[House Report 107-7]
[From the U.S. Government Publishing Office]
107th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 107-7
======================================================================
ECONOMIC GROWTH AND TAX RELIEF ACT OF 2001
_______
March 6, 2001.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Thomas, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 3]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 3) to amend the Internal Revenue Code of 1986 to
reduce individual income tax rates, having considered the same,
report favorably thereon with an amendment and recommend that
the bill as amended do pass.
CONTENTS
Page
I. Summary and Background...........................................3
A. Purpose and Summary................................. 3
B. Background and Need for Legislation................. 4
C. Legislative History................................. 4
II. Explanation of the Bill..........................................4
III. Votes of the Committee...........................................9
IV. Budget Effects of the Bill......................................11
A. Committee Estimates of Budgetary Effects............ 11
B. Budget Authority and Tax Expenditures............... 12
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 12
V. Other Matters To Be Discussed Under the Rules of the House......16
A. Committee Oversight Findings and Recommendations.... 16
B. Summary of Findings and Recommendations of the
Committee on Government Reform and Oversight....... 16
C. Constitutional Authority Statement.................. 16
D. Information Relating to Unfunded Mandates........... 16
E. Applicability of House Rule XX15(b)................. 16
F. Tax Complexity Analysis............................. 17
VI. Changes in Existing Law Made by the Bill, as Reported...........20
VII. Dissenting Views................................................27
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Economic Growth and
Tax Relief Act of 2001''.
(b) Amendment of 1986 Code.--Except as otherwise expressly provided,
whenever in this Act an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision of the
Internal Revenue Code of 1986.
(c) Section 15 Not To Apply.--No amendment made by section 2 shall be
treated as a change in a rate of tax for purposes of section 15 of the
Internal Revenue Code of 1986.
SEC. 2. REDUCTION IN INCOME TAX RATES FOR INDIVIDUALS.
(a) In General.--Section 1 is amended by adding at the end the
following new subsection:
``(i) Rate Reductions After 2000.--
``(1) New lowest rate bracket.--
``(A) In general.--In the case of taxable years
beginning after December 31, 2000--
``(i) the rate of tax under subsections (a),
(b), (c), and (d) on taxable income not over
the initial bracket amount shall be 12 percent
(as modified by paragraph (2)), and
``(ii) the 15 percent rate of tax shall apply
only to taxable income over the initial bracket
amount.
``(B) Initial bracket amount.--For purposes of this
subsection, the initial bracket amount is--
``(i) $12,000 in the case of subsection (a),
``(ii) $10,000 in the case of subsection (b),
and
``(iii) \1/2\ the amount applicable under
clause (i) in the case of subsections (c) and
(d).
``(C) Inflation adjustment.--In prescribing the
tables under subsection (f) which apply with respect to
taxable years beginning in calendar years after 2001--
``(i) the Secretary shall make no adjustment
to the initial bracket amount for any taxable
year beginning before January 1, 2007,
``(ii) the cost-of-living adjustment used in
making adjustments to the initial bracket
amount for any taxable year beginning after
December 31, 2006, shall be determined under
subsection (f)(3) by substituting `2005' for
`1992' in subparagraph (B) thereof, and
``(iii) such adjustment shall not apply to
the amount referred to in subparagraph
(B)(iii).
If any amount after adjustment under the preceding
sentence is not a multiple of $50, such amount shall be
rounded to the next lowest multiple of $50.
``(2) Reductions in rates after 2001.--In the case of taxable
years beginning in a calendar year after 2001, the
corresponding percentage specified for such calendar year in
the following table shall be substituted for the otherwise
applicable tax rate in the tables under subsections (a), (b),
(c), (d), and, to the extent applicable, (e).
----------------------------------------------------------------------------------------------------------------
The corresponding percentages shall be
``In the case of taxable years substituted for the following percentages:
beginning during calendar year: --------------------------------------------
12% 28% 31% 36% 39.6%
----------------------------------------------------------------------------------------------------------------
2002.............................. 12% 27% 30% 35% 38%
2003.............................. 11% 27% 29% 35% 37%
2004.............................. 11% 26% 28% 34% 36%
2005.............................. 11% 26% 27% 34% 35%
2006 and thereafter............... 10% 25% 25% 33% 33%
----------------------------------------------------------------------------------------------------------------
``(3) Adjustment of tables.--The Secretary shall adjust the
tables prescribed under subsection (f) to carry out this
subsection.''
(b) Repeal of Reduction of Refundable Tax Credits.--
(1) Subsection (d) of section 24 is amended by striking
paragraph (2) and redesignating paragraph (3) as paragraph (2).
(2) Section 32 is amended by striking subsection (h).
(c) Conforming Amendments.--
(1) Subparagraph (B) of section 1(g)(7) is amended--
(A) by striking ``15 percent'' in clause (ii)(II) and
inserting ``the first bracket percentage'', and
(B) by adding at the end the following flush
sentence:
``For purposes of clause (ii), the first bracket
percentage is the percentage applicable to the lowest
income bracket in the table under subsection (c).''
(2) Section 1(h) is amended--
(A) by striking ``28 percent'' both places it appears
in paragraphs (1)(A)(ii)(I) and (1)(B)(i) and inserting
``25 percent'', and
(B) by striking paragraph (13).
(3) Section 15 is amended by adding at the end the following
new subsection:
``(f) Rate Reductions Enacted by Economic Growth and Tax Relief Act
of 2001.--This section shall not apply to any change in rates under
subsection (i) of section 1 (relating to rate reductions after 2000).''
(4) Section 531 is amended by striking ``equal to'' and all
that follows and inserting ``equal to the product of the
highest rate of tax under section 1(c) and the accumulated
taxable income.''.
(5) Section 541 is amended by striking ``equal to'' and all
that follows and inserting ``equal to the product of the
highest rate of tax under section 1(c) and the undistributed
personal holding company income.''.
(6) Section 3402(p)(1)(B) is amended by striking ``7, 15, 28,
or 31 percent'' and inserting ``7 percent, any percentage
applicable to any of the 3 lowest income brackets in the table
under section 1(c),''.
(7) Section 3402(p)(2) is amended by striking ``equal to 15
percent of such payment'' and inserting ``equal to the product
of the lowest rate of tax under section 1(c) and such
payment''.
(8) Section 3402(q)(1) is amended by striking ``equal to 28
percent of such payment'' and inserting ``equal to the product
of the third to the lowest rate of tax under section 1(c) and
such payment''.
(9) Section 3402(r)(3) is amended by striking ``31 percent''
and inserting ``the third to the lowest rate of tax under
section 1(c)''.
(10) Section 3406(a)(1) is amended by striking ``equal to 31
percent of such payment'' and inserting ``equal to the product
of the third to the lowest rate of tax under section 1(c) and
such payment''.
(11) Section 13273 of the Revenue Reconciliation Act of 1993
is amended by striking ``28 percent'' and inserting ``the third
to the lowest rate of tax under section 1(c) of the Internal
Revenue Code of 1986''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2000.
(2) Amendments to withholding provisions.--The amendments
made by paragraphs (6), (7), (8), (9), (10), and (11) of
subsection (c) shall apply to amounts paid after the 60th day
after the date of the enactment of this Act.
SEC. 3. PROTECTION OF SOCIAL SECURITY AND MEDICARE.
The amounts transferred to any trust fund under the Social Security
Act shall be determined as if this Act had not been enacted.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 3, as amended (the ``Economic Growth and Tax
Relief Act of 2001'') provides income tax relief to American
taxpayers.
The bill provides net tax reductions of over $363 billion
over fiscal years 2001-2006. This will provide needed income
tax relief for over 100 million American taxpayers, return the
tax revenues not needed to fund government programs, and foster
economic prosperity in the 21st century.
The bill creates a new low-rate regular income tax bracket
for a portion of the taxable income that is currently taxed at
15 percent. The bill reduces the other income tax rates and
consolidates rate brackets. By 2006, the present-law rate
structure of five regular income tax rates (15 percent, 28
percent, 31 percent, 36 percent, and 39.6 percent) are reduced
to four rates of 10 percent, 15 percent, 25 percent, and 33
percent. The bill also repeals the provisions that reduce the
refundable child credit and the earned income credit by the
amount of the individual's alternative minimum tax. The bill is
generally effective for taxable years beginning after December
31, 2000, and is fully effective for taxable years beginning
after December 31, 2005.
