[House Report 116-345]
[From the U.S. Government Publishing Office]


116th Congress }                                             { Report
                        HOUSE OF REPRESENTATIVES
 1st Session   }                                             { 116-345

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



 
                   RESTORING TAX FAIRNESS FOR STATES 
                           AND LOCALITIES ACT

                                _______
                                

 December 13, 2019.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 5377]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 5377) to amend the Internal Revenue Code of 1986 to 
modify the limitation on deduction of State and local taxes, 
and for other purposes, 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...........................................4
          A. Purpose and Summary.................................     4
          B. Background and Need for Legislation.................     4
          C. Legislative History.................................     5
 II. EXPLANATION OF THE BILL..........................................6
          A. Elimination for 2019 of Marriage Penalty in 
              Limitation on Deduction of State and Local Taxes 
              and Elimination for 2020 and 2021 of Limitation on 
              Deduction of State and Local Taxes.................     6
          B. Increase in Deduction for Certain Expenses of 
              Elementary and Secondary School Teachers and Above-
              the-Line Deduction Allowed for Certain Expenses of 
              First Responders...................................     7
          C. Increase of Top Marginal Individual Income Tax Rate 
              Under Temporary Rules..............................     8
III. VOTES OF THE COMMITTEE..........................................11
 IV. BUDGET EFFECTS OF THE BILL......................................15
          A. Committee Estimate of Budgetary Effects.............    15
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    16
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    16
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......20
          A. Committee Oversight Findings and Recommendations....    20
          B. Statement of General Performance Goals and 
              Objectives.........................................    20
          C. Information Relating to Unfunded Mandates...........    20
          D. Applicability of House Rule XXI, Clause 5(b)........    21
          E. Tax Complexity Analysis.............................    21
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    21
          G. Duplication of Federal Programs.....................    21
          H. Hearings............................................    21
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL........................22
          A. Text of Existing Law Repealed by the Bill...........
          B. Changes in Existing Law Proposed by the Bill........
VII. DISSENTING VIEWS................................................49

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Restoring Tax Fairness for States and 
Localities Act''.

SEC. 2. ELIMINATION FOR 2019 OF MARRIAGE PENALTY IN LIMITATION ON 
                    DEDUCTION OF STATE AND LOCAL TAXES.

  (a) In General.--Section 164(b) of the Internal Revenue Code of 1986 
is amended by adding at the end the following new paragraph:
          ``(7) Special rule for limitation on individual deductions 
        for 2019.--In the case of a taxable year beginning after 
        December 31, 2018, and before January 1, 2020, paragraph (6) 
        shall be applied by substituting `($20,000 in the case of a 
        joint return)' for `($5,000 in the case of a married individual 
        filing a separate return)'.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2018.

SEC. 3. ELIMINATION FOR 2020 AND 2021 OF LIMITATION ON DEDUCTION OF 
                    STATE AND LOCAL TAXES.

  (a) In General.--Section 164(b)(6)(B) of the Internal Revenue Code of 
1986 is amended by inserting ``in the case of a taxable year beginning 
before January 1, 2020, or after December 31, 2021,'' before ``the 
aggregate amount of taxes''.
  (b) Conforming Amendments.--Section 164(b)(6) of the Internal Revenue 
Code of 1986 is amended--
          (1) by striking ``For purposes of subparagraph (B)'' and 
        inserting ``For purposes of this section'',
          (2) by striking ``January 1, 2018'' and inserting ``January 
        1, 2022'',
          (3) by striking ``December 31, 2017, shall'' and inserting 
        ``December 31, 2021, shall'', and
          (4) by adding at the end the following: ``For purposes of 
        this section, in the case of State or local taxes with respect 
        to any real or personal property paid during a taxable year 
        beginning in 2020 or 2021, the Secretary shall prescribe rules 
        which treat all or a portion of such taxes as paid in a taxable 
        year or years other than the taxable year in which actually 
        paid as necessary or appropriate to prevent the avoidance of 
        the limitations of this subsection.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxes paid or accrued in taxable years beginning after December 31, 
2019.

SEC. 4. INCREASE IN DEDUCTION FOR CERTAIN EXPENSES OF ELEMENTARY AND 
                    SECONDARY SCHOOL TEACHERS.

  (a) Increase.--Section 62(a)(2)(D) of the Internal Revenue Code of 
1986 is amended by striking ``$250'' and inserting ``$500''.
  (b) Conforming Amendments.--Section 62(d)(3) of the Internal Revenue 
Code of 1986 is amended--
          (1) by striking ``2015'' and inserting ``2019'',
          (2) by striking ``$250'' and inserting ``$500'', and
          (3) in subparagraph (B), by striking ``2014'' and inserting 
        ``2018''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2018.

SEC. 5. ABOVE-THE-LINE DEDUCTION ALLOWED FOR CERTAIN EXPENSES OF FIRST 
                    RESPONDERS.

  (a) In General.--Section 62(a)(2) of the Internal Revenue Code of 
1986 is amended by adding at the end the following new subparagraph:
                  ``(F) Certain expenses of first responders.--The 
                deductions allowed by section 162 which consist of 
                expenses, not in excess of $500, paid or incurred by a 
                first responder--
                          ``(i) as tuition or fees for the 
                        participation of the first responder in 
                        professional development courses related to 
                        service as a first responder, or
                          ``(ii) for uniforms used by the first 
                        responder in service as a first responder.''.
  (b) First Responder Defined.--Section 62(d) of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new 
paragraph:
          ``(4) First responder.--For purposes of subsection (a)(2)(F), 
        the term `first responder' means, with respect to any taxable 
        year, any individual who is employed as a law enforcement 
        officer, firefighter, paramedic, or emergency medical 
        technician for at least 1000 hours during such taxable year.''.
  (c) Inflation Adjustment.--Section 62(d)(3) of the Internal Revenue 
Code of 1986, as amended by section 4, is further amended by striking 
``the $500 amount in subsection (a)(2)(D)'' and inserting ``the $500 
amount in each of subparagraphs (D) and (F) of subsection (a)(2)''.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2019.

SEC. 6. INCREASE OF TOP MARGINAL INDIVIDUAL INCOME TAX RATE UNDER 
                    TEMPORARY RULES.

  (a) In General.--The tables contained in subparagraphs (A), (B), (C), 
(D), and (E) of section 1(j)(2) of the Internal Revenue Code of 1986 
are each amended by striking ``37%'' and inserting ``39.6%'' and--
          (1) in subparagraph (A)--
                  (A) by striking ``$600,000'' each place such term 
                appears and inserting ``$479,000'', and
                  (B) by striking ``$161,379'' and inserting 
                ``$119,029'',
          (2) in subparagraph (B)--
                  (A) by striking ``$500,000'' each place such term 
                appears and inserting ``$452,400'', and
                  (B) by striking ``$149,298'' and inserting 
                ``$132,638'',
          (3) in subparagraph (C)--
                  (A) by striking ``$500,000'' each place such term 
                appears and inserting ``$425,800'', and
                  (B) by striking ``$150,689.50'' and inserting 
                ``$124,719.50'', and
          (4) in subparagraph (D)--
                  (A) by striking ``$300,000'' each place such term 
                appears and inserting ``$239,500'', and
                  (B) by striking ``$80,689.50'' and inserting 
                ``$59,514.50''.
  (b) Conforming Amendments.--
          (1) Section 1(j)(4)(B)(iii) of the Internal Revenue Code of 
        1986 is amended--
                  (A) in the matter preceding subclause (I), by 
                striking ``37 percent'' and inserting ``39.6 percent'',
                  (B) in subclause (II), by striking ``37-percent 
                bracket'' and inserting ``39.6-percent bracket'', and
                  (C) in the heading, by striking ``37-percent 
                bracket'' and inserting ``39.6-percent bracket''.
          (2) Section 1(j)(4)(C) of such Code is amended--
                  (A) in clause (i)(II), by striking ``paragraph 
                (5)(B)(i)(IV)'' and inserting ``paragraph (5)(B)(iv)'', 
                and
                  (B) by amending clause (ii) to read as follows:
                          ``(ii) the amount which would (without regard 
                        to this paragraph) be taxed at a rate below 
                        39.6 percent shall not be more than the sum 
                        of--
                                  ``(I) the earned taxable income of 
                                such child, plus
                                  ``(II) the maximum dollar amount for 
                                the 35-percent rate bracket for estates 
                                and trusts.''.
          (3) The heading of section 1(j)(5) of such Code is amended to 
        read as follows: ``Application of zero percent capital gain 
        rate brackets''.
          (4) Subparagraphs (A) and (B) of section 1(j)(5) of such Code 
        are amended to read as follows:
                  ``(A) In general.--Subsection (h)(1)(B)(i) shall be 
                applied by substituting `below the maximum zero rate 
                amount' for `which would (without regard to this 
                paragraph) be taxed at a rate below 25 percent'.
                  ``(B) Maximum zero rate amount defined.--For purposes 
                of subparagraph (A), the term `maximum zero rate 
                amount' means--
                          ``(i) in the case of a joint return or 
                        surviving spouse, $77,200,
                          ``(ii) in the case of an individual who is a 
                        head of household (as defined in section 2(b)), 
                        $51,700,
                          ``(iii) in the case of any other individual 
                        (other than an estate or trust), an amount 
                        equal to \1/2\ of the amount in effect for the 
                        taxable year under clause (i), and
                          ``(iv) in the case of an estate or trust, 
                        $2,600.''.
          (5) Section 1(j)(5)(C) of such Code is amended by striking 
        ``clauses (i) and (ii) of''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2019.
  (d) Section 15 Not to Apply.--Section 15 of the Internal Revenue Code 
of 1986 shall not apply to any change in a rate of tax by reason of any 
amendment made by this section.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 5377, the Restoring Tax Fairness for States 
and Localities Act, as amended and ordered reported by the 
Committee on Ways and Means on December 11, 2019 does the 
following: (1) eliminates for 2019 the marriage penalty imposed 
by Public Law 115-97 (the ``2017 Tax Act''), (2) eliminates for 
2020 and 2021 the $10,000 limitation on deduction of state and 
local taxes, (3) reinstates the top individual income tax rate 
to 39.6 percent and lowers the top income bracket to inflation-
adjusted levels of the top brackets prior to the enactment of 
the 2017 Tax Act, (4) increases the above-the-line deduction 
for certain expenses of teachers, and (5) creates an above the 
line deduction for certain expenses of first responders.

                 B. Background and Need for Legislation

    This legislation amends the $10,000 limitation on the 
deduction for state and local taxes imposed by the 2017 Tax 
Act. The State and Local Tax (SALT) deduction promotes fairness 
in the tax code by shielding taxpayers from double-taxation by 
preventing citizens from owing federal income taxes on dollars 
that their state and local governments' have already taxed. In 
2017, the most recent year for which data is available, 46.5 
million households benefited from the SALT deduction.
    Under present law, a taxpayer who itemizes their deductions 
may deduct only up to $10,000 in State and local tax payments. 
The deduction covers real estate taxes, personal property 
taxes, and either state individual income or general sales 
taxes. Prior to the passage of the 2017 Tax Act, the SALT 
deduction had no limit--this had been the case since 1913 and 
the creation of the Internal Revenue Code. The $10,000 limit 
created by the 2017 Tax Act contravenes longstanding Federal 
tax precedent. H.R. 5377, the Restoring Tax Fairness for States 
and Localities Act, temporarily eliminates the limit.
    The 2017 Tax Act limits all households to $10,000 in state 
and local tax deductions whether the household is composed of a 
single individual or two married taxpayers filing jointly, 
creating a marriage penalty. H.R. 5377 eliminates the marriage 
penalty in 2019, allowing married couples filing jointly to 
deduct up to $20,000 in SALT payments and married couples 
filing separately to claim up to $10,000 each. For the years 
2020 and 2021, this legislation removes the $10,000 limit for 
all taxpayers. Additionally, this legislation restores the top 
individual income tax rate to the pre-2017 Tax Act level of 
39.6 percent, while restoring the top income bracket at the 
inflation-adjusted pre-2017 Tax Act levels. For all filers 
(other than married individuals filing separately), the 39.6 
rate begins at taxable income levels in excess of $400,000.
    H.R. 5377 also permanently doubles the above-the-line 
deduction for educators' out-of-pocket classroom expenses from 
$250 to $500 and indexes this amount for inflation. Further, 
this legislation creates a permanent $500 above-the-line 
deduction for unreimbursed expenses of professional first 
responders related to the cost of uniforms or tuition and fees 
related to training, partially undoing the 2017 Tax Act's 
elimination of miscellaneous itemized deductions.

                         C. Legislative History


Background

    H.R. 5377, the Restoring Tax Fairness for States and 
Localities Act, was introduced on December 10, 2019, and was 
referred to the Committee on Ways and Means.

Committee hearings

    On June 25, 2019, the Committee on Ways and Means 
Subcommittee on Select Revenue Measures held a hearing entitled 
``How Recent Limitations to the SALT Deduction Harm 
Communities, Schools, First Responders, and Housing Values.''
    Members heard testimony from witnesses regarding issues 
surrounding the impacts of the SALT deduction cap on state and 
local government budgets, first responders, and public schools. 
Democrats invited five witnesses, including: (1) the Honorable 
David Tarter; (2) the Honorable Bob De Natale; (3) the 
Honorable Christian Yanick Leinbach; (4) Paul Imhoff, PhD; and 
(5) Lt. Mahlon Mitchell (Firefighter). The minority invited 
Nicole Kaeding.
    On June 25, 2019, the Committee on Ways and Means 
Subcommittee on Select Revenue Measures held a member day 
hearing to hear member testimony on the consequences of and 
potential remedies to the recent changes made to the federal 
tax treatment of state and local taxes.
    The committee received testimony from the following 
members: Rep. Tom Malinowski (D-NJ-07), Rep. Dean Phillips (D-
MN-03), Rep. Andy Kim (D-NJ-03), Rep. Sean Casten (D-IL-06), 
Rep. Maxine Waters (D-CA-43), Rep. Josh Gottheimer (D-NJ-05), 
Rep. Lauren Underwood (D-IL-14), Rep. Katie Porter (D-CA-45), 
Rep. Mikie Sherrill (D-NJ-11), Rep. Frank Pallone (D-NJ-06), 
Rep. Jim Himes (D-CT-04), Rep. Jackie Speier (D-CA-14), Rep. 
Donald M. Payne, Jr. (D-NJ-10), Rep. Donald Norcross (D-NJ-01), 
Rep. Joseph Morelle (D-NY-25), Rep. Max Rose (D-NY-11), Rep. 
Lee Zeldin (R-NY-01), and Rep. Anna Eshoo (D-CA-18).

Committee action

    The Committee on Ways and Means marked up H.R. 5377 on 
December 11, 2019, and ordered the bill, as amended, favorably 
reported by a vote of 24 yeas and 17 nays.

                      II. EXPLANATION OF THE BILL


A. Elimination for 2019 of Marriage Penalty in Limitation on Deduction 
     of State and Local Taxes and Elimination for 2020 and 2021 of 
            Limitation on Deduction of State and Local Taxes


                              PRESENT LAW

    An individual taxpayer may elect to itemize deductions in 
lieu of claiming a standard deduction.\1\ Itemized deductions 
include a deduction for certain taxes paid or accrued in a 
taxable year, including State and local property taxes, income 
taxes, and sales taxes.\2\
---------------------------------------------------------------------------
    \1\Sec. 63.
    \2\Sec. 164. An individual taxpayer may also be able to deduct 
State and local taxes incurred in carrying on a trade or business 
(under section 162) or an activity relating to expenses for the 
production of income (under section 212).
---------------------------------------------------------------------------
    An individual taxpayer\3\ not claiming a standard deduction 
may deduct: (1) State and local real property taxes;\4\ (2) 
State and local personal property taxes;\5\ and (3) State and 
local income, war profits, and excess profits taxes.\6\ At the 
election of the taxpayer, an itemized deduction may be taken 
for State and local general sales taxes in lieu of the itemized 
deduction for State and local income taxes.\7\
---------------------------------------------------------------------------
    \3\Trusts and estates may generally claim a deduction for certain 
taxes paid or accrued in a taxable year, subject to the same rules that 
apply to individual taxpayers. See sec. 641(b).
    \4\Sec. 164(a)(1).
    \5\Sec. 164(a)(2).
    \6\Sec. 164(a)(3).
    \7\Sec. 164(b)(5).
---------------------------------------------------------------------------
    The 2017 Tax Act limited the deduction of these taxes.\8\ 
For taxable years beginning after December 31, 2017, and before 
January 1, 2026, the deduction for State and local income, 
property, and sales taxes is limited to $10,000 ($5,000 for a 
married individual filing a separate return).\9\ This 
limitation does not apply to taxes paid or accrued in carrying 
on a trade or business, or an activity for the production of 
income.\10\
---------------------------------------------------------------------------
    \8\Pub. L. No. 115-97, sec. 11042.
    \9\Sec. 164(b)(6)(B).
    \10\Sec. 164(b)(6).
---------------------------------------------------------------------------
    The limitation does not apply to taxable years beginning 
after December 31, 2025.
    No itemized deduction for property taxes and income or 
sales taxes is allowed in determining an individual's 
alternative minimum taxable income.\11\
---------------------------------------------------------------------------
    \11\Sec. 56(b)(1)(A)(ii).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee desires to combat the unfairness caused by 
the limitation on the deduction for State and local property, 
income, and sales taxes. The limitation imposes a marriage 
penalty on taxpayers and unfairly imposes double taxation on 
taxpayers who have already paid taxes to their State and local 
governments. It undermines the Federal provisions of the 
American system of government by limiting the ability of States 
and localities to raise taxes in order to fund essential 
services such as law enforcement, firefighting, and education.

