- TXT
-
PDF
(PDF provides a complete and accurate display of this text.)
Tip
?
116th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 116-345
======================================================================
RESTORING TAX FAIRNESS FOR STATES
AND LOCALITIES ACT
_______
December 13, 2019.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Neal, from the Committee on Ways and Means, submitted the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 5377]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 5377) to amend the Internal Revenue Code of 1986 to
modify the limitation on deduction of State and local taxes,
and for other purposes, 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...........................................4
A. Purpose and Summary................................. 4
B. Background and Need for Legislation................. 4
C. Legislative History................................. 5
II. EXPLANATION OF THE BILL..........................................6
A. Elimination for 2019 of Marriage Penalty in
Limitation on Deduction of State and Local Taxes
and Elimination for 2020 and 2021 of Limitation on
Deduction of State and Local Taxes................. 6
B. Increase in Deduction for Certain Expenses of
Elementary and Secondary School Teachers and Above-
the-Line Deduction Allowed for Certain Expenses of
First Responders................................... 7
C. Increase of Top Marginal Individual Income Tax Rate
Under Temporary Rules.............................. 8
III. VOTES OF THE COMMITTEE..........................................11
IV. BUDGET EFFECTS OF THE BILL......................................15
A. Committee Estimate of Budgetary Effects............. 15
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 16
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 16
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......20
A. Committee Oversight Findings and Recommendations.... 20
B. Statement of General Performance Goals and
Objectives......................................... 20
C. Information Relating to Unfunded Mandates........... 20
D. Applicability of House Rule XXI, Clause 5(b)........ 21
E. Tax Complexity Analysis............................. 21
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 21
G. Duplication of Federal Programs..................... 21
H. Hearings............................................ 21
VI. CHANGES IN EXISTING LAW MADE BY THE BILL........................22
A. Text of Existing Law Repealed by the Bill...........
B. Changes in Existing Law Proposed by the Bill........
VII. DISSENTING VIEWS................................................49
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Restoring Tax Fairness for States and
Localities Act''.
SEC. 2. ELIMINATION FOR 2019 OF MARRIAGE PENALTY IN LIMITATION ON
DEDUCTION OF STATE AND LOCAL TAXES.
(a) In General.--Section 164(b) of the Internal Revenue Code of 1986
is amended by adding at the end the following new paragraph:
``(7) Special rule for limitation on individual deductions
for 2019.--In the case of a taxable year beginning after
December 31, 2018, and before January 1, 2020, paragraph (6)
shall be applied by substituting `($20,000 in the case of a
joint return)' for `($5,000 in the case of a married individual
filing a separate return)'.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2018.
SEC. 3. ELIMINATION FOR 2020 AND 2021 OF LIMITATION ON DEDUCTION OF
STATE AND LOCAL TAXES.
(a) In General.--Section 164(b)(6)(B) of the Internal Revenue Code of
1986 is amended by inserting ``in the case of a taxable year beginning
before January 1, 2020, or after December 31, 2021,'' before ``the
aggregate amount of taxes''.
(b) Conforming Amendments.--Section 164(b)(6) of the Internal Revenue
Code of 1986 is amended--
(1) by striking ``For purposes of subparagraph (B)'' and
inserting ``For purposes of this section'',
(2) by striking ``January 1, 2018'' and inserting ``January
1, 2022'',
(3) by striking ``December 31, 2017, shall'' and inserting
``December 31, 2021, shall'', and
(4) by adding at the end the following: ``For purposes of
this section, in the case of State or local taxes with respect
to any real or personal property paid during a taxable year
beginning in 2020 or 2021, the Secretary shall prescribe rules
which treat all or a portion of such taxes as paid in a taxable
year or years other than the taxable year in which actually
paid as necessary or appropriate to prevent the avoidance of
the limitations of this subsection.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxes paid or accrued in taxable years beginning after December 31,
2019.
SEC. 4. INCREASE IN DEDUCTION FOR CERTAIN EXPENSES OF ELEMENTARY AND
SECONDARY SCHOOL TEACHERS.
(a) Increase.--Section 62(a)(2)(D) of the Internal Revenue Code of
1986 is amended by striking ``$250'' and inserting ``$500''.
(b) Conforming Amendments.--Section 62(d)(3) of the Internal Revenue
Code of 1986 is amended--
(1) by striking ``2015'' and inserting ``2019'',
(2) by striking ``$250'' and inserting ``$500'', and
(3) in subparagraph (B), by striking ``2014'' and inserting
``2018''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2018.
SEC. 5. ABOVE-THE-LINE DEDUCTION ALLOWED FOR CERTAIN EXPENSES OF FIRST
RESPONDERS.
(a) In General.--Section 62(a)(2) of the Internal Revenue Code of
1986 is amended by adding at the end the following new subparagraph:
``(F) Certain expenses of first responders.--The
deductions allowed by section 162 which consist of
expenses, not in excess of $500, paid or incurred by a
first responder--
``(i) as tuition or fees for the
participation of the first responder in
professional development courses related to
service as a first responder, or
``(ii) for uniforms used by the first
responder in service as a first responder.''.
(b) First Responder Defined.--Section 62(d) of the Internal Revenue
Code of 1986 is amended by adding at the end the following new
paragraph:
``(4) First responder.--For purposes of subsection (a)(2)(F),
the term `first responder' means, with respect to any taxable
year, any individual who is employed as a law enforcement
officer, firefighter, paramedic, or emergency medical
technician for at least 1000 hours during such taxable year.''.
(c) Inflation Adjustment.--Section 62(d)(3) of the Internal Revenue
Code of 1986, as amended by section 4, is further amended by striking
``the $500 amount in subsection (a)(2)(D)'' and inserting ``the $500
amount in each of subparagraphs (D) and (F) of subsection (a)(2)''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2019.
SEC. 6. INCREASE OF TOP MARGINAL INDIVIDUAL INCOME TAX RATE UNDER
TEMPORARY RULES.
(a) In General.--The tables contained in subparagraphs (A), (B), (C),
(D), and (E) of section 1(j)(2) of the Internal Revenue Code of 1986
are each amended by striking ``37%'' and inserting ``39.6%'' and--
(1) in subparagraph (A)--
(A) by striking ``$600,000'' each place such term
appears and inserting ``$479,000'', and
(B) by striking ``$161,379'' and inserting
``$119,029'',
(2) in subparagraph (B)--
(A) by striking ``$500,000'' each place such term
appears and inserting ``$452,400'', and
(B) by striking ``$149,298'' and inserting
``$132,638'',
(3) in subparagraph (C)--
(A) by striking ``$500,000'' each place such term
appears and inserting ``$425,800'', and
(B) by striking ``$150,689.50'' and inserting
``$124,719.50'', and
(4) in subparagraph (D)--
(A) by striking ``$300,000'' each place such term
appears and inserting ``$239,500'', and
(B) by striking ``$80,689.50'' and inserting
``$59,514.50''.
(b) Conforming Amendments.--
(1) Section 1(j)(4)(B)(iii) of the Internal Revenue Code of
1986 is amended--
(A) in the matter preceding subclause (I), by
striking ``37 percent'' and inserting ``39.6 percent'',
(B) in subclause (II), by striking ``37-percent
bracket'' and inserting ``39.6-percent bracket'', and
(C) in the heading, by striking ``37-percent
bracket'' and inserting ``39.6-percent bracket''.
(2) Section 1(j)(4)(C) of such Code is amended--
(A) in clause (i)(II), by striking ``paragraph
(5)(B)(i)(IV)'' and inserting ``paragraph (5)(B)(iv)'',
and
(B) by amending clause (ii) to read as follows:
``(ii) the amount which would (without regard
to this paragraph) be taxed at a rate below
39.6 percent shall not be more than the sum
of--
``(I) the earned taxable income of
such child, plus
``(II) the maximum dollar amount for
the 35-percent rate bracket for estates
and trusts.''.
(3) The heading of section 1(j)(5) of such Code is amended to
read as follows: ``Application of zero percent capital gain
rate brackets''.
(4) Subparagraphs (A) and (B) of section 1(j)(5) of such Code
are amended to read as follows:
``(A) In general.--Subsection (h)(1)(B)(i) shall be
applied by substituting `below the maximum zero rate
amount' for `which would (without regard to this
paragraph) be taxed at a rate below 25 percent'.
``(B) Maximum zero rate amount defined.--For purposes
of subparagraph (A), the term `maximum zero rate
amount' means--
``(i) in the case of a joint return or
surviving spouse, $77,200,
``(ii) in the case of an individual who is a
head of household (as defined in section 2(b)),
$51,700,
``(iii) in the case of any other individual
(other than an estate or trust), an amount
equal to \1/2\ of the amount in effect for the
taxable year under clause (i), and
``(iv) in the case of an estate or trust,
$2,600.''.
(5) Section 1(j)(5)(C) of such Code is amended by striking
``clauses (i) and (ii) of''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2019.
(d) Section 15 Not to Apply.--Section 15 of the Internal Revenue Code
of 1986 shall not apply to any change in a rate of tax by reason of any
amendment made by this section.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 5377, the Restoring Tax Fairness for States
and Localities Act, as amended and ordered reported by the
Committee on Ways and Means on December 11, 2019 does the
following: (1) eliminates for 2019 the marriage penalty imposed
by Public Law 115-97 (the ``2017 Tax Act''), (2) eliminates for
2020 and 2021 the $10,000 limitation on deduction of state and
local taxes, (3) reinstates the top individual income tax rate
to 39.6 percent and lowers the top income bracket to inflation-
adjusted levels of the top brackets prior to the enactment of
the 2017 Tax Act, (4) increases the above-the-line deduction
for certain expenses of teachers, and (5) creates an above the
line deduction for certain expenses of first responders.
B. Background and Need for Legislation
This legislation amends the $10,000 limitation on the
deduction for state and local taxes imposed by the 2017 Tax
Act. The State and Local Tax (SALT) deduction promotes fairness
in the tax code by shielding taxpayers from double-taxation by
preventing citizens from owing federal income taxes on dollars
that their state and local governments' have already taxed. In
2017, the most recent year for which data is available, 46.5
million households benefited from the SALT deduction.
Under present law, a taxpayer who itemizes their deductions
may deduct only up to $10,000 in State and local tax payments.
The deduction covers real estate taxes, personal property
taxes, and either state individual income or general sales
taxes. Prior to the passage of the 2017 Tax Act, the SALT
deduction had no limit--this had been the case since 1913 and
the creation of the Internal Revenue Code. The $10,000 limit
created by the 2017 Tax Act contravenes longstanding Federal
tax precedent. H.R. 5377, the Restoring Tax Fairness for States
and Localities Act, temporarily eliminates the limit.
The 2017 Tax Act limits all households to $10,000 in state
and local tax deductions whether the household is composed of a
single individual or two married taxpayers filing jointly,
creating a marriage penalty. H.R. 5377 eliminates the marriage
penalty in 2019, allowing married couples filing jointly to
deduct up to $20,000 in SALT payments and married couples
filing separately to claim up to $10,000 each. For the years
2020 and 2021, this legislation removes the $10,000 limit for
all taxpayers. Additionally, this legislation restores the top
individual income tax rate to the pre-2017 Tax Act level of
39.6 percent, while restoring the top income bracket at the
inflation-adjusted pre-2017 Tax Act levels. For all filers
(other than married individuals filing separately), the 39.6
rate begins at taxable income levels in excess of $400,000.
H.R. 5377 also permanently doubles the above-the-line
deduction for educators' out-of-pocket classroom expenses from
$250 to $500 and indexes this amount for inflation. Further,
this legislation creates a permanent $500 above-the-line
deduction for unreimbursed expenses of professional first
responders related to the cost of uniforms or tuition and fees
related to training, partially undoing the 2017 Tax Act's
elimination of miscellaneous itemized deductions.
C. Legislative History
Background
H.R. 5377, the Restoring Tax Fairness for States and
Localities Act, was introduced on December 10, 2019, and was
referred to the Committee on Ways and Means.
Committee hearings
On June 25, 2019, the Committee on Ways and Means
Subcommittee on Select Revenue Measures held a hearing entitled
``How Recent Limitations to the SALT Deduction Harm
Communities, Schools, First Responders, and Housing Values.''
Members heard testimony from witnesses regarding issues
surrounding the impacts of the SALT deduction cap on state and
local government budgets, first responders, and public schools.
Democrats invited five witnesses, including: (1) the Honorable
David Tarter; (2) the Honorable Bob De Natale; (3) the
Honorable Christian Yanick Leinbach; (4) Paul Imhoff, PhD; and
(5) Lt. Mahlon Mitchell (Firefighter). The minority invited
Nicole Kaeding.