B. Background and Need for Legislation
The provisions approved by the Committee reflect the need
for tax relief for American taxpayers in a fiscally prudent
matter. The provisions also should serve to improve the economy
and return an appropriate amount of the projected budget
surplus to the American taxpayer. The estimated revenue effects
of the provision comply with the most recent Congressional
Budget Office revisions of budget surplus projections, and
represent a prudent first step in reducing overall levels of
Federal taxation.
C. Legislative History
The Committee on Ways and Means marked up the provisions of
the bill on March 1, 2001, and approved the provisions, as
amended, on March 1, 2001, by a roll call vote of 23 yeas and
15 nays, with a quorum present.
II. EXPLANATION OF THE BILL
PRESENT LAW
Under the Federal individual income tax system, an
individual who is a citizen or resident of the United States
generally is subject to tax on worldwide taxable income.
Taxable income is total gross income less certain exclusions,
exemptions, and deductions. An individual may claim either a
standard deduction or itemized deductions.
An individual's income tax liability is determined by
computing his or her regular income tax liability and, if
applicable, alternative minimum tax liability.
Regular income tax liability
Regular income tax liability is determined by applying the
regular income tax rate schedules (or tax tables) to the
individual's taxable income and then is reduced by any
applicable tax credits. The regular income tax rate schedules
are divided into several ranges of income, known as income
brackets, and the marginal tax rate increases as the
individual's income increases. The income bracket amounts are
adjusted annually for inflation. Separate rate schedules apply
based on filing status: single individuals (other than heads of
households and surviving spouses), heads of households, married
individuals filing joint returns (including surviving spouses),
married individuals filing separate returns, and estates and
trusts. Lower rates may apply to capital gains.
For 2001, the regular income tax rate schedules for
individuals are shown in Table 1., below. The rate bracket
breakpoints for married individuals filing separate returns are
exactly one-half of the rate brackets for married individuals
filing joint returns. A separate, compressed rate schedule
applies to estates and trusts.
TABLE 1.--INDIVIDUAL REGULAR INCOME TAX RATES FOR 2001
----------------------------------------------------------------------------------------------------------------
If taxable income is Then regular income tax equals
----------------------------------------------------------------------------------------------------------------
Single individuals
$0-27,050................................. 15 percent of taxable income.
$27,050-$65,550........................... $4,057.50, plus 28% of the amount over $27,050.
$65,550-$136,750.......................... $14,837.50, plus 31% of the amount over $65,550.
$136,750-$297,350......................... $36,909.50, plus 36% of the amount over $136,750.
Over $297,350............................. $94,725.50, plus 39.6% of the amount over $297,350.
Heads of households
$0-$36,250................................ 15 percent of taxable income.
$36,250-$93,650........................... $5,437.50, plus 28% of the amount over $36,250.
$93,650-$151,650.......................... $21,509.50, plus 31% of the amount over $93,650.
$151,650-$297,350......................... $39,489.50, plus 36% of the amount over $151,650.
Over $297,350............................. $91,941.50, plus 39.6% of the amount over $297,350.
Married individuals filing joint returns
$0-$45,200................................ 15 percent of taxable income.
$45,200-$109,250.......................... $6,780.00, plus 28% of the amount over $45,200.
$109,250-$166,500......................... $24,714.50, plus 31% of the amount over $109,250.
$166,500-$297,350......................... $42,461.50, plus 36% of the amount over $166,500.
Over $297,350............................. $89,567.50, plus 39.6% of the amount over $297,350.
----------------------------------------------------------------------------------------------------------------
Alternative minimum tax liability
In general
An individual's alternative minimum tax equals the excess
of the individual's tentative alternative minimum tax liability
over his or her regular income tax liability. Tentative
alternative minimum tax liability is determined by applying
specified rates (shown in Table 2., below) to alternative
minimum taxable income in excess of specified exemption
amounts. Alternative minimum taxable income generally is the
individual's regular taxable income increased by certain
preference items and other adjustments. The basic structure of
the alternative minimum tax (such as exemption amounts and rate
brackets) is not adjusted annually for inflation. The lower
regular income tax rates on capital gains also apply under the
alternative minimum tax.
TABLE 2.--INDIVIDUAL ALTERNATIVE MINIMUM TAX RATES
----------------------------------------------------------------------------------------------------------------
If alternative minimum taxable income in
excess of the applicable exemption amount Then tentative alternative minimum tax equals
is
----------------------------------------------------------------------------------------------------------------
$0-175,000................................ 26 percent of alternative minimum taxable income in excess of the
applicable exemption amount.
Over $175,000............................. $45,500, plus 28% of the amount over $175,000.
----------------------------------------------------------------------------------------------------------------
Limitation on nonrefundable credits
Through 2001, an individual generally may reduce his or her
tentative alternative minimum tax liability by nonrefundable
personal tax credits (such as the $500 child tax credit and the
adoption tax credit). For taxable years beginning after
December 31, 2001, nonrefundable personal tax credits may not
reduce an individual's income tax liability below his or her
tentative alternative minimum tax.
AMT offset of refundable tax credits
An individual's alternative minimum tax liability reduces
the amount of the refundable earned income credit and, for
taxable years beginning after December 31, 2001, the amount of
the refundable child credit for families with three or more
children.
reasons for change
The Committee bill makes the first down payment on
President Bush's pledge to deliver $1.6 trillion in tax relief
to the American people. The Committee bill provides immediate
tax relief to American taxpayers in the form of a new rate
bracket for the first $6,000 of taxable income for single
individuals and the first $12,000 of taxable income for married
couples filing a joint return. This new 10-percent rate bracket
will be phased in, beginning in 2001. In addition, the
Committee bill phases in reductions in all individual income
tax rates over five years. The Committee bill will provide tax
relief to more than 100 million income tax returns of
individuals, including at least 16 million returns of
individuals with business income.
The Committee believes that providing tax relief to the
American people is appropriate for a number of reasons. The
Congressional Budget Office (``CBO'') projects budget surpluses
of $5.0 trillion over the next 10 fiscal years (2001-2010).
Federal revenues have been rising as a share of the gross
domestic product (``GDP''). CBO projects that, during the
fiscal year 2001-2010 period, Federal revenues will be more
than 20 percent of the GDP annually. By contrast, during the
early 1990's, Federal revenues generally were only 17-18
percent of the GDP. Individual income taxes account for most of
the recent rise in revenues as a percentage of GDP. Federal
individual income tax revenues rose to over 10 percent of GDP
in fiscal year 2000 for the first time in history and are
projected by the CBO to exceed 10 percent of GDP for each of
the fiscal years 2001-2010. The CBO projects that the growth of
Federal revenues will, for fiscal year 2001, outstrip the
growth of GDP for the ninth consecutive year. Moreover, the CBO
states that ``[t]he most significant source of the growth of
income taxes relative to GDP was the increase in the effective
tax rate.'' \1\
---------------------------------------------------------------------------
\1\ Congressional Budget Office, Congress of the United States, The
Budget Economic Outlook: Fiscal Years 2002-2011, January 2001, p. 56.
---------------------------------------------------------------------------
The Federal income tax is intended to collect revenues to
fund the programs of the Federal government. If more tax
revenues are collected than are needed to fund the government,
the Committee believes that at least a portion of the excess
should be returned to the taxpayers who are paying Federal
income taxes. A portion of the surplus can be returned while
still retaining enough to pay down the public debt, fund
priorities such as education and defense and secure the future
of Social Security and Medicare. Thus, the Committee believes
that it is appropriate to provide relief from the high
individual income tax rates of present law.
The Committee believes that high individual income tax
rates reduce incentives for taxpayers to work, to save, and to
invest and, thereby, have a negative effect on the long-term
health of the economy. The higher that marginal tax rates are,
the greater is the disincentive for individuals to increase
their work effort. In addition, the Committee has received
testimony from tax experts that high marginal tax rates lead to
reduced confidence in the Federal tax system and lower rates of
voluntary compliance by taxpayers. Lower marginal tax rates
provide greater incentives to taxpayers to be entrepreneurial
risk takers; the Committee believes that the high marginal tax
rates of present law discourage success. The Committee bill
provides a tax cut to more than 16 million owners of
businesses--sole proprietorships, partnerships, and S
corporations. The Committee believes that this tax cut will
lead to increased investment by these businesses, promoting
long-term growth and stability in the economy and rewarding the
businessmen and women who provide a foundation for our
country's success.
In addition, lower marginal tax rates help remove the
barriers that lower-income families face as they try to enter
the middle class. The lower the marginal tax rates for those
taxpayers in the lowest income tax brackets, the greater is the
incentive to work. The new 10-percent rate bracket in the
Committee bill delivers more benefit as a percentage of income
to low-income taxpayers than high-income taxpayers and provides
an incentive for these taxpayers to increase their work effort.