                        EXPLANATION OF PROVISION

Increase in limitation for married individuals for 2019

    The provision increases the dollar limitation on the 
deduction of State and local property, income, and sales taxes 
to $20,000 in the case of a joint return and $10,000 in the 
case of a married individual filing a separate return for 
taxable years beginning after December 31, 2018, and before 
January 1, 2020.

Termination of limitation for 2020 and 2021

    The provision removes the dollar limitation on the 
deduction for State and local property, income, and sales taxes 
for taxable years beginning after December 31, 2019, and before 
January 1, 2022.
    The provision contains conforming amendments to provide 
that the deduction for any State or local income tax imposed 
for a taxable year beginning after December 31, 2021, paid in a 
taxable year beginning before January 1, 2022, is treated as 
paid on the last day of the taxable year for which the tax is 
imposed. For payments of State or local property taxes during a 
taxable year beginning in 2020 or 2021, the provision directs 
the Secretary of the Treasury to prescribe rules to treat all 
or a portion of taxes paid in those years as paid in other 
taxable years, as necessary or appropriate in order to prevent 
avoidance of the dollar limitation applicable to years other 
than 2020 and 2021.

                             EFFECTIVE DATE

    The provision to increase the dollar limitation on the 
deduction for State and local property, income, and sales taxes 
for 2019 applies taxable years beginning after December 31, 
2018.
    The provision to eliminate the dollar limitation on the 
deduction for these taxes for 2020 and 2021 applies to taxes 
paid or accrued in taxable years beginning after December 31, 
2019.6602

    B. Increase in Deduction for Certain Expenses of Elementary and 
  Secondary School Teachers and Above-the-Line Deduction Allowed for 
                  Certain Expenses of First Responders


                              PRESENT LAW

    Although business expenses of employees are generally not 
allowed in computing adjusted gross income,\12\ certain 
employee business expenses are so allowed--referred to as 
``above-the-line'' deductions.\13\ These include certain 
expenses of qualified performing artists, expenses of State or 
local government officials performing services on a fee basis, 
expenses of eligible educators, and expenses of members of a 
reserve component of the Armed Forces.\14\ Eligible educators 
are individuals who are elementary or secondary school 
teachers, instructors, counselors, principals, or aides in a 
school for at least 900 hours during a school year.\15\
---------------------------------------------------------------------------
    \12\Sec. 62(a)(1). An individual may claim the standard deduction 
in addition to claiming all deductions allowed in determining adjusted 
gross income.
    \13\Sec. 62(a)(2).
    \14\Sec. 62(a)(2)(B), (C), (D), and (E). Under section 62(a)(2)(A) 
and (c), certain reimbursements of employee business expenses are 
excluded from income.
    \15\Sec. 62(d)(1).
---------------------------------------------------------------------------
    An eligible educator may take an above-the-line deduction 
for ordinary and necessary expenses incurred: (1) by reason of 
participation in professional development courses related to 
the curriculum or students the educator teaches, or (2) in 
connection with books, supplies, computer and other equipment, 
and supplementary materials to be used in the classroom.\16\ 
The deduction may not exceed $250 (for 2019). This dollar 
amount is indexed for inflation.
---------------------------------------------------------------------------
    \16\Sec. 62(a)(2)(D). Supplies exclude nonathletic supplies for 
courses in health or physical education.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee desires to support the teachers, law 
enforcement officers, firefighters, paramedics, and emergency 
medical technicians that educate and protect our State and 
local communities by allowing them to claim a deduction for 
certain job-related expenses.

                        EXPLANATION OF PROVISION

    The provision increases the maximum dollar amount of the 
above-the-line deduction for certain expenses of eligible 
educators to $500. This dollar amount is indexed for 
inflation.\17\
---------------------------------------------------------------------------
    \17\The $500 amount is first indexed in 2020.
---------------------------------------------------------------------------
    The provision also adds an above-the-line deduction for 
certain expenses of first responders. First responders are 
individuals who are employed as law enforcement officers, 
firefighters, paramedics, or emergency medical technicians for 
at least 1,000 hours during the taxable year.
    A first responder may take an above-the-line deduction for 
expenses incurred: (1) as tuition or fees for the participation 
in professional development courses related to service as a 
first responder, or (2) in connection with uniforms personally 
used in service as a first responder. The maximum dollar amount 
for the above-the-line deduction is $500. This dollar amount is 
indexed for inflation.\18\
---------------------------------------------------------------------------
    \18\The $500 amount is first indexed in 2020.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision to increase the maximum deduction for certain 
expenses of eligible educators applies to taxable years 
beginning after December 31, 2018.
    The provision to add an above-the-line deduction for 
certain expenses of first responders applies to taxable years 
beginning after December 31, 2019.

C. Increase of Top Marginal Individual Income Tax Rate Under Temporary 
                                 Rules


                              PRESENT LAW

In general

    To determine regular tax liability, individual taxpayers 
generally must apply the tax rate schedules (or the tax tables) 
to their regular taxable income. The rate schedules are broken 
into several ranges of income, known as income brackets, and 
the marginal tax rate increases as a taxpayer's income bracket 
increases.

Tax rate schedules

    Separate rate schedules apply based on an individual's 
filing status. The 2017 Tax Act changed the prior-law rate 
schedules for taxable years beginning after December 31, 2017 
and beginning before January 1, 2026. For 2020, the regular 
individual income tax rate schedules are as follows:

        TABLE 1.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2020\1\
------------------------------------------------------------------------
         If taxable income is:               Then income tax equals:
------------------------------------------------------------------------
                           Single Individuals
 
Not over $9,875........................  10% of the taxable income
Over $9,875 but not over $40,125.......  $987.50 plus 12% of the excess
                                          over $9,875
Over $40,125 but not over $85,525......  $4,617.50 plus 22% of the
                                          excess over $40,125
Over $85,525 but not over $163,300.....  $14,605.50 plus 24% of the
                                          excess over $85,525
Over $163,300 but not over $207,350....  $33,271.50 plus 32% of the
                                          excess over $163,300
Over $207,350 but not over $518,400....  $47,367.50 plus 35% of the
                                          excess over $207,350
Over $518,400..........................  $156,235 plus 37% of the excess
                                          over $518,400
 
                           Heads of Households
 
Not over $14,100.......................  10% of the taxable income
Over $14,100 but not over $53,700......  $1,410 plus 12% of the excess
                                          over $14,100
Over $53,700 but not over $85,500......  $6,162 plus 22% of the excess
                                          over $53,700
Over $85,500 but not over $163,300.....  $13,158 plus 24% of the excess
                                          over $85,500
Over $163,300 but not over $207,350....  $31,830 plus 32% of the excess
                                          over $163,300
Over $207,350 but not over $518,400....  $45,926 plus 35% of the excess
                                          over $207,350
Over $518,400..........................  $154,793.50 plus 37% of the
                                          excess over $518,400
 
     Married Individuals Filing Joint Returns and Surviving Spouses
 
Not over $19,750.......................  10% of the taxable income
Over $19,750 but not over $80,250......  $1,975 plus 12% of the excess
                                          over $19,750
Over $80,250 but not over $171,050.....  $9,235 plus 22% of the excess
                                          over $80,250
Over $171,050 but not over $326,600....  $29,211 plus 24% of the excess
                                          over $171,050
Over $326,600 but not over $414,700....  $66,543 plus 32% of the excess
                                          over $326,600
Over $414,700 but not over $622,050....  $94,735 plus 35% of the excess
                                          over $414,700
Over $622,050..........................  $167,307.50 plus 37% of the
                                          excess over $622,050
 
               Married Individuals Filing Separate Returns
 
Not over $9,875........................  10% of the taxable income
Over $9,875 but not over $40,125.......  $987.50 plus 12% of the excess
                                          over $9,875
Over $40,125 but not over $85,525......  $4,617.50 plus 22% of the
                                          excess over $40,125
Over $85,525 but not over $163,300.....  $14,605.50 plus 24% of the
                                          excess over $85,525
Over $163,300 but not over $207,350....  $33,271.50 plus 32% of the
                                          excess over $163,300
Over $207,350 but not over $311,025....  $47,367.50 plus 35% of the
                                          excess over $207,350
Over $311,025..........................  $83,653.75 plus 37% of the
                                          excess over $311,025
 
                           Estates and Trusts
 
Not over $2,600........................  10% of the taxable income
Over $2,600 but not over $9,450........  $260 plus 24% of the excess
                                          over $2,600
Over $9,450 but not over $12,950.......  $1,904 plus 35% of the excess
                                          over $9,450
Over $12,950...........................  $3,129 plus 37% of the excess
                                          over $12,950
------------------------------------------------------------------------
\1\Rev. Proc 2019-44.

                           REASONS FOR CHANGE

    The Committee believes that it is appropriate to return to 
the pre-2017 Tax Act top individual income tax rate and to 
reduce the dollar amounts at which such rate begins, in order 
to ensure that the wealthiest individuals pay their fair share 
without increasing the tax burden on lower or middle-income 
Americans.

                        EXPLANATION OF PROVISION

    The provision increases the top individual income tax rate 
of 37 percent to 39.6 percent and reduces the dollar amounts at 
which the 39.6 percent bracket begins.\19\ Under the provision, 
for 2020, the regular individual income tax rate schedules are 
projected to be as follows (changes from present law are in 
bold):
---------------------------------------------------------------------------
    \19\The provision modifies the start of the 39.6 percent bracket to 
be $425,800, $452,400, $479,000, and $239,500, for singles, heads of 
households, married individuals filing jointly, and married individuals 
filing separately, respectively. The provision modifies the top rate 
and the start of top brackets for 2018, but these changes are not 
effective until 2020. Thus, in application, the provision only affects 
rates and brackets starting in 2020.

    TABLE 2.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2020 UNDER THE
                              PROVISION\1\
------------------------------------------------------------------------
         If taxable income is:               Then income tax equals:
------------------------------------------------------------------------
                           Single Individuals
 
Not over $9,875........................  10% of the taxable income
Over $9,875 but not over $40,125.......  $987.50 plus 12% of the excess
                                          over $9,875
Over $40,125 but not over $85,525......  $4,617.50 plus 22% of the
                                          excess over $40,125
Over $85,525 but not over $163,300.....  $14,605.50 plus 24% of the
                                          excess over $85,525
Over $163,300 but not over $207,350....  $33,271.50 plus 32% of the
                                          excess over $163,300
Over $207,350 but not over $441,475....  $47,367.50 plus 35% of the
                                          excess over $207,350
Over $441,475..........................  $129,311.25 plus 39.6% of the
                                          excess over $441,475
                           Heads of Households
 
Not over $14,100.......................  10% of the taxable income
Over $14,100 but not over $53,700......  $1,410 plus 12% of the excess
                                          over $14,100
Over $53,700 but not over $85,500......  $6,162 plus 22% of the excess
                                          over $53,700
Over $85,500 but not over $163,300.....  $13,158 plus 24% of the excess
                                          over $85,500
Over $163,300 but not over $207,350....  $31,830 plus 32% of the excess
                                          over $163,300
Over $207,350 but not over $469,050....  $45,926 plus 35% of the excess
                                          over $207,350
Over $469,050..........................  $137,521 plus 39.6% of the
                                          excess over $469,050
 
     Married Individuals Filing Joint Returns and Surviving Spouses
 
Not over $19,750.......................  10% of the taxable income
Over $19,750 but not over $80,250......  $1,975 plus 12% of the excess
                                          over $19,750
Over $80,250 but not over $171,050.....  $9,235 plus 22% of the excess
                                          over $80,250
Over $171,050 but not over $326,600....  $29,211 plus 24% of the excess
                                          over $171,050
Over $326,600 but not over $414,700....  $66,543 plus 32% of the excess
                                          over $326,600
Over $414,700 but not over $496,600....  $94,735 plus 35% of the excess
                                          over $414,700
Over $496,600..........................  $123,400 plus 39.6% of the
                                          excess over $496,600
 
               Married Individuals Filing Separate Returns
 
Not over $9,875........................  10% of the taxable income
Over $9,875 but not over $40,125.......  $987.50 plus 12% of the excess
                                          over $9,875
Over $40,125 but not over $85,525......  $4,617.50 plus 22% of the
                                          excess over $40,125
Over $85,525 but not over $163,300.....  $14,605.50 plus 24% of the
                                          excess over $85,525
Over $163,300 but not over $207,350....  $33,271.50 plus 32% of the
                                          excess over $163,300
Over $207,350 but not over $248,300....  $47,367.50 plus 35% of the
                                          excess over $207,350
Over $248,300..........................  $61,700 plus 39.6% of the
                                          excess over $248,300
 
                           Estates and Trusts
 
Not over $2,600........................  10% of the taxable income
Over $2,600 but not over $9,450........  $260 plus 24% of the excess
                                          over $2,600
Over $9,450 but not over $12,950.......  $1,904 plus 35% of the excess
                                          over $9,450
Over $12,950...........................  $3,129 plus 39.6% of the excess
                                          over $12,950
------------------------------------------------------------------------
\1\Rev. Proc. 2019-44 and JCT calculations.

    The modifications made by the provision do not apply to 
taxable years beginning after December 31, 2025.\20\
---------------------------------------------------------------------------
    \20\Rates and brackets revert to levels from prior law in effect 
before enactment of the 2017 Tax Act (adjusted appropriately for 
inflation) for taxable years beginning after December 31, 2025.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2019.

