). CBO projects that, during the 
fiscal year 2001-2010 period, Federal revenues will be more 
than 20 percent of the GDP annually. By contrast, during the 
early 1990's, Federal revenues generally were only 17-18 
percent of the GDP. Individual income taxes account for most of 
the recent rise in revenues as a percentage of GDP. Federal 
individual income tax revenues rose to over 10 percent of GDP 
in fiscal year 2000 for the first time in history and are 
projected by the CBO to exceed 10 percent of GDP for each of 
the fiscal years 2001-2010. The CBO projects that the growth of 
Federal revenues will, for fiscal year 2001, outstrip the 
growth of GDP for the ninth consecutive year. Moreover, the CBO 
states that ``[t]he most significant source of the growth of 
income taxes relative to GDP was the increase in the effective 
tax rate.'' \1\
---------------------------------------------------------------------------
    \1\ Congressional Budget Office, Congress of the United States, The 
Budget Economic Outlook: Fiscal Years 2002-2011, January 2001, p. 56.
---------------------------------------------------------------------------
    The Federal income tax is intended to collect revenues to 
fund the programs of the Federal government. If more tax 
revenues are collected than are needed to fund the government, 
the Committee believes that at least a portion of the excess 
should be returned to the taxpayers who are paying Federal 
income taxes. A portion of the surplus can be returned while 
still retaining enough to pay down the public debt, fund 
priorities such as education and defense and secure the future 
of Social Security and Medicare. Thus, the Committee believes 
that it is appropriate to provide relief from the high 
individual income tax rates of present law.
    The Committee believes that high individual income tax 
rates reduce incentives for taxpayers to work, to save, and to 
invest and, thereby, have a negative effect on the long-term 
health of the economy. The higher that marginal tax rates are, 
the greater is the disincentive for individuals to increase 
their work effort. In addition, the Committee has received 
testimony from tax experts that high marginal tax rates lead to 
reduced confidence in the Federal tax system and lower rates of 
voluntary compliance by taxpayers. Lower marginal tax rates 
provide greater incentives to taxpayers to be entrepreneurial 
risk takers; the Committee believes that the high marginal tax 
rates of present law discourage success. The Committee bill 
provides a tax cut to more than 16 million owners of 
businesses--sole proprietorships, partnerships, and S 
corporations. The Committee believes that this tax cut will 
lead to increased investment by these businesses, promoting 
long-term growth and stability in the economy and rewarding the 
businessmen and women who provide a foundation for our 
country's success.
    In addition, lower marginal tax rates help remove the 
barriers that lower-income families face as they try to enter 
the middle class. The lower the marginal tax rates for those 
taxpayers in the lowest income tax brackets, the greater is the 
incentive to work. The new 10-percent rate bracket in the 
Committee bill delivers more benefit as a percentage of income 
to low-income taxpayers than high-income taxpayers and provides 
an incentive for these taxpayers to increase their work effort.
    Finally, there are signs that the economy is slowing. The 
Committee believes that immediate tax relief may encourage 
short-term growth in the economy by providing individuals with 
additional cash to spend. However, the Committee recognizes 
that it is important to act quickly so that taxpayers are aware 
of the commitment of the President and the Congress to enact 
this tax cut and to adjust income tax withholding tables. It is 
important that taxpayers immediately see the benefits of this 
tax relief in the form of more money in their pockets.
    The Committee bill also repeals the present-law provision 
reducing the refundable child credit and the earned income 
credit by the amount of the alternative minimum tax. This 
provision ensures that no taxpayer will face an increase in net 
income tax liability as a result of the interaction of the 
alternative minimum tax with the rate reductions in the 
Committee bill.
    The Committee finds it appropriate to ensure that present-
law transfers to the Social Security and Medicare trust funds 
will not be reduced as a result of the tax relief being 
provided under the Committee bill.

                        explanation of provision

In general

    The bill creates a new low-rate regular income tax bracket 
for a portion of taxable income that is currently taxed at 15 
percent. The bill reduces other regular income tax rates and 
consolidates rate brackets. By 2006, the present-law structure 
of five regular income tax rates (15 percent, 28 percent, 31 
percent, 36 percent and 39.6 percent) will be reduced to fur 
rates of 10 percent, 15 percent, 25 percent, and 33 percent. 
The bill repeals the present-law provisions that offset the 
refundable child credit and the earned income credit by the 
amount of the alternative minimum tax.

New low-rate bracket

    The bill establishes a new regular income tax rate bracket 
for a portion of taxable income that is currently taxed at 15 
percent, as shown in Table 3, below. The taxable income levels 
for the new low-rate bracket will be adjusted annually for 
inflation for taxable years beginning after December 31, 2006.

                                     TABLE 3.--PROPOSED NEW LOW-RATE BRACKET
----------------------------------------------------------------------------------------------------------------
                                                                                Taxable income
                                                             ---------------------------------------------------
                                                                                          Married
                        Calendar year                            Single      Heads of      filing      Proposed
                                                              individuals   household      joint       new rate
                                                                                          returns     (percent)
----------------------------------------------------------------------------------------------------------------
2001-2002...................................................     0-$6,000    0-$10,000    0-$12,000           12
2003-2005...................................................     0-$6,000    0-$10,000    0-$12,000           11
2006........................................................     0-$6,000    0-$10,000    0-$12,000           10
2007 and later..............................................     Adjust annually for inflation\1\             10
----------------------------------------------------------------------------------------------------------------
\1\ The new low-rate bracket for joint returns and head of household returns will be rounded down to the nearest
  $50. The bracket for single individuals and married individuals filing separately will be one-half the bracket
  for joint returns (after adjustment of that bracket for inflation).

Modification of 15-percent bracket

    The 15-percent regular income tax bracket is modified to 
begin at the end of the new low-rate regular income tax 
bracket. The 15-percent regular income tax bracket ends at the 
same level as under present law.

