[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1264 Introduced in House (IH)]
107th CONGRESS
1st Session
H. R. 1264
To amend the Internal Revenue Code of 1986 to provide individual income
tax rate reductions, tax relief to families with children, marriage
penalty relief, and to immediately eliminate the estate tax for two-
thirds of all decedents currently subject to the estate tax.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
March 28, 2001
Mr. Rangel (for himself and Mr. Pascrell) introduced the following
bill; which was referred to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide individual income
tax rate reductions, tax relief to families with children, marriage
penalty relief, and to immediately eliminate the estate tax for two-
thirds of all decedents currently subject to the estate tax.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
(a) Short Title.--This Act may be cited as the ``Tax Reduction Act
of 2001''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Section 15 Not To Apply.--No amendment made by this Act shall
be treated as a change in a rate of tax for purposes of section 15 of
the Internal Revenue Code of 1986.
TITLE I--INDIVIDUAL INCOME TAX RATE REDUCTIONS; EXPANSION OF EARNED
INCOME CREDIT ASSISTANCE
SEC. 101. INDIVIDUAL INCOME TAX RATE REDUCTIONS.
(a) In General.--Section 1 is amended by adding at the end the
following new subsection:
``(i) 12 Percent Rate Bracket.--
``(1) In general.--In the case of taxable years beginning
after December 31, 2000--
``(A) the rate of tax under subsections (a), (b),
(c), and (d) on taxable income not over the initial
bracket amount shall be 12 percent, and
``(B) the 15 percent rate of tax shall apply only
to taxable income over the initial bracket amount.
``(2) Initial bracket amount.--For purposes of this
subsection--
``(A) In general.--Except as provided in
subparagraph (B), the initial bracket amount is--
``(i) $20,000 in the case of subsection
(a),
``(ii) 80 percent of the dollar amount in
clause (i) in the case of subsection (b), and
``(iii) 50 percent of the dollar amount in
clause (i) in the case of subsections (c) and
(d).
``(B) Phasein.--The initial bracket amount is--
``(i) \1/4\ the amount otherwise applicable
under subparagraph (A) in the case of taxable
years beginning during 2001, and
``(ii) \1/2\ such amount otherwise
applicable under subparagraph (A) in the case
of taxable years beginning during 2002.
``(3) Inflation adjustment.--
``(A) In general.--In the case of any taxable year
beginning in a calendar year after 2003, the $20,000
amount under paragraph (2)(A)(i) shall be increased by
an amount equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under subsection (f)(3) for the
calendar year in which the taxable year begins,
determined by substituting `calendar year 2002'
for `calendar year 1992' in subparagraph (B)
thereof.
``(B) Rounding rules.--If any amount after
adjustment under subparagraph (A) is not a multiple of
$50, such amount shall be rounded to the next lowest
multiple of $50.
``(4) Adjustment of tables.--The Secretary shall adjust the
tables prescribed under subsection (f) to carry out this
subsection.''
(b) Adjustment in Computation of Alternative Minimum Tax.--
Paragraph (2) of section 55(a) is amended to read as follows:
``(2) the sum of--
``(A) the regular tax for the taxable year, plus
``(B) in the case of an individual, 3 percent of so
much of the individual's taxable income for the taxable
year as is taxed at 12 percent.''
(c) Repeal of Reduction of Refundable Tax credits.--
(1) Subsection (d) of section 24 is amended by striking
paragraph (2) and redesignating paragraph (3) as paragraph (2).
(2) Section 32 is amended by striking subsection (h).
(d) Conforming Amendment.--Subclause (II) of section 1(g)(7)(B)(ii)
is amended by striking ``15 percent'' and inserting ``12 percent''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2000.
(f) Protection of Social Security and Medicare.--The amounts
transferred to any trust fund under the Social Security Act shall be
determined as if this Act had not been enacted.
SEC. 102. MODIFICATIONS TO EARNED INCOME TAX CREDIT.