                      III. VOTES OF THE COMMITTEE

    Pursuant to clause 3(b) of rule XIII of the Rules of the 
House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means during 
the markup consideration of H.R. 5377, the ``Restoring Tax 
Fairness for States and Localities Act'' on December 11, 2019.
    An amendment to the amendment in the nature of a substitute 
offered by Mr. Arrington which would ensure that the increased 
top marginal rate would not apply to small business income was 
defeated by a vote of 15 yeas to 21 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.......................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis......................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........  ........  .........  Mr. Buchanan.....  ........  ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Smith (NE)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Reed.........        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Kelly........        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Holding......        X   ........  .........
Mr. Davis......................  ........        X   .........  Mr. Smith (MO)...  ........  ........  .........
Ms. Sanchez....................  ........        X   .........  Mr. Rice.........        X   ........  .........
Mr. Higgins....................  ........        X   .........  Mr. Schweikert...        X   ........  .........
Ms. Sewell.....................  ........  ........  .........  Ms. Walorski.....        X   ........  .........
Ms. DelBene....................  ........        X   .........  Mr. LaHood.......        X   ........  .........
Ms. Chu........................  ........        X   .........  Dr. Wenstrup.....        X   ........  .........
Ms. Moore......................  ........        X   .........  Mr. Arrington....        X   ........  .........
Mr. Kildee.....................  ........        X   .........  Dr. Ferguson.....        X   ........  .........
Mr. Boyle......................  ........        X   .........  Mr. Estes........        X   ........  .........
Mr. Beyer......................  ........        X   .........
Mr. Evans......................  ........        X   .........
Mr. Schneider..................  ........        X   .........
Mr. Suozzi.....................  ........        X   .........
Mr. Panetta....................  ........  ........  .........
Ms. Murphy.....................  ........        X   .........
Mr. Gomez......................  ........        X   .........
Mr. Horsford...................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment to the amendment in the nature of a substitute 
offered by Dr. Wenstrup that would sunset the underlying bill 
if state and local property taxes were to increase following 
its enactment was defeated by a vote of 16 yeas to 21 nays. The 
vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.......................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis......................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........  ........  .........  Mr. Buchanan.....        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Smith (NE)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Reed.........        X   ........  .........
Mr. Kind.......................  ........  ........  .........  Mr. Kelly........        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Holding......        X   ........  .........
Mr. Davis......................  ........        X   .........  Mr. Smith (MO)...  ........  ........  .........
Ms. Sanchez....................  ........        X   .........  Mr. Rice.........        X   ........  .........
Mr. Higgins....................  ........        X   .........  Mr. Schweikert...        X   ........  .........
Ms. Sewell.....................  ........        X   .........  Ms. Walorski.....        X   ........  .........
Ms. DelBene....................  ........        X   .........  Mr. LaHood.......        X   ........  .........
Ms. Chu........................  ........        X   .........  Dr. Wenstrup.....        X   ........  .........
Ms. Moore......................  ........        X   .........  Mr. Arrington....        X   ........  .........
Mr. Kildee.....................  ........        X   .........  Dr. Ferguson.....        X   ........  .........
Mr. Boyle......................  ........        X   .........  Mr. Estes........        X   ........  .........
Mr. Beyer......................  ........        X   .........
Mr. Evans......................  ........        X   .........
Mr. Schneider..................  ........        X   .........
Mr. Suozzi.....................  ........        X   .........
Mr. Panetta....................  ........  ........  .........
Ms. Murphy.....................  ........        X   .........
Mr. Gomez......................  ........        X   .........
Mr. Horsford...................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment to the amendment in the nature of a substitute 
offered by Dr. Ferguson which would make permanent the 
individual income tax rates and the small business deduction 
was defeated by a vote of 15 yeas to 21 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.......................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis......................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........  ........  .........  Mr. Buchanan.....        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Smith (NE)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Reed.........        X   ........  .........
Mr. Kind.......................  ........  ........  .........  Mr. Kelly........        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Holding......        X   ........  .........
Mr. Davis......................  ........        X   .........  Mr. Smith (MO)...  ........  ........  .........
Ms. Sanchez....................  ........        X   .........  Mr. Rice.........        X   ........  .........
Mr. Higgins....................  ........        X   .........  Mr. Schweikert...        X   ........  .........
Ms. Sewell.....................  ........        X   .........  Ms. Walorski.....  ........  ........  .........
Ms. DelBene....................  ........        X   .........  Mr. LaHood.......        X   ........  .........
Ms. Chu........................  ........        X   .........  Dr. Wenstrup.....        X   ........  .........
Ms. Moore......................  ........        X   .........  Mr. Arrington....        X   ........  .........
Mr. Kildee.....................  ........        X   .........  Dr. Ferguson.....        X   ........  .........
Mr. Boyle......................  ........        X   .........  Mr. Estes........        X   ........  .........
Mr. Beyer......................  ........        X
Mr. Evans......................  ........        X
Mr. Schneider..................  ........        X
Mr. Suozzi.....................  ........        X
Mr. Panetta....................  ........  ........  .........
Ms. Murphy.....................  ........        X   .........
Mr. Gomez......................  ........        X   .........
Mr. Horsford...................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment to the amendment in the nature of a substitute 
offered by Mr. Rice which would strike the tax rate increase 
and, for tax years 2019 through 2021, generally would provide 
taxpayers with uncapped state and local tax (SALT) deduction 
except that taxpayers with the highest 10% of income are 
prohibited from taking any SALT deduction was defeated by a 
vote of 15 yeas to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.......................  ........        X   .........  Mr. Brady........  ........  ........  .........
Mr. Lewis......................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........  ........  .........  Mr. Buchanan.....        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Smith (NE)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Reed.........        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Kelly........        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Holding......        X   ........  .........
Mr. Davis......................  ........        X   .........  Mr. Smith (MO)...  ........  ........  .........
Ms. Sanchez....................  ........        X   .........  Mr. Rice.........        X   ........  .........
Mr. Higgins....................  ........        X   .........  Mr. Schweikert...        X   ........  .........
Ms. Sewell.....................  ........        X   .........  Ms. Walorski.....        X   ........  .........
Ms. DelBene....................  ........        X   .........  Mr. LaHood.......        X   ........  .........
Ms. Chu........................  ........        X   .........  Dr. Wenstrup.....        X   ........  .........
Ms. Moore......................  ........        X   .........  Mr. Arrington....        X   ........  .........
Mr. Kildee.....................  ........        X   .........  Dr. Ferguson.....        X   ........  .........
Mr. Boyle......................  ........        X   .........  Mr. Estes........        X   ........  .........
Mr. Beyer......................  ........        X   .........
Mr. Evans......................  ........        X   .........
Mr. Schneider..................  ........        X   .........
Mr. Suozzi.....................  ........        X   .........
Mr. Panetta....................  ........  ........  .........
Ms. Murphy.....................  ........        X   .........
Mr. Gomez......................  ........        X   .........
Mr. Horsford...................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment to the amendment in the nature of a substitute 
offered by Ms. Walorski which would prevent taxpayers with the 
highest 1% of income from taking the increased cap on the state 
and local tax deduction was defeated by a vote of 16 yeas to 22 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.......................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis......................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........  ........  .........  Mr. Buchanan.....        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Smith (NE)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Reed.........        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Kelly........        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Holding......        X   ........  .........
Mr. Davis......................  ........        X   .........  Mr. Smith (MO)...  ........  ........  .........
Ms. Sanchez....................  ........        X   .........  Mr. Rice.........        X   ........  .........
Mr. Higgins....................  ........        X   .........  Mr. Schweikert...        X   ........  .........
Ms. Sewell.....................  ........        X   .........  Ms. Walorski.....        X   ........  .........
Ms. DelBene....................  ........        X   .........  Mr. LaHood.......        X   ........  .........
Ms. Chu........................  ........        X   .........  Dr. Wenstrup.....        X   ........  .........
Ms. Moore......................  ........        X   .........  Mr. Arrington....        X   ........  .........
Mr. Kildee.....................  ........        X   .........  Dr. Ferguson.....        X   ........  .........
Mr. Boyle......................  ........        X   .........  Mr. Estes........        X   ........  .........
Mr. Beyer......................  ........        X   .........
Mr. Evans......................  ........        X   .........
Mr. Schneider..................  ........        X   .........
Mr. Suozzi.....................  ........        X   .........
Mr. Panetta....................  ........  ........  .........
Ms. Murphy.....................  ........        X   .........
Mr. Gomez......................  ........        X   .........
Mr. Horsford...................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment to the amendment in the nature of a substitute 
offered by Mr. Schweikert which would require that an analysis 
be conducted to ensure the increased tax rate would not 
decrease employment of wages was defeated by a vote of 15 yeas 
to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.......................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis......................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........  ........  .........  Mr. Buchanan.....        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Smith (NE)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Reed.........        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Kelly........        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Holding......        X   ........  .........
Mr. Davis......................  ........        X   .........  Mr. Smith (MO)...  ........  ........  .........
Ms. Sanchez....................  ........        X   .........  Mr. Rice.........        X   ........  .........
Mr. Higgins....................  ........        X   .........  Mr. Schweikert...        X   ........  .........
Ms. Sewell.....................  ........        X   .........  Ms. Walorski.....        X   ........  .........
Ms. DelBene....................  ........        X   .........  Mr. LaHood.......        X   ........  .........
Ms. Chu........................  ........        X   .........  Dr. Wenstrup.....        X   ........  .........
Ms. Moore......................  ........        X   .........  Mr. Arrington....  ........  ........  .........
Mr. Kildee.....................  ........        X   .........  Dr. Ferguson.....        X   ........  .........
Mr. Boyle......................  ........        X   .........  Mr. Estes........        X   ........  .........
Mr. Beyer......................  ........        X   .........
Mr. Evans......................  ........        X   .........
Mr. Schneider..................  ........        X   .........
Mr. Suozzi.....................  ........        X   .........
Mr. Panetta....................  ........  ........  .........
Ms. Murphy.....................  ........        X   .........
Mr. Gomez......................  ........        X   .........
Mr. Horsford...................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment to the amendment in the nature of a substitute 
offered by Mr. Smith of Nebraska which would make permanent the 
higher standard deduction made under the Tax Cuts and Jobs Act 
was defeated by a vote of 17 yeas to 23 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.......................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis......................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Buchanan.....        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Smith (NE)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Reed.........        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Kelly........        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Holding......        X   ........  .........
Mr. Davis......................  ........        X   .........  Mr. Smith (MO)...        X   ........  .........
Ms. Sanchez....................  ........        X   .........  Mr. Rice.........        X   ........  .........
Mr. Higgins....................  ........        X   .........  Mr. Schweikert...        X   ........  .........
Ms. Sewell.....................  ........        X   .........  Ms. Walorski.....        X   ........  .........
Ms. DelBene....................  ........        X   .........  Mr. LaHood.......        X   ........  .........
Ms. Chu........................  ........        X   .........  Dr. Wenstrup.....        X   ........  .........
Ms. Moore......................  ........        X   .........  Mr. Arrington....        X   ........  .........
Mr. Kildee.....................  ........        X   .........  Dr. Ferguson.....        X   ........  .........
Mr. Boyle......................  ........        X   .........  Mr. Estes........        X   ........  .........
Mr. Beyer......................  ........        X   .........
Mr. Evans......................  ........        X   .........
Mr. Schneider..................  ........        X   .........
Mr. Suozzi.....................  ........        X   .........
Mr. Panetta....................  ........  ........  .........
Ms. Murphy.....................  ........        X   .........
Mr. Gomez......................  ........        X   .........
Mr. Horsford...................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    The amendment in the nature of a substitute to H.R. 5377 
was adopted by voice vote (with a quorum being present).
    H.R. 5377 was ordered favorably reported as amended to the 
House of Representatives by a vote of 24 yeas to 17 nays. The 
vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.......................        X   ........  .........  Mr. Brady........  ........        X   .........
Mr. Lewis......................        X   ........  .........  Mr. Nunes........  ........        X   .........
Mr. Doggett....................  ........  ........  .........  Mr. Buchanan.....  ........        X   .........
Mr. Thompson...................        X   ........  .........  Mr. Smith (NE)...  ........        X   .........
Mr. Larson.....................        X   ........  .........  Mr. Marchant.....  ........        X   .........
Mr. Blumenauer.................        X   ........  .........  Mr. Reed.........        X   ........  .........
Mr. Kind.......................        X   ........  .........  Mr. Kelly........  ........        X   .........
Mr. Pascrell...................        X   ........  .........  Mr. Holding......  ........        X   .........
Mr. Davis......................        X   ........  .........  Mr. Smith (MO)...  ........        X   .........
Ms. Sanchez....................        X   ........  .........  Mr. Rice.........  ........        X   .........
Mr. Higgins....................        X   ........  .........  Mr. Schweikert...  ........        X   .........
Ms. Sewell.....................        X   ........  .........  Ms. Walorski.....  ........        X   .........
Ms. DelBene....................        X   ........  .........  Mr. LaHood.......  ........        X   .........
Ms. Chu........................        X   ........  .........  Dr. Wenstrup.....  ........        X   .........
Ms. Moore......................        X   ........  .........  Mr. Arrington....  ........        X   .........
Mr. Kildee.....................        X   ........  .........  Dr. Ferguson.....  ........        X   .........
Mr. Boyle......................        X   ........  .........  Mr. Estes........  ........        X   .........
Mr. Beyer......................        X   ........  .........
Mr. Evans......................        X   ........  .........
Mr. Schneider..................        X   ........  .........
Mr. Suozzi.....................        X   ........  .........
Mr. Panetta....................        X   ........  .........
Ms. Murphy.....................  ........        X   .........
Mr. Gomez......................        X   ........  .........
Mr. Horsford...................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill.
    The bill is estimated to increase Federal fiscal year 
budget receipts by $6.2 billion dollars for the period 2019 
through 2029.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

    Pursuant to clause 3(c)(2) of rule XIII of the Rules of the 
House of Representatives, the Committee states that the bill 
involves no new or increased budget authority. The Committee 
further states that the bill involves no new tax expenditure.

      C. Cost Estimate Prepared by the Congressional Budget Office

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

                                 6602U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, December 13, 2019.
Hon. Richard Neal,
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. 5377, The 
Restoring Tax Fairness for States and Localities Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Ellen Steele.
            Sincerely,
                                         Phillip L. Swagel,
                                                          Director.
    Enclosure.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Bill summary: H.R. 5377 would increase the tax rate for the 
top individual income tax bracket for taxable years 2020 to 
2025 from 37 percent to 39.6 percent, and reduce the minimum 
taxable income threshold for that bracket. H.R. 5377 would 
increase the limitation on the deduction of state and local 
taxes for married couples from $10,000 to $20,000 in taxable 
year 2019 and eliminate that limitation for 2020 and 2021 for 
all taxpayers. Additionally, H.R. 5377 would increase the 
deduction for certain expenses for elementary and secondary 
school teachers from $250 to $500 and create a new $500 above-
the-line deduction for certain expenses of first responders.
    Estimated Federal cost: The estimated budgetary effect of 
H.R. 5377 is shown in Table 1.

                                                   TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 5377
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               By fiscal year, billions of dollars
                                        ----------------------------------------------------------------------------------------------------------------
                                                                                                                                        2020-     2020-
                                           2020     2021     2022     2023     2024     2025     2026     2027      2028      2029      2024      2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Increases or Decreases (-) in Revenues
 
Increase the top individual income tax      19.4     28.7     30.4     31.9     33.8     35.6     10.9         *         0         0     144.2     190.7
 rate to 39.6% and restore the top
 income tax bracket....................
Increase in limitation on deduction for    -48.9    -88.7    -51.3      4.4        0        0        0         0         0         0    -184.5    -184.5
 State and local taxes for married
 individuals for 2019; termination of
 limitation for 2020 and 2021..........
Increase in deduction for certain           -0.2     -0.1     -0.1     -0.2     -0.2     -0.2     -0.2      -0.3      -0.2      -0.2      -0.8      -1.9
 expenses of elementary and secondary
 school teachers.......................
Above-the-line deduction allowed for        -0.1     -0.2     -0.2     -0.2     -0.2     -0.2     -0.2      -0.2      -0.2      -0.2      -0.9      -1.9
 certain expenses of first responders..
             Total Revenues                -29.8    -60.3    -21.2     35.9     33.4     35.2     10.5      -0.5      -0.4      -0.4     -42.0       2.4
 
                                          Net Increase or Decrease (-) in the Deficit From Changes in Revenues
 
Effect on the Deficit..................     29.8     60.3     21.2    -35.9    -33.4    -35.2    -10.5       0.5       0.4       0.4      42.0      -2.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Components may not sum to totals because of rounding; * = Gain of less than $50 million.