Reduction of other rates and consolidation of rate brackets

    The present-law regular income tax rates of 28 percent and 
31 percent are phased down to 25 percent over five years, 
effective for taxable years beginning after December 31, 2001. 
The taxable income level for the new 25-percent rate bracket 
begins at the level at which the 28-percent rate bracket begins 
under present law and ends at the level at which the 31-percent 
rate bracket ends under present law.
    The present-law regular income tax rates of 36 percent and 
39.6 percent are phased down to 33 percent over five years, 
effective for taxable years beginning after December 31, 2001. 
The taxable income level for the new 33-percent rate bracket 
begins at the level at which the 36-percent rate bracket begins 
under present law.
    Table 4., below, shows the schedule of proposed regular 
income tax rate reductions.

                              TABLE 4.--PROPOSED REGULAR INCOME TAX RATE REDUCTIONS
----------------------------------------------------------------------------------------------------------------
                                                                28% rate     31% rate     36% rate    39.6% rate
                        Calendar year                          reduced to   reduced to   reduced to   reduced to
----------------------------------------------------------------------------------------------------------------
2002........................................................           27           30           35           38
2003........................................................           27           29           35           37
2004........................................................           26           28           34           36
2005........................................................           26           27           34           35
2006 and later..............................................           25           25           33           33
----------------------------------------------------------------------------------------------------------------

Projected regular income tax rate schedules under the proposal

    Table 5., below, shows the projected individual regular 
income tax rate schedules when the rate reductions are fully 
phased in (i.e., for 2006). As under present law, the rate 
brackets for married taxpayers filing separate returns under 
the bill are one half the rate brackets for married individuals 
filing joint returns. In addition, appropriate adjustments are 
made to the separate, compressed rate schedule for estate and 
trusts.

                       TABLE 5.--INDIVIDUAL REGULAR INCOME TAX RATES FOR 2006 (PROJECTED)
----------------------------------------------------------------------------------------------------------------
           If taxable income is                                Then regular income tax equals
----------------------------------------------------------------------------------------------------------------
                                                Single individuals

$0-6,000..................................  10 percent of taxable income.
$6,000-$30,950............................  $600, plus 15 percent of the amount over $6,000.
$30,950-$156,300..........................  $4,342.50, plus 25% of the amount over $30,950.
Over $156,300.............................  $35,680, plus 33% of the amount over $156,300.

                                               Heads of households

$0-$10,000................................  10 percent of taxable income.
$10,000-$41,450...........................  $1,000 plus 15% of the amount over $10,000.
$41,450-$173,300..........................  $5,717.50, plus 25% of the amount over $41,450.
Over $173,300.............................  $38,680, plus 33% of the amount over $173,300.

                                     Married individual filing joint returns

$0-$12,000................................  10 percent of taxable income.
$12,000-$51,700...........................  $1,200 plus 15% of the amount over $12,000.
$51,700-$190,300..........................  $7,155, plus 25% of the amount over $51,700.
$190,300..................................  $41,805, plus 33% of the amount over $190,300.
----------------------------------------------------------------------------------------------------------------

AMT offset of refundable tax credits

    The bill repeals the present-law provision that offsets the 
refundable child credit and the earned income credit by the 
amount of the alternative minimum tax.

Revised wage withholding for 2001

    Under present law, the Secretary of the Treasury is 
authorized to prescribe appropriate income tax withholding 
tables or computational procedures for the withholding of 
income taxes from wages paid by employers. The Secretary is 
expected to make appropriate revisions to the wage withholding 
tables to reflect the proposed rate reduction for calendar year 
2001 as expeditiously as possible.

Transfer to Social Security and Medicare trust funds

    Under the bill, the amounts transferred to the Social 
Security and Medicare trust funds are determined as if the rate 
reductions in the bill were not enacted. Thus, there will be no 
reduction in transfers to these funds as a result of the bill.

                             effective date

    The provisions of the bill generally apply to taxable years 
beginning after December 31, 2000, except that the conforming 
amendments to certain withholding provisions under the bill are 
effective for amounts paid more than 60 days after 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. 3.

                       motion to report the bill

    The bill, H.R. 3, as amended, was ordered favorably 
reported by a rollcall vote of 23 yeas to 15 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....  ........  ........  .........
Mr. Camp.......................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. Neal.........  ........  ........  .........
Mr. Johnson....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Ms. Dunn.......................  ........  ........  .........  Mr. Jefferson....  ........        X   .........
Mr. Collins....................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Becerra......  ........        X   .........
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 rollcall vote was conducted on the following amendments 
to the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Jefferson and Mrs. Thurman, to provide 
that if in any year the Secretary of the Treasury determines 
that the Social Security and Medicare surplus would be used for 
anything other than debt reduction, the trigger would be 
activated, was defeated by a roll call vote of 16 yeas to 22 
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....  ........  ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........  ........  .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........  ........  .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
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   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    A substitute amendment by Mr. Rangel was defeated by a 
rollcall vote of 12 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....  ........  ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........  ........  ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........  ........  .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........        X   .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
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. 3 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. 3, THE ``ECONOMIC GROWTH AND TAX RELIEF ACT OF 2001,'' AS REPORTED BY THE
                                           COMMITTEE ON WAYS AND MEANS
                                [Fiscal years 2001-2011, in billions of dollars]
----------------------------------------------------------------------------------------------------------------
          Provision               Effective       2001     2002     2003     2004     2005     2006     2001-06
----------------------------------------------------------------------------------------------------------------
1. Create new bracket for      tyba 12/31/00       -5.6    -35.7    -30.0    -32.4    -32.3     -37.9     -174.0
 first $6,000 of taxable
 income for singles, first
 $10,000 for heads of
 households, and first
 $12,000 for married couples;
 no indexing bracket for
 inflation until 2007; rate
 set at 12% in 2001 and 2002,
 11% in 2003 through 2005,
 and 10% in 2006.
2. Reduce the various income   tyba 12/31/01      (\1\)    -13.4    -24.4    -38.4    -48.5     -65.2     -189.8
 tax rates (39.6% rate
 reduced to 38% in 2002, 37%
 in 2003, 36% in 2004, 35%
 2005 and 33% in 2006; 36%
 rate reduced to 35% in 2002
 and 2003, 34% in 2004 and
 2005, and 33% in 2006; 31%
 rate reduced to 30% in 2002,
 29% in 2003, 28% in 2004,
 27% in 2005, and 25% in
 2006; and 28% rate reduced
 to 27% in 2002 and 2003, 26%
 in 2004 and 2005, and 25% in
 2006); repeal the AMT offset
 to refundable tax credits.
3. Transfer to Social          tyba 12/31/00                            No Revenue Effect
 Security and Medicare trust
 funds.
                              ----------------------------------------------------------------------------------
      Net Total \2\..........  ...............     -5.6    -49.1    -54.4    -70.8    -80.8    -103.1     -363.8
----------------------------------------------------------------------------------------------------------------
\1\ Loss of less than $50 million.
\2\ Includes the following effect on fiscal year outlays--2001: (\3\); 2002: 0.7; 2003: 0.7; 2004: 0.9; 2005:
  1.0; 2006: 1.0; 2001-06: 4.2.
\3\ Less than $50 million.