On June 25, 2019, the Committee on Ways and Means
Subcommittee on Select Revenue Measures held a member day
hearing to hear member testimony on the consequences of and
potential remedies to the recent changes made to the federal
tax treatment of state and local taxes.
The committee received testimony from the following
members: Rep. Tom Malinowski (D-NJ-07), Rep. Dean Phillips (D-
MN-03), Rep. Andy Kim (D-NJ-03), Rep. Sean Casten (D-IL-06),
Rep. Maxine Waters (D-CA-43), Rep. Josh Gottheimer (D-NJ-05),
Rep. Lauren Underwood (D-IL-14), Rep. Katie Porter (D-CA-45),
Rep. Mikie Sherrill (D-NJ-11), Rep. Frank Pallone (D-NJ-06),
Rep. Jim Himes (D-CT-04), Rep. Jackie Speier (D-CA-14), Rep.
Donald M. Payne, Jr. (D-NJ-10), Rep. Donald Norcross (D-NJ-01),
Rep. Joseph Morelle (D-NY-25), Rep. Max Rose (D-NY-11), Rep.
Lee Zeldin (R-NY-01), and Rep. Anna Eshoo (D-CA-18).
Committee action
The Committee on Ways and Means marked up H.R. 5377 on
December 11, 2019, and ordered the bill, as amended, favorably
reported by a vote of 24 yeas and 17 nays.
II. EXPLANATION OF THE BILL
A. Elimination for 2019 of Marriage Penalty in Limitation on Deduction
of State and Local Taxes and Elimination for 2020 and 2021 of
Limitation on Deduction of State and Local Taxes
PRESENT LAW
An individual taxpayer may elect to itemize deductions in
lieu of claiming a standard deduction.\1\ Itemized deductions
include a deduction for certain taxes paid or accrued in a
taxable year, including State and local property taxes, income
taxes, and sales taxes.\2\
---------------------------------------------------------------------------
\1\Sec. 63.
\2\Sec. 164. An individual taxpayer may also be able to deduct
State and local taxes incurred in carrying on a trade or business
(under section 162) or an activity relating to expenses for the
production of income (under section 212).
---------------------------------------------------------------------------
An individual taxpayer\3\ not claiming a standard deduction
may deduct: (1) State and local real property taxes;\4\ (2)
State and local personal property taxes;\5\ and (3) State and
local income, war profits, and excess profits taxes.\6\ At the
election of the taxpayer, an itemized deduction may be taken
for State and local general sales taxes in lieu of the itemized
deduction for State and local income taxes.\7\
---------------------------------------------------------------------------
\3\Trusts and estates may generally claim a deduction for certain
taxes paid or accrued in a taxable year, subject to the same rules that
apply to individual taxpayers. See sec. 641(b).
\4\Sec. 164(a)(1).
\5\Sec. 164(a)(2).
\6\Sec. 164(a)(3).
\7\Sec. 164(b)(5).
---------------------------------------------------------------------------
The 2017 Tax Act limited the deduction of these taxes.\8\
For taxable years beginning after December 31, 2017, and before
January 1, 2026, the deduction for State and local income,
property, and sales taxes is limited to $10,000 ($5,000 for a
married individual filing a separate return).\9\ This
limitation does not apply to taxes paid or accrued in carrying
on a trade or business, or an activity for the production of
income.\10\
---------------------------------------------------------------------------
\8\Pub. L. No. 115-97, sec. 11042.
\9\Sec. 164(b)(6)(B).
\10\Sec. 164(b)(6).
---------------------------------------------------------------------------
The limitation does not apply to taxable years beginning
after December 31, 2025.
No itemized deduction for property taxes and income or
sales taxes is allowed in determining an individual's
alternative minimum taxable income.\11\
---------------------------------------------------------------------------
\11\Sec. 56(b)(1)(A)(ii).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee desires to combat the unfairness caused by
the limitation on the deduction for State and local property,
income, and sales taxes. The limitation imposes a marriage
penalty on taxpayers and unfairly imposes double taxation on
taxpayers who have already paid taxes to their State and local
governments. It undermines the Federal provisions of the
American system of government by limiting the ability of States
and localities to raise taxes in order to fund essential
services such as law enforcement, firefighting, and education.
EXPLANATION OF PROVISION
Increase in limitation for married individuals for 2019
The provision increases the dollar limitation on the
deduction of State and local property, income, and sales taxes
to $20,000 in the case of a joint return and $10,000 in the
case of a married individual filing a separate return for
taxable years beginning after December 31, 2018, and before
January 1, 2020.
Termination of limitation for 2020 and 2021
The provision removes the dollar limitation on the
deduction for State and local property, income, and sales taxes
for taxable years beginning after December 31, 2019, and before
January 1, 2022.
The provision contains conforming amendments to provide
that the deduction for any State or local income tax imposed
for a taxable year beginning after December 31, 2021, paid in a
taxable year beginning before January 1, 2022, is treated as
paid on the last day of the taxable year for which the tax is
imposed. For payments of State or local property taxes during a
taxable year beginning in 2020 or 2021, the provision directs
the Secretary of the Treasury to prescribe rules to treat all
or a portion of taxes paid in those years as paid in other
taxable years, as necessary or appropriate in order to prevent
avoidance of the dollar limitation applicable to years other
than 2020 and 2021.
EFFECTIVE DATE
The provision to increase the dollar limitation on the
deduction for State and local property, income, and sales taxes
for 2019 applies taxable years beginning after December 31,
2018.
The provision to eliminate the dollar limitation on the
deduction for these taxes for 2020 and 2021 applies to taxes
paid or accrued in taxable years beginning after December 31,
2019.6602
B. Increase in Deduction for Certain Expenses of Elementary and
Secondary School Teachers and Above-the-Line Deduction Allowed for
Certain Expenses of First Responders
PRESENT LAW
Although business expenses of employees are generally not
allowed in computing adjusted gross income,\12\ certain
employee business expenses are so allowed--referred to as
``above-the-line'' deductions.\13\ These include certain
expenses of qualified performing artists, expenses of State or
local government officials performing services on a fee basis,
expenses of eligible educators, and expenses of members of a
reserve component of the Armed Forces.\14\ Eligible educators
are individuals who are elementary or secondary school
teachers, instructors, counselors, principals, or aides in a
school for at least 900 hours during a school year.\15\
---------------------------------------------------------------------------
\12\Sec. 62(a)(1). An individual may claim the standard deduction
in addition to claiming all deductions allowed in determining adjusted
gross income.
\13\Sec. 62(a)(2).
\14\Sec. 62(a)(2)(B), (C), (D), and (E). Under section 62(a)(2)(A)
and (c), certain reimbursements of employee business expenses are
excluded from income.
\15\Sec. 62(d)(1).
---------------------------------------------------------------------------
An eligible educator may take an above-the-line deduction
for ordinary and necessary expenses incurred: (1) by reason of
participation in professional development courses related to
the curriculum or students the educator teaches, or (2) in
connection with books, supplies, computer and other equipment,
and supplementary materials to be used in the classroom.\16\
The deduction may not exceed $250 (for 2019). This dollar
amount is indexed for inflation.
---------------------------------------------------------------------------
\16\Sec. 62(a)(2)(D). Supplies exclude nonathletic supplies for
courses in health or physical education.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee desires to support the teachers, law
enforcement officers, firefighters, paramedics, and emergency
medical technicians that educate and protect our State and
local communities by allowing them to claim a deduction for
certain job-related expenses.
EXPLANATION OF PROVISION
The provision increases the maximum dollar amount of the
above-the-line deduction for certain expenses of eligible
educators to $500. This dollar amount is indexed for
inflation.\17\
---------------------------------------------------------------------------
\17\The $500 amount is first indexed in 2020.
---------------------------------------------------------------------------
The provision also adds an above-the-line deduction for
certain expenses of first responders. First responders are
individuals who are employed as law enforcement officers,
firefighters, paramedics, or emergency medical technicians for
at least 1,000 hours during the taxable year.
A first responder may take an above-the-line deduction for
expenses incurred: (1) as tuition or fees for the participation
in professional development courses related to service as a
first responder, or (2) in connection with uniforms personally
used in service as a first responder. The maximum dollar amount
for the above-the-line deduction is $500. This dollar amount is
indexed for inflation.\18\
---------------------------------------------------------------------------
\18\The $500 amount is first indexed in 2020.
---------------------------------------------------------------------------
EFFECTIVE DATE
The provision to increase the maximum deduction for certain
expenses of eligible educators applies to taxable years
beginning after December 31, 2018.
The provision to add an above-the-line deduction for
certain expenses of first responders applies to taxable years
beginning after December 31, 2019.
C. Increase of Top Marginal Individual Income Tax Rate Under Temporary
Rules
PRESENT LAW
In general
To determine regular tax liability, individual taxpayers
generally must apply the tax rate schedules (or the tax tables)
to their regular taxable income. The rate schedules are broken
into several ranges of income, known as income brackets, and
the marginal tax rate increases as a taxpayer's income bracket
increases.
Tax rate schedules
Separate rate schedules apply based on an individual's
filing status. The 2017 Tax Act changed the prior-law rate
schedules for taxable years beginning after December 31, 2017
and beginning before January 1, 2026. For 2020, the regular
individual income tax rate schedules are as follows:
TABLE 1.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2020\1\
------------------------------------------------------------------------
If taxable income is: Then income tax equals:
------------------------------------------------------------------------
Single Individuals
Not over $9,875........................ 10% of the taxable income
Over $9,875 but not over $40,125....... $987.50 plus 12% of the excess
over $9,875
Over $40,125 but not over $85,525...... $4,617.50 plus 22% of the
excess over $40,125
Over $85,525 but not over $163,300..... $14,605.50 plus 24% of the
excess over $85,525
Over $163,300 but not over $207,350.... $33,271.50 plus 32% of the
excess over $163,300
Over $207,350 but not over $518,400.... $47,367.50 plus 35% of the
excess over $207,350
Over $518,400.......................... $156,235 plus 37% of the excess
over $518,400
Heads of Households
Not over $14,100....................... 10% of the taxable income
Over $14,100 but not over $53,700...... $1,410 plus 12% of the excess
over $14,100
Over $53,700 but not over $85,500...... $6,162 plus 22% of the excess
over $53,700
Over $85,500 but not over $163,300..... $13,158 plus 24% of the excess
over $85,500
Over $163,300 but not over $207,350.... $31,830 plus 32% of the excess
over $163,300
Over $207,350 but not over $518,400.... $45,926 plus 35% of the excess
over $207,350
Over $518,400.......................... $154,793.50 plus 37% of the
excess over $518,400
Married Individuals Filing Joint Returns and Surviving Spouses
Not over $19,750....................... 10% of the taxable income
Over $19,750 but not over $80,250...... $1,975 plus 12% of the excess
over $19,750
Over $80,250 but not over $171,050..... $9,235 plus 22% of the excess
over $80,250
Over $171,050 but not over $326,600.... $29,211 plus 24% of the excess
over $171,050
Over $326,600 but not over $414,700.... $66,543 plus 32% of the excess
over $326,600
Over $414,700 but not over $622,050.... $94,735 plus 35% of the excess
over $414,700
Over $622,050.......................... $167,307.50 plus 37% of the
excess over $622,050
Married Individuals Filing Separate Returns
Not over $9,875........................ 10% of the taxable income
Over $9,875 but not over $40,125....... $987.50 plus 12% of the excess
over $9,875
Over $40,125 but not over $85,525...... $4,617.50 plus 22% of the
excess over $40,125
Over $85,525 but not over $163,300..... $14,605.50 plus 24% of the
excess over $85,525
Over $163,300 but not over $207,350.... $33,271.50 plus 32% of the
excess over $163,300
Over $207,350 but not over $311,025.... $47,367.50 plus 35% of the
excess over $207,350
Over $311,025.......................... $83,653.75 plus 37% of the
excess over $311,025
Estates and Trusts
Not over $2,600........................ 10% of the taxable income
Over $2,600 but not over $9,450........ $260 plus 24% of the excess
over $2,600
Over $9,450 but not over $12,950....... $1,904 plus 35% of the excess
over $9,450
Over $12,950........................... $3,129 plus 37% of the excess
over $12,950
------------------------------------------------------------------------
\1\Rev. Proc 2019-44.
REASONS FOR CHANGE
The Committee believes that it is appropriate to return to
the pre-2017 Tax Act top individual income tax rate and to
reduce the dollar amounts at which such rate begins, in order
to ensure that the wealthiest individuals pay their fair share
without increasing the tax burden on lower or middle-income
Americans.