    Basis of estimate: The Congressional Budget Act of 1974, as 
amended, stipulates that revenue estimates provided by the 
staff of the Joint Committee on Taxation (JCT) are the official 
estimates for all tax legislation considered by the Congress. 
CBO therefore incorporates such estimates into its cost 
estimates of the effects of legislation. All of the estimates 
for the provisions of H.R. 5377 were provided by JCT.\1\
---------------------------------------------------------------------------
    \1\For JCT's estimates of the provisions, which include detail 
beyond the summary presented here, see Joint Committee on Taxation, 
Description Of The Chairman's Amendment In The Nature Of A Substitute 
To The Provisions Of H.R. __, The ``Restoring Tax Fairness For States 
And Localities Act'' JCX-53-19 (December 10, 2019) https://www.jct.gov/
publications.html?func=startdown&id=5236.
---------------------------------------------------------------------------
    Revenues: H.R. 5377 would increase revenues by expanding 
the top marginal individual income tax bracket and reduce 
revenues by allowing more deductions for state and local taxes 
and eligible expenses for certain educators and first 
responders. On net, JCT estimates, enacting the bill would 
increase revenues by $2.4 billion over the 2020-2029 period.
    H.R. 5377 would increase the tax rate that applies to the 
top individual income tax bracket and expand the income range 
over which it applies between 2020 and 2025. The 2017 tax act 
(Public Law 115-97) temporarily reduced the top marginal tax 
rate to 37 percent for taxable years 2018 to 2025. H.R. 5377 
would reverse that temporary decrease by increasing the top 
rate to 39.6 percent for taxable years 2020 to 2025. 
Additionally, H.R. 5377 would reduce the income thresholds 
established by the 2017 tax act for the top tax bracket for 
taxable years 2020 to 2025, thereby increasing the number of 
taxpayers subject to the top marginal rate. For example, under 
H.R. 5377, in 2020, the taxable income threshold for the top 
tax bracket for single individuals would fall from $518,400 to 
$441,475, JCT estimates. (The threshold for married individuals 
filing joint returns would fall from $622,050 to $496,600.) JCT 
estimates that as a result of these changes to the top bracket, 
revenues would increase by $190.7 billion over the 2020-2029 
period.
    The 2017 tax act limited the maximum amount of state and 
local taxes that married couples could deduct to $10,000 for 
tax years 2018 to 2025. H.R. 5377 would increase the allowable 
amount of the state and local tax deduction for married couples 
in 2019, from $10,000 to $20,000 for taxpayers filing jointly 
and from $5,000 to $10,000 for married taxpayers filing 
separately. The bill would eliminate the limitation altogether 
in 2020 and 2021. JCT estimates that these changes to the state 
and local tax deduction limitations would decrease revenues by 
$184.5 billion from 2020 to 2029.
    H.R. 5377 would expand deductions for certain expenses for 
educators and first responders. It would permanently increase 
the deduction for certain expenses for eligible educators from 
$250 to $500 (indexed for inflation) beginning in tax year 
2019. The bill would also add a permanent above-the-line 
deduction for certain eligible expenses for first responders, 
including firefighters, law enforcement officers, paramedics, 
and emergency technicians. The deduction for first responders 
would be $500 in 2019, and indexed for inflation in subsequent 
years. JCT estimates that the increased deduction for educators 
and the new deduction for expenses for first responders would 
each reduce revenues by $1.9 billion from 2020 to 2029.
    Uncertainty: These budgetary estimates are uncertain 
because they rely on underlying projections and other estimates 
that are uncertain. Specifically, they are based in part on 
economic projections for the next decade under current law, and 
on estimates of changes in taxpayers' behavior in response to 
changes in tax rules.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in revenues that are subject to those 
pay-as-you-go procedures are shown in Table 1.
    Increase in long-term deficits: JCT estimates that enacting 
H.R. 5377 would increase on-budget deficits by less than $5 
billion in each of the four consecutive 10-year periods 
beginning in 2030.
    Mandates: JCT has determined that H.R. 5377 would impose no 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act (UMRA).
    JCT has determined that H.R. 5377 would impose a private-
sector mandate as defined in UMRA by increasing the highest 
marginal tax rate for individual taxpayers. JCT estimates that 
the aggregate direct cost of the mandate would exceed the 
annual private-sector threshold established in UMRA ($164 
million in 2019, adjusted annually for inflation).
    Estimate prepared by: Revenues: Staff of the Joint 
Committee on Taxation and Ellen Steele; Mandates: Staff of the 
Joint Committee on Taxation.
    Estimate reviewed by: Joshua Shakin, Chief, Revenue 
Estimating Unit; John McClelland, Assistant Director for Tax 
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 and clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
the Committee made findings and recommendations that are 
reflected in this report.

        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, therefore, no 
statement of general performance goals and objectives is 
required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4). The Committee has determined that the bill contains one 
private sector unfunded mandate: it increases the top 
individual income tax rate of 37 percent to 39.6 percent and 
reduces the dollar amounts at which the 39.6 percent bracket 
begins, subjecting more taxpayers to tax at the top individual 
income tax rate. The Committee has determined that the bill 
does not impose a Federal intergovernmental mandate on State, 
local, or tribal governments.

            D. Applicability of House Rule XXI, Clause 5(b)

    Clause 5(b) of rule XXI of the Rules of the House of 
Representatives provides, in part, that, ``It shall not be in 
order to consider a bill, joint resolution, amendment, or 
conference report carrying a retroactive Federal income tax 
rate increase.'' The Committee, after careful review, states 
that the bill does not involve any retroactive Federal income 
tax rate increase within the meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of Pub. L. No. 105-266, the Internal 
Revenue Service Restructuring and Reform Act of 1998 (the 
``RRA''), requires the staff of the Joint Committee on Taxation 
(in consultation with the Internal Revenue Service and the 
Treasury Department) to provide a tax complexity analysis. The 
complexity analysis is required for all legislation reported by 
the Senate Committee on Finance, the House Committee on Ways 
and Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code of 1986 and has `widespread 
applicability' to individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the RRA because the bill 
contains no provision that amends the Internal Revenue Code of 
1986 and has ``widespread applicability'' to individuals or 
small businesses within the meaning of the rule.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
to Congress pursuant to section 21 of Pub. L. No. 111-139; or 
(3) a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance, published 
pursuant to section 6104 of title 31, United States Code.

                              H. Hearings

    In compliance with Sec. 103(i) of H. Res. 6 (116th 
Congress) the following hearing was used to develop or consider 
H.R. 397: The June 25, 2019 hearing of the Committee on Ways 
and Means Subcommittee on Select Revenue Measures entitled 
``How Recent Limitations to the SALT Deduction Harm 
Communities, Schools, First Responders, and Housing Values'' 
and the following related hearing was held: The June 25, 2019, 
Member Day hearing held by the Committee on Ways and Means 
Subcommittee on Select Revenue Measures to hear testimony on 
the consequences of and potential remedies to the recent 
changes made to the Federal tax treatment of State and local 
taxes.

              VI. CHANGES IN EXISTING LAW MADE BY THE BILL


            A. Changes in Existing Law Proposed by the Bill

    Pursuant to clause 3(e)(1)(B) of rule XIII of the Rules of 
the House of Representatives, changes in existing law proposed 
by the bill 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):

         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, and 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) Married individuals filing joint returns and surviving 
spouses.--There is hereby imposed on the taxable income of--
          (1) every married individual (as defined in section 
        7703) who makes a single return jointly with his spouse 
        under section 6013, and
          (2) every surviving spouse (as defined in section 
        2(a)), a tax determined in accordance with the 
        following table:

 
------------------------------------------------------------------------
        If taxable income is:                     The tax is:
------------------------------------------------------------------------
Not over $36,900                       15% of taxable income.
Over $36,900 but not over $89,150      $5,535, plus 28% of the excess
                                        over $36,900.
Over $89,150 but not over $140,000     $20,165, plus 31% of the excess
                                        over $89,150.
Over $140,000 but not over $250,000    $35,928.50, plus 36% of the
                                        excess over $140,000.
Over $250,000                          $75,528.50, plus 39.6% of the
                                        excess over $250,000.
------------------------------------------------------------------------

  (b) Heads of Households.--There is hereby imposed on the 
taxable income of every head of a household (as defined in 
section 2(b)) a tax determined in accordance with the following 
table:

 
------------------------------------------------------------------------
        If taxable income is:                     The tax is:
------------------------------------------------------------------------
Not over $29,600                       15% of taxable income.
Over $29,600 but not over $76,400      $4,440, plus 28% of the excess
                                        over $29,600.
Over $76,400 but not over $127,500     $17,544, plus 31% of the excess
                                        over $76,400.
Over $127,500 but not over $250,000    $33,385, plus 36% of the excess
                                        over $127,500.
Over $250,000                          $77,485, plus 39.6% of the excess
                                        over $250,000.
------------------------------------------------------------------------

  (c) Unmarried Individuals (Other Than Surviving Spouses and 
Heads of Households).--There is hereby imposed on the taxable 
income of every individual (other than a surviving spouse as 
defined in section 2(a) or the head of a household as defined 
in section 2(b)) who is not a married individual (as defined in 
section 7703) a tax determined in accordance with the following 
table:

 
------------------------------------------------------------------------
        If taxable income is:                     The tax is:
------------------------------------------------------------------------
Not over $22,100                       15% of taxable income.
Over $22,100 but not over $53,500      $3,315, plus 28% of the excess
                                        over $22,100.
Over $53,500 but not over $115,000     $12,107, plus 31% of the excess
                                        over $53,500.
Over $115,000 but not over $250,000    $31,172, plus 36% of the excess
                                        over $115,000.
Over $250,000                          $79,772, plus 39.6% of the excess
                                        over $250,000.
------------------------------------------------------------------------

  (d) Married Individuals Filing Separate Returns.--There is 
hereby imposed on the taxable income of every married 
individual (as defined in section 7703) who does not make a 
single return jointly with his spouse under section 6013, a tax 
determined in accordance with the following table:

 
------------------------------------------------------------------------
        If taxable income is:                     The tax is:
------------------------------------------------------------------------
Not over $18,450                       15% of taxable income.
Over $18,450 but not over $44,575      $2,767.50, plus 28% of the excess
                                        over $18,450.
Over $44,575 but not over $70,000      $10,082.50, plus 31% of the
                                        excess over $44,575.
Over $70,000 but not over $125,000     $17,964.25, plus 36% of the
                                        excess over $70,000.
Over $125,000                          $37,764.25, plus 39.6% of the
                                        excess over $125,000.
------------------------------------------------------------------------

  (e) Estates and Trusts.--There is hereby imposed on the 
taxable income of--
          (1) every estate, and
          (2) every trust, taxable under this subsection a tax 
        determined in accordance with the following table:

 
------------------------------------------------------------------------
        If taxable income is:                     The tax is:
------------------------------------------------------------------------
Not over $1,500                        15% of taxable income.
Over $1,500 but not over $3,500        $225, plus 28% of the excess over
                                        $1,500.
Over $3,500 but not over $5,500        $785, plus 31% of the excess over
                                        $3,500.
Over $5,500 but not over $7,500        $1,405, plus 36% of the excess
                                        over $5,500.
Over $7,500                            $2,125, plus 39.6% of the excess
                                        over $7,500.
------------------------------------------------------------------------