Finally, there are signs that the economy is slowing. The
Committee believes that immediate tax relief may encourage
short-term growth in the economy by providing individuals with
additional cash to spend. However, the Committee recognizes
that it is important to act quickly so that taxpayers are aware
of the commitment of the President and the Congress to enact
this tax cut and to adjust income tax withholding tables. It is
important that taxpayers immediately see the benefits of this
tax relief in the form of more money in their pockets.
The Committee bill also repeals the present-law provision
reducing the refundable child credit and the earned income
credit by the amount of the alternative minimum tax. This
provision ensures that no taxpayer will face an increase in net
income tax liability as a result of the interaction of the
alternative minimum tax with the rate reductions in the
Committee bill.
The Committee finds it appropriate to ensure that present-
law transfers to the Social Security and Medicare trust funds
will not be reduced as a result of the tax relief being
provided under the Committee bill.
explanation of provision
In general
The bill creates a new low-rate regular income tax bracket
for a portion of taxable income that is currently taxed at 15
percent. The bill reduces other regular income tax rates and
consolidates rate brackets. By 2006, the present-law structure
of five regular income tax rates (15 percent, 28 percent, 31
percent, 36 percent and 39.6 percent) will be reduced to fur
rates of 10 percent, 15 percent, 25 percent, and 33 percent.
The bill repeals the present-law provisions that offset the
refundable child credit and the earned income credit by the
amount of the alternative minimum tax.
New low-rate bracket
The bill establishes a new regular income tax rate bracket
for a portion of taxable income that is currently taxed at 15
percent, as shown in Table 3, below. The taxable income levels
for the new low-rate bracket will be adjusted annually for
inflation for taxable years beginning after December 31, 2006.
TABLE 3.--PROPOSED NEW LOW-RATE BRACKET
----------------------------------------------------------------------------------------------------------------
Taxable income
---------------------------------------------------
Married
Calendar year Single Heads of filing Proposed
individuals household joint new rate
returns (percent)
----------------------------------------------------------------------------------------------------------------
2001-2002................................................... 0-$6,000 0-$10,000 0-$12,000 12
2003-2005................................................... 0-$6,000 0-$10,000 0-$12,000 11
2006........................................................ 0-$6,000 0-$10,000 0-$12,000 10
2007 and later.............................................. Adjust annually for inflation\1\ 10
----------------------------------------------------------------------------------------------------------------
\1\ The new low-rate bracket for joint returns and head of household returns will be rounded down to the nearest
$50. The bracket for single individuals and married individuals filing separately will be one-half the bracket
for joint returns (after adjustment of that bracket for inflation).
Modification of 15-percent bracket
The 15-percent regular income tax bracket is modified to
begin at the end of the new low-rate regular income tax
bracket. The 15-percent regular income tax bracket ends at the
same level as under present law.
Reduction of other rates and consolidation of rate brackets
The present-law regular income tax rates of 28 percent and
31 percent are phased down to 25 percent over five years,
effective for taxable years beginning after December 31, 2001.
The taxable income level for the new 25-percent rate bracket
begins at the level at which the 28-percent rate bracket begins
under present law and ends at the level at which the 31-percent
rate bracket ends under present law.
The present-law regular income tax rates of 36 percent and
39.6 percent are phased down to 33 percent over five years,
effective for taxable years beginning after December 31, 2001.
The taxable income level for the new 33-percent rate bracket
begins at the level at which the 36-percent rate bracket begins
under present law.
Table 4., below, shows the schedule of proposed regular
income tax rate reductions.
TABLE 4.--PROPOSED REGULAR INCOME TAX RATE REDUCTIONS
----------------------------------------------------------------------------------------------------------------
28% rate 31% rate 36% rate 39.6% rate
Calendar year reduced to reduced to reduced to reduced to
----------------------------------------------------------------------------------------------------------------
2002........................................................ 27 30 35 38
2003........................................................ 27 29 35 37
2004........................................................ 26 28 34 36
2005........................................................ 26 27 34 35
2006 and later.............................................. 25 25 33 33
----------------------------------------------------------------------------------------------------------------
Projected regular income tax rate schedules under the proposal
Table 5., below, shows the projected individual regular
income tax rate schedules when the rate reductions are fully
phased in (i.e., for 2006). As under present law, the rate
brackets for married taxpayers filing separate returns under
the bill are one half the rate brackets for married individuals
filing joint returns. In addition, appropriate adjustments are
made to the separate, compressed rate schedule for estate and
trusts.
TABLE 5.--INDIVIDUAL REGULAR INCOME TAX RATES FOR 2006 (PROJECTED)
----------------------------------------------------------------------------------------------------------------
If taxable income is Then regular income tax equals
----------------------------------------------------------------------------------------------------------------
Single individuals
$0-6,000.................................. 10 percent of taxable income.
$6,000-$30,950............................ $600, plus 15 percent of the amount over $6,000.
$30,950-$156,300.......................... $4,342.50, plus 25% of the amount over $30,950.
Over $156,300............................. $35,680, plus 33% of the amount over $156,300.
Heads of households
$0-$10,000................................ 10 percent of taxable income.
$10,000-$41,450........................... $1,000 plus 15% of the amount over $10,000.
$41,450-$173,300.......................... $5,717.50, plus 25% of the amount over $41,450.
Over $173,300............................. $38,680, plus 33% of the amount over $173,300.
Married individual filing joint returns
$0-$12,000................................ 10 percent of taxable income.
$12,000-$51,700........................... $1,200 plus 15% of the amount over $12,000.
$51,700-$190,300.......................... $7,155, plus 25% of the amount over $51,700.
$190,300.................................. $41,805, plus 33% of the amount over $190,300.
----------------------------------------------------------------------------------------------------------------
AMT offset of refundable tax credits
The bill repeals the present-law provision that offsets the
refundable child credit and the earned income credit by the
amount of the alternative minimum tax.
Revised wage withholding for 2001
Under present law, the Secretary of the Treasury is
authorized to prescribe appropriate income tax withholding
tables or computational procedures for the withholding of
income taxes from wages paid by employers. The Secretary is
expected to make appropriate revisions to the wage withholding
tables to reflect the proposed rate reduction for calendar year
2001 as expeditiously as possible.
Transfer to Social Security and Medicare trust funds
Under the bill, the amounts transferred to the Social
Security and Medicare trust funds are determined as if the rate
reductions in the bill were not enacted. Thus, there will be no
reduction in transfers to these funds as a result of the bill.
effective date
The provisions of the bill generally apply to taxable years
beginning after December 31, 2000, except that the conforming
amendments to certain withholding provisions under the bill are
effective for amounts paid more than 60 days after the date of
enactment.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in its
consideration of the bill, H.R. 3.
motion to report the bill
The bill, H.R. 3, as amended, was ordered favorably
reported by a rollcall vote of 23 yeas to 15 nays (with a
quorum being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Crane...................... X ........ ......... Mr. Stark........ ........ X .........
Mr. Shaw....................... X ........ ......... Mr. Matsui....... ........ X .........
Mrs. Johnson................... X ........ ......... Mr. Coyne........ ........ X .........
Mr. Houghton................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Herger..................... X ........ ......... Mr. Cardin....... ........ X .........
Mr. McCrery.................... X ........ ......... Mr. McDermott.... ........ ........ .........
Mr. Camp....................... X ........ ......... Mr. Kleczka...... ........ X .........
Mr. Ramstad.................... X ........ ......... Mr. Lewis (GA)... ........ X .........
Mr. Nussle..................... X ........ ......... Mr. Neal......... ........ ........ .........
Mr. Johnson.................... X ........ ......... Mr. McNulty...... ........ X .........
Ms. Dunn....................... ........ ........ ......... Mr. Jefferson.... ........ X .........
Mr. Collins.................... X ........ ......... Mr. Tanner....... ........ X .........
Mr. Portman.................... X ........ ......... Mr. Becerra...... ........ X .........
Mr. English.................... X ........ ......... Mrs. Thurman..... ........ X .........
Mr. Watkins.................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Hayworth................... X ........ ......... Mr. Pomeroy...... ........ X .........
Mr. Weller..................... X ........ ......... ................. ........ ........ .........
Mr. Hulshof.................... X ........ ......... ................. ........ ........ .........
Mr. McInnis.................... X ........ ......... ................. ........ ........ .........
Mr. Lewis (KY)................. X ........ ......... ................. ........ ........ .........
Mr. Foley...................... X ........ ......... ................. ........ ........ .........
Mr. Brady...................... X ........ ......... ................. ........ ........ .........