(a) Increases in Percentages and Amounts Used To Determine Credit;
Marriage Penalty Relief.--
(1) In general.--Subsection (b) of section 32 is amended to
read as follows:
``(b) Percentages and Amounts.--
``(1) Percentages.--The credit percentage, the initial
phaseout percentage, and the final phaseout percentage shall be
determined as follows:
``In the case of an eligible The initial phaseout The final phaseout
individual with: The credit percentage is: percentage is: percentage is:
1 qualifying child............... 34 15.98 18.98
2 or more qualifying children.... 40 21.06 24.06
No qualifying children........... 7.65 7.65 7.65
``(2) Amounts.--
``(A) In general.--The earned income amount and the
initial phaseout amount shall be determined as follows:
``In the case of an eligible The earned income The initial phaseout
individual with: amount is: amount is:
1 qualifying child.......... $8,140 $13,470
2 or more qualifying $10,820 $13,470
children...................
No qualifying children...... $4,900 $6,130.
In the case of a joint return where there is at least 1
qualifying child, the initial phaseout amount shall be
$2,500 greater than the amount otherwise applicable
under the preceding sentence.
``(B) Final phaseout amount.--The final phaseout
amount is $26,000 ($28,500 in the case of a joint
return).''
(2) Modification of computation of phaseout.--Paragraph (2)
of section 32(a) is amended to read as follows:
``(2) Phaseout of credit.--The amount of the credit
allowable to a taxpayer under paragraph (1) for any taxable
year shall be reduced (but not below zero) by the sum of--
``(A) the initial phaseout percentage of so much of
the total income (or, if greater, the earned income) of
the taxpayer for the taxable year as exceeds the
initial phaseout amount but does not exceed the final
phaseout amount, plus
``(B) the final phaseout percentage of so much of
the total income (or, if greater, the earned income) of
the taxpayer for the taxable year as exceeds the final
phaseout amount.''
(3) Total income.--Paragraph (5) of section 32(c) is
amended to read as follows:
``(5) Total income.--The term `total income' means adjusted
gross income determined without regard to--
``(A) the deductions referred to in paragraphs (6),
(7), (9), (10), (15), (16), and (17) of section 62(a),
``(B) the deduction allowed by section 162(l), and
``(C) the deduction allowed by section 164(f).''
(4) Conforming amendments.--
(A) Subsection (j) of section 32 is amended to read
as follows:
``(j) Inflation Adjustment.--
``(1) In general.--In the case of any taxable year
beginning after 2002, each of the dollar amounts in subsection
(b)(2) shall be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined
under section 1(f)(3), for the calendar year in which
the taxable year begins, determined by substituting
`calendar year 2001' for `calendar year 1992' in
subparagraph (B) thereof.
``(2) Rounding.--If any dollar amount, after being
increased under paragraph (1), is not a multiple of $10, such
dollar amount shall be rounded to the nearest multiple of
$10.''
(B) Subparagraph (C) of section 32(c)(1) is amended
by striking ``modified adjusted gross income'' and
inserting ``total income''.
(C) Paragraph (2) of section 32(f) is amended to
read as follows:
``(2) Requirements for tables.--
``(A) In general.--The provisions of subsection
(a)(1) and the provisions of subsection (a)(2) shall be
reflected in separate tables prescribed under paragraph
(1).
``(B) Subsection (a)(1) table.--The tables
prescribed under paragraph (1) to reflect the
provisions of subsection (a)(1) shall have income
brackets of not greater than $50 each for earned income
between $0 and the earned income amount.
``(C) Subsection (a)(2) table.--The tables
prescribed under paragraph (1) to reflect the
provisions of subsection (a)(2) shall have income
brackets of not greater than $50 each for total income
(or, if greater, the earned income) above the initial
phaseout threshold.''
(b) Repeal of Denial of Credit Where Investment Income.--Section 32
is amended by striking subsection (i).
(c) Earned Income To Include Only Amounts Includible in Gross
Income.--
(1) In general.--Section 32(c)(2)(A)(i) (defining earned
income) is amended by inserting ``, but only if such amounts
are includible in gross income for the taxable year'' after
``other employee compensation''.