  (f) Phaseout of marriage penalty in 15-percent bracket; 
adjustments in tax tables so that inflation will not result in 
tax increases.--
          (1) In general.--Not later than December 15 of 1993, 
        and each subsequent calendar year, the Secretary shall 
        prescribe tables which shall apply in lieu of the 
        tables contained in subsections (a), (b), (c), (d), and 
        (e) with respect to taxable years beginning in the 
        succeeding calendar year.
          (2) Method of prescribing tables.--The table which 
        under paragraph (1) is to apply in lieu of the table 
        contained in subsection (a), (b), (c), (d), or (e), as 
        the case may be, with respect to taxable years 
        beginning in any calendar year shall be prescribed--
                  (A) except as provided in paragraph (8), by 
                increasing the minimum and maximum dollar 
                amounts for each bracket for which a tax is 
                imposed under such table by the cost-of-living 
                adjustment for such calendar year, determined--
                          (i) except as provided in clause 
                        (ii), by substituting ``1992'' for 
                        ``2016'' in paragraph (3)(A)(ii), and
                          (ii) in the case of adjustments to 
                        the dollar amounts at which the 36 
                        percent rate bracket begins or at which 
                        the 39.6 percent rate bracket begins, 
                        by substituting ``1993'' for ``2016'' 
                        in paragraph (3)(A)(ii),
                  (B) by not changing the rate applicable to 
                any rate bracket as adjusted under subparagraph 
                (A), and
                  (C) by adjusting the amounts setting forth 
                the tax to the extent necessary to reflect the 
                adjustments in the rate brackets.
          (3) Cost-of-living adjustment.--For purposes of this 
        subsection--
                  (A) In general.--The cost-of-living 
                adjustment for any calendar year is the 
                percentage (if any) by which--
                          (i) the C-CPI-U for the preceding 
                        calendar year, exceeds
                          (ii) the CPI for calendar year 2016, 
                        multiplied by the amount determined 
                        under subparagraph (B).
                  (B) Amount determined.--The amount determined 
                under this clause is the amount obtained by 
                dividing--
                          (i) the C-CPI-U for calendar year 
                        2016, by
                          (ii) the CPI for calendar year 2016.
                  (C) Special rule for adjustments with a base 
                year after 2016.--For purposes of any provision 
                of this title which provides for the 
                substitution of a year after 2016 for ``2016'' 
                in subparagraph (A)(ii), subparagraph (A) shall 
                be applied by substituting ``the C-CPI-U for 
                calendar year 2016'' for ``the CPI for calendar 
                year 2016'' and all that follows in clause (ii) 
                thereof.
          (4) CPI for any calendar year.--For purposes of 
        paragraph (3), the CPI for any calendar year is the 
        average of the Consumer Price Index as of the close of 
        the 12-month period ending on August 31 of such 
        calendar year.
          (5) Consumer Price Index.--For purposes of paragraph 
        (4), the term ``Consumer Price Index'' means the last 
        Consumer Price Index for all-urban consumers published 
        by the Department of Labor. For purposes of the 
        preceding sentence, the revision of the Consumer Price 
        Index which is most consistent with the Consumer Price 
        Index for calendar year 1986 shall be used.
          (6) C-CPI-U.--For purposes of this subsection--
                  (A) In general.--The term ``C-CPI-U'' means 
                the Chained Consumer Price Index for All Urban 
                Consumers (as published by the Bureau of Labor 
                Statistics of the Department of Labor). The 
                values of the Chained Consumer Price Index for 
                All Urban Consumers taken into account for 
                purposes of determining the cost-of-living 
                adjustment for any calendar year under this 
                subsection shall be the latest values so 
                published as of the date on which such Bureau 
                publishes the initial value of the Chained 
                Consumer Price Index for All Urban Consumers 
                for the month of August for the preceding 
                calendar year.
                  (B) Determination for calendar year.--The C-
                CPI-U for any calendar year is the average of 
                the C-CPI-U as of the close of the 12-month 
                period ending on August 31 of such calendar 
                year.
          (7) Rounding.--
                  (A) In general.--If any increase determined 
                under paragraph (2)(A), section 63(c)(4), 
                section 68(b)(2) or section 151(d)(4) is not a 
                multiple of $50, such increase shall be rounded 
                to the next lowest multiple of $50.
                  (B) Table for married individuals filing 
                separately.--In the case of a married 
                individual filing a separate return, 
                subparagraph (A) (other than with respect to 
                sections 63(c)(4) and 151(d)(4)(A)) shall be 
                applied by substituting ``$25'' for ``$50'' 
                each place it appears.
          (8) Elimination of marriage penalty in 15-percent 
        bracket.--With respect to taxable years beginning after 
        December 31, 2003, in prescribing the tables under 
        paragraph (1)--
                  (A) the maximum taxable income in the 15-
                percent rate bracket in the table contained in 
                subsection (a) (and the minimum taxable income 
                in the next higher taxable income bracket in 
                such table) shall be 200 percent of the maximum 
                taxable income in the 15-percent rate bracket 
                in the table contained in subsection (c) (after 
                any other adjustment under this subsection), 
                and
                  (B) the comparable taxable income amounts in 
                the table contained in subsection (d) shall be 
                1/2 of the amounts determined under 
                subparagraph (A).
  (g) Certain unearned income of children taxed as if parent's 
income.--
          (1) In general.--In the case of any child to whom 
        this subsection applies, the tax imposed by this 
        section shall be equal to the greater of--
                  (A) the tax imposed by this section without 
                regard to this subsection, or
                  (B) the sum of--
                          (i) the tax which would be imposed by 
                        this section if the taxable income of 
                        such child for the taxable year were 
                        reduced by the net unearned income of 
                        such child, plus
                          (ii) such child's share of the 
                        allocable parental tax.
          (2) Child to whom subsection applies.--This 
        subsection shall apply to any child for any taxable 
        year if--
                  (A) such child--
                          (i) has not attained age 18 before 
                        the close of the taxable year, or
                          (ii)(I) has attained age 18 before 
                        the close of the taxable year and meets 
                        the age requirements of section 
                        152(c)(3) (determined without regard to 
                        subparagraph (B) thereof), and
                          (II) whose earned income (as defined 
                        in section 911(d)(2)) for such taxable 
                        year does not exceed one-half of the 
                        amount of the individual's support 
                        (within the meaning of section 
                        152(c)(1)(D) after the application of 
                        section 152(f)(5) (without regard to 
                        subparagraph (A) thereof)) for such 
                        taxable year,
                  (B) either parent of such child is alive at 
                the close of the taxable year, and
                  (C) such child does not file a joint return 
                for the taxable year.
          (3) Allocable parental tax.--For purposes of this 
        subsection--
                  (A) In general.--The term ``allocable 
                parental tax'' means the excess of--
                          (i) the tax which would be imposed by 
                        this section on the parent's taxable 
                        income if such income included the net 
                        unearned income of all children of the 
                        parent to whom this subsection applies, 
                        over
                          (ii) the tax imposed by this section 
                        on the parent without regard to this 
                        subsection.
                For purposes of clause (i), net unearned income 
                of all children of the parent shall not be 
                taken into account in computing any exclusion, 
                deduction, or credit of the parent.
                  (B) Child's share.--A child's share of any 
                allocable parental tax of a parent shall be 
                equal to an amount which bears the same ratio 
                to the total allocable parental tax as the 
                child's net unearned income bears to the 
                aggregate net unearned income of all children 
                of such parent to whom this subsection applies.
                  (C) Special rule where parent has different 
                taxable year.--Except as provided in 
                regulations, if the parent does not have the 
                same taxable year as the child, the allocable 
                parental tax shall be determined on the basis 
                of the taxable year of the parent ending in the 
                child's taxable year.
          (4) Net unearned income.--For purposes of this 
        subsection--
                  (A) In general.--The term ``net unearned 
                income'' means the excess of--
                          (i) the portion of the adjusted gross 
                        income for the taxable year which is 
                        not attributable to earned income (as 
                        defined in section 911(d)(2)), over
                          (ii) the sum of--
                                  (I) the amount in effect for 
                                the taxable year under section 
                                63(c)(5)(A) (relating to 
                                limitation on standard 
                                deduction in the case of 
                                certain dependents), plus
                                  (II) the greater of the 
                                amount described in subclause 
                                (I) or, if the child itemizes 
                                his deductions for the taxable 
                                year, the amount of the 
                                itemized deductions allowed by 
                                this chapter for the taxable 
                                year which are directly 
                                connected with the production 
                                of the portion of adjusted 
                                gross income referred to in 
                                clause (i).
                  (B) Limitation based on taxable income.--The 
                amount of the net unearned income for any 
                taxable year shall not exceed the individual's 
                taxable income for such taxable year.
                  (C) Treatment of distributions from qualified 
                disability trusts.--For purposes of this 
                subsection, in the case of any child who is a 
                beneficiary of a qualified disability trust (as 
                defined in section 642(b)(2)(C)(ii)), any 
                amount included in the income of such child 
                under sections 652 and 662 during a taxable 
                year shall be considered earned income of such 
                child for such taxable year.
          (5) Special rules for determining parent to whom 
        subsection applies.--For purposes of this subsection, 
        the parent whose taxable income shall be taken into 
        account shall be--
                  (A) in the case of parents who are not 
                married (within the meaning of section 7703), 
                the custodial parent (within the meaning of 
                section 152(e)) of the child, and
                  (B) in the case of married individuals filing 
                separately, the individual with the greater 
                taxable income.
          (6) Providing of parent's TIN.--The parent of any 
        child to whom this subsection applies for any taxable 
        year shall provide the TIN of such parent to such child 
        and such child shall include such TIN on the child's 
        return of tax imposed by this section for such taxable 
        year.
          (7) Election to claim certain unearned income of 
        child on parent's return.--
                  (A) In general.--If--
                          (i) any child to whom this subsection 
                        applies has gross income for the 
                        taxable year only from interest and 
                        dividends (including Alaska Permanent 
                        Fund dividends),
                          (ii) such gross income is more than 
                        the amount described in paragraph 
                        (4)(A)(ii)(I) and less than 10 times 
                        the amount so described,
                          (iii) no estimated tax payments for 
                        such year are made in the name and TIN 
                        of such child, and no amount has been 
                        deducted and withheld under section 
                        3406, and
                          (iv) the parent of such child (as 
                        determined under paragraph (5)) elects 
                        the application of subparagraph (B),
                such child shall be treated (other than for 
                purposes of this paragraph) as having no gross 
                income for such year and shall not be required 
                to file a return under section 6012.
                  (B) Income included on parent's return.--In 
                the case of a parent making the election under 
                this paragraph--
                          (i) the gross income of each child to 
                        whom such election applies (to the 
                        extent the gross income of such child 
                        exceeds twice the amount described in 
                        paragraph (4)(A)(ii)(I)) shall be 
                        included in such parent's gross income 
                        for the taxable year,
                          (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) the amount determined 
                                under this section after the 
                                application of clause (i), plus
                                  (II) for each such child, 10 
                                percent 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
                          (iii) any interest which is an item 
                        of tax preference under section 
                        57(a)(5) of the child shall be treated 
                        as an item of tax preference of such 
                        parent (and not of such child).
                  (C) Regulations.--The Secretary shall 
                prescribe such regulations as may be necessary 
                or appropriate to carry out the purposes of 
                this paragraph.
  (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) taxable income reduced by the net 
                        capital gain; or
                          (ii) the lesser of--
                                  (I) the amount of taxable 
                                income taxed at a rate below 25 
                                percent; or
                                  (II) taxable income reduced 
                                by the adjusted net capital 
                                gain;
                  (B) 0 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 25 
                        percent, over
                          (ii) the taxable income reduced by 
                        the adjusted net capital gain;
                  (C) 15 percent of the lesser of--
                          (i) so much of the adjusted net 
                        capital gain (or, if less, taxable 
                        income) as exceeds the amount on which 
                        a tax is determined under subparagraph 
                        (B), or
                          (ii) the excess of--
                                  (I) the amount of taxable 
                                income which would (without 
                                regard to this paragraph) be 
                                taxed at a rate below 39.6 
                                percent, over
                                  (II) the sum of the amounts 
                                on which a tax is determined 
                                under subparagraphs (A) and 
                                (B),
                  (D) 20 percent of the adjusted net capital 
                gain (or, if less, taxable income) in excess of 
                the sum of the amounts on which tax is 
                determined under subparagraphs (B) and (C),
                  (E) 25 percent of the excess (if any) of--
                          (i) the unrecaptured section 1250 
                        gain (or, if less, the net capital gain 
                        (determined without regard to paragraph 
                        (11))), over
                          (ii) the excess (if any) of--
                                  (I) the sum of the amount on 
                                which tax is determined under 
                                subparagraph (A) plus the net 
                                capital gain, over
                                  (II) taxable income; and
                  (F) 28 percent of the amount of taxable 
                income in excess of the sum of the amounts on 
                which tax is determined under the preceding 
                subparagraphs of this paragraph.
          (2) Net capital gain taken into account as investment 
        income.--For purposes of this subsection, the net 
        capital gain for any taxable year shall be reduced (but 
        not below zero) by the amount which the taxpayer takes 
        into account as investment income under section 
        163(d)(4)(B)(iii).
          (3) Adjusted net capital gain.--For purposes of this 
        subsection, the term ``adjusted net capital gain'' 
        means the sum of--
                  (A) net capital gain (determined without 
                regard to paragraph (11)) reduced (but not 
                below zero) by the sum of--
                          (i) unrecaptured section 1250 gain, 
                        and
                          (ii) 28-percent rate gain, plus
                  (B) qualified dividend income (as defined in 
                paragraph (11)).
          (4) 28-percent rate gain.--For purposes of this 
        subsection, the term ``28-percent rate gain'' means the 
        excess (if any) of--
                  (A) the sum of--
                          (i) collectibles gain; and
                          (ii) section 1202 gain, over
                  (B) the sum of--
                          (i) collectibles loss;
                          (ii) the net short-term capital loss; 
                        and
                          (iii) the amount of long-term capital 
                        loss carried under section 
                        1212(b)(1)(B) to the taxable year.
          (5) Collectibles gain and loss.--For purposes of this 
        subsection--
                  (A) In general.--The terms ``collectibles 
                gain'' and ``collectibles loss'' mean gain or 
                loss (respectively) from the sale or exchange 
                of a collectible (as defined in section 408(m) 
                without regard to paragraph (3) thereof) which 
                is a capital asset held for more than 1 year 
                but only to the extent such gain is taken into 
                account in computing gross income and such loss 
                is taken into account in computing taxable 
                income.
                  (B) Partnerships, etc..--For purposes of 
                subparagraph (A), any gain from the sale of an 
                interest in a partnership, S corporation, or 
                trust which is attributable to unrealized 
                appreciation in the value of collectibles shall 
                be treated as gain from the sale or exchange of 
                a collectible. Rules similar to the rules of 
                section 751 shall apply for purposes of the 
                preceding sentence.
          (6) Unrecaptured section 1250 gain.--For purposes of 
        this subsection--
                  (A) In general.--The term ``unrecaptured 
                section 1250 gain'' means the excess (if any) 
                of--
                          (i) the amount of long-term capital 
                        gain (not otherwise treated as ordinary 
                        income) which would be treated as 
                        ordinary income if section 1250(b)(1) 
                        included all depreciation and the 
                        applicable percentage under section 
                        1250(a) were 100 percent, over
                          (ii) the excess (if any) of--
                                  (I) the amount described in 
                                paragraph (4)(B); over
                                  (II) the amount described in 
                                paragraph (4)(A).
                  (B) Limitation with respect to section 1231 
                property.--The amount described in subparagraph 
                (A)(i) from sales, exchanges, and conversions 
                described in section 1231(a)(3)(A) for any 
                taxable year shall not exceed the net section 
                1231 gain (as defined in section 1231(c)(3)) 
                for such year.
          (7) Section 1202 gain.--For purposes of this 
        subsection, the term ``section 1202 gain'' means the 
        excess of--
                  (A) the gain which would be excluded from 
                gross income under section 1202 but for the 
                percentage limitation in section 1202(a), over
                  (B) the gain excluded from gross income under 
                section 1202.
          (8) Coordination with recapture of net ordinary 
        losses under section 1231.--If any amount is treated as 
        ordinary income under section 1231(c), such amount 
        shall be allocated among the separate categories of net 
        section 1231 gain (as defined in section 1231(c)(3)) in 
        such manner as the Secretary may by forms or 
        regulations prescribe.
          (9) Regulations.--The Secretary may prescribe such 
        regulations as are appropriate (including regulations 
        requiring reporting) to apply this subsection in the 
        case of sales and exchanges by pass-thru entities and 
        of interests in such entities.
          (10) Pass-thru entity defined.--For purposes of this 
        subsection, the term ``pass-thru entity'' means--
                  (A) a regulated investment company;
                  (B) a real estate investment trust;
                  (C) an S corporation;
                  (D) a partnership;
                  (E) an estate or trust;
                  (F) a common trust fund; and
                  (G) a qualified electing fund (as defined in 
                section 1295).
          (11) Dividends taxed as net capital gain.--
                  (A) In general.--For purposes of this 
                subsection, the term ``net capital gain'' means 
                net capital gain (determined without regard to 
                this paragraph) increased by qualified dividend 
                income.
                  (B) Qualified dividend income.--For purposes 
                of this paragraph--
                          (i) In general.--The term ``qualified 
                        dividend income'' means dividends 
                        received during the taxable year from--
                                  (I) domestic corporations, 
                                and
                                  (II) qualified foreign 
                                corporations.
                          (ii) Certain dividends excluded.--
                        Such term shall not include--
                                  (I) any dividend from a 
                                corporation which for the 
                                taxable year of the corporation 
                                in which the distribution is 
                                made, or the preceding taxable 
                                year, is a corporation exempt 
                                from tax under section 501 or 
                                521,
                                  (II) any amount allowed as a 
                                deduction under section 591 
                                (relating to deduction for 
                                dividends paid by mutual 
                                savings banks, etc.), and
                                  (III) any dividend described 
                                in section 404(k).
                          (iii) Coordination with section 
                        246(c).--Such term shall not include 
                        any dividend on any share of stock--
                                  (I) with respect to which the 
                                holding period requirements of 
                                section 246(c) are not met 
                                (determined by substituting in 
                                section 246(c) ``60 days'' for 
                                ``45 days'' each place it 
                                appears and by substituting 
                                ``121-day period'' for ``91-day 
                                period''), or
                                  (II) to the extent that the 
                                taxpayer is under an obligation 
                                (whether pursuant to a short 
                                sale or otherwise) to make 
                                related payments with respect 
                                to positions in substantially 
                                similar or related property.
                  (C) Qualified foreign corporations.--
                          (i) In general.--Except as otherwise 
                        provided in this paragraph, the term 
                        ``qualified foreign corporation'' means 
                        any foreign corporation if--
                                  (I) such corporation is 
                                incorporated in a possession of 
                                the United States, or
                                  (II) such corporation is 
                                eligible for benefits of a 
                                comprehensive income tax treaty 
                                with the United States which 
                                the Secretary determines is 
                                satisfactory for purposes of 
                                this paragraph and which 
                                includes an exchange of 
                                information program.
                          (ii) Dividends on stock readily 
                        tradable on United States securities 
                        market.--A foreign corporation not 
                        otherwise treated as a qualified 
                        foreign corporation under clause (i) 
                        shall be so treated with respect to any 
                        dividend paid by such corporation if 
                        the stock with respect to which such 
                        dividend is paid is readily tradable on 
                        an established securities market in the 
                        United States.
                          (iii) Exclusion of dividends of 
                        certain foreign corporations.--Such 
                        term shall not include--
                                  (I) any foreign corporation 
                                which for the taxable year of 
                                the corporation in which the 
                                dividend was paid, or the 
                                preceding taxable year, is a 
                                passive foreign investment 
                                company (as defined in section 
                                1297), and
                                  (II) any corporation which 
                                first becomes a surrogate 
                                foreign corporation (as defined 
                                in section 7874(a)(2)(B)) after 
                                the date of the enactment of 
                                this subclause, other than a 
                                foreign corporation which is 
                                treated as a domestic 
                                corporation under section 
                                7874(b).
                          (iv) Coordination with foreign tax 
                        credit limitation.--Rules similar to 
                        the rules of section 904(b)(2)(B) shall 
                        apply with respect to the dividend rate 
                        differential under this paragraph.
                  (D) Special rules.--
                          (i) Amounts taken into account as 
                        investment income.--Qualified dividend 
                        income shall not include any amount 
                        which the taxpayer takes into account 
                        as investment income under section 
                        163(d)(4)(B).
                          (ii) Extraordinary dividends.--If a 
                        taxpayer to whom this section applies 
                        receives, with respect to any share of 
                        stock, qualified dividend income from 1 
                        or more dividends which are 
                        extraordinary dividends (within the 
                        meaning of section 1059(c)), any loss 
                        on the sale or exchange of such share 
                        shall, to the extent of such dividends, 
                        be treated as long-term capital loss.
                          (iii) Treatment of dividends from 
                        regulated investment companies and real 
                        estate investment trusts.--A dividend 
                        received from a regulated investment 
                        company or a real estate investment 
                        trust shall be subject to the 
                        limitations prescribed in sections 854 
                        and 857.
  (i) Rate reductions after 2000.--
          (1) 10-percent 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 10 percent, and
                          (ii) the 15 percent rate of tax shall 
                        apply only to taxable income over the 
                        initial bracket amount but not over the 
                        maximum dollar amount for the 15-
                        percent rate bracket.
                  (B) Initial bracket amount.--For purposes of 
                this paragraph, the initial bracket amount is--
                          (i) $14,000 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) (after adjustment, if any, 
                        under subparagraph (C)) 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 2003--
                          (i) the cost-of-living adjustment 
                        shall be determined under subsection 
                        (f)(3) by substituting ``2002'' for 
                        ``2016'' in subparagraph (A)(ii) 
                        thereof, and
                          (ii) the adjustments under clause (i) 
                        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) 25-, 28-, and 33-percent rate brackets.--The 
        tables under subsections (a), (b), (c), (d), and (e) 
        shall be applied--
                  (A) by substituting ``25%'' for ``28%'' each 
                place it appears (before the application of 
                subparagraph (B)),
                  (B) by substituting ``28%'' for ``31%'' each 
                place it appears, and
                  (C) by substituting ``33%'' for ``36%'' each 
                place it appears.
          (3) Modifications to income tax brackets for high-
        income taxpayers.--
                  (A) 35-percent rate bracket.--In the case of 
                taxable years beginning after December 31, 
                2012--
                          (i) the rate of tax under subsections 
                        (a), (b), (c), and (d) on a taxpayer's 
                        taxable income in the highest rate 
                        bracket shall be 35 percent to the 
                        extent such income does not exceed an 
                        amount equal to the excess of--
                                  (I) the applicable threshold, 
                                over
                                  (II) the dollar amount at 
                                which such bracket begins, and
                          (ii) the 39.6 percent rate of tax 
                        under such subsections shall apply only 
                        to the taxpayer's taxable income in 
                        such bracket in excess of the amount to 
                        which clause (i) applies.
                  (B) Applicable threshold.--For purposes of 
                this paragraph, the term ``applicable 
                threshold'' means--
                          (i) $450,000 in the case of 
                        subsection (a),
                          (ii) $425,000 in the case of 
                        subsection (b),
                          (iii) $400,000 in the case of 
                        subsection (c), and
                          (iv) 1/2 the amount applicable under 
                        clause (i) (after adjustment, if any, 
                        under subparagraph (C)) in the case of 
                        subsection (d).
                  (C) Inflation adjustment.--For purposes of 
                this paragraph, with respect to taxable years 
                beginning in calendar years after 2013, each of 
                the dollar amounts under clauses (i), (ii), and 
                (iii) of subparagraph (B) shall be adjusted in 
                the same manner as under paragraph (1)(C)(i), 
                except that subsection (f)(3)(A)(ii) shall be 
                applied by substituting ``2012'' for ``2016''.
          (4) Adjustment of tables.--The Secretary shall adjust 
        the tables prescribed under subsection (f) to carry out 
        this subsection.
  (j) Modifications for taxable years 2018 through 2025.--
          (1) In general.--In the case of a taxable year 
        beginning after December 31, 2017, and before January 
        1, 2026--
                  (A) subsection (i) shall not apply, and
                  (B) this section (other than subsection (i)) 
                shall be applied as provided in paragraphs (2) 
                through (6).
          (2) Rate tables.--
                  (A) Married individuals filing joint returns 
                and surviving spouses.--The following table 
                shall be applied in lieu of the table contained 
                in subsection (a):