EXPLANATION OF PROVISION
The provision increases the top individual income tax rate
of 37 percent to 39.6 percent and reduces the dollar amounts at
which the 39.6 percent bracket begins.\19\ Under the provision,
for 2020, the regular individual income tax rate schedules are
projected to be as follows (changes from present law are in
bold):
---------------------------------------------------------------------------
\19\The provision modifies the start of the 39.6 percent bracket to
be $425,800, $452,400, $479,000, and $239,500, for singles, heads of
households, married individuals filing jointly, and married individuals
filing separately, respectively. The provision modifies the top rate
and the start of top brackets for 2018, but these changes are not
effective until 2020. Thus, in application, the provision only affects
rates and brackets starting in 2020.
TABLE 2.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2020 UNDER THE
PROVISION\1\
------------------------------------------------------------------------
If taxable income is: Then income tax equals:
------------------------------------------------------------------------
Single Individuals
Not over $9,875........................ 10% of the taxable income
Over $9,875 but not over $40,125....... $987.50 plus 12% of the excess
over $9,875
Over $40,125 but not over $85,525...... $4,617.50 plus 22% of the
excess over $40,125
Over $85,525 but not over $163,300..... $14,605.50 plus 24% of the
excess over $85,525
Over $163,300 but not over $207,350.... $33,271.50 plus 32% of the
excess over $163,300
Over $207,350 but not over $441,475.... $47,367.50 plus 35% of the
excess over $207,350
Over $441,475.......................... $129,311.25 plus 39.6% of the
excess over $441,475
Heads of Households
Not over $14,100....................... 10% of the taxable income
Over $14,100 but not over $53,700...... $1,410 plus 12% of the excess
over $14,100
Over $53,700 but not over $85,500...... $6,162 plus 22% of the excess
over $53,700
Over $85,500 but not over $163,300..... $13,158 plus 24% of the excess
over $85,500
Over $163,300 but not over $207,350.... $31,830 plus 32% of the excess
over $163,300
Over $207,350 but not over $469,050.... $45,926 plus 35% of the excess
over $207,350
Over $469,050.......................... $137,521 plus 39.6% of the
excess over $469,050
Married Individuals Filing Joint Returns and Surviving Spouses
Not over $19,750....................... 10% of the taxable income
Over $19,750 but not over $80,250...... $1,975 plus 12% of the excess
over $19,750
Over $80,250 but not over $171,050..... $9,235 plus 22% of the excess
over $80,250
Over $171,050 but not over $326,600.... $29,211 plus 24% of the excess
over $171,050
Over $326,600 but not over $414,700.... $66,543 plus 32% of the excess
over $326,600
Over $414,700 but not over $496,600.... $94,735 plus 35% of the excess
over $414,700
Over $496,600.......................... $123,400 plus 39.6% of the
excess over $496,600
Married Individuals Filing Separate Returns
Not over $9,875........................ 10% of the taxable income
Over $9,875 but not over $40,125....... $987.50 plus 12% of the excess
over $9,875
Over $40,125 but not over $85,525...... $4,617.50 plus 22% of the
excess over $40,125
Over $85,525 but not over $163,300..... $14,605.50 plus 24% of the
excess over $85,525
Over $163,300 but not over $207,350.... $33,271.50 plus 32% of the
excess over $163,300
Over $207,350 but not over $248,300.... $47,367.50 plus 35% of the
excess over $207,350
Over $248,300.......................... $61,700 plus 39.6% of the
excess over $248,300
Estates and Trusts
Not over $2,600........................ 10% of the taxable income
Over $2,600 but not over $9,450........ $260 plus 24% of the excess
over $2,600
Over $9,450 but not over $12,950....... $1,904 plus 35% of the excess
over $9,450
Over $12,950........................... $3,129 plus 39.6% of the excess
over $12,950
------------------------------------------------------------------------
\1\Rev. Proc. 2019-44 and JCT calculations.
The modifications made by the provision do not apply to
taxable years beginning after December 31, 2025.\20\
---------------------------------------------------------------------------
\20\Rates and brackets revert to levels from prior law in effect
before enactment of the 2017 Tax Act (adjusted appropriately for
inflation) for taxable years beginning after December 31, 2025.
---------------------------------------------------------------------------
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2019.
III. VOTES OF THE COMMITTEE
Pursuant to clause 3(b) of rule XIII of the Rules of the
House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means during
the markup consideration of H.R. 5377, the ``Restoring Tax
Fairness for States and Localities Act'' on December 11, 2019.
An amendment to the amendment in the nature of a substitute
offered by Mr. Arrington which would ensure that the increased
top marginal rate would not apply to small business income was
defeated by a vote of 15 yeas to 21 nays. The vote was as
follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal....................... ........ X ......... Mr. Brady........ X ........ .........
Mr. Lewis...................... ........ X ......... Mr. Nunes........ X ........ .........
Mr. Doggett.................... ........ ........ ......... Mr. Buchanan..... ........ ........ .........
Mr. Thompson................... ........ X ......... Mr. Smith (NE)... X ........ .........
Mr. Larson..................... ........ X ......... Mr. Marchant..... X ........ .........
Mr. Blumenauer................. ........ X ......... Mr. Reed......... X ........ .........
Mr. Kind....................... ........ X ......... Mr. Kelly........ X ........ .........
Mr. Pascrell................... ........ X ......... Mr. Holding...... X ........ .........
Mr. Davis...................... ........ X ......... Mr. Smith (MO)... ........ ........ .........
Ms. Sanchez.................... ........ X ......... Mr. Rice......... X ........ .........
Mr. Higgins.................... ........ X ......... Mr. Schweikert... X ........ .........
Ms. Sewell..................... ........ ........ ......... Ms. Walorski..... X ........ .........
Ms. DelBene.................... ........ X ......... Mr. LaHood....... X ........ .........
Ms. Chu........................ ........ X ......... Dr. Wenstrup..... X ........ .........
Ms. Moore...................... ........ X ......... Mr. Arrington.... X ........ .........
Mr. Kildee..................... ........ X ......... Dr. Ferguson..... X ........ .........
Mr. Boyle...................... ........ X ......... Mr. Estes........ X ........ .........
Mr. Beyer...................... ........ X .........
Mr. Evans...................... ........ X .........
Mr. Schneider.................. ........ X .........
Mr. Suozzi..................... ........ X .........
Mr. Panetta.................... ........ ........ .........
Ms. Murphy..................... ........ X .........
Mr. Gomez...................... ........ X .........
Mr. Horsford................... ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment to the amendment in the nature of a substitute
offered by Dr. Wenstrup that would sunset the underlying bill
if state and local property taxes were to increase following
its enactment was defeated by a vote of 16 yeas to 21 nays. The
vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal....................... ........ X ......... Mr. Brady........ X ........ .........
Mr. Lewis...................... ........ X ......... Mr. Nunes........ X ........ .........
Mr. Doggett.................... ........ ........ ......... Mr. Buchanan..... X ........ .........
Mr. Thompson................... ........ X ......... Mr. Smith (NE)... X ........ .........
Mr. Larson..................... ........ X ......... Mr. Marchant..... X ........ .........
Mr. Blumenauer................. ........ X ......... Mr. Reed......... X ........ .........
Mr. Kind....................... ........ ........ ......... Mr. Kelly........ X ........ .........
Mr. Pascrell................... ........ X ......... Mr. Holding...... X ........ .........
Mr. Davis...................... ........ X ......... Mr. Smith (MO)... ........ ........ .........
Ms. Sanchez.................... ........ X ......... Mr. Rice......... X ........ .........
Mr. Higgins.................... ........ X ......... Mr. Schweikert... X ........ .........
Ms. Sewell..................... ........ X ......... Ms. Walorski..... X ........ .........
Ms. DelBene.................... ........ X ......... Mr. LaHood....... X ........ .........
Ms. Chu........................ ........ X ......... Dr. Wenstrup..... X ........ .........
Ms. Moore...................... ........ X ......... Mr. Arrington.... X ........ .........
Mr. Kildee..................... ........ X ......... Dr. Ferguson..... X ........ .........
Mr. Boyle...................... ........ X ......... Mr. Estes........ X ........ .........
Mr. Beyer...................... ........ X .........
Mr. Evans...................... ........ X .........
Mr. Schneider.................. ........ X .........
Mr. Suozzi..................... ........ X .........
Mr. Panetta.................... ........ ........ .........
Ms. Murphy..................... ........ X .........
Mr. Gomez...................... ........ X .........
Mr. Horsford................... ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment to the amendment in the nature of a substitute
offered by Dr. Ferguson which would make permanent the
individual income tax rates and the small business deduction
was defeated by a vote of 15 yeas to 21 nays. The vote was as
follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal....................... ........ X ......... Mr. Brady........ X ........ .........
Mr. Lewis...................... ........ X ......... Mr. Nunes........ X ........ .........
Mr. Doggett.................... ........ ........ ......... Mr. Buchanan..... X ........ .........
Mr. Thompson................... ........ X ......... Mr. Smith (NE)... X ........ .........
Mr. Larson..................... ........ X ......... Mr. Marchant..... X ........ .........
Mr. Blumenauer................. ........ X ......... Mr. Reed......... X ........ .........
Mr. Kind....................... ........ ........ ......... Mr. Kelly........ X ........ .........
Mr. Pascrell................... ........ X ......... Mr. Holding...... X ........ .........
Mr. Davis...................... ........ X ......... Mr. Smith (MO)... ........ ........ .........
Ms. Sanchez.................... ........ X ......... Mr. Rice......... X ........ .........
Mr. Higgins.................... ........ X ......... Mr. Schweikert... X ........ .........
Ms. Sewell..................... ........ X ......... Ms. Walorski..... ........ ........ .........
Ms. DelBene.................... ........ X ......... Mr. LaHood....... X ........ .........
Ms. Chu........................ ........ X ......... Dr. Wenstrup..... X ........ .........
Ms. Moore...................... ........ X ......... Mr. Arrington.... X ........ .........
Mr. Kildee..................... ........ X ......... Dr. Ferguson..... X ........ .........
Mr. Boyle...................... ........ X ......... Mr. Estes........ X ........ .........
Mr. Beyer...................... ........ X
Mr. Evans...................... ........ X
Mr. Schneider.................. ........ X
Mr. Suozzi..................... ........ X
Mr. Panetta.................... ........ ........ .........
Ms. Murphy..................... ........ X .........
Mr. Gomez...................... ........ X .........
Mr. Horsford................... ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment to the amendment in the nature of a substitute
offered by Mr. Rice which would strike the tax rate increase
and, for tax years 2019 through 2021, generally would provide
taxpayers with uncapped state and local tax (SALT) deduction
except that taxpayers with the highest 10% of income are
prohibited from taking any SALT deduction was defeated by a
vote of 15 yeas to 22 nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal....................... ........ X ......... Mr. Brady........ ........ ........ .........
Mr. Lewis...................... ........ X ......... Mr. Nunes........ X ........ .........
Mr. Doggett.................... ........ ........ ......... Mr. Buchanan..... X ........ .........
Mr. Thompson................... ........ X ......... Mr. Smith (NE)... X ........ .........
Mr. Larson..................... ........ X ......... Mr. Marchant..... X ........ .........
Mr. Blumenauer................. ........ X ......... Mr. Reed......... X ........ .........
Mr. Kind....................... ........ X ......... Mr. Kelly........ X ........ .........
Mr. Pascrell................... ........ X ......... Mr. Holding...... X ........ .........
Mr. Davis...................... ........ X ......... Mr. Smith (MO)... ........ ........ .........
Ms. Sanchez.................... ........ X ......... Mr. Rice......... X ........ .........
Mr. Higgins.................... ........ X ......... Mr. Schweikert... X ........ .........
Ms. Sewell..................... ........ X ......... Ms. Walorski..... X ........ .........
Ms. DelBene.................... ........ X ......... Mr. LaHood....... X ........ .........
Ms. Chu........................ ........ X ......... Dr. Wenstrup..... X ........ .........
Ms. Moore...................... ........ X ......... Mr. Arrington.... X ........ .........
Mr. Kildee..................... ........ X ......... Dr. Ferguson..... X ........ .........
Mr. Boyle...................... ........ X ......... Mr. Estes........ X ........ .........
Mr. Beyer...................... ........ X .........
Mr. Evans...................... ........ X .........
Mr. Schneider.................. ........ X .........
Mr. Suozzi..................... ........ X .........
Mr. Panetta.................... ........ ........ .........
Ms. Murphy..................... ........ X .........
Mr. Gomez...................... ........ X .........