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

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

Source: Joint Committee on Taxation.

B. 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 do not 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 6, 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. 3, the Economic 
Growth and 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, who can be reached at 226-2720.
            Sincerely,
                                                    Dan L. Crippen.
    Enclosure.

H.R. 3--Economic Growth and Tax Relief Act of 2001

    Summary: H.R. 3 would decrease personal income taxes and 
increase direct spending by reducing statutory income tax rates 
and altering the income brackets at which those rates apply. In 
addition, the bill would reduce taxes and increase direct 
spending by repealing certain elements of the alternative 
minimum tax. The Joint Committee on Taxation (JCT) has 
determined that these changes would reduce revenues by $5.6 
billion in 2001, by $359.5 billion over the 2001-2006 period, 
and by $947.4 billion over the 2001-2011 period. In addition, 
JCT estimates that the bill would increase direct spending by 
$4.3 billion over the 2001-2006 period and by $10.8 billion 
over the 2001-2011 period. Because H.R. 3 would affect both 
direct spending and receipts, pay-as-you-go procedures would 
apply.
    H.R. 3 would establish a new regular income tax bracket for 
a portion of taxable income that is taxed at a rate of 15 
percent under current law. In 2001, the new rate would be 12 
percent, effective retroactive to the beginning of the year. By 
2006, the rate applied to that bracket would be phased down to 
a rate of 10 percent. H.R. 3 also would modify the bracket 
subject to a rate of 15 percent under current law to begin at 
the end of the new lowest income bracket and end at the same 
income level as under current law. In addition, starting in 
2002, the bill would consolidate the four remaining income 
brackets (which bear rates of 28 percent, 31 percent, 36 
percent, and 39.6 percent) into two income brackets. By 2006, 
the two lower brackets would bear a rate of 25 percent; the 
income level for the 25 percent bracket would begin at the 
level at which the 28 percent bracket begins and end at the 
level at which the 31 percent bracket ends under current law. 
Also by 2006, the two higher brackets would bear a rate of 33 
percent; the income level for the 33 percent bracket would 
begin at the level at which the 36 percent bracket begins under 
current law.
    Under current law, individuals also must calculate their 
income taxes under the alternative minimum tax (AMT), a 
parallel system of taxation with its own set of income items, 
exclusions, exemptions, and rates. The taxpayer, in effect, 
pays the greater of the tax calculated under the AMT structure 
and regular tax structure. The AMT reduces the amount of the 
earned income credit and the amount of the child credit provided to 
families with three or more children. H.R. 3 would repeal the 
provisions that reduce the amount of these credits. That change reduces 
the tax payments of individuals receiving those credits and increases 
outlays to the extent that those credits are refundable.
    H.R. 3 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3 is shown in the following table. All 
estimates were provided by JCT.

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

Estimated Revenues......................      -5,642     -48,431     -53,650     -69,898     -79,887    -101,977

                                           CHANGES IN DIRECT SPENDING

Estimated Budget Authority..............           *         700         700         900       1,000       1,000
Estimated Outlays.......................           *         700         700         900       1,000       1,000
----------------------------------------------------------------------------------------------------------------
*=Less than $500,000.

Source: Joint Committee on Taxation.

    Most of the budgetary effects of H.R. 3 are to reduce 
revenues. However, H.R. 3 also increases outlays by changing 
the bracket amounts and reducing the rates of taxation. By 
reducing the amount of taxes owed, these changes would result 
in a larger portion of tax credits being refundable--and thus 
recorded as outlays rather than reductions in revenues. H.R. 3 
would also repeal the provision of current law that reduces 
earned income and child credits by the amount of the 
alternative minimum tax. This provision of H.R. 3 would also 
increase tax credits, namely the earned income credit and the 
child credit, that are refundable under the tax code and 
counted as outlays in the budget.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up procedures for 
legislation affecting receipts or direct spending. 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        2009        2010        2011
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts..........................     -5,642          -48,431          -53,650           -69,898     -79,887    -101,977    -112,076    -114,656    -117,473    -120,386    -123,369
Changes in outlays...........................          *              700              700               900       1,000       1,000       1,300       1,300       1,300       1,300       1,300
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
*=Less than $500,000.