 
------------------------------------------------------------------------
        If taxable income is:                     The tax is:
------------------------------------------------------------------------
Not over $19,050.....................  10% of taxable income.
Over $19,050 but not over $77,400....  $1,905, plus 12% of the excess
                                        over $19,050.
Over $77,400 but not over $165,000...  $8,907, plus 22% of the excess
                                        over $77,400.
Over $165,000 but not over $315,000..  $28,179, plus 24% of the excess
                                        over $165,000.
Over $315,000 but not over $400,000..  $64,179, plus 32% of the excess
                                        over $315,000.
Over $400,000 but not over [$600,000]  $91,379, plus 35% of the excess
 $479,000 ..                            over $400,000.
Over [$600,000] $479,000               [$161,379] $119,029 , plus[37%]
 ........................               39.6% of the excess
                                        over[$600,000] $479,000 .
------------------------------------------------------------------------

                  (B) Heads of households.--The following table 
                shall be applied in lieu of the table contained 
                in subsection (b):

 
------------------------------------------------------------------------
        If taxable income is:                     The tax is:
------------------------------------------------------------------------
Not over $13,600.....................  10% of taxable income.
Over $13,600 but not over $51,800....  $1,360, plus 12% of the excess
                                        over $13,600.
Over $51,800 but not over $82,500....  $5,944, plus 22% of the excess
                                        over $51,800.
Over $82,500 but not over $157,500...  $12,698, plus 24% of the excess
                                        over $82,500.
Over $157,500 but not over $200,000..  $30,698, plus 32% of the excess
                                        over $157,500.
Over $200,000 but not over [$500,000]  $44,298, plus 35% of the excess
 $452,400 ..                            over $200,000.
Over [$500,000] $452,400               [$149,298] $132,638 , plus[37%]
 ........................               39.6% of the excess
                                        over[$500,000] $452,400 .
------------------------------------------------------------------------

                  (C) Unmarried individuals other than 
                surviving spouses and heads of households.--The 
                following table shall be applied in lieu of the 
                table contained in subsection (c):

 
------------------------------------------------------------------------
        If taxable income is:                     The tax is:
------------------------------------------------------------------------
Not over $9,525......................  10% of taxable income.
Over $9,525 but not over $38,700.....  $952.50, plus 12% of the excess
                                        over $9,525.
Over $38,700 but not over $82,500....  $4,453.50, plus 22% of the excess
                                        over $38,700.
Over $82,500 but not over $157,500...  $14,089.50, plus 24% of the
                                        excess over $82,500.
Over $157,500 but not over $200,000..  $32,089.50, plus 32% of the
                                        excess over $157,500.
Over $200,000 but not over [$500,000]  $45,689.50, plus 35% of the
 $425,800 ..                            excess over $200,000.
Over [$500,000] $425,800               [$150,689.50] $124,719.50 ,
 ........................               plus[37%] 39.6% of the excess
                                        over[$500,000] $425,800 .
------------------------------------------------------------------------

                  (D) Married individuals filing separate 
                returns.--The following table shall be applied 
                in lieu of the table contained in subsection 
                (d):

 
------------------------------------------------------------------------
        If taxable income is:                     The tax is:
------------------------------------------------------------------------
Not over $9,525......................  10% of taxable income.
Over $9,525 but not over $38,700.....  $952.50, plus 12% of the excess
                                        over $9,525.
Over $38,700 but not over $82,500....  $4,453.50, plus 22% of the excess
                                        over $38,700.
Over $82,500 but not over $157,500...  $14,089.50, plus 24% of the
                                        excess over $82,500.
Over $157,500 but not over $200,000..  $32,089.50, plus 32% of the
                                        excess over $157,500.
Over $200,000 but not over [$300,000]  $45,689.50, plus 35% of the
 $239,500 ..                            excess over $200,000.
Over [$300,000] $239,500               [$80,689.50] $59,514.50 ,
 ........................               plus[37%] 39.6% of the excess
                                        over[$300,000] $239,500 .
------------------------------------------------------------------------

                  (E) Estates and trusts.--The following table 
                shall be applied in lieu of the table contained 
                in subsection (e):


 
------------------------------------------------------------------------
        If taxable income is:                     The tax is:
------------------------------------------------------------------------
Not over $2,550......................  10% of taxable income.
Over $2,550 but not over $9,150......  $255, plus 24% of the excess over
                                        $2,550.
Over $9,150 but not over $12,500.....  $1,839, plus 35% of the excess
                                        over $9,150.
Over $12,500.........................  $3,011.50, plus[37%] 39.6% of the
                                        excess over $12,500.
------------------------------------------------------------------------

                  (F) References to rate tables.--Any reference 
                in this title to a rate of tax under subsection 
                (c) shall be treated as a reference to the 
                corresponding rate bracket under subparagraph 
                (C) of this paragraph, except that the 
                reference in section 3402(q)(1) to the third 
                lowest rate of tax applicable under subsection 
                (c) shall be treated as a reference to the 
                fourth lowest rate of tax under subparagraph 
                (C).
          (3) Adjustments.--
                  (A) No adjustment in 2018.--The tables 
                contained in paragraph (2) shall apply without 
                adjustment for taxable years beginning after 
                December 31, 2017, and before January 1, 2019.
                  (B) Subsequent years.--For taxable years 
                beginning after December 31, 2018, the 
                Secretary shall prescribe tables which shall 
                apply in lieu of the tables contained in 
                paragraph (2) in the same manner as under 
                paragraphs (1) and (2) of subsection (f) 
                (applied without regard to clauses (i) and (ii) 
                of subsection (f)(2)(A)), except that in 
                prescribing such tables--
                          (i) subsection (f)(3) shall be 
                        applied by substituting ``calendar year 
                        2017'' for ``calendar year 2016'' in 
                        subparagraph (A)(ii) thereof,
                          (ii) subsection (f)(7)(B) shall apply 
                        to any unmarried individual other than 
                        a surviving spouse or head of 
                        household, and
                          (iii) subsection (f)(8) shall not 
                        apply.
          (4) Special rules for certain children with unearned 
        income.--
                  (A) In general.--In the case of a child to 
                whom subsection (g) applies for the taxable 
                year, the rules of subparagraphs (B) and (C) 
                shall apply in lieu of the rule under 
                subsection (g)(1).
                  (B) Modifications to applicable rate 
                brackets.--In determining the amount of tax 
                imposed by this section for the taxable year on 
                a child described in subparagraph (A), the 
                income tax table otherwise applicable under 
                this subsection to the child shall be applied 
                with the following modifications:
                          (i) 24-percent bracket.--The maximum 
                        taxable income which is taxed at a rate 
                        below 24 percent shall not be more than 
                        the sum of--
                                  (I) the earned taxable income 
                                of such child, plus
                                  (II) the minimum taxable 
                                income for the 24-percent 
                                bracket in the table under 
                                paragraph (2)(E) (as adjusted 
                                under paragraph (3)) for the 
                                taxable year.
                          (ii) 35-percent bracket.--The maximum 
                        taxable income which is taxed at a rate 
                        below 35 percent shall not be more than 
                        the sum of--
                                  (I) the earned taxable income 
                                of such child, plus
                                  (II) the minimum taxable 
                                income for the 35-percent 
                                bracket in the table under 
                                paragraph (2)(E) (as adjusted 
                                under paragraph (3)) for the 
                                taxable year.
                          (iii)  [37-percent bracket] 39.6-
                        percent bracket.--The maximum taxable 
                        income which is taxed at a rate below 
                        [37 percent] 39.6 percent shall not be 
                        more than the sum of--
                                  (I) the earned taxable income 
                                of such child, plus
                                  (II) the minimum taxable 
                                income for the [37-percent 
                                bracket] 39.6-percent bracket 
                                in the table under paragraph 
                                (2)(E) (as adjusted under 
                                paragraph (3)) for the taxable 
                                year.
                  (C) Coordination with capital gains rates.--
                For purposes of applying section 1(h) (after 
                the modifications under paragraph (5)(A))--
                          (i) the maximum zero rate amount 
                        shall not be more than the sum of--
                                  (I) the earned taxable income 
                                of such child, plus
                                  (II) the amount in effect 
                                under [paragraph (5)(B)(i)(IV)] 
                                paragraph (5)(B)(iv) for the 
                                taxable year, and
                          [(ii) the maximum 15-percent rate 
                        amount shall not be more than the sum 
                        of--
                                  [(I) the earned taxable 
                                income of such child, plus
                                  [(II) the amount in effect 
                                under paragraph (5)(B)(ii)(IV) 
                                for the taxable year.]
                          (ii) the amount which would (without 
                        regard to this paragraph) be taxed at a 
                        rate below 39.6 percent shall not be 
                        more than the sum of--
                                  (I) the earned taxable income 
                                of such child, plus
                                  (II) the maximum dollar 
                                amount for the 35-percent rate 
                                bracket for estates and trusts.
                  (D) Earned taxable income.--For purposes of 
                this paragraph, the term ``earned taxable 
                income'' means, with respect to any child for 
                any taxable year, the taxable income of such 
                child reduced (but not below zero) by the net 
                unearned income (as defined in subsection 
                (g)(4)) of such child.
          (5)  [Application of current income tax brackets to 
        capital gains brackets.--] Application of zero percent 
        capital gain rate brackets._
                  [(A) In general.--Section 1(h)(1) shall be 
                applied--
                          [(i) by substituting ``below the 
                        maximum zero rate amount'' for ``which 
                        would (without regard to this 
                        paragraph) be taxed at a rate below 25 
                        percent'' in subparagraph (B)(i), and
                          [(ii) by substituting ``below the 
                        maximum 15-percent rate amount'' for 
                        ``which would (without regard to this 
                        paragraph) be taxed at a rate below 
                        39.6 percent'' in subparagraph 
                        (C)(ii)(I).
                  [(B) Maximum amounts defined.--For purposes 
                of applying section 1(h) with the modifications 
                described in subparagraph (A)--
                          [(i) Maximum zero rate amount.--The 
                        maximum zero rate amount shall be--
                                  [(I) in the case of a joint 
                                return or surviving spouse, 
                                $77,200,
                                  [(II) in the case of an 
                                individual who is a head of 
                                household (as defined in 
                                section 2(b)), $51,700,
                                  [(III) in the case of any 
                                other individual (other than an 
                                estate or trust), an amount 
                                equal to 1/2 of the amount in 
                                effect for the taxable year 
                                under subclause (I), and
                                  [(IV) in the case of an 
                                estate or trust, $2,600.
                          [(ii) Maximum 15-percent rate 
                        amount.--The maximum 15-percent rate 
                        amount shall be--
                                  [(I) in the case of a joint 
                                return or surviving spouse, 
                                $479,000 (1/2 such amount in 
                                the case of a married 
                                individual filing a separate 
                                return),
                                  [(II) in the case of an 
                                individual who is the head of a 
                                household (as defined in 
                                section 2(b)), $452,400,
                                  [(III) in the case of any 
                                other individual (other than an 
                                estate or trust), $425,800, and
                                  [(IV) in the case of an 
                                estate or trust, $12,700.]
                  (A) In general.--Subsection (h)(1)(B)(i) 
                shall be applied by substituting ``below the 
                maximum zero rate amount'' for ``which would 
                (without regard to this paragraph) be taxed at 
                a rate below 25 percent''.
                  (B) Maximum zero rate amount defined.--For 
                purposes of subparagraph (A), the term 
                ``maximum zero rate amount'' means--
                          (i) in the case of a joint return or 
                        surviving spouse, $77,200,
                          (ii) in the case of an individual who 
                        is a head of household (as defined in 
                        section 2(b)), $51,700,
                          (iii) in the case of any other 
                        individual (other than an estate or 
                        trust), an amount equal to 1/2 of the 
                        amount in effect for the taxable year 
                        under clause (i), and
                          (iv) in the case of an estate or 
                        trust, $2,600.
                  (C) Inflation adjustment.--In the case of any 
                taxable year beginning after 2018, each of the 
                dollar amounts in [clauses (i) and (ii) of] 
                subparagraph (B) shall be increased by an 
                amount equal to--
                          (i) such dollar amount, multiplied by
                          (ii) the cost-of-living adjustment 
                        determined under subsection (f)(3) for 
                        the calendar year in which the taxable 
                        year begins, determined by substituting 
                        ``calendar year 2017'' for ``calendar 
                        year 2016'' in subparagraph (A)(ii) 
                        thereof.
                If any increase under this subparagraph is not 
                a multiple of $50, such increase shall be 
                rounded to the next lowest multiple of $50.
          (6) Section 15 not to apply.--Section 15 shall not 
        apply to any change in a rate of tax by reason of this 
        subsection.

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Subchapter B--COMPUTATION OF TAXABLE INCOME

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


SEC. 62. ADJUSTED GROSS INCOME DEFINED.

