A bill (H.R. 6) based on some of the President’s tax proposals was approved, 23-16, by the House Ways and Means Committee on March 22. Floor debate on the measure, which the committee approved on a party-line vote, is expected on March 29.
Sponsored by Chair Bill Thomas (R-CA), the bill is designed to address the marriage tax penalty and to expand the dependent child tax credit. However, the bill’s approaches vary from the President’s recommendations in several respects.
Marriage Tax Penalty
Due to a glitch in current tax law, some married couples filing joint returns pay more in income taxes than they would have been required to pay as individuals. H.R. 6 would address the discrepancy by increasing the standard income tax deduction for married couples filing jointly, making it equal to twice the standard deduction for single filers. Starting in tax year 2002, the standard deduction for married taxpayers would be $8,800, in comparison with the $7,600 deduction allowed under current law.
The bill also would phase-in an expansion of the lowest tax bracket—the 15 percent bracket—for married filers. Between tax years 2004 and 2009, the threshold for married couples would increase to double the corresponding threshold for single filers. Currently, single filers are taxed 15 percent on the first $27,050 of taxable income, while joint filers are taxed 15 percent on the first $45,000. The thresholds for single filers in each of the succeeding brackets—28 percent, 31 percent, 36 percent, and 39.6 percent—are approximately 60 percent of the rate at which the thresholds are calculated for joint filers.
The President’s proposal for marriage tax penalty relief would provide an additional tax deduction for two-earner couples filing jointly. Rep. Thomas expressed a preference for his bill’s approach, noting that legislation with similar provisions (H.R. 4810) received congressional approval during the 106th Congress. That measure was vetoed by President Clinton (see The Source, 8/6/99, p.1; 9/15/00, p.1).
In addition, H.R. 6 would address an aspect of the alternative minimum tax (AMT). Originally included in the tax code as a device to prevent wealthy taxpayers from paying little or no tax, the AMT now affects many middle-income taxpayers eligible for refundable tax credits. Under current law, joint filers with three or more dependents who are eligible for the earned income tax credit (EITC) are allowed to collect as a refund the difference between their total payroll taxes and their EITC deduction. H.R. 6 would extend that provision to include parents of one or two children. The President’s plan does not contain any AMT-related proposals.
The estimated reduction in federal revenue from the bill’s marriage tax penalty provisions is $230 billion over ten years, in contrast to the $112 billion estimate for the President’s approach.
Dependent Child Tax Credit
H.R. 6 would increase the current $500-per-child credit to $1,000 by tax year 2006, starting with tax year 2002. The President’s plan would phase-in the increase more slowly than Rep. Thomas’ bill, but the cost estimate for both is approximately $170 billion over ten years.
The House on March 7 approved legislation (H.R. 3) to reduce federal taxes, which also was meant to reflect one of the President’s proposals (see The Source, 3/9/01, p.1). The estimated reduction in federal revenues from H.R. 3 and H.R. 6 combined is $1.35 trillion.
During the mark-up, committee Democrats stated that the President has called for other tax changes, including elimination of the estate tax, with a total reduction in federal revenues of $1.6 trillion. Ranking Democrat Charles Rangel (D-NY) said, “Since we are already close to $1.4 trillion, it is a mystery how we are supposed to fit all of this tax relief into the $1.6 trillion.” Other Democratic members of the committee repeated calls for completion of a budget resolution before consideration of tax relief proposals (see related story, p. 3).
A Democratic substitute amendment, which would have doubled the standard deduction for married filers and expanded the EITC, was defeated, 13-26.