(b) ESOP dividends may be reinvested without loss of di- 280 282 282 (d) Employees of tax-exempt entities (sec. 604 of the House 283 (f) Reporting simplification (sec. 606 of the House bill and (g) Improvement to Employee Plans Compliance Resolution (h) Repeal of the multiple use test (sec. 608 of the House (i) Flexibility in nondiscrimination, coverage, and line of (j) Extension to all governmental plans of moratorium on 284 286 287 289 290 (k) Notice and consent period regarding distributions (sec. 291 (1) Annual report dissemination (sec. 612 of the House bill 292 (m) Modifications to the SAVER Act (sec. 613 of the House 292 6. Other ERISA provisions 294 (a) Extension of PBGC missing participants program (sec. 294 (b) Reduce PBGC premiums for small and new plans (secs. 295 (c) Authorization for PBGC to pay interest on premium over- 7. Miscellaneous provisions 301 (a) Tax treatment of electing Alaska Native Settlement Trusts (section 691 of the Senate amendment and new sections 646 and 6039H of the Code, modifying Code sections including 1(e), 301, 641, 651, 661, and 6034A)............ 301 8. Provisions relating to plan amendments (sec. 801 of the House bill)...... 305 VII. Alternative Minimum Tax A. Individual Alternative Minimum Tax Relief (sec. 3(c) of H.R. VIII. Other Provisions A. Modification to Corporate Estimated Tax Requirements (secs. 306 306 307 307 B. Authority to Postpone Certain Tax-Related Deadlines by Reason C. Income Tax Treatment of Certain Restitution Payments to Holo- ...... 308 309 310 E. Circuit Breaker (sec. 805 of the Senate amendment) F. Acceleration of Health Insurance Deduction for Self-Employed G. Enhanced Deduction for Charitable Contribution of Literary, H. Estate Tax Recapture from Cash Rents to Specially-Valued 311 312 313 315 I. Extension of Research and Experimentation Tax Credit and New 318 318 L. Modify Rules Governing Tax-Exempt Bonds for Certain Private 319 M. Combined Employment Tax Reporting (sec. 816 of the Senate 320 N. Reporting Requirements of State and Local Political Organiza- 321 IX. Compliance with Congressional Budget Act (secs. 111, 211, 311, 451, 581, 695, 711, and 821 of the Senate amendment) 325 X. Tax Complexity Analysis ........ 326 333 Estimated Budget Effects of the Conference Agreement for H.R. 1836 I. MARGINAL TAX RATE REDUCTION A. INDIVIDUAL INCOME TAX RATE STRUCTURE (SECS. 2 AND 3 OF THE HOUSE BILL, SEC. 101 OF THE SENATE AMENDMENT AND SEC. 1 OF THE CODE) PRESENT LAW Under the Federal individual income tax system, an individual who is a citizen or a 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. This tax liability is then 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 $0 $36,250 $93,650 $151,650 Over $297,350 $0 $45,200 $109,250 $166,500 Over $297,350 Single individuals $27,050 15% of taxable income $65,550 $4,057.50, plus 28% of the amount over $27,050 Heads of households $36,250 15% of taxable income $93,650 $5,437.50, plus 28% of the amount over $36,250 $45,200 15% of taxable income $109,250 $6,780.00, plus 28% of the amount over $45,200 $166,500 $24,714.50, plus 31% of the amount over $109,250 $297,350 $42,461.50, plus 36% of the amount over $166,500 HOUSE BILL In general The House 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 the 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 four rates of 10 percent, 15 percent, 25 percent, and 33 percent. 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 2, 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. 1The 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 15percent regular income tax bracket ends at the same level as under present law. H.R. 6 also makes other changes to the 15-percent rate bracket.1 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 3, below, shows the schedule of proposed regular income tax rate reductions. Projected regular income tax rate schedules under the proposal Table 4, 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. 1 See discussion of the marriage penalty relief in the 15-percent bracket. TABLE 4.-INDIVIDUAL REGULAR INCOME TAX RATES FOR 2006 (PROJECTED) 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 The House bill provides that 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 House 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. In general SENATE AMENDMENT The Senate amendment creates a new 10-percent regular income tax bracket for a portion of taxable income that is currently taxed at 15 percent, effective for taxable years beginning after December 31, 2000. The Senate amendment also reduces other regular income tax rates. By 2007, the present-law individual income tax rates of 28 percent, 31 percent, 36 percent and 39.6 percent will be lowered to 25 percent, 28 percent, 33 percent, and 36 percent, respectively. New low-rate bracket The Senate amendment establishes a new 10-percent 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 10-percent rate bracket will be adjusted |