  (a) General rule.--For purposes of this subtitle, the term 
``adjusted gross income'' means, in the case of an individual, 
gross income minus the following deductions:
          (1) Trade and business deductions.--The deductions 
        allowed by this chapter (other than by part VII of this 
        subchapter) which are attributable to a trade or 
        business carried on by the taxpayer, if such trade or 
        business does not consist of the performance of 
        services by the taxpayer as an employee.
          (2) Certain trade and business deductions of 
        employees.--
                  (A) Reimbursed expenses of employees.--The 
                deductions allowed by part VI (section 161 and 
                following) which consist of expenses paid or 
                incurred by the taxpayer, in connection with 
                the performance by him of services as an 
                employee, under a reimbursement or other 
                expense allowance arrangement with his 
                employer. The fact that the reimbursement may 
                be provided by a third party shall not be 
                determinative of whether or not the preceding 
                sentence applies.
                  (B) Certain expenses of performing artists.--
                The deductions allowed by section 162 which 
                consist of expenses paid or incurred by a 
                qualified performing artist in connection with 
                the performances by him of services in the 
                performing arts as an employee.
                  (C) Certain expenses of officials.--The 
                deductions allowed by section 162 which consist 
                of expenses paid or incurred with respect to 
                services performed by an official as an 
                employee of a State or a political subdivision 
                thereof in a position compensated in whole or 
                in part on a fee basis.
                  (D) Certain expenses of elementary and 
                secondary school teachers.--The deductions 
                allowed by section 162 which consist of 
                expenses, not in excess of [$250] $500 , paid 
                or incurred by an eligible educator--
                          (i) by reason of the participation of 
                        the educator in professional 
                        development courses related to the 
                        curriculum in which the educator 
                        provides instruction or to the students 
                        for which the educator provides 
                        instruction, and
                          (ii) in connection with books, 
                        supplies (other than nonathletic 
                        supplies for courses of instruction in 
                        health or physical education), computer 
                        equipment (including related software 
                        and services) and other equipment, and 
                        supplementary materials used by the 
                        eligible educator in the classroom.
                  (E) Certain expenses of members of reserve 
                components of the Armed Forces of the United 
                States.--The deductions allowed by section 162 
                which consist of expenses, determined at a rate 
                not in excess of the rates for travel expenses 
                (including per diem in lieu of subsistence) 
                authorized for employees of agencies under 
                subchapter I of chapter 57 of title 5, United 
                States Code, paid or incurred by the taxpayer 
                in connection with the performance of services 
                by such taxpayer as a member of a reserve 
                component of the Armed Forces of the United 
                States for any period during which such 
                individual is more than 100 miles away from 
                home in connection with such services.
                  (F) Certain expenses of first responders.--
                The deductions allowed by section 162 which 
                consist of expenses, not in excess of $500, 
                paid or incurred by a first responder--
                          (i) as tuition or fees for the 
                        participation of the first responder in 
                        professional development courses 
                        related to service as a first 
                        responder, or
                          (ii) for uniforms used by the first 
                        responder in service as a first 
                        responder.
          (3) Losses from sale or exchange of property.--The 
        deductions allowed by part VI (sec. 161 and following) 
        as losses from the sale or exchange of property.
          (4) Deductions attributable to rents and royalties.--
        The deductions allowed by part VI (sec. 161 and 
        following), by section 212 (relating to expenses for 
        production of income), and by section 611 (relating to 
        depletion) which are attributable to property held for 
        the production of rents or royalties.
          (5) Certain deductions of life tenants and income 
        beneficiaries of property.--In the case of a life 
        tenant of property, or an income beneficiary of 
        property held in trust, or an heir, legatee, or devisee 
        of an estate, the deduction for depreciation allowed by 
        section 167 and the deduction allowed by section 611.
          (6) Pension, profit-sharing, and annuity plans of 
        self-employed individuals.--In the case of an 
        individual who is an employee within the meaning of 
        section 401(c)(1), the deduction allowed by section 
        404.
          (7) Retirement savings.--The deduction allowed by 
        section 219 (relating to deduction of certain 
        retirement savings).
          (9) Penalties forfeited because of premature 
        withdrawal of funds from time savings accounts or 
        deposits.--The deductions allowed by section 165 for 
        losses incurred in any transaction entered into for 
        profit, though not connected with a trade or business, 
        to the extent that such losses include amounts 
        forfeited to a bank, mutual savings bank, savings and 
        loan association, building and loan association, 
        cooperative bank or homestead association as a penalty 
        for premature withdrawal of funds from a time savings 
        account, certificate of deposit, or similar class of 
        deposit.
          (11) Reforestation expenses.--The deduction allowed 
        by section 194.
          (12) Certain required repayments of supplemental 
        unemployment compensation benefits.--The deduction 
        allowed by section 165 for the repayment to a trust 
        described in paragraph (9) or (17) of section 501(c) of 
        supplemental unemployment compensation benefits 
        received from such trust if such repayment is required 
        because of the receipt of trade readjustment allowances 
        under section 231 or 232 of the Trade Act of 1974 (19 
        U.S.C. 2291 and 2292).
          (13) Jury duty pay remitted to employer.--Any 
        deduction allowable under this chapter by reason of an 
        individual remitting any portion of any jury pay to 
        such individual's employer in exchange for payment by 
        the employer of compensation for the period such 
        individual was performing jury duty. For purposes of 
        the preceding sentence, the term ``jury pay'' means any 
        payment received by the individual for the discharge of 
        jury duty.
          (15) Moving expenses.--The deduction allowed by 
        section 217.
          (16) Archer MSAs.--The deduction allowed by section 
        220.
          (17) Interest on education loans.--The deduction 
        allowed by section 221.
          (18) Higher education expenses.--The deduction 
        allowed by section 222.
          (19) Health savings accounts.--The deduction allowed 
        by section 223.
          (20) Costs involving discrimination suits, etc..--Any 
        deduction allowable under this chapter for attorney 
        fees and court costs paid by, or on behalf of, the 
        taxpayer in connection with any action involving a 
        claim of unlawful discrimination (as defined in 
        subsection (e)) or a claim of a violation of subchapter 
        III of chapter 37 of title 31, United States Code, or a 
        claim made under section 1862(b)(3)(A) of the Social 
        Security Act (42 U.S.C. 1395y(b)(3)(A)). The preceding 
        sentence shall not apply to any deduction in excess of 
        the amount includible in the taxpayer's gross income 
        for the taxable year on account of a judgment or 
        settlement (whether by suit or agreement and whether as 
        lump sum or periodic payments) resulting from such 
        claim.
          (21) Attorneys' fees relating to awards to 
        whistleblowers.--
                  (A) In general.--Any deduction allowable 
                under this chapter for attorney fees and court 
                costs paid by, or on behalf of, the taxpayer in 
                connection with any award under--
                          (i) section 7623(b), or
                          (ii) in the case of taxable years 
                        beginning after December 31, 2017, any 
                        action brought under--
                                  (I) section 21F of the 
                                Securities Exchange Act of 1934 
                                (15 U.S.C. 78u-6),
                                  (II) a State false claims 
                                act, including a State false 
                                claims act with qui tam 
                                provisions, or
                                  (III) section 23 of the 
                                Commodity Exchange Act (7 
                                U.S.C. 26).
                  (B) May not exceed award.--Subparagraph (A) 
                shall not apply to any deduction in excess of 
                the amount includible in the taxpayer's gross 
                income for the taxable year on account of such 
                award.
Nothing in this section shall permit the same item to be 
deducted more than once. Any deduction allowed by section 199A 
shall not be treated as a deduction described in any of the 
preceding paragraphs of this subsection.
  (b) Qualified performing artist.--
          (1) In general.--For purposes of subsection 
        (a)(2)(B), the term ``qualified performing artist'' 
        means, with respect to any taxable year, any individual 
        if--
                  (A) such individual performed services in the 
                performing arts as an employee during the 
                taxable year for at least 2 employers,
                  (B) the aggregate amount allowable as a 
                deduction under section 162 in connection with 
                the performance of such services exceeds 10 
                percent of such individual's gross income 
                attributable to the performance of such 
                services, and
                  (C) the adjusted gross income of such 
                individual for the taxable year (determined 
                without regard to subsection (a)(2)(B)) does 
                not exceed $16,000.
          (2) Nominal employer not taken into account.--An 
        individual shall not be treated as performing services 
        in the performing arts as an employee for any employer 
        during any taxable year unless the amount received by 
        such individual from such employer for the performance 
        of such services during the taxable year equals or 
        exceeds $200.
          (3) Special rules for married couples.--
                  (A) In general.--Except in the case of a 
                husband and wife who lived apart at all times 
                during the taxable year, if the taxpayer is 
                married at the close of the taxable year, 
                subsection (a)(2)(B) shall apply only if the 
                taxpayer and his spouse file a joint return for 
                the taxable year.
                  (B) Application of paragraph (1).--In the 
                case of a joint return--
                          (i) paragraph (1) (other than 
                        subparagraph (C) thereof) shall be 
                        applied separately with respect to each 
                        spouse, but
                          (ii) paragraph (1)(C) shall be 
                        applied with respect to their combined 
                        adjusted gross income.
                  (C) Determination of marital status.--For 
                purposes of this subsection, marital status 
                shall be determined under section 7703(a).
                  (D) Joint return.--For purposes of this 
                subsection, the term ``joint return'' means the 
                joint return of a husband and wife made under 
                section 6013.
  (c) Certain arrangements not treated as reimbursement 
arrangements.--For purposes of subsection (a)(2)(A), an 
arrangement shall in no event be treated as a reimbursement or 
other expense allowance arrangement if--
          (1) such arrangement does not require the employee to 
        substantiate the expenses covered by the arrangement to 
        the person providing the reimbursement, or
          (2) such arrangement provides the employee the right 
        to retain any amount in excess of the substantiated 
        expenses covered under the arrangement.
The substantiation requirements of the preceding sentence shall 
not apply to any expense to the extent that substantiation is 
not required under section 274(d) for such expense by reason of 
the regulations prescribed under the 2nd sentence thereof.
  (d) Definition; special rules.--
          (1) Eligible educator.--
                  (A) In general.--For purposes of subsection 
                (a)(2)(D), the term ``eligible educator'' 
                means, with respect to any taxable year, an 
                individual who is a kindergarten through grade 
                12 teacher, instructor, counselor, principal, 
                or aide in a school for at least 900 hours 
                during a school year.
                  (B) School.--The term ``school'' means any 
                school which provides elementary education or 
                secondary education (kindergarten through grade 
                12), as determined under State law.
          (2) Coordination with exclusions.--A deduction shall 
        be allowed under subsection (a)(2)(D) for expenses only 
        to the extent the amount of such expenses exceeds the 
        amount excludable under section 135, 529(c)(1), or 
        530(d)(2) for the taxable year.
          (3) Inflation adjustment.--In the case of any taxable 
        year beginning after [2015] 2019 , the [$250] $500 
        amount in subsection (a)(2)(D)shall be increased by an 
        amount equal to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which the taxable year begins, determined by 
                substituting ``calendar year [2014] 2018 '' for 
                ``calendar year 2016'' in subparagraph (A)(ii) 
                thereof.
        Any increase determined under the preceding sentence 
        shall be rounded to the nearest multiple of $50.
          [Paragraph (3) of section 62(d) of the Internal 
        Revenue Code of 1986 is amended by section 4 of H.R. 
        5377 (as reported) and applies for taxable years 
        beginning after December 31, 2018 (shown above). Such 
        paragraph is further amended by section 5(c) of H.R. 
        5377 (as reported) and applies for taxable years 
        beginning after December 31, 2019 (shown below).]
          (3) Inflation adjustment.--In the case of any taxable 
        year beginning after 2019, [the $500 amount in 
        subsection (a)(2)(D)] the $500 amount in each of 
        subparagraphs (D) and (F) of subsection (a)(2) shall be 
        increased by an amount equal to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which the taxable year begins, determined by 
                substituting ``calendar year 2018'' for 
                ``calendar year 2016'' in subparagraph (A)(ii) 
                thereof.
        Any increase determined under the preceding sentence 
        shall be rounded to the nearest multiple of $50.
          (4) First responder.--For purposes of subsection 
        (a)(2)(F), the term ``first responder'' means, with 
        respect to any taxable year, any individual who is 
        employed as a law enforcement officer, firefighter, 
        paramedic, or emergency medical technician for at least 
        1000 hours during such taxable year.
  (e) Unlawful discrimination defined.--For purposes of 
subsection (a)(20), the term ``unlawful discrimination'' means 
an act that is unlawful under any of the following:
          (1) Section 302 of the Civil Rights Act of 1991 (42 
        U.S.C. 2000e-16b).
          (2) Section 201, 202, 203, 204, 205, 206, or 207 of 
        the Congressional Accountability Act of 1995 (2 U.S.C. 
        1311, 1312, 1313, 1314, 1315, 1316, or 1317).
          (3) The National Labor Relations Act (29 U.S.C. 151 
        et seq.).
          (4) The Fair Labor Standards Act of 1938 (29 U.S.C. 
        201 et seq.).
          (5) Section 4 or 15 of the Age Discrimination in 
        Employment Act of 1967 (29 U.S.C. 623 or 633a).
          (6) Section 501 or 504 of the Rehabilitation Act of 
        1973 (29 U.S.C. 791 or 794).
          (7) Section 510 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1140).
          (8) Title IX of the Education Amendments of 1972 (20 
        U.S.C. 1681 et seq.).
          (9) The Employee Polygraph Protection Act of 1988 (29 
        U.S.C. 2001 et seq.).
          (10) The Worker Adjustment and Retraining 
        Notification Act (29 U.S.C. 2102 et seq.).
          (11) Section 105 of the Family and Medical Leave Act 
        of 1993 (29 U.S.C. 2615).
          (12) Chapter 43 of title 38, United States Code 
        (relating to employment and reemployment rights of 
        members of the uniformed services).
          (13) Section 1977, 1979, or 1980 of the Revised 
        Statutes (42 U.S.C. 1981, 1983, or 1985).
          (14) Section 703, 704, or 717 of the Civil Rights Act 
        of 1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
          (15) Section 804, 805, 806, 808, or 818 of the Fair 
        Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 
        3617).
          (16) Section 102, 202, 302, or 503 of the Americans 
        with Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 
        12182, or 12203).
          (17) Any provision of Federal law (popularly known as 
        whistleblower protection provisions) prohibiting the 
        discharge of an employee, the discrimination against an 
        employee, or any other form of retaliation or reprisal 
        against an employee for asserting rights or taking 
        other actions permitted under Federal law.
          (18) Any provision of Federal, State, or local law, 
        or common law claims permitted under Federal, State, or 
        local law--
                  
                  (i) providing for the enforcement of civil 
                rights, or
                  
                  (ii) regulating any aspect of the employment 
                relationship, including claims for wages, 
                compensation, or benefits, or prohibiting the 
                discharge of an employee, the discrimination 
                against an employee, or any other form of 
                retaliation or reprisal against an employee for 
                asserting rights or taking other actions 
                permitted by law.

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *


SEC. 164. TAXES.