Mr. Horsford................... ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment to the amendment in the nature of a substitute
offered by Ms. Walorski which would prevent taxpayers with the
highest 1% of income from taking the increased cap on the state
and local tax deduction was defeated by a vote of 16 yeas to 22
nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal....................... ........ X ......... Mr. Brady........ X ........ .........
Mr. Lewis...................... ........ X ......... Mr. Nunes........ X ........ .........
Mr. Doggett.................... ........ ........ ......... Mr. Buchanan..... X ........ .........
Mr. Thompson................... ........ X ......... Mr. Smith (NE)... X ........ .........
Mr. Larson..................... ........ X ......... Mr. Marchant..... X ........ .........
Mr. Blumenauer................. ........ X ......... Mr. Reed......... X ........ .........
Mr. Kind....................... ........ X ......... Mr. Kelly........ X ........ .........
Mr. Pascrell................... ........ X ......... Mr. Holding...... X ........ .........
Mr. Davis...................... ........ X ......... Mr. Smith (MO)... ........ ........ .........
Ms. Sanchez.................... ........ X ......... Mr. Rice......... X ........ .........
Mr. Higgins.................... ........ X ......... Mr. Schweikert... X ........ .........
Ms. Sewell..................... ........ X ......... Ms. Walorski..... X ........ .........
Ms. DelBene.................... ........ X ......... Mr. LaHood....... X ........ .........
Ms. Chu........................ ........ X ......... Dr. Wenstrup..... X ........ .........
Ms. Moore...................... ........ X ......... Mr. Arrington.... X ........ .........
Mr. Kildee..................... ........ X ......... Dr. Ferguson..... X ........ .........
Mr. Boyle...................... ........ X ......... Mr. Estes........ X ........ .........
Mr. Beyer...................... ........ X .........
Mr. Evans...................... ........ X .........
Mr. Schneider.................. ........ X .........
Mr. Suozzi..................... ........ X .........
Mr. Panetta.................... ........ ........ .........
Ms. Murphy..................... ........ X .........
Mr. Gomez...................... ........ X .........
Mr. Horsford................... ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment to the amendment in the nature of a substitute
offered by Mr. Schweikert which would require that an analysis
be conducted to ensure the increased tax rate would not
decrease employment of wages was defeated by a vote of 15 yeas
to 22 nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal....................... ........ X ......... Mr. Brady........ X ........ .........
Mr. Lewis...................... ........ X ......... Mr. Nunes........ X ........ .........
Mr. Doggett.................... ........ ........ ......... Mr. Buchanan..... X ........ .........
Mr. Thompson................... ........ X ......... Mr. Smith (NE)... X ........ .........
Mr. Larson..................... ........ X ......... Mr. Marchant..... X ........ .........
Mr. Blumenauer................. ........ X ......... Mr. Reed......... X ........ .........
Mr. Kind....................... ........ X ......... Mr. Kelly........ X ........ .........
Mr. Pascrell................... ........ X ......... Mr. Holding...... X ........ .........
Mr. Davis...................... ........ X ......... Mr. Smith (MO)... ........ ........ .........
Ms. Sanchez.................... ........ X ......... Mr. Rice......... X ........ .........
Mr. Higgins.................... ........ X ......... Mr. Schweikert... X ........ .........
Ms. Sewell..................... ........ X ......... Ms. Walorski..... X ........ .........
Ms. DelBene.................... ........ X ......... Mr. LaHood....... X ........ .........
Ms. Chu........................ ........ X ......... Dr. Wenstrup..... X ........ .........
Ms. Moore...................... ........ X ......... Mr. Arrington.... ........ ........ .........
Mr. Kildee..................... ........ X ......... Dr. Ferguson..... X ........ .........
Mr. Boyle...................... ........ X ......... Mr. Estes........ X ........ .........
Mr. Beyer...................... ........ X .........
Mr. Evans...................... ........ X .........
Mr. Schneider.................. ........ X .........
Mr. Suozzi..................... ........ X .........
Mr. Panetta.................... ........ ........ .........
Ms. Murphy..................... ........ X .........
Mr. Gomez...................... ........ X .........
Mr. Horsford................... ........ ........ .........
----------------------------------------------------------------------------------------------------------------
An amendment to the amendment in the nature of a substitute
offered by Mr. Smith of Nebraska which would make permanent the
higher standard deduction made under the Tax Cuts and Jobs Act
was defeated by a vote of 17 yeas to 23 nays. The vote was as
follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal....................... ........ X ......... Mr. Brady........ X ........ .........
Mr. Lewis...................... ........ X ......... Mr. Nunes........ X ........ .........
Mr. Doggett.................... ........ X ......... Mr. Buchanan..... X ........ .........
Mr. Thompson................... ........ X ......... Mr. Smith (NE)... X ........ .........
Mr. Larson..................... ........ X ......... Mr. Marchant..... X ........ .........
Mr. Blumenauer................. ........ X ......... Mr. Reed......... X ........ .........
Mr. Kind....................... ........ X ......... Mr. Kelly........ X ........ .........
Mr. Pascrell................... ........ X ......... Mr. Holding...... X ........ .........
Mr. Davis...................... ........ X ......... Mr. Smith (MO)... X ........ .........
Ms. Sanchez.................... ........ X ......... Mr. Rice......... X ........ .........
Mr. Higgins.................... ........ X ......... Mr. Schweikert... X ........ .........
Ms. Sewell..................... ........ X ......... Ms. Walorski..... X ........ .........
Ms. DelBene.................... ........ X ......... Mr. LaHood....... X ........ .........
Ms. Chu........................ ........ X ......... Dr. Wenstrup..... X ........ .........
Ms. Moore...................... ........ X ......... Mr. Arrington.... X ........ .........
Mr. Kildee..................... ........ X ......... Dr. Ferguson..... X ........ .........
Mr. Boyle...................... ........ X ......... Mr. Estes........ X ........ .........
Mr. Beyer...................... ........ X .........
Mr. Evans...................... ........ X .........
Mr. Schneider.................. ........ X .........
Mr. Suozzi..................... ........ X .........
Mr. Panetta.................... ........ ........ .........
Ms. Murphy..................... ........ X .........
Mr. Gomez...................... ........ X .........
Mr. Horsford................... ........ ........ .........
----------------------------------------------------------------------------------------------------------------
The amendment in the nature of a substitute to H.R. 5377
was adopted by voice vote (with a quorum being present).
H.R. 5377 was ordered favorably reported as amended to the
House of Representatives by a vote of 24 yeas to 17 nays. The
vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal....................... X ........ ......... Mr. Brady........ ........ X .........
Mr. Lewis...................... X ........ ......... Mr. Nunes........ ........ X .........
Mr. Doggett.................... ........ ........ ......... Mr. Buchanan..... ........ X .........
Mr. Thompson................... X ........ ......... Mr. Smith (NE)... ........ X .........
Mr. Larson..................... X ........ ......... Mr. Marchant..... ........ X .........
Mr. Blumenauer................. X ........ ......... Mr. Reed......... X ........ .........
Mr. Kind....................... X ........ ......... Mr. Kelly........ ........ X .........
Mr. Pascrell................... X ........ ......... Mr. Holding...... ........ X .........
Mr. Davis...................... X ........ ......... Mr. Smith (MO)... ........ X .........
Ms. Sanchez.................... X ........ ......... Mr. Rice......... ........ X .........
Mr. Higgins.................... X ........ ......... Mr. Schweikert... ........ X .........
Ms. Sewell..................... X ........ ......... Ms. Walorski..... ........ X .........
Ms. DelBene.................... X ........ ......... Mr. LaHood....... ........ X .........
Ms. Chu........................ X ........ ......... Dr. Wenstrup..... ........ X .........
Ms. Moore...................... X ........ ......... Mr. Arrington.... ........ X .........
Mr. Kildee..................... X ........ ......... Dr. Ferguson..... ........ X .........
Mr. Boyle...................... X ........ ......... Mr. Estes........ ........ X .........
Mr. Beyer...................... X ........ .........
Mr. Evans...................... X ........ .........
Mr. Schneider.................. X ........ .........
Mr. Suozzi..................... X ........ .........
Mr. Panetta.................... X ........ .........
Ms. Murphy..................... ........ X .........
Mr. Gomez...................... X ........ .........
Mr. Horsford................... X ........ .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill.
The bill is estimated to increase Federal fiscal year
budget receipts by $6.2 billion dollars for the period 2019
through 2029.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives, the Committee states that the bill
involves no new or increased budget authority. The Committee
further states that the bill involves no new tax expenditure.
C. Cost Estimate Prepared by the Congressional Budget Office
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, requiring a cost estimate prepared by
CBO, the following statement by CBO is provided.
6602U.S. Congress,
Congressional Budget Office,
Washington, DC, December 13, 2019.
Hon. Richard Neal,
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. 5377, The
Restoring Tax Fairness for States and Localities Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Ellen Steele.
Sincerely,
Phillip L. Swagel,
Director.
Enclosure.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Bill summary: H.R. 5377 would increase the tax rate for the
top individual income tax bracket for taxable years 2020 to
2025 from 37 percent to 39.6 percent, and reduce the minimum
taxable income threshold for that bracket. H.R. 5377 would
increase the limitation on the deduction of state and local
taxes for married couples from $10,000 to $20,000 in taxable
year 2019 and eliminate that limitation for 2020 and 2021 for
all taxpayers. Additionally, H.R. 5377 would increase the
deduction for certain expenses for elementary and secondary
school teachers from $250 to $500 and create a new $500 above-
the-line deduction for certain expenses of first responders.
Estimated Federal cost: The estimated budgetary effect of
H.R. 5377 is shown in Table 1.
TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 5377
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, billions of dollars
----------------------------------------------------------------------------------------------------------------
2020- 2020-
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2024 2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Increases or Decreases (-) in Revenues
Increase the top individual income tax 19.4 28.7 30.4 31.9 33.8 35.6 10.9 * 0 0 144.2 190.7
rate to 39.6% and restore the top
income tax bracket....................
Increase in limitation on deduction for -48.9 -88.7 -51.3 4.4 0 0 0 0 0 0 -184.5 -184.5
State and local taxes for married
individuals for 2019; termination of
limitation for 2020 and 2021..........
Increase in deduction for certain -0.2 -0.1 -0.1 -0.2 -0.2 -0.2 -0.2 -0.3 -0.2 -0.2 -0.8 -1.9
expenses of elementary and secondary
school teachers.......................
Above-the-line deduction allowed for -0.1 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.9 -1.9
certain expenses of first responders..
Total Revenues -29.8 -60.3 -21.2 35.9 33.4 35.2 10.5 -0.5 -0.4 -0.4 -42.0 2.4
Net Increase or Decrease (-) in the Deficit From Changes in Revenues
Effect on the Deficit.................. 29.8 60.3 21.2 -35.9 -33.4 -35.2 -10.5 0.5 0.4 0.4 42.0 -2.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Components may not sum to totals because of rounding; * = Gain of less than $50 million.
Basis of estimate: The Congressional Budget Act of 1974, as
amended, stipulates that revenue estimates provided by the
staff of the Joint Committee on Taxation (JCT) are the official
estimates for all tax legislation considered by the Congress.
CBO therefore incorporates such estimates into its cost
estimates of the effects of legislation. All of the estimates
for the provisions of H.R. 5377 were provided by JCT.\1\
---------------------------------------------------------------------------
\1\For JCT's estimates of the provisions, which include detail
beyond the summary presented here, see Joint Committee on Taxation,
Description Of The Chairman's Amendment In The Nature Of A Substitute
To The Provisions Of H.R. __, The ``Restoring Tax Fairness For States
And Localities Act'' JCX-53-19 (December 10, 2019) https://www.jct.gov/
publications.html?func=startdown&id;=5236.
---------------------------------------------------------------------------
Revenues: H.R. 5377 would increase revenues by expanding
the top marginal individual income tax bracket and reduce
revenues by allowing more deductions for state and local taxes
and eligible expenses for certain educators and first
responders. On net, JCT estimates, enacting the bill would
increase revenues by $2.4 billion over the 2020-2029 period.
H.R. 5377 would increase the tax rate that applies to the
top individual income tax bracket and expand the income range
over which it applies between 2020 and 2025. The 2017 tax act
(Public Law 115-97) temporarily reduced the top marginal tax
rate to 37 percent for taxable years 2018 to 2025. H.R. 5377
would reverse that temporary decrease by increasing the top
rate to 39.6 percent for taxable years 2020 to 2025.