    Intergovernmental and private-sector impact: H.R. 3 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Federal Costs: Erin Whitaker. Impact 
on State, Local, and Tribal Governments: Leo Lex. Impact on the 
Private Sector: Paige Piper-Bach.
    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 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 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 no 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, and 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. Reduction in income tax rates for individuals (sec. 2 of the bill)

            Summary description of provision
    The bill creates a new low-rate regular income tax bracket 
for a portion of the taxable income that is currently taxed at 
15 percent. The bill reduces the other income tax rates and 
consolidates rate brackets. By 2006, the present-law rate 
structure of five regular income tax rates (15 percent, 28 
percent, 31 percent, 36 percent, and 39.6 percent) are reduced 
to four rates of 10 percent, 15 percent, 25 percent, and 33 
percent.
            Number of affected taxpayers
    It is estimated that the provision will affect 
approximately 100 million individual tax returns.
            Discussion
    It is not anticipated that individuals will need to keep 
additional records due to this provision. It 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 individual's tax preparation 
costs.
    The Secretary of the Treasury is expected to make 
appropriate revisions to the wage withholding tables to reflect 
the proposed rate reduction for calendar year 2001 as 
expeditiously as possible. To implement the effects of the rate 
cut for 2001, employers would be required to use a new (second) 
set of withholding rate tables to determine the correct 
withholding amounts for each employee. Switching to the new 
withholding rate tables during the year can be expected to 
result in a one-time additional burden for employers (or 
additional costs for employers that rely on a bookkeeping or 
payroll service).

2. Interactive effect of the alternative minimum tax rules

    Because the bill makes no changes to the computation of the 
tentative minimum tax or to the tax liability limitation on the 
use of nonrefundable credits, additional individual taxpayers 
will need to make the necessary calculations to determine the 
applicability of the alternative minimum tax rules. It is 
estimated that for the year 2002, more than two million 
additional individual income tax returns that benefit from the 
provision will be required to include a calculation of the 
tentative minimum tax and file the appropriate alternative 
minimum tax forms. By the year 2011, this number is expected to 
rise to approximately 15 million additional individual income 
tax returns. For these taxpayers, it could be expected that the 
interaction of this bill with the alternative minimum tax rules 
would result in an increase in tax preparation costs and in the 
number of individuals using tax preparation services.

                        Department of the Treasury,
                                  Internal Revenue Service,
                                     Washington, DC, March 5, 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 ``Economic Growth and Tax Relief Act of 2001'' that you 
identified for complexity analysis in your letter of February 
28, 2001. Our comments are based on the description of those 
provisions in JCX-03-01, Joint Committee on Taxation, 
Description of the Economic Growth and Tax Relief Act of 2001, 
February 27, 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.
    Enclosures.

   Complexity Analysis of Economic Growth and Tax Relief Act of 2001

Provision
    Create a new regular income tax bracket for a portion of 
taxable income that is currently taxed at 15 percent. The new 
bracket is phased in over 6 years beginning in 2001: (1) 12 
percent in 2001 and 2002; (2) 11 percent in 2003, 2004, and 
2005; and (3) 10 percent in 2006 and thereafter. The 15-percent 
bracket would be modified to begin at the end of the new tax 
bracket and end at the same level as under present law.
    Reduce the present-law regular income tax rates of 28 and 
31 percent to 25 percent and the 36 and 39.6 percent rates to 
33 percent. The reduction is phased in over 5 years beginning 
in 2002.
IRS and Treasury Comments
     The new tax bracket and the reduced tax rates 
would be incorporated into the tax table and the tax rate 
schedules shown in the instructions for Forms 1040, 1040A, 
1040EZ, 1040NR, 1040NR-EZ and 1041, and on Forms W-4V and 8814 
for 2001 and later years. Other forms (e.g., Form 8752 and 
Schedule D (Form 1040)) would also be affected. No new forms 
would be required.
     The new tax bracket and the reduced tax rates 
would also be incorporated into the tax rate schedules shown on 
Form 1040-ES for 2002 and later years. Subsequent to enactment, 
the IRS would have to advise taxpayers who make estimated tax 
payments for 2001 how they can adjust their estimated tax 
payments for 2001 to reflect the reduced rates.
     Programming changes would be required to reflect 
the new tax bracket and rates for tax years 2001 through 2006. 
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.
     The alternative minimum tax (AMT) is projected to 
apply to an increasing number of taxpayers over time. The 
provision would increase the number of taxpayers, particularly 
in the later years of the budget period (2006-2011), whose 
liability is affected by the AMT, and would also cause 
additional taxpayers to perform AMT calculations to determine 
whether their liability is affected by the AMT.
Provision
    Under present law, the Secretary of the Treasury is 
authorized to prescribe appropriate withholding rate schedules 
and computational procedures for the withholding of income 
taxes from wages paid by employers. The Secretary would be 
expected to make appropriate revisions to the wage withholding 
tables to reflect the rate reduction for calendar year 2001 as 
expeditiously as possible.
IRS and Treasury comments
     Revised 2001 withholding rate schedules can be 
developed within one week of enactment. The revised withholding 
rate schedules and wage bracket tables can be released 
immediately thereafter, including postage on the IRS' web site.
     Printing and distributing physical copies of the 
revised 2001 withholding rate schedules and tables (in a 
revised Publication 15 or an abbreviated version thereof) will 
take 5 to 6 weeks. Thus, most employers will not receive 
physical copies of the revised 2001 withholding tables until 6 
weeks after enactment.
     Many employees and payroll agents will need to 
make programming changes in order to implement the revised 2001 
withholding rates. IRS staff have been advised that some 
employees and payroll agents may not be able to implement the 
withholding changes for up to 8 weeks. The additional, mid-year 
change will represent an additional burden for employers and 
payroll processors.
     Withholding changes will be implemented so as to 
minimize the burdens on taxpayers and the IRS research' 
administrative burdens that arise when there is full-year 
underwithholding for employees.
     IRS will provide guidance to employees on how they 
can adjust their withholding via Form W-4 changes in order to 
minimize withholding mismatches caused by the 2001 changes. In 
the past, IRS has included a notice to employees with the 
revised withholding publication for employers (Publication 15) 
and has asked employers to distribute that notice to their 
employees. Completing the additional Forms W-4 represents an 
additional burden for workers. Processing the additional Forms 
W-4 and the included requests for withholding adjustments 
represents an additional cost for employers.

