Report text available as:

  • TXT
  • PDF   (PDF provides a complete and accurate display of this text.) Tip ?

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

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



 
           MARRIAGE PENALTY AND FAMILY TAX RELIEF ACT OF 2001

                                _______
                                

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

                                _______
                                

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

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                         [To accompany H.R. 6]

      [Including cost estimate of the Congressional Budget Office]

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

                                CONTENTS

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

SECTION 1. SHORT TITLE, ETC.

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

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

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

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

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

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

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

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

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

SEC. 5. MODIFICATIONS TO CHILD TAX CREDIT.

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

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

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

SEC. 6. PROTECTION OF SOCIAL SECURITY AND MEDICARE.

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

  Amend the title so as to read:

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

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

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

                 B. Background and Need for Legislation

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

                         C. Legislative History


                            COMMITTEE ACTION

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

                           COMMITTEE HEARING

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

                      II. EXPLANATION OF THE BILL


           A. Standard Deduction Marriage Tax Penalty Relief


                              PRESENT LAW

Marriage tax penalty

    A married couple generally is treated as one tax unit that 
must pay tax on the couple's total taxable income. Although 
married couples may elect to file separate returns, the rate 
schedules and other provisions of the Federal tax laws are 
structured so that filing separate returns usually results in a 
higher tax than filing a joint return. Other rate schedules 
apply to single persons and to single heads of households.
    A ``marriage penalty'' exists when the combined tax 
liability of a married couple filing a joint return is greater 
than the sum of the tax liabilities of each individual computed 
as if they were not married. A ``marriage bonus'' exists when 
the combined tax liability of a married couple filing a joint 
return is less than the sum of the tax liabilities of each 
individual computed as if they were not married.

Basic standard deduction

    Taxpayers who do not itemize deductions may choose the 
basic standard deduction,\1\ which is subtracted from adjusted 
gross income (``AGI'') in arriving at taxable income. The size 
of the basic standard deduction varies according to filing 
status and is indexed for inflation. For 2001, the size of the 
basic standard deduction for each filing status is shown in 
Table 1, below.
---------------------------------------------------------------------------
    \1\ Additional standard deductions are also allowed with respect to 
any individual who is elderly (age 65 or over) or blind.

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

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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


                              PRESENT LAW

In general

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

Regular income tax liability

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

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

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

                                               Heads of households

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

                                    Married individuals filing joint returns

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

Alternative minimum tax liability

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

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

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

                           Reasons for Change

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

                        Explanation of Provision

Increase in 15-percent regular income tax bracket

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

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

AMT relief

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

                             Effective Date

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

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


                              Present Law

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

Definition of earned income

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

Calculation of the credit

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

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

                           Reasons for Change

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

                        Explanation of Provision

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

                             Effective Date

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

           D. Increase and Expansion of the Child Tax Credit


                              Present Law

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

                           Reasons for Change

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

                        Explanation of Provision

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

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

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

                             Effective Date

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

        E. Transfer to Social Security and Medicare Trust Funds


                              Present Law

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

                           Reasons for Change

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

                        Explanation of Provision

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

                             Effective Date

    The provision is effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

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

                       MOTION TO REPORT THE BILL

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

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

                          VOTES ON AMENDMENTS

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

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

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

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

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

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

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

Source: Joint Committee on Taxation.

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

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

      C. Cost Estimate Prepared by the Congressional Budget Office

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

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

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

    Summary: The Marriage Penalty and Family Tax Relief Act of 
2001 would increase the basic standard deduction for a married 
couple filing a joint return to twice that of a taxpayer filing 
a single return. Also, starting in 2004, the bill would expand 
gradually the 15-percent regular income tax rate bracket for a 
married couple filing a joint return so that the bracket 
becomes twice the size of the rate bracket of a taxpayer filing 
a single return in 2009 and thereafter. In addition, the bill 
would increase the alternative minimum tax (AMT) exemption 
amount for a married couple filing a joint return by $1,000 in 
2005, by an additional $500 in 2006, and by an additional $500 
every other year thereafter.
    H.R. 6 also would repeal the provision in current law that 
offsets the refundable child credit and earned income credit by 
the amount of the AMT. For married taxpayers who file a joint 
return, the bill would increase the amount of earned income 
used to calculate the earned income credit (EIC) to 110 percent 
of the amount used by all other taxpayers eligible for the EIC. 
In addition, starting in 2001, the bill would gradually 
increase the child tax credit, which would reach $1,000 per 
qualifying child in 2006 and remain at that level thereafter. 
The bill would also make refundable a portion of the child tax 
credit for all families, not just those with three or more 
children as under current law. Unless otherwise noted, 
provisions in the bill would be effective on January 1, 2002.
    The Joint Committee on Taxation (JCT) estimates that the 
bill would decrease revenues by $4 million in 2001, by $98.9 
billion over the 2001-2006 period, and by $354.4 billion over 
the 2001-2011 period. In addition, JCT estimates that the bill 
would increase direct spending by about $1 million in 2001, by 
$17.6 billion over the 2001-2006 period, and by $44.9 billion 
over the 2001-2011 period. Because the bill would affect 
receipts and direct spending, pay-as-you-go procedures would 
apply.
    The bill contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 6 is shown in the following table. JCT 
provided at revenue and outlay estimates of provisions for the 
bill.