Additionally, H.R. 5377 would reduce the income thresholds
established by the 2017 tax act for the top tax bracket for
taxable years 2020 to 2025, thereby increasing the number of
taxpayers subject to the top marginal rate. For example, under
H.R. 5377, in 2020, the taxable income threshold for the top
tax bracket for single individuals would fall from $518,400 to
$441,475, JCT estimates. (The threshold for married individuals
filing joint returns would fall from $622,050 to $496,600.) JCT
estimates that as a result of these changes to the top bracket,
revenues would increase by $190.7 billion over the 2020-2029
period.
The 2017 tax act limited the maximum amount of state and
local taxes that married couples could deduct to $10,000 for
tax years 2018 to 2025. H.R. 5377 would increase the allowable
amount of the state and local tax deduction for married couples
in 2019, from $10,000 to $20,000 for taxpayers filing jointly
and from $5,000 to $10,000 for married taxpayers filing
separately. The bill would eliminate the limitation altogether
in 2020 and 2021. JCT estimates that these changes to the state
and local tax deduction limitations would decrease revenues by
$184.5 billion from 2020 to 2029.
H.R. 5377 would expand deductions for certain expenses for
educators and first responders. It would permanently increase
the deduction for certain expenses for eligible educators from
$250 to $500 (indexed for inflation) beginning in tax year
2019. The bill would also add a permanent above-the-line
deduction for certain eligible expenses for first responders,
including firefighters, law enforcement officers, paramedics,
and emergency technicians. The deduction for first responders
would be $500 in 2019, and indexed for inflation in subsequent
years. JCT estimates that the increased deduction for educators
and the new deduction for expenses for first responders would
each reduce revenues by $1.9 billion from 2020 to 2029.
Uncertainty: These budgetary estimates are uncertain
because they rely on underlying projections and other estimates
that are uncertain. Specifically, they are based in part on
economic projections for the next decade under current law, and
on estimates of changes in taxpayers' behavior in response to
changes in tax rules.
Pay-As-You-Go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. The net changes in revenues that are subject to those
pay-as-you-go procedures are shown in Table 1.
Increase in long-term deficits: JCT estimates that enacting
H.R. 5377 would increase on-budget deficits by less than $5
billion in each of the four consecutive 10-year periods
beginning in 2030.
Mandates: JCT has determined that H.R. 5377 would impose no
intergovernmental mandates as defined in the Unfunded Mandates
Reform Act (UMRA).
JCT has determined that H.R. 5377 would impose a private-
sector mandate as defined in UMRA by increasing the highest
marginal tax rate for individual taxpayers. JCT estimates that
the aggregate direct cost of the mandate would exceed the
annual private-sector threshold established in UMRA ($164
million in 2019, adjusted annually for inflation).
Estimate prepared by: Revenues: Staff of the Joint
Committee on Taxation and Ellen Steele; Mandates: Staff of the
Joint Committee on Taxation.
Estimate reviewed by: Joshua Shakin, Chief, Revenue
Estimating Unit; John McClelland, Assistant Director for Tax
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 and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee made findings and recommendations that are
reflected in this report.
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, therefore, no
statement of general performance goals and objectives is
required.
C. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4). The Committee has determined that the bill contains one
private sector unfunded mandate: it increases the top
individual income tax rate of 37 percent to 39.6 percent and
reduces the dollar amounts at which the 39.6 percent bracket
begins, subjecting more taxpayers to tax at the top individual
income tax rate. The Committee has determined that the bill
does not impose a Federal intergovernmental mandate on State,
local, or tribal governments.
D. Applicability of House Rule XXI, Clause 5(b)
Clause 5(b) of rule XXI of the Rules of the House of
Representatives provides, in part, that, ``It shall not be in
order to consider a bill, joint resolution, amendment, or
conference report carrying a retroactive Federal income tax
rate increase.'' The Committee, after careful review, states
that the bill does not involve any retroactive Federal income
tax rate increase within the meaning of the rule.
E. Tax Complexity Analysis
Section 4022(b) of Pub. L. No. 105-266, the Internal
Revenue Service Restructuring and Reform Act of 1998 (the
``RRA''), requires the staff of the Joint Committee on Taxation
(in consultation with the Internal Revenue Service and the
Treasury Department) to provide a tax complexity analysis. The
complexity analysis is required for all legislation reported by
the Senate Committee on Finance, the House Committee on Ways
and Means, or any committee of conference if the legislation
includes a provision that directly or indirectly amends the
Internal Revenue Code of 1986 and has `widespread
applicability' to individuals or small businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the RRA because the bill
contains no provision that amends the Internal Revenue Code of
1986 and has ``widespread applicability'' to individuals or
small businesses within the meaning of the rule.
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
G. Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
to Congress pursuant to section 21 of Pub. L. No. 111-139; or
(3) a program related to a program identified in the most
recent Catalog of Federal Domestic Assistance, published
pursuant to section 6104 of title 31, United States Code.
H. Hearings
In compliance with Sec. 103(i) of H. Res. 6 (116th
Congress) the following hearing was used to develop or consider
H.R. 397: The June 25, 2019 hearing of the Committee on Ways
and Means Subcommittee on Select Revenue Measures entitled
``How Recent Limitations to the SALT Deduction Harm
Communities, Schools, First Responders, and Housing Values''
and the following related hearing was held: The June 25, 2019,
Member Day hearing held by the Committee on Ways and Means
Subcommittee on Select Revenue Measures to hear testimony on
the consequences of and potential remedies to the recent
changes made to the Federal tax treatment of State and local
taxes.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL
A. Changes in Existing Law Proposed by the Bill
Pursuant to clause 3(e)(1)(B) of rule XIII of the Rules of
the House of Representatives, changes in existing law proposed
by the bill 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):
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, and 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) Married individuals filing joint returns and surviving
spouses.--There is hereby imposed on the taxable income of--
(1) every married individual (as defined in section
7703) who makes a single return jointly with his spouse
under section 6013, and
(2) every surviving spouse (as defined in section
2(a)), a tax determined in accordance with the
following table:
------------------------------------------------------------------------
If taxable income is: The tax is:
------------------------------------------------------------------------
Not over $36,900 15% of taxable income.
Over $36,900 but not over $89,150 $5,535, plus 28% of the excess
over $36,900.
Over $89,150 but not over $140,000 $20,165, plus 31% of the excess
over $89,150.
Over $140,000 but not over $250,000 $35,928.50, plus 36% of the
excess over $140,000.
Over $250,000 $75,528.50, plus 39.6% of the
excess over $250,000.
------------------------------------------------------------------------
(b) Heads of Households.--There is hereby imposed on the
taxable income of every head of a household (as defined in
section 2(b)) a tax determined in accordance with the following
table:
------------------------------------------------------------------------
If taxable income is: The tax is:
------------------------------------------------------------------------
Not over $29,600 15% of taxable income.
Over $29,600 but not over $76,400 $4,440, plus 28% of the excess
over $29,600.
Over $76,400 but not over $127,500 $17,544, plus 31% of the excess
over $76,400.
Over $127,500 but not over $250,000 $33,385, plus 36% of the excess
over $127,500.
Over $250,000 $77,485, plus 39.6% of the excess
over $250,000.
------------------------------------------------------------------------
(c) Unmarried Individuals (Other Than Surviving Spouses and
Heads of Households).--There is hereby imposed on the taxable
income of every individual (other than a surviving spouse as
defined in section 2(a) or the head of a household as defined
in section 2(b)) who is not a married individual (as defined in
section 7703) a tax determined in accordance with the following
table:
------------------------------------------------------------------------
If taxable income is: The tax is:
------------------------------------------------------------------------
Not over $22,100 15% of taxable income.
Over $22,100 but not over $53,500 $3,315, plus 28% of the excess
over $22,100.
Over $53,500 but not over $115,000 $12,107, plus 31% of the excess
over $53,500.
Over $115,000 but not over $250,000 $31,172, plus 36% of the excess
over $115,000.
Over $250,000 $79,772, plus 39.6% of the excess
over $250,000.
------------------------------------------------------------------------
(d) Married Individuals Filing Separate Returns.--There is
hereby imposed on the taxable income of every married
individual (as defined in section 7703) who does not make a
single return jointly with his spouse under section 6013, a tax
determined in accordance with the following table:
------------------------------------------------------------------------
If taxable income is: The tax is:
------------------------------------------------------------------------
Not over $18,450 15% of taxable income.
Over $18,450 but not over $44,575 $2,767.50, plus 28% of the excess
over $18,450.
Over $44,575 but not over $70,000 $10,082.50, plus 31% of the
excess over $44,575.
Over $70,000 but not over $125,000 $17,964.25, plus 36% of the
excess over $70,000.
Over $125,000 $37,764.25, plus 39.6% of the
excess over $125,000.
------------------------------------------------------------------------
(e) Estates and Trusts.--There is hereby imposed on the
taxable income of--
(1) every estate, and
(2) every trust, taxable under this subsection a tax
determined in accordance with the following table:
------------------------------------------------------------------------
If taxable income is: The tax is:
------------------------------------------------------------------------
Not over $1,500 15% of taxable income.
Over $1,500 but not over $3,500 $225, plus 28% of the excess over
$1,500.
Over $3,500 but not over $5,500 $785, plus 31% of the excess over
$3,500.
Over $5,500 but not over $7,500 $1,405, plus 36% of the excess
over $5,500.
Over $7,500 $2,125, plus 39.6% of the excess
over $7,500.
------------------------------------------------------------------------
(f) Phaseout of marriage penalty in 15-percent bracket;
adjustments in tax tables so that inflation will not result in
tax increases.--
(1) In general.--Not later than December 15 of 1993,
and each subsequent calendar year, the Secretary shall
prescribe tables which shall apply in lieu of the
tables contained in subsections (a), (b), (c), (d), and
(e) with respect to taxable years beginning in the
succeeding calendar year.
(2) Method of prescribing tables.--The table which
under paragraph (1) is to apply in lieu of the table
contained in subsection (a), (b), (c), (d), or (e), as
the case may be, with respect to taxable years
beginning in any calendar year shall be prescribed--
(A) except as provided in paragraph (8), by
increasing the minimum and maximum dollar
amounts for each bracket for which a tax is
imposed under such table by the cost-of-living
adjustment for such calendar year, determined--
(i) except as provided in clause
(ii), by substituting ``1992'' for
``2016'' in paragraph (3)(A)(ii), and
(ii) in the case of adjustments to
the dollar amounts at which the 36
percent rate bracket begins or at which
the 39.6 percent rate bracket begins,
by substituting ``1993'' for ``2016''
in paragraph (3)(A)(ii),
(B) by not changing the rate applicable to
any rate bracket as adjusted under subparagraph
(A), and
(C) by adjusting the amounts setting forth
the tax to the extent necessary to reflect the
adjustments in the rate brackets.
(3) Cost-of-living adjustment.--For purposes of this
subsection--
(A) In general.--The cost-of-living
adjustment for any calendar year is the
percentage (if any) by which--
(i) the C-CPI-U for the preceding
calendar year, exceeds
(ii) the CPI for calendar year 2016,
multiplied by the amount determined
under subparagraph (B).
(B) Amount determined.--The amount determined
under this clause is the amount obtained by
dividing--
(i) the C-CPI-U for calendar year
2016, by
(ii) the CPI for calendar year 2016.
(C) Special rule for adjustments with a base
year after 2016.--For purposes of any provision
of this title which provides for the
substitution of a year after 2016 for ``2016''
in subparagraph (A)(ii), subparagraph (A) shall
be applied by substituting ``the C-CPI-U for
calendar year 2016'' for ``the CPI for calendar
year 2016'' and all that follows in clause (ii)
thereof.
(4) CPI for any calendar year.--For purposes of
paragraph (3), the CPI for any calendar year is the
average of the Consumer Price Index as of the close of
the 12-month period ending on August 31 of such
calendar year.
(5) Consumer Price Index.--For purposes of paragraph
(4), the term ``Consumer Price Index'' means the last
Consumer Price Index for all-urban consumers published
by the Department of Labor. For purposes of the
preceding sentence, the revision of the Consumer Price
Index which is most consistent with the Consumer Price
Index for calendar year 1986 shall be used.
(6) C-CPI-U.--For purposes of this subsection--
(A) In general.--The term ``C-CPI-U'' means
the Chained Consumer Price Index for All Urban
Consumers (as published by the Bureau of Labor
Statistics of the Department of Labor). The
values of the Chained Consumer Price Index for
All Urban Consumers taken into account for
purposes of determining the cost-of-living
adjustment for any calendar year under this
subsection shall be the latest values so
published as of the date on which such Bureau
publishes the initial value of the Chained
Consumer Price Index for All Urban Consumers
for the month of August for the preceding
calendar year.
(B) Determination for calendar year.--The C-
CPI-U for any calendar year is the average of
the C-CPI-U as of the close of the 12-month
period ending on August 31 of such calendar
year.