       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

           *       *       *       *       *       *       *



SEC. 1. TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Certain Unearned Income of Minor Children Taxed as if 
Parent's Income.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Election to claim certain unearned income of 
        child on parent's return.--
                  (A) * * *
                  (B) Income included on parent's return.--In 
                the case of a parent making the election under 
                this paragraph--
                          (i) * * *
                          (ii) the tax imposed by this section 
                        for such year with respect to such 
                        parent shall be the amount equal to the 
                        sum of--
                                  (I) * * *
                                  (II) for each such child, [15 
                                percent] the first bracket 
                                percentage of the lesser of the 
                                amount described in paragraph 
                                (4)(A)(ii)(I) or the excess of 
                                the gross income of such child 
                                over the amount so described, 
                                and

           *       *       *       *       *       *       *

                For purposes of clause (ii), the first bracket 
                percentage is the percentage applicable to the 
                lowest income bracket in the table under 
                subsection (c).
  (h) Maximum Capital Gains Rate.--
          (1) In general.--If a taxpayer has a net capital gain 
        for any taxable year, the tax imposed by this section 
        for such taxable year shall not exceed the sum of--
                  (A) a tax computed at the rates and in the 
                same manner as if this subsection had not been 
                enacted on the greater of--
                          (i) * * *
                          (ii) the lesser of--
                                  (I) the amount of taxable 
                                income taxed at a rate below 
                                [28 percent] 25 percent; or

           *       *       *       *       *       *       *

                  (B) 10 percent of so much of the adjusted net 
                capital gain (or, if less, taxable income) as 
                does not exceed the excess (if any) of--
                          (i) the amount of taxable income 
                        which would (without regard to this 
                        paragraph) be taxed at a rate below [28 
                        percent] 25 percent, over

           *       *       *       *       *       *       *

          [(13) Special rules.--
                  [(A) Determination of 28-percent rate gain.--
                In applying paragraph (5)--
                          [(i) the amount determined under 
                        subparagraph (A) of paragraph (5) shall 
                        include long-term capital gain (not 
                        otherwise described in such 
                        subparagraph)--
                                  [(I) which is properly taken 
                                into account for the portion of 
                                the taxable year before May 7, 
                                1997; or
                                  [(II) from property held not 
                                more than 18 months which is 
                                properly taken into account for 
                                the portion of the taxable year 
                                after July 28, 1997, and before 
                                January 1, 1998;
                          [(ii) the amount determined under 
                        subparagraph (B) of paragraph (5) shall 
                        include long-term capital loss (not 
                        otherwise described in such 
                        subparagraph)--
                                  [(I) which is properly taken 
                                into account for the portion of 
                                the taxable year before May 7, 
                                1997; or
                                  [(II) from property held not 
                                more than 18 months which is 
                                properly taken into account for 
                                the portion of the taxable year 
                                after July 28, 1997, and before 
                                January 1, 1998; and
                          [(iii) subparagraph (B) of paragraph 
                        (5) (as in effect immediately before 
                        the enactment of this clause) shall 
                        apply to amounts properly taken into 
                        account before January 1, 1998.
                  [(B) Determination of unrecaptured section 
                1250 gain.--The amount determined under 
                paragraph (7)(A)(i) shall not include gain--
                          [(i) which is properly taken into 
                        account for the portion of the taxable 
                        year before May 7, 1997; or
                          [(ii) from property held not more 
                        than 18 months which is properly taken 
                        into account for the portion of the 
                        taxable year after July 28, 1997, and 
                        before January 1, 1998.
                  [(C) Special rules for pass-thru entities.--
                In applying this paragraph with respect to any 
                pass-thru entity, the determination of when 
                gains and loss are properly taken into account 
                shall be made at the entity level.
                  [(D) Charitable remainder trusts.--
                Subparagraphs (A) and (B)(ii) shall not apply 
                to any capital gain distribution made by a 
                trust described in section 664.]
  (i) Rate Reductions After 2000.--
          (1) New lowest rate bracket.--
                  (A) In general.--In the case of taxable years 
                beginning after December 31, 2000--
                          (i) the rate of tax under subsections 
                        (a), (b), (c), and (d) on taxable 
                        income not over the initial bracket 
                        amount shall be 12 percent (as modified 
                        by paragraph (2)), and
                          (ii) the 15 percent rate of tax shall 
                        apply only to taxable income over the 
                        initial bracket amount.
                  (B) Initial bracket amount.--For purposes of 
                this subsection, the initial bracket amount 
                is--
                          (i) $12,000 in the case of subsection 
                        (a),
                          (ii) $10,000 in the case of 
                        subsection (b), and
                          (iii) \1/2\ the amount applicable 
                        under clause (i) in the case of 
                        subsections (c) and (d).
                  (C) Inflation adjustment.--In prescribing the 
                tables under subsection (f) which apply with 
                respect to taxable years beginning in calendar 
                years after 2001--
                          (i) the Secretary shall make no 
                        adjustment to the initial bracket 
                        amount for any taxable year beginning 
                        before January 1, 2007,
                          (ii) the cost-of-living adjustment 
                        used in making adjustments to the 
                        initial bracket amount for any taxable 
                        year beginning after December 31, 2006, 
                        shall be determined under subsection 
                        (f)(3) by substituting ``2005'' for 
                        ``1992'' in subparagraph (B) thereof, 
                        and
                          (iii) such adjustment shall not apply 
                        to the amount referred to in 
                        subparagraph (B)(iii).
                If any amount after adjustment under the 
                preceding sentence is not a multiple of $50, 
                such amount shall be rounded to the next lowest 
                multiple of $50.
          (2) Reductions in rates after 2001.--In the case of 
        taxable years beginning in a calendar year after 2001, 
        the corresponding percentage specified for such 
        calendar year in the following table shall be 
        substituted for the otherwise applicable tax rate in 
        the tables under subsections (a), (b), (c), (d), and, 
        to the extent applicable, (e).