(2) Conforming amendment.--Section 32(c)(2)(B) is amended
by striking ``and'' at the end of clause (iv), by striking the
period at the end of clause (v) and inserting ``, and'', and by
adding at the end the following new clause:
``(vi) the requirement under subparagraph
(A)(i) that an amount be includible in gross
income shall not apply if such amount is exempt
from tax under section 7873 or is derived
directly from restricted and allotted land
under the Act of February 8, 1887 (commonly
known as the Indian General Allotment Act) (25
U.S.C. 331 et seq.) or from land held under
Acts or treaties containing an exception
provision similar to the Indian General
Allotment Act.''
(d) Modification of Joint Return Requirement.--Subsection (d) of
section 32 is amended to read as follows:
``(d) Married Individuals.--
``(1) In general.--If the taxpayer is married at the close
of the taxable year, the credit shall be allowed under
subsection (a) only if the taxpayer and his spouse file a joint
return for the taxable year.
``(2) Marital status.--For purposes of paragraph (1), an
individual legally separated from his spouse under a decree of
divorce or of separate maintenance shall not be considered as
married.
``(3) Certain married individuals living apart.--For
purposes of paragraph (1), if--
``(A) an individual --
``(i) is married and files a separate
return, and
``(ii) has a qualifying child who is a son,
daughter, stepson, or stepdaughter of such
individual, and
``(B) during the last 6 months of such taxable
year, such individual and such individual's spouse do
not have the same principal place of abode,
such individual shall not be considered as married.''
(e) Expansion of Mathematical Error Authority.--Paragraph (2) of
section 6213(g) is amended by striking ``and'' at the end of
subparagraph (K), by striking the period at the end of subparagraph (L)
and inserting ``, and'', and by inserting after subparagraph (L) the
following new subparagraph:
``(M) the entry on the return claiming the credit
under section 32 with respect to a child if, according
to the Federal Case Registry of Child Support Orders
established under section 453(h) of the Social Security
Act, the taxpayer is a noncustodial parent of such
child.''
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
TITLE II--MARRIAGE PENALTY RELIEF
SEC. 201. MARRIAGE PENALTY RELIEF.
(a) Standard Deduction.--
(1) In general.--Paragraph (2) of section 63(c) (relating
to standard deduction) is amended--
(A) by striking ``$5,000'' in subparagraph (A) and
inserting ``twice the dollar amount in effect under
subparagraph (C) for the taxable year'',
(B) by adding ``or'' at the end of subparagraph
(B),
(C) by striking ``in the case of'' and all that
follows in subparagraph (C) and inserting ``in any
other case.'', and
(D) by striking subparagraph (D).
(2) Increase allowed as deduction in determining minimum
tax.--Subparagraph (E) of section 56(b)(1) is amended by adding
at the end the following new sentence: ``The preceding sentence
shall not apply to so much of the standard deduction under
subparagraph (A) of section 63(c)(2) as exceeds the amount
which would be such deduction but for the amendment made by
section 201(a)(1) of the Tax Reduction Act of 2001.''
(3) Technical amendments.--
(A) Subparagraph (B) of section 1(f)(6) is amended
by striking ``(other than with'' and all that follows
through ``shall be applied'' and inserting ``(other
than with respect to sections 63(c)(4) and
151(d)(4)(A)) shall be applied''.
(B) Paragraph (4) of section 63(c) is amended by
adding at the end the following flush sentence:
``The preceding sentence shall not apply to the amount referred
to in paragraph (2)(A).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2000.
TITLE III--ESTATE TAX RELIEF.
SEC. 301. INCREASE IN EXEMPTION EQUIVALENT OF UNIFIED CREDIT.