(7) Rounding.--
(A) In general.--If any increase determined
under paragraph (2)(A), section 63(c)(4),
section 68(b)(2) or section 151(d)(4) is not a
multiple of $50, such increase shall be rounded
to the next lowest multiple of $50.
(B) Table for married individuals filing
separately.--In the case of a married
individual filing a separate return,
subparagraph (A) (other than with respect to
sections 63(c)(4) and 151(d)(4)(A)) shall be
applied by substituting ``$25'' for ``$50''
each place it appears.
(8) Elimination of marriage penalty in 15-percent
bracket.--With respect to taxable years beginning after
December 31, 2003, in prescribing the tables under
paragraph (1)--
(A) the maximum taxable income in the 15-
percent rate bracket in the table contained in
subsection (a) (and the minimum taxable income
in the next higher taxable income bracket in
such table) shall be 200 percent of the maximum
taxable income in the 15-percent rate bracket
in the table contained in subsection (c) (after
any other adjustment under this subsection),
and
(B) the comparable taxable income amounts in
the table contained in subsection (d) shall be
1/2 of the amounts determined under
subparagraph (A).
(g) Certain unearned income of children taxed as if parent's
income.--
(1) In general.--In the case of any child to whom
this subsection applies, the tax imposed by this
section shall be equal to the greater of--
(A) the tax imposed by this section without
regard to this subsection, or
(B) the sum of--
(i) the tax which would be imposed by
this section if the taxable income of
such child for the taxable year were
reduced by the net unearned income of
such child, plus
(ii) such child's share of the
allocable parental tax.
(2) Child to whom subsection applies.--This
subsection shall apply to any child for any taxable
year if--
(A) such child--
(i) has not attained age 18 before
the close of the taxable year, or
(ii)(I) has attained age 18 before
the close of the taxable year and meets
the age requirements of section
152(c)(3) (determined without regard to
subparagraph (B) thereof), and
(II) whose earned income (as defined
in section 911(d)(2)) for such taxable
year does not exceed one-half of the
amount of the individual's support
(within the meaning of section
152(c)(1)(D) after the application of
section 152(f)(5) (without regard to
subparagraph (A) thereof)) for such
taxable year,
(B) either parent of such child is alive at
the close of the taxable year, and
(C) such child does not file a joint return
for the taxable year.
(3) Allocable parental tax.--For purposes of this
subsection--
(A) In general.--The term ``allocable
parental tax'' means the excess of--
(i) the tax which would be imposed by
this section on the parent's taxable
income if such income included the net
unearned income of all children of the
parent to whom this subsection applies,
over
(ii) the tax imposed by this section
on the parent without regard to this
subsection.
For purposes of clause (i), net unearned income
of all children of the parent shall not be
taken into account in computing any exclusion,
deduction, or credit of the parent.
(B) Child's share.--A child's share of any
allocable parental tax of a parent shall be
equal to an amount which bears the same ratio
to the total allocable parental tax as the
child's net unearned income bears to the
aggregate net unearned income of all children
of such parent to whom this subsection applies.
(C) Special rule where parent has different
taxable year.--Except as provided in
regulations, if the parent does not have the
same taxable year as the child, the allocable
parental tax shall be determined on the basis
of the taxable year of the parent ending in the
child's taxable year.
(4) Net unearned income.--For purposes of this
subsection--
(A) In general.--The term ``net unearned
income'' means the excess of--
(i) the portion of the adjusted gross
income for the taxable year which is
not attributable to earned income (as
defined in section 911(d)(2)), over
(ii) the sum of--
(I) the amount in effect for
the taxable year under section
63(c)(5)(A) (relating to
limitation on standard
deduction in the case of
certain dependents), plus
(II) the greater of the
amount described in subclause
(I) or, if the child itemizes
his deductions for the taxable
year, the amount of the
itemized deductions allowed by
this chapter for the taxable
year which are directly
connected with the production
of the portion of adjusted
gross income referred to in
clause (i).
(B) Limitation based on taxable income.--The
amount of the net unearned income for any
taxable year shall not exceed the individual's
taxable income for such taxable year.
(C) Treatment of distributions from qualified
disability trusts.--For purposes of this
subsection, in the case of any child who is a
beneficiary of a qualified disability trust (as
defined in section 642(b)(2)(C)(ii)), any
amount included in the income of such child
under sections 652 and 662 during a taxable
year shall be considered earned income of such
child for such taxable year.
(5) Special rules for determining parent to whom
subsection applies.--For purposes of this subsection,
the parent whose taxable income shall be taken into
account shall be--
(A) in the case of parents who are not
married (within the meaning of section 7703),
the custodial parent (within the meaning of
section 152(e)) of the child, and
(B) in the case of married individuals filing
separately, the individual with the greater
taxable income.
(6) Providing of parent's TIN.--The parent of any
child to whom this subsection applies for any taxable
year shall provide the TIN of such parent to such child
and such child shall include such TIN on the child's
return of tax imposed by this section for such taxable
year.
(7) Election to claim certain unearned income of
child on parent's return.--
(A) In general.--If--
(i) any child to whom this subsection
applies has gross income for the
taxable year only from interest and
dividends (including Alaska Permanent
Fund dividends),
(ii) such gross income is more than
the amount described in paragraph
(4)(A)(ii)(I) and less than 10 times
the amount so described,
(iii) no estimated tax payments for
such year are made in the name and TIN
of such child, and no amount has been
deducted and withheld under section
3406, and
(iv) the parent of such child (as
determined under paragraph (5)) elects
the application of subparagraph (B),
such child shall be treated (other than for
purposes of this paragraph) as having no gross
income for such year and shall not be required
to file a return under section 6012.
(B) Income included on parent's return.--In
the case of a parent making the election under
this paragraph--
(i) the gross income of each child to
whom such election applies (to the
extent the gross income of such child
exceeds twice the amount described in
paragraph (4)(A)(ii)(I)) shall be
included in such parent's gross income
for the taxable year,
(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) the amount determined
under this section after the
application of clause (i), plus
(II) for each such child, 10
percent 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
(iii) any interest which is an item
of tax preference under section
57(a)(5) of the child shall be treated
as an item of tax preference of such
parent (and not of such child).
(C) Regulations.--The Secretary shall
prescribe such regulations as may be necessary
or appropriate to carry out the purposes of
this paragraph.
(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) taxable income reduced by the net
capital gain; or
(ii) the lesser of--
(I) the amount of taxable
income taxed at a rate below 25
percent; or
(II) taxable income reduced
by the adjusted net capital
gain;
(B) 0 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 25
percent, over
(ii) the taxable income reduced by
the adjusted net capital gain;
(C) 15 percent of the lesser of--
(i) so much of the adjusted net
capital gain (or, if less, taxable
income) as exceeds the amount on which
a tax is determined under subparagraph
(B), or
(ii) the excess of--
(I) the amount of taxable
income which would (without
regard to this paragraph) be
taxed at a rate below 39.6
percent, over
(II) the sum of the amounts
on which a tax is determined
under subparagraphs (A) and
(B),
(D) 20 percent of the adjusted net capital
gain (or, if less, taxable income) in excess of
the sum of the amounts on which tax is
determined under subparagraphs (B) and (C),
(E) 25 percent of the excess (if any) of--
(i) the unrecaptured section 1250
gain (or, if less, the net capital gain
(determined without regard to paragraph
(11))), over
(ii) the excess (if any) of--
(I) the sum of the amount on
which tax is determined under
subparagraph (A) plus the net
capital gain, over
(II) taxable income; and
(F) 28 percent of the amount of taxable
income in excess of the sum of the amounts on
which tax is determined under the preceding
subparagraphs of this paragraph.
(2) Net capital gain taken into account as investment
income.--For purposes of this subsection, the net
capital gain for any taxable year shall be reduced (but
not below zero) by the amount which the taxpayer takes
into account as investment income under section
163(d)(4)(B)(iii).
(3) Adjusted net capital gain.--For purposes of this
subsection, the term ``adjusted net capital gain''
means the sum of--
(A) net capital gain (determined without
regard to paragraph (11)) reduced (but not
below zero) by the sum of--
(i) unrecaptured section 1250 gain,
and
(ii) 28-percent rate gain, plus
(B) qualified dividend income (as defined in
paragraph (11)).
(4) 28-percent rate gain.--For purposes of this
subsection, the term ``28-percent rate gain'' means the
excess (if any) of--
(A) the sum of--
(i) collectibles gain; and
(ii) section 1202 gain, over
(B) the sum of--
(i) collectibles loss;
(ii) the net short-term capital loss;
and
(iii) the amount of long-term capital
loss carried under section
1212(b)(1)(B) to the taxable year.
(5) Collectibles gain and loss.--For purposes of this
subsection--
(A) In general.--The terms ``collectibles
gain'' and ``collectibles loss'' mean gain or
loss (respectively) from the sale or exchange
of a collectible (as defined in section 408(m)
without regard to paragraph (3) thereof) which
is a capital asset held for more than 1 year
but only to the extent such gain is taken into
account in computing gross income and such loss
is taken into account in computing taxable
income.
(B) Partnerships, etc..--For purposes of
subparagraph (A), any gain from the sale of an
interest in a partnership, S corporation, or
trust which is attributable to unrealized
appreciation in the value of collectibles shall
be treated as gain from the sale or exchange of
a collectible. Rules similar to the rules of
section 751 shall apply for purposes of the
preceding sentence.
(6) Unrecaptured section 1250 gain.--For purposes of
this subsection--
(A) In general.--The term ``unrecaptured
section 1250 gain'' means the excess (if any)
of--
(i) the amount of long-term capital
gain (not otherwise treated as ordinary
income) which would be treated as
ordinary income if section 1250(b)(1)
included all depreciation and the
applicable percentage under section
1250(a) were 100 percent, over
(ii) the excess (if any) of--
(I) the amount described in
paragraph (4)(B); over
(II) the amount described in
paragraph (4)(A).
(B) Limitation with respect to section 1231
property.--The amount described in subparagraph
(A)(i) from sales, exchanges, and conversions
described in section 1231(a)(3)(A) for any
taxable year shall not exceed the net section
1231 gain (as defined in section 1231(c)(3))
for such year.
(7) Section 1202 gain.--For purposes of this
subsection, the term ``section 1202 gain'' means the
excess of--
(A) the gain which would be excluded from
gross income under section 1202 but for the
percentage limitation in section 1202(a), over
(B) the gain excluded from gross income under
section 1202.
(8) Coordination with recapture of net ordinary
losses under section 1231.--If any amount is treated as
ordinary income under section 1231(c), such amount
shall be allocated among the separate categories of net
section 1231 gain (as defined in section 1231(c)(3)) in
such manner as the Secretary may by forms or
regulations prescribe.
(9) Regulations.--The Secretary may prescribe such
regulations as are appropriate (including regulations
requiring reporting) to apply this subsection in the
case of sales and exchanges by pass-thru entities and
of interests in such entities.
(10) Pass-thru entity defined.--For purposes of this
subsection, the term ``pass-thru entity'' means--
(A) a regulated investment company;
(B) a real estate investment trust;
(C) an S corporation;
(D) a partnership;
(E) an estate or trust;
(F) a common trust fund; and
(G) a qualified electing fund (as defined in
section 1295).
(11) Dividends taxed as net capital gain.--
(A) In general.--For purposes of this
subsection, the term ``net capital gain'' means
net capital gain (determined without regard to
this paragraph) increased by qualified dividend
income.
(B) Qualified dividend income.--For purposes
of this paragraph--
(i) In general.--The term ``qualified
dividend income'' means dividends
received during the taxable year from--
(I) domestic corporations,
and
(II) qualified foreign
corporations.
(ii) Certain dividends excluded.--
Such term shall not include--
(I) any dividend from a
corporation which for the
taxable year of the corporation
in which the distribution is
made, or the preceding taxable
year, is a corporation exempt
from tax under section 501 or
521,
(II) any amount allowed as a
deduction under section 591
(relating to deduction for
dividends paid by mutual
savings banks, etc.), and
(III) any dividend described
in section 404(k).
(iii) Coordination with section
246(c).--Such term shall not include
any dividend on any share of stock--
(I) with respect to which the
holding period requirements of
section 246(c) are not met
(determined by substituting in
section 246(c) ``60 days'' for
``45 days'' each place it
appears and by substituting
``121-day period'' for ``91-day
period''), or
(II) to the extent that the
taxpayer is under an obligation
(whether pursuant to a short
sale or otherwise) to make
related payments with respect
to positions in substantially
similar or related property.