----------------------------------------------------------------------------------------------------------------
                                                                       The corresponding percentages shall  be
                                    In the case of taxable years      substituted for the following percentages:
                                   beginning during calendar year:  --------------------------------------------
                                                                       12%      28%      31%      36%     39.6%
----------------------------------------------------------------------------------------------------------------
                                 2002..............................    12%      27%      30%      35%      38%
                                 2003..............................    11%      27%      29%      35%      37%
                                 2004..............................    11%      26%      28%      34%      36%
                                 2005..............................    11%      26%      27%      34%      35%
                                 2006 and thereafter...............    10%      25%      25%      33%      33%
----------------------------------------------------------------------------------------------------------------

          (3) Adjustment of tables.--The Secretary shall adjust 
        the tables prescribed under subsection (f) to carry out 
        this subsection.

           *       *       *       *       *       *       *


            PART III--CHANGES IN RATES DURING A TAXABLE YEAR

           *       *       *       *       *       *       *


SEC. 15. EFFECT OF CHANGES.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Rate Reductions Enacted by Economic Growth and Tax Relief 
Act of 2001.--This section shall not apply to any change in 
rates under subsection (i) of section 1 (relating to rate 
reductions after 2000).

           *       *       *       *       *       *       *


                      PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *


               Subpart A--Nonrefundable personal credits

           *       *       *       *       *       *       *


SEC. 24. CHILD TAX CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Additional Credit for Families with 3 or More Children.--
          (1) * * *
          [(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) * * *

           *       *       *       *       *       *       *


                     Subpart C--Refundable credits

           *       *       *       *       *       *       *



SEC. 32. EARNED INCOME.

  (a) * * *

           *       *       *       *       *       *       *

  [(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.]

           *       *       *       *       *       *       *


 Subchapter G--Corporations used to avoid income tax on shareholders

           *       *       *       *       *       *       *


          PART I--CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS

           *       *       *       *       *       *       *



SEC. 531. IMPOSITION OF ACCUMULATED EARNINGS TAX.

  In addition to other taxes imposed by this chapter, there is 
hereby imposed for each taxable year on the accumulated taxable 
income (as defined in section 535) of each corporation 
described in section 532, an accumulated earnings tax [equal to 
39.6 percent of the accumulated taxable income.] equal to the 
product of the highest rate of tax under section 1(c) and the 
accumulated taxable income.

           *       *       *       *       *       *       *


                 PART II--PERSONAL HOLDING COMPANIES

           *       *       *       *       *       *       *



SEC. 541. IMPOSITION OF PERSONAL HOLDING COMPANY TAX.

  In addition to other taxes imposed by this chapter, there is 
hereby imposed for each taxable year on the undistributed 
personal holding company income (as defined in section 545) of 
every personal holding company (as defined in section 542) a 
personal holding company tax [equal to 39.6 percent of the 
undistributed personal holding company income.] equal to the 
product of the highest rate of tax under section 1(c) and the 
undistributed personal holding company income.

           *       *       *       *       *       *       *


                     Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


        CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES

           *       *       *       *       *       *       *


SEC. 3402. INCOME TAX COLLECTED AT SOURCE.

  (a) * * *

           *       *       *       *       *       *       *

  (p) Voluntary Withholding Agreements.--
          (1) Certain Federal payments.--
                  (A) * * *
                  (B) Amount withheld.--The amount to be 
                deducted and withheld under this chapter from 
                any payment to which any request under 
                subparagraph (A) applies shall be an amount 
                equal to the percentage of such payment 
                specified in such request. Such a request shall 
                apply to any payment only if the percentage 
                specified is [7, 15, 28, or 31 percent] 7 
                percent, any percentage applicable to any of 
                the 3 lowest income brackets in the table under 
                section 1(c), or such other percentage as is 
                permitted under regulations prescribed by the 
                Secretary.
          (2) Voluntary withholding on unemployment benefits.--
        If, at the time a payment of unemployment compensation 
        (as defined in section 85(b)) is made to any person, a 
        request by such person is in effect that such payment 
        be subject to withholding under this chapter, then for 
        purposes of this chapter and so much of subtitle F as 
        relates to this chapter, such payment shall be treated 
        as if it were a payment of wages by an employer to an 
        employee. The amount to be deducted and withheld under 
        this chapter from any payment to which any request 
        under this paragraph applies shall be an amount [equal 
        to 15 percent of such payment] equal to the product of 
        the lowest rate of tax under section 1(c) and such 
        payment.

           *       *       *       *       *       *       *

  (q) Extension of Withholding to Certain Gambling Winnings.--
          (1) General rule.--Every person, including the 
        Government of the United States, a State, or a 
        political subdivision thereof, or any instrumentalities 
        of the foregoing, making any payment of winnings which 
        are subject to withholding shall deduct and withhold 
        from such payment a tax in an amount [equal to 28 
        percent of such payment] equal to the product of the 
        third to the lowest rate of tax under section 1(c) and 
        such payment.

           *       *       *       *       *       *       *

  (r) Extension of Withholding to Certain Taxable Payments of 
Indian Casino Profits.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Annualized tax.--For purposes of paragraph (1), 
        the term ``annualized tax'' means, with respect to any 
        payment, the amount of tax which would be imposed by 
        section 1(c) (determined without regard to any rate of 
        tax in excess of [31 percent] the third to the lowest 
        rate of tax under section 1(c)) on an amount of taxable 
        income equal to the excess of--
                  (A) * * *

           *       *       *       *       *       *       *


SEC. 3406. BACKUP WITHHOLDING.

  (a) Requirement to Deduct and Withhold.--
          (1) In general.--In the case of any reportable 
        payment, if--
                  (A) the payee fails to furnish his TIN to the 
                payor in the manner required,
                  (B) the Secretary notifies the payor that the 
                TIN furnished by the payee is incorrect,
                  (C) there has been a notified payee 
                underreporting described in subsection (c), or
                  (D) there has been a payee certification 
                failure described in subsection (d),
        then the payor shall deduct and withhold from such 
        payment a tax [equal to 31 percent of such payment] 
        equal to the product of the third to the lowest rate of 
        tax under section 1(c) and such payment.