Mr. Ryan....................... X ........ ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
votes on amendments
A rollcall vote was conducted on the following amendments
to the Chairman's amendment in the nature of a substitute.
An amendment by Mr. Jefferson and Mrs. Thurman, to provide
that if in any year the Secretary of the Treasury determines
that the Social Security and Medicare surplus would be used for
anything other than debt reduction, the trigger would be
activated, was defeated by a roll call vote of 16 yeas to 22
nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Crane...................... ........ X ......... Mr. Stark........ X ........ .........
Mr. Shaw....................... ........ X ......... Mr. Matsui....... X ........ .........
Mrs. Johnson................... ........ X ......... Mr. Coyne........ X ........ .........
Mr. Houghton................... ........ X ......... Mr. Levin........ X ........ .........
Mr. Herger..................... ........ X ......... Mr. Cardin....... X ........ .........
Mr. McCrery.................... ........ X ......... Mr. McDermott.... ........ ........ .........
Mr. Camp....................... ........ X ......... Mr. Kleczka...... X ........ .........
Mr. Ramstad.................... ........ X ......... Mr. Lewis (GA)... X ........ .........
Mr. Nussle..................... ........ ........ ......... Mr. Neal......... X ........ .........
Mr. Johnson.................... ........ X ......... Mr. McNulty...... X ........ .........
Ms. Dunn....................... ........ ........ ......... Mr. Jefferson.... X ........ .........
Mr. Collins.................... ........ X ......... Mr. Tanner....... X ........ .........
Mr. Portman.................... ........ X ......... Mr. Becerra...... X ........ .........
Mr. English.................... ........ X ......... Mrs. Thurman..... X ........ .........
Mr. Watkins.................... ........ X ......... Mr. Doggett...... X ........ .........
Mr. Hayworth................... ........ X ......... Mr. Pomeroy...... X ........ .........
Mr. Weller..................... ........ X ......... ................. ........ ........ .........
Mr. Hulshof.................... ........ X ......... ................. ........ ........ .........
Mr. McInnis.................... ........ X ......... ................. ........ ........ .........
Mr. Lewis (KY)................. ........ X ......... ................. ........ ........ .........
Mr. Foley...................... ........ X ......... ................. ........ ........ .........
Mr. Brady...................... ........ X ......... ................. ........ ........ .........
Mr. Ryan....................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
A substitute amendment by Mr. Rangel was defeated by a
rollcall vote of 12 yeas to 26 nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Crane...................... ........ X ......... Mr. Stark........ X ........ .........
Mr. Shaw....................... ........ X ......... Mr. Matsui....... X ........ .........
Mrs. Johnson................... ........ X ......... Mr. Coyne........ X ........ .........
Mr. Houghton................... ........ X ......... Mr. Levin........ X ........ .........
Mr. Herger..................... ........ X ......... Mr. Cardin....... X ........ .........
Mr. McCrery.................... ........ X ......... Mr. McDermott.... ........ ........ .........
Mr. Camp....................... ........ X ......... Mr. Kleczka...... X ........ .........
Mr. Ramstad.................... ........ X ......... Mr. Lewis (GA)... X ........ .........
Mr. Nussle..................... ........ X ......... Mr. Neal......... ........ ........ .........
Mr. Johnson.................... ........ X ......... Mr. McNulty...... X ........ .........
Ms. Dunn....................... ........ ........ ......... Mr. Jefferson.... X ........ .........
Mr. Collins.................... ........ X ......... Mr. Tanner....... ........ X .........
Mr. Portman.................... ........ X ......... Mr. Becerra...... X ........ .........
Mr. English.................... ........ X ......... Mrs. Thurman..... ........ X .........
Mr. Watkins.................... ........ X ......... Mr. Doggett...... ........ X .........
Mr. Hayworth................... ........ X ......... Mr. Pomeroy...... X ........ .........
Mr. Weller..................... ........ X ......... ................. ........ ........ .........
Mr. Hulshof.................... ........ X ......... ................. ........ ........ .........
Mr. McInnis.................... ........ X ......... ................. ........ ........ .........
Mr. Lewis (KY)................. ........ X ......... ................. ........ ........ .........
Mr. Foley...................... ........ X ......... ................. ........ ........ .........
Mr. Brady...................... ........ X ......... ................. ........ ........ .........
Mr. Ryan....................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d)(2) of the rule XIII of the
Rules of the House of Representatives, the following statement
is made concerning the effects on the budget of the revenue
provisions of the bill, H.R. 3 as reported.
The bill is estimated to have the following effects on
budget receipts for fiscal years 2001-2006:
ESTIMATED REVENUE EFFECTS OF H.R. 3, THE ``ECONOMIC GROWTH AND TAX RELIEF ACT OF 2001,'' AS REPORTED BY THE
COMMITTEE ON WAYS AND MEANS
[Fiscal years 2001-2011, in billions of dollars]
----------------------------------------------------------------------------------------------------------------
Provision Effective 2001 2002 2003 2004 2005 2006 2001-06
----------------------------------------------------------------------------------------------------------------
1. Create new bracket for tyba 12/31/00 -5.6 -35.7 -30.0 -32.4 -32.3 -37.9 -174.0
first $6,000 of taxable
income for singles, first
$10,000 for heads of
households, and first
$12,000 for married couples;
no indexing bracket for
inflation until 2007; rate
set at 12% in 2001 and 2002,
11% in 2003 through 2005,
and 10% in 2006.
2. Reduce the various income tyba 12/31/01 (\1\) -13.4 -24.4 -38.4 -48.5 -65.2 -189.8
tax rates (39.6% rate
reduced to 38% in 2002, 37%
in 2003, 36% in 2004, 35%
2005 and 33% in 2006; 36%
rate reduced to 35% in 2002
and 2003, 34% in 2004 and
2005, and 33% in 2006; 31%
rate reduced to 30% in 2002,
29% in 2003, 28% in 2004,
27% in 2005, and 25% in
2006; and 28% rate reduced
to 27% in 2002 and 2003, 26%
in 2004 and 2005, and 25% in
2006); repeal the AMT offset
to refundable tax credits.
3. Transfer to Social tyba 12/31/00 No Revenue Effect
Security and Medicare trust
funds.
----------------------------------------------------------------------------------
Net Total \2\.......... ............... -5.6 -49.1 -54.4 -70.8 -80.8 -103.1 -363.8
----------------------------------------------------------------------------------------------------------------
\1\ Loss of less than $50 million.
\2\ Includes the following effect on fiscal year outlays--2001: (\3\); 2002: 0.7; 2003: 0.7; 2004: 0.9; 2005:
1.0; 2006: 1.0; 2001-06: 4.2.
\3\ Less than $50 million.
Legend for ``Effective'' column: tyba = taxable years beginning after.
Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves new or increased budget authority (as detailed in
the statement by the Congressional Budget Office (``CBO''); see
Part IV.C., below). The Committee further states that the
revenue reducing income tax provisions do not involve increased
tax expenditures. (See amounts in table in Part IV.A., above.)
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, March 6, 2001.
Hon. Bill Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3, the Economic
Growth and Tax Relief Act of 2001.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Erin
Whitaker, who can be reached at 226-2720.
Sincerely,
Dan L. Crippen.
Enclosure.
H.R. 3--Economic Growth and Tax Relief Act of 2001
Summary: H.R. 3 would decrease personal income taxes and
increase direct spending by reducing statutory income tax rates
and altering the income brackets at which those rates apply. In
addition, the bill would reduce taxes and increase direct
spending by repealing certain elements of the alternative
minimum tax. The Joint Committee on Taxation (JCT) has
determined that these changes would reduce revenues by $5.6
billion in 2001, by $359.5 billion over the 2001-2006 period,
and by $947.4 billion over the 2001-2011 period. In addition,
JCT estimates that the bill would increase direct spending by
$4.3 billion over the 2001-2006 period and by $10.8 billion
over the 2001-2011 period. Because H.R. 3 would affect both
direct spending and receipts, pay-as-you-go procedures would
apply.
H.R. 3 would establish a new regular income tax bracket for
a portion of taxable income that is taxed at a rate of 15
percent under current law. In 2001, the new rate would be 12
percent, effective retroactive to the beginning of the year. By
2006, the rate applied to that bracket would be phased down to
a rate of 10 percent. H.R. 3 also would modify the bracket
subject to a rate of 15 percent under current law to begin at
the end of the new lowest income bracket and end at the same
income level as under current law. In addition, starting in
2002, the bill would consolidate the four remaining income
brackets (which bear rates of 28 percent, 31 percent, 36
percent, and 39.6 percent) into two income brackets. By 2006,
the two lower brackets would bear a rate of 25 percent; the
income level for the 25 percent bracket would begin at the
level at which the 28 percent bracket begins and end at the
level at which the 31 percent bracket ends under current law.