(a) In General.--Subsection (c) of section 2010 (relating to
applicable credit amount) is amended by striking the table and
inserting the following new table:
``In the case of estates of decedents
The applicable
dying, and gifts made, during:
exclusion amount is:
2002............................... $2,000,000
2003 and 2004...................... $2,100,000
2005 and 2006...................... $2,200,000
2007 and 2008...................... $2,300,000
2009............................... $2,400,000
2010 or thereafter................. $2,500,000.''
(b) Repeal of Special Benefit for Family-Owned Business
Interests.--
(1) Section 2057 is hereby repealed.
(2) Paragraph (10) of section 2031(c) is amended by
inserting ``(as in effect on the day before the date of the
enactment of this parenthetical)'' before the period.
(3) The table of sections for part IV of subchapter A of
chapter 11 is amended by striking the item relating to section
2057.
(c) Correction of Technical Error Affecting Largest Estates.--
Paragraph (2) of section 2001(c) is amended by striking ``$10,000,000''
and all that follows and inserting ``$10,000,000. The amount of the
increase under the preceding sentence shall not exceed the sum of the
applicable credit amount under section 2010(c) and $359,200.''
(d) Effective Date.--The amendments made by this section shall
apply to estates of decedents dying, and gifts made, after December 31,
2001.
SEC. 302. CREDIT FOR STATE DEATH TAXES REPLACED WITH DEDUCTION FOR SUCH
TAXES.
(a) Repeal of Credit.--Section 2011 (relating to credit for State
death taxes) is hereby repealed.
(b) Deduction for State Death Taxes.--Part IV of subchapter A of
chapter 11 is amended by adding at the end the following new section:
``SEC. 2058. STATE DEATH TAXES.
``(a) Allowance of Deduction.--For purposes of the tax imposed by
section 2001, the value of the taxable estate shall be determined by
deducting from the value of the gross estate the amount of any estate,
inheritance, legacy, or succession taxes actually paid to any State or
the District of Columbia, in respect of any property included in the
gross estate (not including any such taxes paid with respect to the
estate of a person other than the decedent).
``(b) Period of Limitations.--The deduction allowed by this section
shall include only such taxes as were actually paid and deduction
therefor claimed within 4 years after the filing of the return required
by section 6018, except that--
``(1) If a petition for redetermination of a deficiency has
been filed with the Tax Court within the time prescribed in
section 6213(a), then within such 4-year period or before the
expiration of 60 days after the decision of the Tax Court
becomes final.
``(2) If, under section 6161 or 6166, an extension of time
has been granted for payment of the tax shown on the return, or
of a deficiency, then within such 4-year period or before the
date of the expiration of the period of the extension.
``(3) If a claim for refund or credit of an overpayment of
tax imposed by this chapter has been filed within the time
prescribed in section 6511, then within such 4-year period or
before the expiration of 60 days from the date of mailing by
certified mail or registered mail by the Secretary to the
taxpayer of a notice of the disallowance of any part of such
claim, or before the expiration of 60 days after a decision by
any court of competent jurisdiction becomes final with respect
to a timely suit instituted upon such claim, whichever is
later.
Refund based on the deduction may (despite the provisions of sections
6511 and 6512) be made if claim therefor is filed within the period
above provided. Any such refund shall be made without interest.''
(c) Conforming Amendments.--
(1) Subsection (a) of section 2012 is amended by striking
``the credit for State death taxes provided by section 2011
and''.
(2) Subparagraph (A) of section 2013(c)(1) is amended by
striking ``2011,''.
(3) Paragraph (2) of section 2014(b) is amended by striking
``, 2011,''.
(4) Sections 2015 and 2016 are each amended by striking
``2011 or''.
(5) Subsection (d) of section 2053 is amended to read as
follows:
``(d) Certain Foreign Death Taxes.--
``(1) In general.--Notwithstanding the provisions of
subsection (c)(1)(B) of this section, for purposes of the tax
imposed by section 2001, the value of the taxable estate may be
determined, if the executor so elects before the expiration of
the period of limitation for assessment provided in section
6501, by deducting from the value of the gross estate the
amount (as determined in accordance with regulations prescribed
by the Secretary) of any estate, succession, legacy, or
inheritance tax imposed by and actually paid to any foreign
country, in respect of any property situated within such
foreign country and included in the gross estate of a citizen
or resident of the United States, upon a transfer by the
decedent for public, charitable, or religious uses described in
section 2055. The determination under this paragraph of the
country within which property is situated shall be made in
accordance with the rules applicable under subchapter B (sec.
