INTRODUCTION

This document,' prepared by the staff of the Joint Committee on Taxation, contains a summary of the provisions contained in the conference agreement for H.R. 1836, the Economic Growth and Tax Relief Reconciliation Act of 2001, as approved by the conference committee on May 25, 2001.

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This document may be cited as follows: Joint Committee on Taxation, Summary of Provisions Contained in the Conference Agreement for H.R. 1836, the Economic Growth and Tax Relief Reconciliation Act of 2001, JCX-50-01 (May 26, 2001).

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I. MARGINAL TAX RATE REDUCTIONS

A. Individual Income Tax Rate Structure

New 10-percent rate bracket

The conference agreement 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 10-percent rate bracket applies to the first $6,000 of taxable income for single individuals ($7,000 for 2008 and thereafter), $10,000 of taxable income for heads of households, and $12,000 for married couples filing joint returns ($14,000 for 2008 and thereafter).

Reduction in individual income tax rates

The conference agreement also reduces the other regular income tax rates, effective July 1, 2001. The present-law regular income tax rates of 28 percent, 31 percent, 36 percent, and 39.6 percent are phased-down over six years to 25 percent, 28 percent, 33 percent, and 35 percent, effective after June 30, 2001.

Table 1, below, shows the schedule of regular income tax rate reductions.

The conference agreement includes a rate reduction credit for 2001 to deliver the benefit of the new 10-percent income tax rate bracket during calendar year 2001. Under the conference agreement, taxpayers would be entitled to a credit in tax year 2001 of 5 percent (the difference between the 15-percent rate and the 10-percent rate) of the amount of income that would otherwise be eligible for the new 10-percent rate. Thus, the maximum credit will be $300 in the case of a single individual, $500 in the case of a head of household, and $600 in the case of a married couple filing a joint return. This credit is in lieu of the 10 percent rate bracket for 2001.

Most taxpayers will receive this credit in the form of a check issued by the Department of the Treasury. It is anticipated that the Department of the Treasury will make every effort to issue all checks before October 1, 2001, to taxpayers who timely filed their 2000 tax returns. Taxpayers who filed late or pursuant to extensions will receive their checks later in the fall.

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B. Phase-Out of Itemized Deductions

The conference agreement eliminates the overall limitation on itemized

deductions for all taxpayers. The otherwise applicable overall limitation on itemized deductions is reduced by one-third in taxable years beginning in 2006 and 2007, and by two-thirds in taxable years beginning in 2008 and 2009. The overall limitation is eliminated for taxable years beginning after December 31, 2009.

C. Phase-Out of Restrictions on Personal Exemptions

The conference agreement phases out the restrictions on personal exemptions. Under the conference agreement, the otherwise applicable personal exemption phase-out is reduced by one-third in taxable years beginning in 2006 and 2007, and is reduced by two-thirds in taxable years beginning in 2008 and 2009. The provision is fully effective for taxable years beginning after December 31, 2009.

II. TAX BENEFITS RELATING TO CHILDREN

A. Increase and Expand the Child Tax Credit

The conference agreement increases the child tax credit to $1,000, phased-in over ten years, effective for taxable years beginning after December 31, 2000.

Table 2, below, shows the increase of the child tax credit.

The conference agreement makes the child credit refundable to the extent of 10 percent of the taxpayer's earned income in excess of $10,000 for calendar years 20012004. The percentage is increased to 15 percent for calendar years 2005 and thereafter. The $10,000 amount is indexed for inflation beginning in 2002. Families with three or more children are allowed a refundable credit for the amount by which the taxpayer's social security taxes exceed the taxpayer's earned income credit (the present-law rule), if that amount is greater than the refundable credit based on the taxpayer's earned income in excess of $10,000. The conference agreement provides that the refundable portion of the child credit does not constitute income and shall not be treated as resources for purposes of determining eligibility or the amount or nature of benefits or assistance under any Federal program or any State or local program financed with Federal funds.

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The conference agreement provides that the refundable child tax credit will no longer be reduced by the amount of the alternative minimum tax. In addition, the conference agreement allows the child tax credit to the extent of the full amount of the individual's regular income tax and alternative minimum tax.

The provision generally is effective for taxable years beginning after December 31, 2000. The provision relating to allowing the child tax credit against alternative minimum tax is effective for taxable years beginning after December 31, 2001.

B. Extension and Expansion of Adoption Tax Benefits

The conference agreement permanently extends the adoption credit for children other than special needs children. The maximum credit is increased to $10,000 per eligible child, including special needs children. A $10,000 credit is provided in the year a special needs adoption is finalized regardless of whether the taxpayer has qualified adoption expenses. The beginning point of the income phase-out range is increased to $150,000 of modified adjusted gross income. Finally, the adoption credit is allowed against the alternative minimum tax permanently.

The conference agreement permanently extends the exclusion from income for employer-provided adoption assistance. The maximum exclusion is increased to $10,000 per eligible child, including special needs children. In the case of a special needs adoption, the exclusion is provided regardless of whether the taxpayer has qualified adoption expenses. The beginning point of the income phase-out range is increased to $150,000 of modified adjusted gross income. The conference agreement generally is effective for taxable years beginning after December 31, 2001. The provisions that extend the tax credit and exclusion from income for special needs adoptions regardless of whether the taxpayer has qualified adoption expenses are effective for taxable years beginning after December 31, 2002.

C. Expansion of Dependent Care Tax Credit

The conference agreement increases the maximum amount of eligible employment-related expenses from $2,400 to $3,000, if there is one qualifying individual (from $4,800 to $6,000, if there are two or more qualifying individuals) and increases the maximum credit from 30 percent to 35 percent. The conference agreement modifies the phase-down of the credit so that it begins at $15,000 of adjusted gross income. The provision is effective for taxable years beginning after December 31, 2001.

D. Tax Credit for Employer-Provided Child Care Facilities

Under the Senate amendment, taxpayers receive a tax credit equal to 25 percent of qualified expenses for employee child care and 10 percent of qualified expenses for child care resource and referral services. The maximum total credit that may be claimed by a taxpayer cannot exceed $150,000 per taxable year. The provision is effective for taxable years beginning after December 31, 2001.

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III. MARRIAGE PENALTY RELIEF PROVISIONS

A. Standard Deduction Marriage Penalty Relief

The conference agreement increases the basic standard deduction for a married couple filing a joint return to twice the basic standard deduction for an unmarried individual filing a single return. This increase is phased-in over five years beginning in 2005 and would be fully phased-in for 2009 and thereafter. Table 3, below, shows the standard deduction for married couples filing a joint return as a percentage of the standard deduction for single individuals during the phase-in period.

Table 3.--Phase-In of Increase of Standard Deduction
for Married Couples Filing Joint Returns

B. Expansion of the 15-Percent Rate Bracket For

Married Couples Filing Joint Returns

The conference agreement increases the size of the 15-percent regular income tax rate bracket for a married couple filing a joint return to twice the size of the corresponding rate bracket for an unmarried individual filing a single return. The increase is phased-in over four years, beginning in 2005. Table 4, below, shows the increase in the size of the 15-percent bracket during the phase-in period.

Table 4.--Increase in Size of 15-Percent Rate Bracket

for Married Couples Filing a Joint Return