Also by 2006, the two higher brackets would bear a rate of 33
percent; the income level for the 33 percent bracket would
begin at the level at which the 36 percent bracket begins under
current law.
Under current law, individuals also must calculate their
income taxes under the alternative minimum tax (AMT), a
parallel system of taxation with its own set of income items,
exclusions, exemptions, and rates. The taxpayer, in effect,
pays the greater of the tax calculated under the AMT structure
and regular tax structure. The AMT reduces the amount of the
earned income credit and the amount of the child credit provided to
families with three or more children. H.R. 3 would repeal the
provisions that reduce the amount of these credits. That change reduces
the tax payments of individuals receiving those credits and increases
outlays to the extent that those credits are refundable.
H.R. 3 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would not affect the budgets of state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 3 is shown in the following table. All
estimates were provided by JCT.
----------------------------------------------------------------------------------------------------------------
By fiscal year in millions of dollars--
-----------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Estimated Revenues...................... -5,642 -48,431 -53,650 -69,898 -79,887 -101,977
CHANGES IN DIRECT SPENDING
Estimated Budget Authority.............. * 700 700 900 1,000 1,000
Estimated Outlays....................... * 700 700 900 1,000 1,000
----------------------------------------------------------------------------------------------------------------
*=Less than $500,000.
Source: Joint Committee on Taxation.
Most of the budgetary effects of H.R. 3 are to reduce
revenues. However, H.R. 3 also increases outlays by changing
the bracket amounts and reducing the rates of taxation. By
reducing the amount of taxes owed, these changes would result
in a larger portion of tax credits being refundable--and thus
recorded as outlays rather than reductions in revenues. H.R. 3
would also repeal the provision of current law that reduces
earned income and child credits by the amount of the
alternative minimum tax. This provision of H.R. 3 would also
increase tax credits, namely the earned income credit and the
child credit, that are refundable under the tax code and
counted as outlays in the budget.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up procedures for
legislation affecting receipts or direct spending. The net
changes in outlays and governmental receipts that are subject
to pay-as-you-go procedures are shown in the following table.
For the purposes of enforcing pay-as-you-go procedures, only
the effects in the current year, the budget year, and the
succeeding four years are counted.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts.......................... -5,642 -48,431 -53,650 -69,898 -79,887 -101,977 -112,076 -114,656 -117,473 -120,386 -123,369
Changes in outlays........................... * 700 700 900 1,000 1,000 1,300 1,300 1,300 1,300 1,300
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
*=Less than $500,000.
Intergovernmental and private-sector impact: H.R. 3
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Estimate prepared by: Federal Costs: Erin Whitaker. Impact
on State, Local, and Tribal Governments: Leo Lex. Impact on the
Private Sector: Paige Piper-Bach.
Estimate approved by: G. Thomas Woodward, Assistant
Director for Tax Analysis. Robert A. Sunshine, Assistant
Director for Budget Analysis.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was a result of the Committee's
oversight review concerning the tax burden on individual
taxpayers that the Committee concluded that it is appropriate
and timely to enact the revenue provisions included in the bill
as reported.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance and objectives for which any
measure authorizes funding is required.
C. Constitutional Authority Statement
With respect to clause 3(d)(1) of the rule XIII of the
Rules of House of Representatives (relating to Constitutional
Authority), the Committee states that the Committee's action in
reporting this bill is derived from Article I of the
Constitution, Section 8 (``The Congress shall have no Power To
lay and collect Taxes, Duties, Imposts and Excises * * *''),
and from the 16th Amendment to the Constitution.
D. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, and tribal
governments.
E. Applicability of House Rule XXI 5(b)
Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the provisions of the bill, and states that
the provisions of the bill do not involve any Federal income
tax rate increases within the meaning of the rule.
F. Tax Complexity Analysis
The following tax complexity analysis is provided pursuant
to section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998, which requires the staff of the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service (``IRS'') and the Treasury Department) to
provide a complexity analysis of tax legislation reported by
the House Committee on Ways and Means, the Senate Committee on
Finance, or a Conference Report containing tax provisions. The
complexity analysis is required to report on the complexity and
administrative issues raised by provisions that directly or
indirectly amend the Internal Revenue Code and that have
widespread applicability to individuals or small businesses.
For each such provision identified by the staff of the Joint
Committee on Taxation, a summary description of the provision
is provided along with an estimate of the number and type of
affected taxpayers, and a discussion regarding the relevant
complexity and administrative issues.
Following the analysis of the staff of the Joint Committee
on Taxation are the comments of the IRS and the Treasury
Department regarding each of the provisions included in the
complexity analysis, including a discussion of the likely
effect on IRS forms and any expected impact on the IRS.
1. Reduction in income tax rates for individuals (sec. 2 of the bill)
Summary description of provision
The bill creates a new low-rate regular income tax bracket
for a portion of the taxable income that is currently taxed at
15 percent. The bill reduces the other income tax rates and
consolidates rate brackets. By 2006, the present-law rate
structure of five regular income tax rates (15 percent, 28
percent, 31 percent, 36 percent, and 39.6 percent) are reduced
to four rates of 10 percent, 15 percent, 25 percent, and 33
percent.
Number of affected taxpayers
It is estimated that the provision will affect
approximately 100 million individual tax returns.
Discussion
It is not anticipated that individuals will need to keep
additional records due to this provision. It should not result
in an increase in disputes with the IRS, nor will regulatory
guidance be necessary to implement this provision. In addition,
the provision should not increase individual's tax preparation
costs.
The Secretary of the Treasury is expected to make
appropriate revisions to the wage withholding tables to reflect
the proposed rate reduction for calendar year 2001 as
expeditiously as possible. To implement the effects of the rate
cut for 2001, employers would be required to use a new (second)
set of withholding rate tables to determine the correct
withholding amounts for each employee. Switching to the new
withholding rate tables during the year can be expected to
result in a one-time additional burden for employers (or
additional costs for employers that rely on a bookkeeping or
payroll service).
2. Interactive effect of the alternative minimum tax rules
Because the bill makes no changes to the computation of the
tentative minimum tax or to the tax liability limitation on the
use of nonrefundable credits, additional individual taxpayers
will need to make the necessary calculations to determine the
applicability of the alternative minimum tax rules. It is
estimated that for the year 2002, more than two million
additional individual income tax returns that benefit from the
provision will be required to include a calculation of the
tentative minimum tax and file the appropriate alternative
minimum tax forms. By the year 2011, this number is expected to
rise to approximately 15 million additional individual income
tax returns. For these taxpayers, it could be expected that the
interaction of this bill with the alternative minimum tax rules
would result in an increase in tax preparation costs and in the
number of individuals using tax preparation services.
Department of the Treasury,
Internal Revenue Service,
Washington, DC, March 5, 2001.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washington, DC.
Dear Ms. Paull: Enclosed are the combined comments of the
Internal Revenue Service and the Treasury Department on the
provisions from the House Committee on Ways and Means markup of
the ``Economic Growth and Tax Relief Act of 2001'' that you
identified for complexity analysis in your letter of February
28, 2001. Our comments are based on the description of those
provisions in JCX-03-01, Joint Committee on Taxation,
Description of the Economic Growth and Tax Relief Act of 2001,
February 27, 2001.
Due to the short turnaround time, our comments are
provisional and subject to change upon a more complete and in-
depth analysis of the provisions.
Sincerely,
Charles O. Rossotti.
Enclosures.
Complexity Analysis of Economic Growth and Tax Relief Act of 2001
Provision
Create a new regular income tax bracket for a portion of
taxable income that is currently taxed at 15 percent. The new
bracket is phased in over 6 years beginning in 2001: (1) 12
percent in 2001 and 2002; (2) 11 percent in 2003, 2004, and
2005; and (3) 10 percent in 2006 and thereafter. The 15-percent
bracket would be modified to begin at the end of the new tax
bracket and end at the same level as under present law.
Reduce the present-law regular income tax rates of 28 and
31 percent to 25 percent and the 36 and 39.6 percent rates to
33 percent. The reduction is phased in over 5 years beginning
in 2002.
IRS and Treasury Comments
The new tax bracket and the reduced tax rates
would be incorporated into the tax table and the tax rate
schedules shown in the instructions for Forms 1040, 1040A,
1040EZ, 1040NR, 1040NR-EZ and 1041, and on Forms W-4V and 8814
for 2001 and later years. Other forms (e.g., Form 8752 and
Schedule D (Form 1040)) would also be affected. No new forms
would be required.