2101 and following) in determining whether property is situated
within or without the United States. Any election under this
paragraph shall be exercised in accordance with regulations
prescribed by the Secretary.
``(2) Condition for allowance of deduction.--No deduction
shall be allowed under paragraph (1) for a foreign death tax
specified therein unless the decrease in the tax imposed by
section 2001 which results from the deduction provided in
paragraph (1) will inure solely for the benefit of the public,
charitable, or religious transferees described in section 2055
or section 2106(a)(2). In any case where the tax imposed by
section 2001 is equitably apportioned among all the transferees
of property included in the gross estate, including those
described in sections 2055 and 2106(a)(2) (taking into account
any exemptions, credits, or deductions allowed by this
chapter), in determining such decrease, there shall be
disregarded any decrease in the Federal estate tax which any
transferees other than those described in sections 2055 and
2106(a)(2) are required to pay.
``(3) Effect on credit for foreign death taxes of deduction
under this subsection.--
``(A) Election.--An election under this subsection
shall be deemed a waiver of the right to claim a
credit, against the Federal estate tax, under a death
tax convention with any foreign country for any tax or
portion thereof in respect of which a deduction is
taken under this subsection.
``(B) Cross reference.--
``See section 2014(f) for the effect of
a deduction taken under this paragraph on the credit for foreign death
taxes.''
(6) Subparagraph (A) of section 2056A(b)(10) is amended--
(A) by striking ``2011,'', and
(B) by inserting ``2058,'' after ``2056,''.
(7)(A) Subsection (a) of section 2102 is amended to read as
follows:
``(a) In General.--The tax imposed by section 2101 shall be
credited with the amounts determined in accordance with sections 2012
and 2013 (relating to gift tax and tax on prior transfers).''
(B) Section 2102 is amended by striking subsection (b) and
by redesignating subsection (c) as subsection (b).
(C) Section 2102(b)(5) (as redesignated by subparagraph
(B)) and section 2107(c)(3) are each amended by striking ``2011
to 2013, inclusive,'' and inserting ``2012 and 2013''.
(8) Subsection (a) of section 2106 is amended by adding at
the end the following new paragraph:
``(4) State death taxes.--The amount which bears the same
ratio to the State death taxes as the value of the property, as
determined for purposes of this chapter, upon which State death
taxes were paid and which is included in the gross estate under
section 2103 bears to the value of the total gross estate under
section 2103. For purposes of this paragraph, the term `State
death taxes' means the taxes described in section 2011(a).''
(9) Section 2201 is amended--
(A) by striking ``as defined in section 2011(d)'',
and
(B) by adding at the end the following new flush
sentence:
``For purposes of this section, the additional estate tax is the
difference between the tax imposed by section 2001 or 2101 and the
amount equal to 125 percent of the maximum credit provided by section
2011(b), as in effect before its repeal by the Tax Reduction Act of
2001.''
(10) Paragraph (2) of section 6511(i) is amended by
striking ``2011(c), 2014(b),'' and inserting ``2014(b)''.
(11) Subsection (c) of section 6612 is amended by striking
``section 2011(c) (relating to refunds due to credit for State
taxes),''.
(12) The table of sections for part II of subchapter A of
chapter 11 is amended by striking the item relating to section
2011.
(13) The table of sections for part IV of subchapter A of
chapter 11 is amended by adding at the end the following new
item:
``Sec. 2058. State death taxes.''
(d) Effective Date.--The amendments made by this section shall
apply to estates of decedents dying after December 31, 2001.
SEC. 303. VALUATION RULES FOR CERTAIN TRANSFERS OF NONBUSINESS ASSETS;
LIMITATION ON MINORITY DISCOUNTS.