(C) Qualified foreign corporations.--
(i) In general.--Except as otherwise
provided in this paragraph, the term
``qualified foreign corporation'' means
any foreign corporation if--
(I) such corporation is
incorporated in a possession of
the United States, or
(II) such corporation is
eligible for benefits of a
comprehensive income tax treaty
with the United States which
the Secretary determines is
satisfactory for purposes of
this paragraph and which
includes an exchange of
information program.
(ii) Dividends on stock readily
tradable on United States securities
market.--A foreign corporation not
otherwise treated as a qualified
foreign corporation under clause (i)
shall be so treated with respect to any
dividend paid by such corporation if
the stock with respect to which such
dividend is paid is readily tradable on
an established securities market in the
United States.
(iii) Exclusion of dividends of
certain foreign corporations.--Such
term shall not include--
(I) any foreign corporation
which for the taxable year of
the corporation in which the
dividend was paid, or the
preceding taxable year, is a
passive foreign investment
company (as defined in section
1297), and
(II) any corporation which
first becomes a surrogate
foreign corporation (as defined
in section 7874(a)(2)(B)) after
the date of the enactment of
this subclause, other than a
foreign corporation which is
treated as a domestic
corporation under section
7874(b).
(iv) Coordination with foreign tax
credit limitation.--Rules similar to
the rules of section 904(b)(2)(B) shall
apply with respect to the dividend rate
differential under this paragraph.
(D) Special rules.--
(i) Amounts taken into account as
investment income.--Qualified dividend
income shall not include any amount
which the taxpayer takes into account
as investment income under section
163(d)(4)(B).
(ii) Extraordinary dividends.--If a
taxpayer to whom this section applies
receives, with respect to any share of
stock, qualified dividend income from 1
or more dividends which are
extraordinary dividends (within the
meaning of section 1059(c)), any loss
on the sale or exchange of such share
shall, to the extent of such dividends,
be treated as long-term capital loss.
(iii) Treatment of dividends from
regulated investment companies and real
estate investment trusts.--A dividend
received from a regulated investment
company or a real estate investment
trust shall be subject to the
limitations prescribed in sections 854
and 857.
(i) Rate reductions after 2000.--
(1) 10-percent 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 10 percent, and
(ii) the 15 percent rate of tax shall
apply only to taxable income over the
initial bracket amount but not over the
maximum dollar amount for the 15-
percent rate bracket.
(B) Initial bracket amount.--For purposes of
this paragraph, the initial bracket amount is--
(i) $14,000 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) (after adjustment, if any,
under subparagraph (C)) 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 2003--
(i) the cost-of-living adjustment
shall be determined under subsection
(f)(3) by substituting ``2002'' for
``2016'' in subparagraph (A)(ii)
thereof, and
(ii) the adjustments under clause (i)
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) 25-, 28-, and 33-percent rate brackets.--The
tables under subsections (a), (b), (c), (d), and (e)
shall be applied--
(A) by substituting ``25%'' for ``28%'' each
place it appears (before the application of
subparagraph (B)),
(B) by substituting ``28%'' for ``31%'' each
place it appears, and
(C) by substituting ``33%'' for ``36%'' each
place it appears.
(3) Modifications to income tax brackets for high-
income taxpayers.--
(A) 35-percent rate bracket.--In the case of
taxable years beginning after December 31,
2012--
(i) the rate of tax under subsections
(a), (b), (c), and (d) on a taxpayer's
taxable income in the highest rate
bracket shall be 35 percent to the
extent such income does not exceed an
amount equal to the excess of--
(I) the applicable threshold,
over
(II) the dollar amount at
which such bracket begins, and
(ii) the 39.6 percent rate of tax
under such subsections shall apply only
to the taxpayer's taxable income in
such bracket in excess of the amount to
which clause (i) applies.
(B) Applicable threshold.--For purposes of
this paragraph, the term ``applicable
threshold'' means--
(i) $450,000 in the case of
subsection (a),
(ii) $425,000 in the case of
subsection (b),
(iii) $400,000 in the case of
subsection (c), and
(iv) 1/2 the amount applicable under
clause (i) (after adjustment, if any,
under subparagraph (C)) in the case of
subsection (d).
(C) Inflation adjustment.--For purposes of
this paragraph, with respect to taxable years
beginning in calendar years after 2013, each of
the dollar amounts under clauses (i), (ii), and
(iii) of subparagraph (B) shall be adjusted in
the same manner as under paragraph (1)(C)(i),
except that subsection (f)(3)(A)(ii) shall be
applied by substituting ``2012'' for ``2016''.
(4) Adjustment of tables.--The Secretary shall adjust
the tables prescribed under subsection (f) to carry out
this subsection.
(j) Modifications for taxable years 2018 through 2025.--
(1) In general.--In the case of a taxable year
beginning after December 31, 2017, and before January
1, 2026--
(A) subsection (i) shall not apply, and
(B) this section (other than subsection (i))
shall be applied as provided in paragraphs (2)
through (6).
(2) Rate tables.--
(A) Married individuals filing joint returns
and surviving spouses.--The following table
shall be applied in lieu of the table contained
in subsection (a):
------------------------------------------------------------------------
If taxable income is: The tax is:
------------------------------------------------------------------------
Not over $19,050..................... 10% of taxable income.
Over $19,050 but not over $77,400.... $1,905, plus 12% of the excess
over $19,050.
Over $77,400 but not over $165,000... $8,907, plus 22% of the excess
over $77,400.
Over $165,000 but not over $315,000.. $28,179, plus 24% of the excess
over $165,000.
Over $315,000 but not over $400,000.. $64,179, plus 32% of the excess
over $315,000.
Over $400,000 but not over [$600,000] $91,379, plus 35% of the excess
$479,000 .. over $400,000.
Over [$600,000] $479,000 [$161,379] $119,029 , plus[37%]
........................ 39.6% of the excess
over[$600,000] $479,000 .
------------------------------------------------------------------------
(B) Heads of households.--The following table
shall be applied in lieu of the table contained
in subsection (b):
------------------------------------------------------------------------
If taxable income is: The tax is:
------------------------------------------------------------------------
Not over $13,600..................... 10% of taxable income.
Over $13,600 but not over $51,800.... $1,360, plus 12% of the excess
over $13,600.
Over $51,800 but not over $82,500.... $5,944, plus 22% of the excess
over $51,800.
Over $82,500 but not over $157,500... $12,698, plus 24% of the excess
over $82,500.
Over $157,500 but not over $200,000.. $30,698, plus 32% of the excess
over $157,500.
Over $200,000 but not over [$500,000] $44,298, plus 35% of the excess
$452,400 .. over $200,000.
Over [$500,000] $452,400 [$149,298] $132,638 , plus[37%]
........................ 39.6% of the excess
over[$500,000] $452,400 .
------------------------------------------------------------------------
(C) Unmarried individuals other than
surviving spouses and heads of households.--The
following table shall be applied in lieu of the
table contained in subsection (c):
------------------------------------------------------------------------
If taxable income is: The tax is:
------------------------------------------------------------------------
Not over $9,525...................... 10% of taxable income.
Over $9,525 but not over $38,700..... $952.50, plus 12% of the excess
over $9,525.
Over $38,700 but not over $82,500.... $4,453.50, plus 22% of the excess
over $38,700.
Over $82,500 but not over $157,500... $14,089.50, plus 24% of the
excess over $82,500.
Over $157,500 but not over $200,000.. $32,089.50, plus 32% of the
excess over $157,500.
Over $200,000 but not over [$500,000] $45,689.50, plus 35% of the
$425,800 .. excess over $200,000.
Over [$500,000] $425,800 [$150,689.50] $124,719.50 ,
........................ plus[37%] 39.6% of the excess
over[$500,000] $425,800 .
------------------------------------------------------------------------
(D) Married individuals filing separate
returns.--The following table shall be applied
in lieu of the table contained in subsection
(d):
------------------------------------------------------------------------
If taxable income is: The tax is:
------------------------------------------------------------------------
Not over $9,525...................... 10% of taxable income.
Over $9,525 but not over $38,700..... $952.50, plus 12% of the excess
over $9,525.
Over $38,700 but not over $82,500.... $4,453.50, plus 22% of the excess
over $38,700.
Over $82,500 but not over $157,500... $14,089.50, plus 24% of the
excess over $82,500.
Over $157,500 but not over $200,000.. $32,089.50, plus 32% of the
excess over $157,500.
Over $200,000 but not over [$300,000] $45,689.50, plus 35% of the
$239,500 .. excess over $200,000.
Over [$300,000] $239,500 [$80,689.50] $59,514.50 ,
........................ plus[37%] 39.6% of the excess
over[$300,000] $239,500 .
------------------------------------------------------------------------
(E) Estates and trusts.--The following table
shall be applied in lieu of the table contained
in subsection (e):
------------------------------------------------------------------------
If taxable income is: The tax is:
------------------------------------------------------------------------
Not over $2,550...................... 10% of taxable income.
Over $2,550 but not over $9,150...... $255, plus 24% of the excess over
$2,550.
Over $9,150 but not over $12,500..... $1,839, plus 35% of the excess
over $9,150.
Over $12,500......................... $3,011.50, plus[37%] 39.6% of the
excess over $12,500.
------------------------------------------------------------------------
(F) References to rate tables.--Any reference
in this title to a rate of tax under subsection
(c) shall be treated as a reference to the
corresponding rate bracket under subparagraph
(C) of this paragraph, except that the
reference in section 3402(q)(1) to the third
lowest rate of tax applicable under subsection
(c) shall be treated as a reference to the
fourth lowest rate of tax under subparagraph
(C).
(3) Adjustments.--
(A) No adjustment in 2018.--The tables
contained in paragraph (2) shall apply without
adjustment for taxable years beginning after
December 31, 2017, and before January 1, 2019.
(B) Subsequent years.--For taxable years
beginning after December 31, 2018, the
Secretary shall prescribe tables which shall
apply in lieu of the tables contained in
paragraph (2) in the same manner as under
paragraphs (1) and (2) of subsection (f)
(applied without regard to clauses (i) and (ii)
of subsection (f)(2)(A)), except that in
prescribing such tables--
(i) subsection (f)(3) shall be
applied by substituting ``calendar year
2017'' for ``calendar year 2016'' in
subparagraph (A)(ii) thereof,
(ii) subsection (f)(7)(B) shall apply
to any unmarried individual other than
a surviving spouse or head of
household, and
(iii) subsection (f)(8) shall not
apply.
(4) Special rules for certain children with unearned
income.--
(A) In general.--In the case of a child to
whom subsection (g) applies for the taxable
year, the rules of subparagraphs (B) and (C)
shall apply in lieu of the rule under
subsection (g)(1).
(B) Modifications to applicable rate
brackets.--In determining the amount of tax
imposed by this section for the taxable year on
a child described in subparagraph (A), the
income tax table otherwise applicable under
this subsection to the child shall be applied
with the following modifications:
(i) 24-percent bracket.--The maximum
taxable income which is taxed at a rate
below 24 percent shall not be more than
the sum of--
(I) the earned taxable income
of such child, plus
(II) the minimum taxable
income for the 24-percent
bracket in the table under
paragraph (2)(E) (as adjusted
under paragraph (3)) for the
taxable year.
(ii) 35-percent bracket.--The maximum
taxable income which is taxed at a rate
below 35 percent shall not be more than
the sum of--
(I) the earned taxable income
of such child, plus
(II) the minimum taxable
income for the 35-percent
bracket in the table under
paragraph (2)(E) (as adjusted
under paragraph (3)) for the
taxable year.
(iii) [37-percent bracket] 39.6-
percent bracket.--The maximum taxable
income which is taxed at a rate below
[37 percent] 39.6 percent shall not be
more than the sum of--
(I) the earned taxable income
of such child, plus
(II) the minimum taxable
income for the [37-percent
bracket] 39.6-percent bracket
in the table under paragraph
(2)(E) (as adjusted under
paragraph (3)) for the taxable
year.
(C) Coordination with capital gains rates.--
For purposes of applying section 1(h) (after
the modifications under paragraph (5)(A))--
(i) the maximum zero rate amount
shall not be more than the sum of--
(I) the earned taxable income
of such child, plus
(II) the amount in effect
under [paragraph (5)(B)(i)(IV)]
paragraph (5)(B)(iv) for the
taxable year, and
[(ii) the maximum 15-percent rate
amount shall not be more than the sum
of--
[(I) the earned taxable
income of such child, plus
[(II) the amount in effect
under paragraph (5)(B)(ii)(IV)
for the taxable year.]