The new tax bracket and the reduced tax rates
would also be incorporated into the tax rate schedules shown on
Form 1040-ES for 2002 and later years. Subsequent to enactment,
the IRS would have to advise taxpayers who make estimated tax
payments for 2001 how they can adjust their estimated tax
payments for 2001 to reflect the reduced rates.
Programming changes would be required to reflect
the new tax bracket and rates for tax years 2001 through 2006.
Currently, the IRS tax computation programs are updated
annually to incorporate mandated inflation adjustments.
Programming changes necessitated by the provision would be
included during that process.
The alternative minimum tax (AMT) is projected to
apply to an increasing number of taxpayers over time. The
provision would increase the number of taxpayers, particularly
in the later years of the budget period (2006-2011), whose
liability is affected by the AMT, and would also cause
additional taxpayers to perform AMT calculations to determine
whether their liability is affected by the AMT.
Provision
Under present law, the Secretary of the Treasury is
authorized to prescribe appropriate withholding rate schedules
and computational procedures for the withholding of income
taxes from wages paid by employers. The Secretary would be
expected to make appropriate revisions to the wage withholding
tables to reflect the rate reduction for calendar year 2001 as
expeditiously as possible.
IRS and Treasury comments
Revised 2001 withholding rate schedules can be
developed within one week of enactment. The revised withholding
rate schedules and wage bracket tables can be released
immediately thereafter, including postage on the IRS' web site.
Printing and distributing physical copies of the
revised 2001 withholding rate schedules and tables (in a
revised Publication 15 or an abbreviated version thereof) will
take 5 to 6 weeks. Thus, most employers will not receive
physical copies of the revised 2001 withholding tables until 6
weeks after enactment.
Many employees and payroll agents will need to
make programming changes in order to implement the revised 2001
withholding rates. IRS staff have been advised that some
employees and payroll agents may not be able to implement the
withholding changes for up to 8 weeks. The additional, mid-year
change will represent an additional burden for employers and
payroll processors.
Withholding changes will be implemented so as to
minimize the burdens on taxpayers and the IRS research'
administrative burdens that arise when there is full-year
underwithholding for employees.
IRS will provide guidance to employees on how they
can adjust their withholding via Form W-4 changes in order to
minimize withholding mismatches caused by the 2001 changes. In
the past, IRS has included a notice to employees with the
revised withholding publication for employers (Publication 15)
and has asked employers to distribute that notice to their
employees. Completing the additional Forms W-4 represents an
additional burden for workers. Processing the additional Forms
W-4 and the included requests for withholding adjustments
represents an additional cost for employers.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--Determination of tax liability
* * * * * * *
PART I--TAX ON INDIVIDUALS
* * * * * * *
SEC. 1. TAX IMPOSED.
(a) * * *
* * * * * * *
(g) Certain Unearned Income of Minor Children Taxed as if
Parent's Income.--
(1) * * *
* * * * * * *
(7) Election to claim certain unearned income of
child on parent's return.--
(A) * * *
(B) Income included on parent's return.--In
the case of a parent making the election under
this paragraph--
(i) * * *
(ii) the tax imposed by this section
for such year with respect to such
parent shall be the amount equal to the
sum of--
(I) * * *
(II) for each such child, [15
percent] the first bracket
percentage of the lesser of the
amount described in paragraph
(4)(A)(ii)(I) or the excess of
the gross income of such child
over the amount so described,
and
* * * * * * *
For purposes of clause (ii), the first bracket
percentage is the percentage applicable to the
lowest income bracket in the table under
subsection (c).
(h) Maximum Capital Gains Rate.--
(1) In general.--If a taxpayer has a net capital gain
for any taxable year, the tax imposed by this section
for such taxable year shall not exceed the sum of--
(A) a tax computed at the rates and in the
same manner as if this subsection had not been
enacted on the greater of--
(i) * * *
(ii) the lesser of--
(I) the amount of taxable
income taxed at a rate below
[28 percent] 25 percent; or
* * * * * * *
(B) 10 percent of so much of the adjusted net
capital gain (or, if less, taxable income) as
does not exceed the excess (if any) of--
(i) the amount of taxable income
which would (without regard to this
paragraph) be taxed at a rate below [28
percent] 25 percent, over
* * * * * * *
[(13) Special rules.--
[(A) Determination of 28-percent rate gain.--
In applying paragraph (5)--
[(i) the amount determined under
subparagraph (A) of paragraph (5) shall
include long-term capital gain (not
otherwise described in such
subparagraph)--
[(I) which is properly taken
into account for the portion of
the taxable year before May 7,
1997; or
[(II) from property held not
more than 18 months which is
properly taken into account for
the portion of the taxable year
after July 28, 1997, and before
January 1, 1998;
[(ii) the amount determined under
subparagraph (B) of paragraph (5) shall
include long-term capital loss (not
otherwise described in such
subparagraph)--
[(I) which is properly taken
into account for the portion of
the taxable year before May 7,
1997; or
[(II) from property held not
more than 18 months which is
properly taken into account for
the portion of the taxable year
after July 28, 1997, and before
January 1, 1998; and
[(iii) subparagraph (B) of paragraph
(5) (as in effect immediately before
the enactment of this clause) shall
apply to amounts properly taken into
account before January 1, 1998.
[(B) Determination of unrecaptured section
1250 gain.--The amount determined under
paragraph (7)(A)(i) shall not include gain--
[(i) which is properly taken into
account for the portion of the taxable
year before May 7, 1997; or
[(ii) from property held not more
than 18 months which is properly taken
into account for the portion of the
taxable year after July 28, 1997, and
before January 1, 1998.
[(C) Special rules for pass-thru entities.--
In applying this paragraph with respect to any
pass-thru entity, the determination of when
gains and loss are properly taken into account
shall be made at the entity level.
[(D) Charitable remainder trusts.--
Subparagraphs (A) and (B)(ii) shall not apply
to any capital gain distribution made by a
trust described in section 664.]
(i) Rate Reductions After 2000.--
(1) New lowest rate bracket.--
(A) In general.--In the case of taxable years
beginning after December 31, 2000--
(i) the rate of tax under subsections
(a), (b), (c), and (d) on taxable
income not over the initial bracket
amount shall be 12 percent (as modified
by paragraph (2)), and
(ii) the 15 percent rate of tax shall
apply only to taxable income over the
initial bracket amount.
(B) Initial bracket amount.--For purposes of
this subsection, the initial bracket amount
is--
(i) $12,000 in the case of subsection
(a),
(ii) $10,000 in the case of
subsection (b), and
(iii) \1/2\ the amount applicable
under clause (i) in the case of
subsections (c) and (d).
(C) Inflation adjustment.--In prescribing the
tables under subsection (f) which apply with
respect to taxable years beginning in calendar
years after 2001--
(i) the Secretary shall make no
adjustment to the initial bracket
amount for any taxable year beginning
before January 1, 2007,
(ii) the cost-of-living adjustment
used in making adjustments to the
initial bracket amount for any taxable
year beginning after December 31, 2006,
shall be determined under subsection
(f)(3) by substituting ``2005'' for
``1992'' in subparagraph (B) thereof,
and
(iii) such adjustment shall not apply
to the amount referred to in
subparagraph (B)(iii).
If any amount after adjustment under the
preceding sentence is not a multiple of $50,
such amount shall be rounded to the next lowest
multiple of $50.
(2) Reductions in rates after 2001.--In the case of
taxable years beginning in a calendar year after 2001,
the corresponding percentage specified for such
calendar year in the following table shall be
substituted for the otherwise applicable tax rate in
the tables under subsections (a), (b), (c), (d), and,
to the extent applicable, (e).
----------------------------------------------------------------------------------------------------------------
The corresponding percentages shall be
In the case of taxable years substituted for the following percentages:
beginning during calendar year: --------------------------------------------
12% 28% 31% 36% 39.6%
----------------------------------------------------------------------------------------------------------------
2002.............................. 12% 27% 30% 35% 38%
2003.............................. 11% 27% 29% 35% 37%
2004.............................. 11% 26% 28% 34% 36%
2005.............................. 11% 26% 27% 34% 35%
2006 and thereafter............... 10% 25% 25% 33% 33%
----------------------------------------------------------------------------------------------------------------
(3) Adjustment of tables.--The Secretary shall adjust
the tables prescribed under subsection (f) to carry out
this subsection.
* * * * * * *
PART III--CHANGES IN RATES DURING A TAXABLE YEAR
* * * * * * *
SEC. 15. EFFECT OF CHANGES.