(a) In General.--Section 2031 (relating to definition of gross
estate) is amended by redesignating subsection (d) as subsection (f)
and by inserting after subsection (c) the following new subsections:
``(d) Valuation Rules for Certain Transfers of Nonbusiness
Assets.--For purposes of this chapter and chapter 12--
``(1) In general.--In the case of the transfer of any
interest in an entity other than an interest which is actively
traded (within the meaning of section 1092)--
``(A) the value of any nonbusiness assets held by
the entity shall be determined as if the transferor had
transferred such assets directly to the transferee (and
no valuation discount shall be allowed with respect to
such nonbusiness assets), and
``(B) the nonbusiness assets shall not be taken
into account in determining the value of the interest
in the entity.
``(2) Nonbusiness assets.--For purposes of this
subsection--
``(A) In general.--The term `nonbusiness asset'
means any asset which is not used in the active conduct
of 1 or more trades or businesses.
``(B) Exception for certain passive assets.--Except
as provided in subparagraph (C), a passive asset shall
not be treated for purposes of subparagraph (A) as used
in the active conduct of a trade or business unless--
``(i) the asset is property described in
paragraph (1) or (4) of section 1221(a) or is a
hedge with respect to such property, or
``(ii) the asset is real property used in
the active conduct of 1 or more real property
trades or businesses (within the meaning of
section 469(c)(7)(C)) in which the transferor
materially participates and with respect to
which the transferor meets the requirements of section
469(c)(7)(B)(ii).
For purposes of clause (ii), material participation
shall be determined under the rules of section 469(h),
except that section 469(h)(3) shall be applied without
regard to the limitation to farming activity.
``(C) Exception for working capital.--Any asset
(including a passive asset) which is held as a part of
the reasonably required working capital needs of a
trade or business shall be treated as used in the
active conduct of a trade or business.
``(3) Passive asset.--For purposes of this subsection, the
term `passive asset' means any--
``(A) cash or cash equivalents,
``(B) except to the extent provided by the
Secretary, stock in a corporation or any other equity,
profits, or capital interest in any entity,
``(C) evidence of indebtedness, option, forward or
futures contract, notional principal contract, or
derivative,
``(D) asset described in clause (iii), (iv), or (v)
of section 351(e)(1)(B),
``(E) annuity,
``(F) real property used in 1 or more real property
trades or businesses (as defined in section
469(c)(7)(C)),
``(G) asset (other than a patent, trademark, or
copyright) which produces royalty income,
``(H) commodity,
``(I) collectible (within the meaning of section
401(m)), or
``(J) any other asset specified in regulations
prescribed by the Secretary.
``(4) Look-thru rules.--
``(A) In general.--If a nonbusiness asset of an
entity consists of a 10-percent interest in any other
entity, this subsection shall be applied by
disregarding the 10-percent interest and by treating
the entity as holding directly its ratable share of the
assets of the other entity. This subparagraph shall be
applied successively to any 10-percent interest of such
other entity in any other entity.
``(B) 10-percent interest.--The term `10-percent
interest' means--
``(i) in the case of an interest in a
corporation, ownership of at least 10 percent
(by vote or value) of the stock in such
corporation,
``(ii) in the case of an interest in a
partnership, ownership of at least 10 percent
of the capital or profits interest in the
partnership, and
``(iii) in any other case, ownership of at
least 10 percent of the beneficial interests in
the entity.
``(5) Coordination with subsection (b).--Subsection (b)
shall apply after the application of this subsection.
``(e) Limitation on Minority Discounts.--For purposes of this
chapter and chapter 12, in the case of the transfer of any interest in
an entity other than an interest which is actively traded (within the
meaning of section 1092), no discount shall be allowed by reason of the
fact that the transferee does not have control of such entity if the
transferee and members of the family (as defined in section
2032A(e)(2)) of the transferee have control of such entity.''
(b) Effective Date.--The amendments made by this section shall
apply to transfers after the date of the enactment of this Act.
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