           *       *       *       *       *       *       *

                              ----------                              


        SECTION 13273 OF THE REVENUE RECONCILIATION ACT OF 1993


SEC. 13273. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE PAYMENTS.

  If an employer elects under Treasury Regulation 31.3402 (g)-1 
to determine the amount to be deducted and withheld from any 
supplemental wage payment by using a flat percentage rate, the 
rate to be used in determining the amount to be so deducted and 
withheld shall not be less than [28 percent] the third to the 
lowest rate of tax under section 1(c) of the Internal Revenue 
Code of 1986. The preceding sentence shall apply to payments 
made after December 31, 1993.

                         VII. DISSENTING VIEWS

    The Democratic Members of the Committee on Ways and Means 
support meaningful tax reductions so long as the tax reductions 
are fiscally responsible, fair, and honest. We support an 
overall budget framework first, then a tax reduction plan that 
meets those standards. The bill reported by the Committee does 
not meet those standards and we can not support it.

                         fiscal responsibility

    The last eight years were a period of unprecedented 
economic growth. That growth in part was made possible by the 
deficit reduction efforts of the last 10 years which resulted 
in lower interest rates, increased investment and greater 
productivity growth. Those deficit reduction efforts began 
when, in 1990, President George Bush recognized that the 
deficits resulting from the 1981 tax legislation were damaging 
our economy. His 1990 budget agreement was the first step to 
reverse those deficits. The 1993 Budget Act was the vital next 
step on the road to the surpluses that we now enjoy. Both of 
those measures were opposed overwhelmingly by the Republican 
Members of the House.
    Now the House Republican Leadership is threatening to 
return this country to deficits by rushing through large tax 
reductions based on uncertain budget projections. An article in 
the Washington Post on March 1, 2001, laid out the current 
Republican strategy. In 1995, the Republican Congress attempted 
to enact large tax reductions at the same time as it proposed 
the spending reductions necessary to fund those tax reductions. 
The American people rejected the strategy of funding tax 
reductions through cuts in Medicare and other popular programs. 
Because that strategy failed, the Republicans now are following 
a strategy of enacting the tax reductions first, saving for 
later the unhappy news of spending reductions and lack of funds 
for prescription drug benefits for older Americans, education 
spending, farm programs, defense and other bipartisan 
priorities. We saw that strategy succeed politically in 1981, 
when the Congress enacted large tax reductions based on 
promised, but unspecified, spending reductions. The success of 
that strategy in 1981 led to unprecedented budget deficits with 
high interest rates and sluggish growth. We fear that we are 
about to repeat that experience.
    The Republican tax cut plans are based on optimistic budget 
projections that may never be realized. Budget projections are 
inherently uncertain because they are an attempt to predict the 
future. Even small errors in those projections will create 
dramatic changes in projected surpluses. If long-term economic 
growth is one-tenth of one percent lower than currently 
projected, $245 billion of projected surpluses will immediately 
disappear. Cutting taxes is easy. Once the Congress has agreed 
upon a budget framework, we should enact sensible tax 
reductions this year. If the projections remain favorable in 
the future, it will be very easy for the Congress to enact 
further tax reductions. If the projections prove to be 
optimistic and deficits reappear, our ability to meet our 
commitments to the Medicare and Social Security system will not 
be threatened if we have not been hasty and excessive in our 
actions.
    The Republicans are now following the strategy of enacting 
President Bush's tax proposals on a piecemeal basis because the 
sum of the promised tax reductions are far greater than his 
$1.6 trillion target. The Committee bill includes only the 
marginal income tax rate reductions proposed by the President. 
This part of the President's overall tax proposal would cost 
almost $1 trillion over the next years even before extra debt 
service costs are added in, leaving little room for a long list 
of other tax reductions proposed by the President or supported 
in the Congress. The list includes--
           $300 billion for phasing out the estate tax 
        proposed by President Bush.
           $200 billion for the child credit expansion 
        proposed by President Bush.
           $300 billion of marriage penalty relief 
        passed by the Congress last year.
           $55 billion for repeal of the telephone 
        excise tax passed by the Congress last year.
           $125 billion for pension legislation.
           $300-$500 billion for structural reform of 
        the Alternative Minimum Tax, as promised by the 
        Chairman of the Committee.
    In addition to revenue costs of specific proposals, less in 
Federal debt payment would add billions more in debt service 
costs.

                                fairness

    The bill reported by the Committee is unfair. It is the 
first installment of President Bush's campaign tax reduction 
proposals. It is estimated that 43% of the total benefits of 
his plan will be provided to the wealthiest 1% of our society. 
The upper income groups in recent years have enjoyed greater 
income growth than any other segment of our society. There is 
no reason why they should be further rewarded with a 
disproportionate share of tax relief.
    Secretary of the Treasury Paul O'Neil has disputed the fact 
that 43% of the Bush tax reductions will go the wealthiest 1% 
of our society. However, he has refused to provide his own 
distributional analysis of those tax reduction plans. In the 
past, the Treasury Department has done distributional analysis 
of tax legislation based on the fully phased-in impact of the 
legislation and has included distribution of estate and 
corporate tax reductions. A distributional analysis of 
President Bush's plan using that methodology would probably be 
very unfavorable.
    Secretary O'Neill has the resources to prove the critics 
wrong. Failure to provide a Treasury distributional analysis 
using its traditional methodology suggests that the critics are 
correct.