  (a) General rule.--Except as otherwise provided in this 
section, the following taxes shall be allowed as a deduction 
for the taxable year within which paid or accrued:
          (1) State and local, and foreign, real property 
        taxes.
          (2) State and local personal property taxes.
          (3) State and local, and foreign, income, war 
        profits, and excess profits taxes.
          (4) The GST tax imposed on income distributions.
In addition, there shall be allowed as a deduction State and 
local, and foreign, taxes not described in the preceding 
sentence which are paid or accrued within the taxable year in 
carrying on a trade or business or an activity described in 
section 212 (relating to expenses for production of income). 
Notwithstanding the preceding sentence, any tax (not described 
in the first sentence of this subsection) which is paid or 
accrued by the taxpayer in connection with an acquisition or 
disposition of property shall be treated as part of the cost of 
the acquired property or, in the case of a disposition, as a 
reduction in the amount realized on the disposition.
  (b) Definitions and special rules.--For purposes of this 
section--
          (1) Personal property taxes.--The term ``personal 
        property tax'' means an ad valorem tax which is imposed 
        on an annual basis in respect of personal property.
          (2) State or local taxes.--A State or local tax 
        includes only a tax imposed by a State, a possession of 
        the United States, or a political subdivision of any of 
        the foregoing, or by the District of Columbia.
          (3) Foreign taxes.--A foreign tax includes only a tax 
        imposed by the authority of a foreign country.
          (4) Special rules for GST tax.--
                  (A) In general.--The GST tax imposed on 
                income distributions is--
                          (i) the tax imposed by section 2601, 
                        and
                          (ii) any State tax described in 
                        section 2604 (as in effect before its 
                        repeal),
                but only to the extent such tax is imposed on a 
                transfer which is included in the gross income 
                of the distributee and to which section 666 
                does not apply.
                  (B) Special rule for tax paid before due 
                date.--Any tax referred to in subparagraph (A) 
                imposed with respect to a transfer occurring 
                during the taxable year of the distributee (or, 
                in the case of a taxable termination, the 
                trust) which is paid not later than the time 
                prescribed by law (including extensions) for 
                filing the return with respect to such transfer 
                shall be treated as having been paid on the 
                last day of the taxable year in which the 
                transfer was made.
          (5) General sales taxes.--For purposes of subsection 
        (a)--
                  (A) Election to deduct State and local sales 
                taxes in lieu of State and local income 
                taxes.--At the election of the taxpayer for the 
                taxable year, subsection (a) shall be applied--
                          (i) without regard to the reference 
                        to State and local income taxes, and
                          (ii) as if State and local general 
                        sales taxes were referred to in a 
                        paragraph thereof.
                  (B) Definition of general sales tax.--The 
                term ``general sales tax'' means a tax imposed 
                at one rate with respect to the sale at retail 
                of a broad range of classes of items.
                  (C) Special rules for food, etc..--In the 
                case of items of food, clothing, medical 
                supplies, and motor vehicles--
                          (i) the fact that the tax does not 
                        apply with respect to some or all of 
                        such items shall not be taken into 
                        account in determining whether the tax 
                        applies with respect to a broad range 
                        of classes of items, and
                          (ii) the fact that the rate of tax 
                        applicable with respect to some or all 
                        of such items is lower than the general 
                        rate of tax shall not be taken into 
                        account in determining whether the tax 
                        is imposed at one rate.
                  (D) Items taxed at different rates.--Except 
                in the case of a lower rate of tax applicable 
                with respect to an item described in 
                subparagraph (C), no deduction shall be allowed 
                under this paragraph for any general sales tax 
                imposed with respect to an item at a rate other 
                than the general rate of tax.
                  (E) Compensating use taxes.--A compensating 
                use tax with respect to an item shall be 
                treated as a general sales tax. For purposes of 
                the preceding sentence, the term ``compensating 
                use tax'' means, with respect to any item, a 
                tax which--
                          (i) is imposed on the use, storage, 
                        or consumption of such item, and
                          (ii) is complementary to a general 
                        sales tax, but only if a deduction is 
                        allowable under this paragraph with 
                        respect to items sold at retail in the 
                        taxing jurisdiction which are similar 
                        to such item.
                  (F) Special rule for motor vehicles.--In the 
                case of motor vehicles, if the rate of tax 
                exceeds the general rate, such excess shall be 
                disregarded and the general rate shall be 
                treated as the rate of tax.
                  (G) Separately stated general sales taxes.--
                If the amount of any general sales tax is 
                separately stated, then, to the extent that the 
                amount so stated is paid by the consumer (other 
                than in connection with the consumer's trade or 
                business) to the seller, such amount shall be 
                treated as a tax imposed on, and paid by, such 
                consumer.
                  (H) Amount of deduction may be determined 
                under tables.--
                          (i) In general.--At the election of 
                        the taxpayer for the taxable year, the 
                        amount of the deduction allowed under 
                        this paragraph for such year shall be--
                                  (I) the amount determined 
                                under this paragraph (without 
                                regard to this subparagraph) 
                                with respect to motor vehicles, 
                                boats, and other items 
                                specified by the Secretary, and
                                  (II) the amount determined 
                                under tables prescribed by the 
                                Secretary with respect to items 
                                to which subclause (I) does not 
                                apply.
                          (ii) Requirements for tables.--The 
                        tables prescribed under clause (i)--
                                  (I) shall reflect the 
                                provisions of this paragraph,
                                  (II) shall be based on the 
                                average consumption by 
                                taxpayers on a State-by-State 
                                basis (as determined by the 
                                Secretary) of items to which 
                                clause (i)(I) does not apply, 
                                taking into account filing 
                                status, number of dependents, 
                                adjusted gross income, and 
                                rates of State and local 
                                general sales taxation, and
                                  (III) need only be determined 
                                with respect to adjusted gross 
                                incomes up to the applicable 
                                amount (as determined under 
                                section 68(b)).
          (6) Limitation on individual deductions for taxable 
        years 2018 through 2025.--In the case of an individual 
        and a taxable year beginning after December 31, 2017, 
        and before January 1, 2026--
                  (A) foreign real property taxes shall not be 
                taken into account under subsection (a)(1), and
                  (B) in the case of a taxable year beginning 
                before January 1, 2020, or after December 31, 
                2021, the aggregate amount of taxes taken into 
                account under paragraphs (1), (2), and (3) of 
                subsection (a) and paragraph (5) of this 
                subsection for any taxable year shall not 
                exceed $10,000 ($5,000 in the case of a married 
                individual filing a separate return).
        The preceding sentence shall not apply to any foreign 
        taxes described in subsection (a)(3) or to any taxes 
        described in paragraph (1) and (2) of subsection (a) 
        which are paid or accrued in carrying on a trade or 
        business or an activity described in section 212. [For 
        purposes of subparagraph (B)] For purposes of this 
        section , an amount paid in a taxable year beginning 
        before [January 1, 2018] January 1, 2022 , with respect 
        to a State or local income tax imposed for a taxable 
        year beginning after [December 31, 2017, shall] 
        December 31, 2021, shall be treated as paid on the last 
        day of the taxable year for which such tax is so 
        imposed. For purposes of this section, in the case of 
        State or local taxes with respect to any real or 
        personal property paid during a taxable year beginning 
        in 2020 or 2021, the Secretary shall prescribe rules 
        which treat all or a portion of such taxes as paid in a 
        taxable year or years other than the taxable year in 
        which actually paid as necessary or appropriate to 
        prevent the avoidance of the limitations of this 
        subsection.
          (7) Special rule for limitation on individual 
        deductions for 2019.--In the case of a taxable year 
        beginning after December 31, 2018, and before January 
        1, 2020, paragraph (6) shall be applied by substituting 
        ``($20,000 in the case of a joint return)'' for 
        ``($5,000 in the case of a married individual filing a 
        separate return)''.
  (c) Deduction denied in case of certain taxes.--No deduction 
shall be allowed for the following taxes:
          (1) Taxes assessed against local benefits of a kind 
        tending to increase the value of the property assessed; 
        but this paragraph shall not prevent the deduction of 
        so much of such taxes as is properly allocable to 
        maintenance or interest charges.
          (2) Taxes on real property, to the extent that 
        subsection (d) requires such taxes to be treated as 
        imposed on another taxpayer.
  (d) Apportionment of taxes on real property between seller 
and purchaser.--
          (1) General rule.--For purposes of subsection (a), if 
        real property is sold during any real property tax 
        year, then--
                  (A) so much of the real property tax as is 
                properly allocable to that part of such year 
                which ends on the day before the date of the 
                sale shall be treated as a tax imposed on the 
                seller, and
                  (B) so much of such tax as is properly 
                allocable to that part of such year which 
                begins on the date of the sale shall be treated 
                as a tax imposed on the purchaser.
          (2) Special rules.--
                  (A) In the case of any sale of real property, 
                if--
                          (i) a taxpayer may not, by reason of 
                        his method of accounting, deduct any 
                        amount for taxes unless paid, and
                          (ii) the other party to the sale is 
                        (under the law imposing the real 
                        property tax) liable for the real 
                        property tax for the real property tax 
                        year,
                then for purposes of subsection (a) the 
                taxpayer shall be treated as having paid, on 
                the date of the sale, so much of such tax as, 
                under paragraph (1) of this subsection, is 
                treated as imposed on the taxpayer. For 
                purposes of the preceding sentence, if neither 
                party is liable for the tax, then the party 
                holding the property at the time the tax 
                becomes a lien on the property shall be 
                considered liable for the real property tax for 
                the real property tax year.
                  (B) In the case of any sale of real property, 
                if the taxpayer's taxable income for the 
                taxable year during which the sale occurs is 
                computed under an accrual method of accounting, 
                and if no election under section 461(c) 
                (relating to the accrual of real property 
                taxes) applies, then, for purposes of 
                subsection (a), that portion of such tax 
                which--
                          (i) is treated, under paragraph (1) 
                        of this subsection, as imposed on the 
                        taxpayer, and
                          (ii) may not, by reason of the 
                        taxpayer's method of accounting, be 
                        deducted by the taxpayer for any 
                        taxable year,
                shall be treated as having accrued on the date 
                of the sale.
  (e) Taxes of shareholder paid by corporation.--Where a 
corporation pays a tax imposed on a shareholder on his interest 
as a shareholder, and where the shareholder does not reimburse 
the corporation, then--
          (1) the deduction allowed by subsection (a) shall be 
        allowed to the corporation; and
          (2) no deduction shall be allowed the shareholder for 
        such tax.
  (f) Deduction for one-half of self-employment taxes.--
          (1) In general.--In the case of an individual, in 
        addition to the taxes described in subsection (a), 
        there shall be allowed as a deduction for the taxable 
        year an amount equal to one-half of the taxes imposed 
        by section 1401 (other than the taxes imposed by 
        section 1401(b)(2)) for such taxable year.
          (2) Deduction treated as attributable to trade or 
        business.--For purposes of this chapter, the deduction 
        allowed by paragraph (1) shall be treated as 
        attributable to a trade or business carried on by the 
        taxpayer which does not consist of the performance of 
        services by the taxpayer as an employee.
  (g) Cross references.--
                  (1) For provisions disallowing any deduction 
                for certain taxes, see section 275.
                  (2) For treatment of taxes imposed by Indian 
                tribal governments (or their subdivisions), see 
                section 7871.

           *       *       *       *       *       *       *

                         VII. DISSENTING VIEWS

    At its core, this bill is about providing a massive tax cut 
to the wealthy at the expense of small businesses. These are 
the same risk takers and entrepreneurs who are helping us drive 
our economy forward--the same job creators who experienced 
historic levels of optimism, hiring, new investments, and pay 
raises for their workers following the passage of the Tax Cuts 
and Jobs Act (TCJA).
    Before and after tax reform, taxpayers have had a choice of 
either taking a simple standard deduction or itemizing a more 
complicated series of deductions, including the state and local 
tax (SALT) deduction. Even before tax reform, taking the 
standard deduction was already the option of choice for the 
vast majority of taxpayers. In the process of reforming our 
outdated, uncompetitive, and complicated tax code, placing a 
reasonable limit of $10,000 on the SALT deduction, which is a 
regressive tax break that disproportionately favors the most 
affluent taxpayers, enabled a near doubling of the simpler 
standard deduction in tax reform. At the same time, this SALT 
limit effectively held harmless low and middle-income tax 
payers who itemized and took the SALT deduction. This not only 
put more money in the pockets of middle-class taxpayers but 
also provided much-needed tax simplification to millions of 
Americans who will no longer need to struggle with itemizing 
deductions when they file taxes.
    It is also worth noting that tax reform, which not a single 
member of the Majority supported, also addressed two provisions 
in the tax code that previously hit people who took the SALT 
deduction with a stealth tax hike. TCJA repealed the so-called 
Pease limitation, under which taxpayers of certain income 
levels could lose up to 80% of their itemized deductions, 
including SALT and the charitable deduction. Tax reform also 
provided generous alternative minimum tax (AMT) relief. AMT 
taxpayers lose the ability to take any SALT deduction. And 
before TCJA, taking a very large SALT deduction in the process 
of filling out a tax return had often pushed many taxpayers 
into the AMT trap. The combination of a much larger AMT 
exemption and a reasonable limitation on SALT through tax 
reform now means that only the most affluent taxpayers will pay 
AMT. We hope that the most strident supporters of SALT on this 
committee will remember this when we debate extending or 
hopefully making provisions of tax reform permanent.
    In order to blunt the criticism that expanding SALT is a 
massive giveaway to the wealthy, the Majority raised the top 
marginal income tax rate to 39.6% and expanded the number of 
people who will be subject to the highest rate. This 
unfortunately has a disproportionate effect on small business. 
In fact, the non-partisan Joint Committee on Taxation (JCT) 
confirmed that over a third of the tax increase in this bill 
will hit the income of passthrough businesses, which is the tax 
structure of choice for nearly all small businesses. Democrats 
must have been acutely aware that raising the top income tax 
rate to 39.6% would hurt small businesses, since they voted 
against an amendment to exempt small businesses from their tax 
hike, claiming that the amendment protecting small businesses 
would not allow them to raise enough revenue to pay for their 
massive SALT giveaway to the wealthy.
    In order to further distract from how their SALT scam was 
benefiting the highest-income taxpayers, the Majority added two 
provisions to this bill that benefit teachers and first 
responders--a doubling of the existing above-the-line deduction 
for teacher classroom expenses, and a brand new above-the-line 
deduction for certain expenses of first responders. Democrats 
on the committee repeatedly invoked these two important groups 
as a defense of their SALT scam for the wealthy. But facts are 
stubborn things. The median income of an elementary school 
teacher is about $58,000, while the median income of a first 
responder is roughly $55,000. Under TCJA, which was opposed by 
Democrats, a typical married couple with two children 
consisting of a teacher married to a firefighter would have 
likely seen a tax cut of over $2,400 under tax reform. In 
contrast, under the SALT expansion in the bill, the average tax 
cut for a typical teacher or first responder with those levels 
of income in 2021, a year the SALT deduction would be uncapped 
under the bill, would be roughly $3.60. Some might call this 
``crumbs.'' At the same time, the average tax cut for 
millionaires would be nearly $60,000, which is larger than each 
of the teacher's or first responder's entire salaries. This is 
ironic for a bill with ``fairness'' in its title.
    There were several other ironies and also blatant 
falsehoods in the committee markup of this legislation. After 
repeatedly criticizing tax reform for not being offset and 
adding to the deficit, the Majority began chipping away at one 
of the largest offsets in tax reform, the limit on the SALT 
deduction, which again allowed a large tax cut for the middle 
class financed by affluent taxpayers. They also seemed to 
ignore the hundreds of billions that they have added to the 
deficit since they took control of Congress and this committee 
this year. Additionally, 13 members of this committee from the 
other side of the dais voted for $4 trillion of unpaid-for tax 
cuts, as determined by JCT, when they voted for the so-called 
fiscal cliff deal that became law in 2013. Admittedly, this 
deal was necessary in order to prevent a massive tax increase 
that would have wrecked our economy, but they should at least 
``own'' their vote and recognize the hypocrisy. Part of that 
compromise was a reinstatement of the Pease limitation that 
slashed itemized deductions like SALT and the charitable 
deduction for the same group of taxpayers they now seem to be 
trying to favor.
    Democrats at the markup also repeated a false claim labeled 
by independent fact checkers as ``misleading'' that 83% of the 
benefits of tax reform went to the top 1% of taxpayers. But 
they proved which party was the party of the wealthy when they 
voted against two amendments--One that would have denied the 
benefits of the SALT tax break to the top 10% of taxpayers 
while uncapping the deduction for the bottom 90%, and one that 
would have denied the bill's expansion of the SALT tax break to 
the top 1% of taxpayers.
    The Majority also repeated the falsehood that no hearings 
were held on tax reform. Numerous hearings on tax reform have 
been held over the years, including one on how tax reform would 
affect state and local governments. They then shifted to the 
claim that no hearings were held on the SALT limitation 
following the introduction of tax reform. But if the new 
standard for ``regular order'' is that a hearing must be held 
after a bill is introduced before it passes committee, then the 
Democrats violated their own rule with this bill. If we had 
held a hearing on this bill, we would have had an opportunity 
to probe issues such as whether the small business tax increase 
would damage economic growth and employment and wage growth, as 
well as whether the SALT expansion would lead to greater income 
inequality, a favorite topic of Democrats. But given the 
extremely short notice before this markup, we doubt that 
Democrats would have had time to throw together such a hearing.
    Regardless, Democrats appeared to concede that the small 
business tax hike would damage the economy, since they voted 
against an amendment that would have required the Treasury 
Department to issue a determination that employment and wage 
growth will not suffer from the tax hike before the bill could 
go into effect.
    Also ironic, after complaining at a hearing on temporary 
provisions that TCJA included temporary policy, which was 
necessary in order to comply with Senate rules at the time, the 
Majority's bill uses a six-year tax hike to pay for a temporary 
three-year boost in the SALT deduction.
    At the SALT hearing in June, local officials called by the 
Democrats described crushing levels of property taxes that they 
imposed on their residents. While claiming that the SALT 
limitation hurt the middle class living in their area, one of 
their witnesses seemed to indicate that the middle class 
included anyone who did not own a yacht. These witnesses 
apparently wanted Congress to lift the SALT cap so that it 
would be easier to impose even more oppressive levels of 
taxation on their constituents. The majority seems unconcerned 
that a boost in the SALT limit may incentivize even higher 
property taxes for their constituents, since they voted against 
an amendment that would have put the brakes on their SALT scam 
if property taxes increased.
    Rather than giving an unlimited federal subsidy for state 
and local tax increases and providing a green light for state 
and local officials to raise taxes even further, the better 
course of action would be for officials in high-tax states, 
which experienced tax collection windfalls following tax 
reform, to lower tax burdens for their community friends and 
neighbors and learn to be more efficient with the greater 
number of dollars they have as a result of tax reform when they 
are providing services.
    For years Republicans had been labeled the party of the 
rich and elite. Increasingly, Democrats are claiming that 
title, punctuated by this SALT scam legislation. We do not 
doubt the sincerity of our colleagues who are supporting this 
bill because they believe it will benefit the people they 
represent. At the same time, the bill confirms that Republicans 
are becoming the party of middle-class working families, small 
businesses, and a strong economy that benefits everyone, 
including the most vulnerable Americans who were left behind in 
the weak Obama-era economy.
    That is a mantle we gladly embrace.

                                   Kevin Brady,
                                           Republican Leader, Committee 
                                               on Ways and Means.