(a) * * *
* * * * * * *
(f) Rate Reductions Enacted by Economic Growth and Tax Relief
Act of 2001.--This section shall not apply to any change in
rates under subsection (i) of section 1 (relating to rate
reductions after 2000).
* * * * * * *
PART IV--CREDITS AGAINST TAX
* * * * * * *
Subpart A--Nonrefundable personal credits
* * * * * * *
SEC. 24. CHILD TAX CREDIT.
(a) * * *
* * * * * * *
(d) Additional Credit for Families with 3 or More Children.--
(1) * * *
[(2) Reduction of credit to taxpayer subject to
alternative minimum tax.--For taxable years beginning
after December 31, 2001, the credit determined under
this subsection for the taxable year shall be reduced
by the excess (if any) of--
[(A) the amount of tax imposed by section 55
(relating to alternative minimum tax) with
respect to such taxpayer for such taxable year,
over
[(B) the amount of the reduction under
section 32(h) with respect to such taxpayer for
such taxable year.]
[(3)] (2) Social security taxes.--For purposes of
paragraph (1)--
(A) * * *
* * * * * * *
Subpart C--Refundable credits
* * * * * * *
SEC. 32. EARNED INCOME.
(a) * * *
* * * * * * *
[(h) Reduction of Credit to Taxpayers Subject to Alternative
Minimum Tax.--The credit allowed under this section for the
taxable year shall be reduced by the amount of tax imposed by
section 55 (relating to alternative minimum tax) with respect
to such taxpayer for such taxable year.]
* * * * * * *
Subchapter G--Corporations used to avoid income tax on shareholders
* * * * * * *
PART I--CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
* * * * * * *
SEC. 531. IMPOSITION OF ACCUMULATED EARNINGS TAX.
In addition to other taxes imposed by this chapter, there is
hereby imposed for each taxable year on the accumulated taxable
income (as defined in section 535) of each corporation
described in section 532, an accumulated earnings tax [equal to
39.6 percent of the accumulated taxable income.] equal to the
product of the highest rate of tax under section 1(c) and the
accumulated taxable income.
* * * * * * *
PART II--PERSONAL HOLDING COMPANIES
* * * * * * *
SEC. 541. IMPOSITION OF PERSONAL HOLDING COMPANY TAX.
In addition to other taxes imposed by this chapter, there is
hereby imposed for each taxable year on the undistributed
personal holding company income (as defined in section 545) of
every personal holding company (as defined in section 542) a
personal holding company tax [equal to 39.6 percent of the
undistributed personal holding company income.] equal to the
product of the highest rate of tax under section 1(c) and the
undistributed personal holding company income.
* * * * * * *
Subtitle C--Employment Taxes
* * * * * * *
CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES
* * * * * * *
SEC. 3402. INCOME TAX COLLECTED AT SOURCE.
(a) * * *
* * * * * * *
(p) Voluntary Withholding Agreements.--
(1) Certain Federal payments.--
(A) * * *
(B) Amount withheld.--The amount to be
deducted and withheld under this chapter from
any payment to which any request under
subparagraph (A) applies shall be an amount
equal to the percentage of such payment
specified in such request. Such a request shall
apply to any payment only if the percentage
specified is [7, 15, 28, or 31 percent] 7
percent, any percentage applicable to any of
the 3 lowest income brackets in the table under
section 1(c), or such other percentage as is
permitted under regulations prescribed by the
Secretary.
(2) Voluntary withholding on unemployment benefits.--
If, at the time a payment of unemployment compensation
(as defined in section 85(b)) is made to any person, a
request by such person is in effect that such payment
be subject to withholding under this chapter, then for
purposes of this chapter and so much of subtitle F as
relates to this chapter, such payment shall be treated
as if it were a payment of wages by an employer to an
employee. The amount to be deducted and withheld under
this chapter from any payment to which any request
under this paragraph applies shall be an amount [equal
to 15 percent of such payment] equal to the product of
the lowest rate of tax under section 1(c) and such
payment.
* * * * * * *
(q) Extension of Withholding to Certain Gambling Winnings.--
(1) General rule.--Every person, including the
Government of the United States, a State, or a
political subdivision thereof, or any instrumentalities
of the foregoing, making any payment of winnings which
are subject to withholding shall deduct and withhold
from such payment a tax in an amount [equal to 28
percent of such payment] equal to the product of the
third to the lowest rate of tax under section 1(c) and
such payment.
* * * * * * *
(r) Extension of Withholding to Certain Taxable Payments of
Indian Casino Profits.--
(1) * * *
* * * * * * *
(3) Annualized tax.--For purposes of paragraph (1),
the term ``annualized tax'' means, with respect to any
payment, the amount of tax which would be imposed by
section 1(c) (determined without regard to any rate of
tax in excess of [31 percent] the third to the lowest
rate of tax under section 1(c)) on an amount of taxable
income equal to the excess of--
(A) * * *
* * * * * * *
SEC. 3406. BACKUP WITHHOLDING.
(a) Requirement to Deduct and Withhold.--
(1) In general.--In the case of any reportable
payment, if--
(A) the payee fails to furnish his TIN to the
payor in the manner required,
(B) the Secretary notifies the payor that the
TIN furnished by the payee is incorrect,
(C) there has been a notified payee
underreporting described in subsection (c), or
(D) there has been a payee certification
failure described in subsection (d),
then the payor shall deduct and withhold from such
payment a tax [equal to 31 percent of such payment]
equal to the product of the third to the lowest rate of
tax under section 1(c) and such payment.
* * * * * * *
----------
SECTION 13273 OF THE REVENUE RECONCILIATION ACT OF 1993
SEC. 13273. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE PAYMENTS.
If an employer elects under Treasury Regulation 31.3402 (g)-1
to determine the amount to be deducted and withheld from any
supplemental wage payment by using a flat percentage rate, the
rate to be used in determining the amount to be so deducted and
withheld shall not be less than [28 percent] the third to the
lowest rate of tax under section 1(c) of the Internal Revenue
Code of 1986. The preceding sentence shall apply to payments
made after December 31, 1993.
VII. DISSENTING VIEWS
The Democratic Members of the Committee on Ways and Means
support meaningful tax reductions so long as the tax reductions
are fiscally responsible, fair, and honest. We support an
overall budget framework first, then a tax reduction plan that
meets those standards. The bill reported by the Committee does
not meet those standards and we can not support it.
fiscal responsibility
The last eight years were a period of unprecedented
economic growth. That growth in part was made possible by the
deficit reduction efforts of the last 10 years which resulted
in lower interest rates, increased investment and greater
productivity growth. Those deficit reduction efforts began
when, in 1990, President George Bush recognized that the
deficits resulting from the 1981 tax legislation were damaging
our economy. His 1990 budget agreement was the first step to
reverse those deficits. The 1993 Budget Act was the vital next
step on the road to the surpluses that we now enjoy. Both of
those measures were opposed overwhelmingly by the Republican
Members of the House.
Now the House Republican Leadership is threatening to
return this country to deficits by rushing through large tax
reductions based on uncertain budget projections. An article in
the Washington Post on March 1, 2001, laid out the current
Republican strategy. In 1995, the Republican Congress attempted
to enact large tax reductions at the same time as it proposed
the spending reductions necessary to fund those tax reductions.
The American people rejected the strategy of funding tax
reductions through cuts in Medicare and other popular programs.
Because that strategy failed, the Republicans now are following
a strategy of enacting the tax reductions first, saving for
later the unhappy news of spending reductions and lack of funds
for prescription drug benefits for older Americans, education
spending, farm programs, defense and other bipartisan
priorities. We saw that strategy succeed politically in 1981,
when the Congress enacted large tax reductions based on
promised, but unspecified, spending reductions. The success of
that strategy in 1981 led to unprecedented budget deficits with
high interest rates and sluggish growth. We fear that we are
about to repeat that experience.
The Republican tax cut plans are based on optimistic budget
projections that may never be realized. Budget projections are
inherently uncertain because they are an attempt to predict the
future. Even small errors in those projections will create
dramatic changes in projected surpluses. If long-term economic
growth is one-tenth of one percent lower than currently
projected, $245 billion of projected surpluses will immediately
disappear. Cutting taxes is easy. Once the Congress has agreed
upon a budget framework, we should enact sensible tax
reductions this year. If the projections remain favorable in
the future, it will be very easy for the Congress to enact
further tax reductions. If the projections prove to be
optimistic and deficits reappear, our ability to meet our
commitments to the Medicare and Social Security system will not
be threatened if we have not been hasty and excessive in our
actions.