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

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

                                           CHANGES IN DIRECT SPENDING

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

    Most of the budgetary effects of H.R. 6 are reductions in 
revenues. However, H.R. 6 also would increase outlays by 
increasing the child tax credit and making it refundable for 
taxpayers with one or two children, and by increasing the 
earned income amount used by married taxpayers to calculate the 
EIC. Those changes would increase child and earned income tax 
credits, both of which are refundable under the tax code and 
counted in the budget as outlays to the extent that taxpayers 
receive net payments. In addition, H.R. 6 would reduce the 
amount of taxes owed by increasing the standard deduction and 
expanding the 15-percent tax bracket, among other changes, 
resulting in a large portion of tax credits being refundable--
and thus recorded as outlays rather than reductions in 
revenues.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in outlays and governmental receipts that are subject 
to pay-as-you-go procedures are shown in the following table. 
For the purposes of enforcing pay-as-you-go procedures, only 
the effects in the current year, the budget year, and the 
succeeding four years are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           By fiscal year, in millions of dollars--
                                     -------------------------------------------------------------------------------------------------------------------
                                       2001    2002       2003       2004       2005       2006       2007       2008       0009       2010       2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts.................     -4    -8,456    -11,199    -17,843    -26,182    -35,244    -42,516    -47,645    -52,324    -54,947    -58,002
Changes in outlays..................      1     1,463      2,950      3,673      4,368      5,101      5,772      5,650      5,449      5,303      5,149
--------------------------------------------------------------------------------------------------------------------------------------------------------

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

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


          A. Committee Oversight Findings and Recommendations

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

        B. Statement of General Performance Goals and Objectives

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

                 C. Constitutional Authority Statement

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

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

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

                       F. Tax Complexity Analysis

    The following tax complexity analysis is provided pursuant 
to section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998, which requires the staff of the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service (``IRS'') and the Treasury Department) to 
provide a complexity analysis of tax legislation reported by 
the House Committee on Ways and Means, the Senate Committee on 
Finance, or a Conference Report containing tax provisions. The 
complexity analysis is required to report on the complexity and 
administrative issues raised by provisions that directly or 
indirectly amend the Internal Revenue Code and that have 
widespread applicability to individuals or small businesses. 
For each such provision identified by the staff of the Joint 
Committee on Taxation, a summary description of the provision 
is provided along with an estimate of the number and type of 
affected taxpayers, and a discussion regarding the relevant 
complexity and administrative issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and the Treasury 
Department regarding each of the provisions included in the 
complexity analysis, including a discussion of the likely 
effect on IRS forms and any expected impact on the IRS.

1. Standard deduction tax relief (sec. 2 of the bill)

            Summary description of provision
    The bill increases the basic standard deduction for married 
taxpayers filing a joint return to twice the basic standard 
deduction for an unmarried individual for taxable years 
beginning after December 31, 2001.
            Number of affected taxpayers
    It is estimated that the provision will affect 
approximately 23 million individual returns.
            Discussion
    It is not anticipated that individuals will need to keep 
additional records due to this provision. The higher basic 
standard deduction should not result in an increase in disputes 
with the IRS, nor will regulatory guidance be necessary to 
implement this provision. In addition, the provision should not 
increase individuals' tax preparation costs.
    Some taxpayers who currently itemize deductions may respond 
to the provision by claiming the increased standard deduction 
in lieu of itemizing. According to estimates by the staff of 
the Joint Committee on Taxation, approximately three million 
individual tax returns will realize greater tax savings from 
the increased standard deduction than from itemizing their 
deductions. In addition to the tax savings, such taxpayers will 
no longer have to file Schedule A to Form 1040 or need to 
engage in the record keeping inherent in itemizing below-the-
line deductions. Moreover, by claiming the standard deduction, 
such taxpayers may qualify to use simpler versions of the Form 
1040 (i.e., Form 1040EZ or Form 1040A) that are not available 
to individuals who itemize their deductions. These forms 
simplify the return preparation process by eliminating from the 
Form 1040 those items that do not apply to particular 
taxpayers.
    This reduction in complexity and record keeping also may 
result in a decline in the number of individuals using a tax 
preparation service or a decline in the cost of using such a 
service. Furthermore, if the provision results in a taxpayer 
qualifying to use one of the simplerversions of the Form 1040, 
the taxpayer may be eligible to file a paperless Federal tax return by 
telephone. The provision also should reduce the number of disputes 
between taxpayers and the IRS regarding substantiation of itemized 
deductions.