                                honesty

    The big print of the bill reported by the Committee 
Republicans promises far larger tax reductions than will be 
delivered to taxpayers after the application of the fine print 
of the Alternative Minimum Tax. According to an analysis done 
by the Joint Committee on Taxation, in the big print the 
Committee bill promised $1.25 trillion in tax reductions over 
the next 10 years. However the fine print of the minimum tax 
will deny $300 billion of that promised relief.
    According to the Joint Committee, under present law 3.5 
million individual taxpayers will be affected by the minimum 
tax in 2002 and 20.7 million individual taxpayers will be 
affected by the minimum tax in the year 2011. Substantially all 
of those taxpayers will receive no tax relief from the 
Committee bill. President Bush and the Republican Leadership 
have advertised their tax reduction plans as benefiting all 
individual taxpayers. In testimony during the Committee markup 
of the legislation, the Chief of Staff of the Joint Committee 
made it clear that the advertising is false.
    In addition, millions of other individuals will receive 
some, but not all, of the promised benefits. The total number 
of individuals who either will receive nothing or less than the 
total promised benefits will be 5.3 million in 2001 reaching 
35.7 million by 2011.
    Many people assume that only individuals with tax 
preferences are affected by the minimum tax. That assumption is 
erroneous. The minimum tax does not allow the deduction for 
State and local income and property taxes and it does not 
permit families to claim personal exemptions, including those 
for children. The disallowance of those two benefits accounts 
for approximately 80% of all minimum tax liability. Taxpayers 
with children and taxpayers residing in States with incomes 
taxes, like California, New York, and Massachusetts, are the 
ones most likely to suffer because of the decision to use the 
alternative minimum tax to mask the true cost of the Committee 
bill. It is surprising that the Chairman of the Committee would 
design and defend legislation when the residents of his own 
State would be among those most likely not to receive the 
promised benefits.
    For millions of Americans, the Committee bill effectively 
repeals the deduction for State and local taxes and for 
personal exemptions. The Reagan/Bush Administration proposed 
repeal of the deduction for State and local taxes as part of 
its 1985 tax reform plans. That proposal was met with 
overwhelming opposition in the Congress. When people understand 
the implications of the Committee bill, it is reasonable to 
expect President Bush's proposal for indirect repeal of the 
deduction for State and local taxes and the deduction for 
personal exemptions will be faced with the same overwhelming 
opposition that defeated the Reagan/Bush proposal.
    The Republicans are not even honest about the rationale for 
their tax reduction plans. Last year, when economic growth was 
strong, the plan was promoted as a way to return the surpluses 
created by that economic growth. Now, that the economy is 
slowing, the same plan is being promoted for the opposite 
reason. The plan has hardly changed. The Committee bill, which 
is being advertised as a necessary fiscal stimulus, will only 
provide $5.6 billion to taxpayers before October 1. No 
reasonable economist would dare suggest that a stimulus of such 
a size would have any affect on an economy like ours, which 
exceeds $10.3 trillion.
    The Republicans use discredited supply-side theories to 
claim that their tax reductions will benefit the economy. They 
fail to mention that their optimistic projections of the 
economic benefits of the Reagan/Bush 1981 tax reduction plan 
failed to materialize. They also fail to mention that their 
predictions that President Clinton's 1993 Budget Act would 
create a recession were extraordinarily inaccurate. They have 
been wrong consistently in the past, and there is little reason 
to bet the economic future of this country on the chance that 
they might be right this time.

                         democratic alternative

    The Congressional Democrats have united in support of a 
plan providing dramatic tax relief for Americans, including 
working families with payroll tax liabilities but not income 
tax liabilities. The plan would substantially eliminate the 
marriage penalty for most couples and it would immediately 
eliminate the estate tax for all of the wealthiest of 
Americans. The substitute offered in the Committee did not 
include estate tax relief for parliamentary reasons.
    The Democratic plan provides substantial, effective, 
fiscally responsible, and fair tax relief. As such, it provides 
more immediate benefits for working Americans than the larger, 
riskier Bush proposal.
     Substantial.
    (1) The Democratic proposal provides a new, lower 12% tax 
rate on a couple's first $20,000 of taxable income ($10,000 on 
a single return). This would provide a maximum tax cut of $600 
annually for couples and $300 for single taxpayers. Couples who 
use the standard deduction also would receive ``marriage 
penalty'' relief of $225, yielding a total maximum tax cut of 
$825.
    (2) The proposal also provides a refund for lower-income 
working families worth as much as $320 annually for a couple 
with two children. Marriage penalty relief would total $528 for 
this family, yielding a maximum tax cut of $848.
    (3) Finally, under the plan over two-thirds of all 
currently taxable estates would no longer owe any Federal 
estate tax. (While under current law only 2% of estates are 
taxed, under the Democratic proposal only .6% of all estates 
would be taxed.)
     Effective. The income tax provisions of the 
Democratic plan begin immediately and are fully effective on 
January 1, 2003. Unlike the Bush plan, there is no lengthy, 
five-year phase in, with the full promised relief not being 
provided until 2006. Alsobeginning January 1, 2002, the 
Democratic plan provides that estates below $4 million for a married 
couple would be exempt from federal tax. This exemption amount will 
increase to $5 million over time. Additionally, in contrast to the Bush 
proposal, none of the reductions provided in the Democratic proposal 
would be reduced by the Alternative Minimum Tax.
     Fiscally Responsible. The Democratic plan uses one 
third of the projected budget surpluses for tax cuts, after the 
Social Security and Medicare trust funds have been protected. 
This prudent tax cut will allow other urgent national short- 
and long-term needs to be addressed in a manner which does not 
risk pushing our country back into deficits, if budget 
projections prove to be inaccurate.
     Fair. The Democratic plan focuses its relief on 
working couples and families with children by providing an 
average tax cut over $500. For upper income couples who itemize 
deductions, the tax cut is limited to $600--a fair share of 
this tax relief. The top 1% (i.e. those making over about 
$319,000 per year) will not receive a disproportionate share of 
the cut under this plan, as opposed to the 43% of benefits they 
would get under the Bush plan.
     Honesty. In contrast to the Bush proposal, none of 
the tax reductions promised by the Democratic plan would be 
denied through technicalities such as the alternative minimum 
tax.
    We are hopeful that the Republican Leadership will abandon 
its strategy of enacting excessive tax reductions on a partisan 
basis before locking in place a long-term budget plan. If it 
abandons that strategy, we would be enthusiastic about working 
together to enact tax reductions. Working together on a 
bipartisan basis is the only way we can quickly enact tax 
relief.

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

                                  