The Republicans are now following the strategy of enacting
President Bush's tax proposals on a piecemeal basis because the
sum of the promised tax reductions are far greater than his
$1.6 trillion target. The Committee bill includes only the
marginal income tax rate reductions proposed by the President.
This part of the President's overall tax proposal would cost
almost $1 trillion over the next years even before extra debt
service costs are added in, leaving little room for a long list
of other tax reductions proposed by the President or supported
in the Congress. The list includes--
$300 billion for phasing out the estate tax
proposed by President Bush.
$200 billion for the child credit expansion
proposed by President Bush.
$300 billion of marriage penalty relief
passed by the Congress last year.
$55 billion for repeal of the telephone
excise tax passed by the Congress last year.
$125 billion for pension legislation.
$300-$500 billion for structural reform of
the Alternative Minimum Tax, as promised by the
Chairman of the Committee.
In addition to revenue costs of specific proposals, less in
Federal debt payment would add billions more in debt service
costs.
fairness
The bill reported by the Committee is unfair. It is the
first installment of President Bush's campaign tax reduction
proposals. It is estimated that 43% of the total benefits of
his plan will be provided to the wealthiest 1% of our society.
The upper income groups in recent years have enjoyed greater
income growth than any other segment of our society. There is
no reason why they should be further rewarded with a
disproportionate share of tax relief.
Secretary of the Treasury Paul O'Neil has disputed the fact
that 43% of the Bush tax reductions will go the wealthiest 1%
of our society. However, he has refused to provide his own
distributional analysis of those tax reduction plans. In the
past, the Treasury Department has done distributional analysis
of tax legislation based on the fully phased-in impact of the
legislation and has included distribution of estate and
corporate tax reductions. A distributional analysis of
President Bush's plan using that methodology would probably be
very unfavorable.
Secretary O'Neill has the resources to prove the critics
wrong. Failure to provide a Treasury distributional analysis
using its traditional methodology suggests that the critics are
correct.
honesty
The big print of the bill reported by the Committee
Republicans promises far larger tax reductions than will be
delivered to taxpayers after the application of the fine print
of the Alternative Minimum Tax. According to an analysis done
by the Joint Committee on Taxation, in the big print the
Committee bill promised $1.25 trillion in tax reductions over
the next 10 years. However the fine print of the minimum tax
will deny $300 billion of that promised relief.
According to the Joint Committee, under present law 3.5
million individual taxpayers will be affected by the minimum
tax in 2002 and 20.7 million individual taxpayers will be
affected by the minimum tax in the year 2011. Substantially all
of those taxpayers will receive no tax relief from the
Committee bill. President Bush and the Republican Leadership
have advertised their tax reduction plans as benefiting all
individual taxpayers. In testimony during the Committee markup
of the legislation, the Chief of Staff of the Joint Committee
made it clear that the advertising is false.
In addition, millions of other individuals will receive
some, but not all, of the promised benefits. The total number
of individuals who either will receive nothing or less than the
total promised benefits will be 5.3 million in 2001 reaching
35.7 million by 2011.
Many people assume that only individuals with tax
preferences are affected by the minimum tax. That assumption is
erroneous. The minimum tax does not allow the deduction for
State and local income and property taxes and it does not
permit families to claim personal exemptions, including those
for children. The disallowance of those two benefits accounts
for approximately 80% of all minimum tax liability. Taxpayers
with children and taxpayers residing in States with incomes
taxes, like California, New York, and Massachusetts, are the
ones most likely to suffer because of the decision to use the
alternative minimum tax to mask the true cost of the Committee
bill. It is surprising that the Chairman of the Committee would
design and defend legislation when the residents of his own
State would be among those most likely not to receive the
promised benefits.
For millions of Americans, the Committee bill effectively
repeals the deduction for State and local taxes and for
personal exemptions. The Reagan/Bush Administration proposed
repeal of the deduction for State and local taxes as part of
its 1985 tax reform plans. That proposal was met with
overwhelming opposition in the Congress. When people understand
the implications of the Committee bill, it is reasonable to
expect President Bush's proposal for indirect repeal of the
deduction for State and local taxes and the deduction for
personal exemptions will be faced with the same overwhelming
opposition that defeated the Reagan/Bush proposal.
The Republicans are not even honest about the rationale for
their tax reduction plans. Last year, when economic growth was
strong, the plan was promoted as a way to return the surpluses
created by that economic growth. Now, that the economy is
slowing, the same plan is being promoted for the opposite
reason. The plan has hardly changed. The Committee bill, which
is being advertised as a necessary fiscal stimulus, will only
provide $5.6 billion to taxpayers before October 1. No
reasonable economist would dare suggest that a stimulus of such
a size would have any affect on an economy like ours, which
exceeds $10.3 trillion.
The Republicans use discredited supply-side theories to
claim that their tax reductions will benefit the economy. They
fail to mention that their optimistic projections of the
economic benefits of the Reagan/Bush 1981 tax reduction plan
failed to materialize. They also fail to mention that their
predictions that President Clinton's 1993 Budget Act would
create a recession were extraordinarily inaccurate. They have
been wrong consistently in the past, and there is little reason
to bet the economic future of this country on the chance that
they might be right this time.
democratic alternative
The Congressional Democrats have united in support of a
plan providing dramatic tax relief for Americans, including
working families with payroll tax liabilities but not income
tax liabilities. The plan would substantially eliminate the
marriage penalty for most couples and it would immediately
eliminate the estate tax for all of the wealthiest of
Americans. The substitute offered in the Committee did not
include estate tax relief for parliamentary reasons.
The Democratic plan provides substantial, effective,
fiscally responsible, and fair tax relief. As such, it provides
more immediate benefits for working Americans than the larger,
riskier Bush proposal.
Substantial.
(1) The Democratic proposal provides a new, lower 12% tax
rate on a couple's first $20,000 of taxable income ($10,000 on
a single return). This would provide a maximum tax cut of $600
annually for couples and $300 for single taxpayers. Couples who
use the standard deduction also would receive ``marriage
penalty'' relief of $225, yielding a total maximum tax cut of
$825.
(2) The proposal also provides a refund for lower-income
working families worth as much as $320 annually for a couple
with two children. Marriage penalty relief would total $528 for
this family, yielding a maximum tax cut of $848.
(3) Finally, under the plan over two-thirds of all
currently taxable estates would no longer owe any Federal
estate tax. (While under current law only 2% of estates are
taxed, under the Democratic proposal only .6% of all estates
would be taxed.)
Effective. The income tax provisions of the
Democratic plan begin immediately and are fully effective on
January 1, 2003. Unlike the Bush plan, there is no lengthy,
five-year phase in, with the full promised relief not being
provided until 2006. Alsobeginning January 1, 2002, the
Democratic plan provides that estates below $4 million for a married
couple would be exempt from federal tax. This exemption amount will
increase to $5 million over time. Additionally, in contrast to the Bush
proposal, none of the reductions provided in the Democratic proposal
would be reduced by the Alternative Minimum Tax.
Fiscally Responsible. The Democratic plan uses one
third of the projected budget surpluses for tax cuts, after the
Social Security and Medicare trust funds have been protected.
This prudent tax cut will allow other urgent national short-
and long-term needs to be addressed in a manner which does not
risk pushing our country back into deficits, if budget
projections prove to be inaccurate.
Fair. The Democratic plan focuses its relief on
working couples and families with children by providing an
average tax cut over $500. For upper income couples who itemize
deductions, the tax cut is limited to $600--a fair share of
this tax relief. The top 1% (i.e. those making over about
$319,000 per year) will not receive a disproportionate share of
the cut under this plan, as opposed to the 43% of benefits they
would get under the Bush plan.
Honesty. In contrast to the Bush proposal, none of
the tax reductions promised by the Democratic plan would be
denied through technicalities such as the alternative minimum
tax.
We are hopeful that the Republican Leadership will abandon
its strategy of enacting excessive tax reductions on a partisan
basis before locking in place a long-term budget plan. If it
abandons that strategy, we would be enthusiastic about working
together to enact tax reductions. Working together on a
bipartisan basis is the only way we can quickly enact tax
relief.
Charles B. Rangel.
Robert T. Matsui.
Ben Cardin.
Jim Turner.
Jerry Kleczka.
William J. Jefferson.
Lloyd Doggett.
Xavier Becerra.
Michael R. McNulty.
Pete Stark.
William J. Coyne.
John Lewis.
Sander M. Levin.
Karen L. Thurman.
Richard E. Neal.
Earl Pomeroy.
Jim McDermott.