2. Expansion of the 15-percent rate bracket (sec. 3 of the bill)

            Summary description of provision
    The provision increases the size of the 15-percent regular 
income tax rate bracket for married individuals filing a joint 
return to twice the size of the corresponding rate bracket for 
unmarried individuals. This increase is phased in over six 
years, starting with taxable years beginning after December 31, 
2003. It is fully effective for taxable years beginning after 
December 31, 2008.
            Number of affected taxpayers
    It is estimated that the provision will affect 
approximately 20 million individual tax returns.
            Discussion
    It is not anticipated that individuals will need to keep 
additional records due to this provision. The increased size of 
the 15-percent regular income tax rate bracket for married 
individuals filing joint returns should not result in an 
increase in disputes with the IRS, nor will regulatory guidance 
be necessary to implement this provision.

3. Increase the child tax credit (sec. 5 of the bill)

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

4. The effect of the alternative minimum tax rules

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

                        Department of the Treasury,
                                  Internal Revenue Service,
                                    Washington, DC, March 26, 2001.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washington, DC
    Dear Ms. Paull: Enclosed are the combined comments of the 
Internal Revenue Service and the Treasury Department on the 
provisions from the House Committee on Ways and Means markup of 
the ``Marriage Penalty and Family Tax Relief Act of 2001'' that 
you identified for complexity analysis in your letter of March 
21, 2001. Our comments are based on the description of those 
provisions in JCX-16-01, Joint Committee on Taxation, 
Description of the Chairman's Amendment in the Nature of a 
Substitute to H.R. 6, March 21, 2001.
    Due to the short turnaround time, our comments are 
provisional and subject to change upon a more complete and in-
depth analysis of the provisions.
            Sincerely,
                                               Charles O. Rossotti.
    Enclosure.
      

 Complexity Analysis of Marriage Penalty and Family Tax Relief Act of 
                                  2001


                           STANDARD DEDUCTION


Provision
    Increase the basic standard deduction for a married couple 
filing a join return to twice the basic standard deduction for 
an unmarried individual filing a single return, effective for 
tax years beginning after December 31, 2001.
IRS and Treasury comments
     The increase in the basic standard deduction for 
married taxpayers would be incorporated in the instructions for 
Forms 1040, 1040A, 1040EZ, and on Forms 1040, 1040A, 1040EZ, 
and 1040-ES for 2002. No new forms would be required.
     Programming changes would be required to reflect 
the increased standard deduction for married taxpayers. 
Currently, IRS tax computation programs are updated annually to 
incorporate mandated inflation adjustments. Programming changes 
necessitated by this provision would be included during that 
process.
     Compared with current law, the larger standard 
deduction would reduce the number of taxpayers who itemize 
deductions by 3.1 million in 2006 and by 2.9 million in 2011.
     As a result of this provision, the number of 
taxpayers affected by the alternative minimum tax (AMT) would 
change, as explained in the separate discussion of the AMT at 
the end of this analysis.


                        15-PERCENT RATE BRACKET


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


                             AMT EXEMPTION


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


                            CHILD TAX CREDIT


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


               IMPACT OF THE BILL'S PROVISIONS ON THE AMT


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

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

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

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART I--TAX ON INDIVIDUALS

           *       *       *       *       *       *       *


SECTION 1. TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

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

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

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *


Subpart A--Nonrefundable Personal Credits

           *       *       *       *       *       *       *


SEC. 23. ADOPTION EXPENSES.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 24. CHILD TAX CREDIT.

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

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

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 25. INTEREST ON CERTAIN HOME MORTGAGES.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

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

           *       *       *       *       *       *       *


Subpart C--Refundable Credits

           *       *       *       *       *       *       *



SEC. 32. EARNED INCOME.

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


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

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


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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


PART VI--ALTERNATIVE MINIMUM TAX

           *       *       *       *       *       *       *


SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


SEC. 63. TAXABLE INCOME DEFINED.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


PART III--INCOME FROM SOURCES WITHOUT THE UNITED STATES

           *       *       *       *       *       *       *


Subpart A--Foreign Tax Credit

           *       *       *       *       *       *       *


SEC. 904. LIMITATION ON CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subchapter W--District of Columbia Enterprise Zone

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

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

Fairness

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

Honesty

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

Process

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

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

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

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

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

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