(ii) the amount which would (without
regard to this paragraph) be taxed at a
rate below 39.6 percent shall not be
more than the sum of--
(I) the earned taxable income
of such child, plus
(II) the maximum dollar
amount for the 35-percent rate
bracket for estates and trusts.
(D) Earned taxable income.--For purposes of
this paragraph, the term ``earned taxable
income'' means, with respect to any child for
any taxable year, the taxable income of such
child reduced (but not below zero) by the net
unearned income (as defined in subsection
(g)(4)) of such child.
(5) [Application of current income tax brackets to
capital gains brackets.--] Application of zero percent
capital gain rate brackets._
[(A) In general.--Section 1(h)(1) shall be
applied--
[(i) by substituting ``below the
maximum zero rate amount'' for ``which
would (without regard to this
paragraph) be taxed at a rate below 25
percent'' in subparagraph (B)(i), and
[(ii) by substituting ``below the
maximum 15-percent rate amount'' for
``which would (without regard to this
paragraph) be taxed at a rate below
39.6 percent'' in subparagraph
(C)(ii)(I).
[(B) Maximum amounts defined.--For purposes
of applying section 1(h) with the modifications
described in subparagraph (A)--
[(i) Maximum zero rate amount.--The
maximum zero rate amount shall be--
[(I) in the case of a joint
return or surviving spouse,
$77,200,
[(II) in the case of an
individual who is a head of
household (as defined in
section 2(b)), $51,700,
[(III) in the case of any
other individual (other than an
estate or trust), an amount
equal to 1/2 of the amount in
effect for the taxable year
under subclause (I), and
[(IV) in the case of an
estate or trust, $2,600.
[(ii) Maximum 15-percent rate
amount.--The maximum 15-percent rate
amount shall be--
[(I) in the case of a joint
return or surviving spouse,
$479,000 (1/2 such amount in
the case of a married
individual filing a separate
return),
[(II) in the case of an
individual who is the head of a
household (as defined in
section 2(b)), $452,400,
[(III) in the case of any
other individual (other than an
estate or trust), $425,800, and
[(IV) in the case of an
estate or trust, $12,700.]
(A) In general.--Subsection (h)(1)(B)(i)
shall be applied by substituting ``below the
maximum zero rate amount'' for ``which would
(without regard to this paragraph) be taxed at
a rate below 25 percent''.
(B) Maximum zero rate amount defined.--For
purposes of subparagraph (A), the term
``maximum zero rate amount'' means--
(i) in the case of a joint return or
surviving spouse, $77,200,
(ii) in the case of an individual who
is a head of household (as defined in
section 2(b)), $51,700,
(iii) in the case of any other
individual (other than an estate or
trust), an amount equal to 1/2 of the
amount in effect for the taxable year
under clause (i), and
(iv) in the case of an estate or
trust, $2,600.
(C) Inflation adjustment.--In the case of any
taxable year beginning after 2018, each of the
dollar amounts in [clauses (i) and (ii) of]
subparagraph (B) shall be increased by an
amount equal to--
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment
determined under subsection (f)(3) for
the calendar year in which the taxable
year begins, determined by substituting
``calendar year 2017'' for ``calendar
year 2016'' in subparagraph (A)(ii)
thereof.
If any increase under this subparagraph is not
a multiple of $50, such increase shall be
rounded to the next lowest multiple of $50.
(6) Section 15 not to apply.--Section 15 shall not
apply to any change in a rate of tax by reason of this
subsection.
* * * * * * *
Subchapter B--COMPUTATION OF TAXABLE INCOME
* * * * * * *
PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
* * * * * * *
SEC. 62. ADJUSTED GROSS INCOME DEFINED.
(a) General rule.--For purposes of this subtitle, the term
``adjusted gross income'' means, in the case of an individual,
gross income minus the following deductions:
(1) Trade and business deductions.--The deductions
allowed by this chapter (other than by part VII of this
subchapter) which are attributable to a trade or
business carried on by the taxpayer, if such trade or
business does not consist of the performance of
services by the taxpayer as an employee.
(2) Certain trade and business deductions of
employees.--
(A) Reimbursed expenses of employees.--The
deductions allowed by part VI (section 161 and
following) which consist of expenses paid or
incurred by the taxpayer, in connection with
the performance by him of services as an
employee, under a reimbursement or other
expense allowance arrangement with his
employer. The fact that the reimbursement may
be provided by a third party shall not be
determinative of whether or not the preceding
sentence applies.
(B) Certain expenses of performing artists.--
The deductions allowed by section 162 which
consist of expenses paid or incurred by a
qualified performing artist in connection with
the performances by him of services in the
performing arts as an employee.
(C) Certain expenses of officials.--The
deductions allowed by section 162 which consist
of expenses paid or incurred with respect to
services performed by an official as an
employee of a State or a political subdivision
thereof in a position compensated in whole or
in part on a fee basis.
(D) Certain expenses of elementary and
secondary school teachers.--The deductions
allowed by section 162 which consist of
expenses, not in excess of [$250] $500 , paid
or incurred by an eligible educator--
(i) by reason of the participation of
the educator in professional
development courses related to the
curriculum in which the educator
provides instruction or to the students
for which the educator provides
instruction, and
(ii) in connection with books,
supplies (other than nonathletic
supplies for courses of instruction in
health or physical education), computer
equipment (including related software
and services) and other equipment, and
supplementary materials used by the
eligible educator in the classroom.
(E) Certain expenses of members of reserve
components of the Armed Forces of the United
States.--The deductions allowed by section 162
which consist of expenses, determined at a rate
not in excess of the rates for travel expenses
(including per diem in lieu of subsistence)
authorized for employees of agencies under
subchapter I of chapter 57 of title 5, United
States Code, paid or incurred by the taxpayer
in connection with the performance of services
by such taxpayer as a member of a reserve
component of the Armed Forces of the United
States for any period during which such
individual is more than 100 miles away from
home in connection with such services.
(F) Certain expenses of first responders.--
The deductions allowed by section 162 which
consist of expenses, not in excess of $500,
paid or incurred by a first responder--
(i) as tuition or fees for the
participation of the first responder in
professional development courses
related to service as a first
responder, or
(ii) for uniforms used by the first
responder in service as a first
responder.
(3) Losses from sale or exchange of property.--The
deductions allowed by part VI (sec. 161 and following)
as losses from the sale or exchange of property.
(4) Deductions attributable to rents and royalties.--
The deductions allowed by part VI (sec. 161 and
following), by section 212 (relating to expenses for
production of income), and by section 611 (relating to
depletion) which are attributable to property held for
the production of rents or royalties.
(5) Certain deductions of life tenants and income
beneficiaries of property.--In the case of a life
tenant of property, or an income beneficiary of
property held in trust, or an heir, legatee, or devisee
of an estate, the deduction for depreciation allowed by
section 167 and the deduction allowed by section 611.
(6) Pension, profit-sharing, and annuity plans of
self-employed individuals.--In the case of an
individual who is an employee within the meaning of
section 401(c)(1), the deduction allowed by section
404.
(7) Retirement savings.--The deduction allowed by
section 219 (relating to deduction of certain
retirement savings).
(9) Penalties forfeited because of premature
withdrawal of funds from time savings accounts or
deposits.--The deductions allowed by section 165 for
losses incurred in any transaction entered into for
profit, though not connected with a trade or business,
to the extent that such losses include amounts
forfeited to a bank, mutual savings bank, savings and
loan association, building and loan association,
cooperative bank or homestead association as a penalty
for premature withdrawal of funds from a time savings
account, certificate of deposit, or similar class of
deposit.
(11) Reforestation expenses.--The deduction allowed
by section 194.
(12) Certain required repayments of supplemental
unemployment compensation benefits.--The deduction
allowed by section 165 for the repayment to a trust
described in paragraph (9) or (17) of section 501(c) of
supplemental unemployment compensation benefits
received from such trust if such repayment is required
because of the receipt of trade readjustment allowances
under section 231 or 232 of the Trade Act of 1974 (19
U.S.C. 2291 and 2292).
(13) Jury duty pay remitted to employer.--Any
deduction allowable under this chapter by reason of an
individual remitting any portion of any jury pay to
such individual's employer in exchange for payment by
the employer of compensation for the period such
individual was performing jury duty. For purposes of
the preceding sentence, the term ``jury pay'' means any
payment received by the individual for the discharge of
jury duty.
(15) Moving expenses.--The deduction allowed by
section 217.
(16) Archer MSAs.--The deduction allowed by section
220.
(17) Interest on education loans.--The deduction
allowed by section 221.
(18) Higher education expenses.--The deduction
allowed by section 222.
(19) Health savings accounts.--The deduction allowed
by section 223.
(20) Costs involving discrimination suits, etc..--Any
deduction allowable under this chapter for attorney
fees and court costs paid by, or on behalf of, the
taxpayer in connection with any action involving a
claim of unlawful discrimination (as defined in
subsection (e)) or a claim of a violation of subchapter
III of chapter 37 of title 31, United States Code, or a
claim made under section 1862(b)(3)(A) of the Social
Security Act (42 U.S.C. 1395y(b)(3)(A)). The preceding
sentence shall not apply to any deduction in excess of
the amount includible in the taxpayer's gross income
for the taxable year on account of a judgment or
settlement (whether by suit or agreement and whether as
lump sum or periodic payments) resulting from such
claim.
(21) Attorneys' fees relating to awards to
whistleblowers.--
(A) In general.--Any deduction allowable
under this chapter for attorney fees and court
costs paid by, or on behalf of, the taxpayer in
connection with any award under--
(i) section 7623(b), or
(ii) in the case of taxable years
beginning after December 31, 2017, any
action brought under--
(I) section 21F of the
Securities Exchange Act of 1934
(15 U.S.C. 78u-6),
(II) a State false claims
act, including a State false
claims act with qui tam
provisions, or
(III) section 23 of the
Commodity Exchange Act (7
U.S.C. 26).
(B) May not exceed award.--Subparagraph (A)
shall not apply to any deduction in excess of
the amount includible in the taxpayer's gross
income for the taxable year on account of such
award.
Nothing in this section shall permit the same item to be
deducted more than once. Any deduction allowed by section 199A
shall not be treated as a deduction described in any of the
preceding paragraphs of this subsection.
(b) Qualified performing artist.--
(1) In general.--For purposes of subsection
(a)(2)(B), the term ``qualified performing artist''
means, with respect to any taxable year, any individual
if--
(A) such individual performed services in the
performing arts as an employee during the
taxable year for at least 2 employers,
(B) the aggregate amount allowable as a
deduction under section 162 in connection with
the performance of such services exceeds 10
percent of such individual's gross income
attributable to the performance of such
services, and
(C) the adjusted gross income of such
individual for the taxable year (determined
without regard to subsection (a)(2)(B)) does
not exceed $16,000.
(2) Nominal employer not taken into account.--An
individual shall not be treated as performing services
in the performing arts as an employee for any employer
during any taxable year unless the amount received by
such individual from such employer for the performance
of such services during the taxable year equals or
exceeds $200.
(3) Special rules for married couples.--
(A) In general.--Except in the case of a
husband and wife who lived apart at all times
during the taxable year, if the taxpayer is
married at the close of the taxable year,
subsection (a)(2)(B) shall apply only if the
taxpayer and his spouse file a joint return for
the taxable year.
(B) Application of paragraph (1).--In the
case of a joint return--
(i) paragraph (1) (other than
subparagraph (C) thereof) shall be
applied separately with respect to each
spouse, but
(ii) paragraph (1)(C) shall be
applied with respect to their combined
adjusted gross income.
(C) Determination of marital status.--For
purposes of this subsection, marital status
shall be determined under section 7703(a).
(D) Joint return.--For purposes of this
subsection, the term ``joint return'' means the
joint return of a husband and wife made under
section 6013.
(c) Certain arrangements not treated as reimbursement
arrangements.--For purposes of subsection (a)(2)(A), an
arrangement shall in no event be treated as a reimbursement or
other expense allowance arrangement if--
(1) such arrangement does not require the employee to
substantiate the expenses covered by the arrangement to
the person providing the reimbursement, or
(2) such arrangement provides the employee the right
to retain any amount in excess of the substantiated
expenses covered under the arrangement.
The substantiation requirements of the preceding sentence shall
not apply to any expense to the extent that substantiation is
not required under section 274(d) for such expense by reason of
the regulations prescribed under the 2nd sentence thereof.
(d) Definition; special rules.--
(1) Eligible educator.--
(A) In general.--For purposes of subsection
(a)(2)(D), the term ``eligible educator''
means, with respect to any taxable year, an
individual who is a kindergarten through grade
12 teacher, instructor, counselor, principal,
or aide in a school for at least 900 hours
during a school year.
(B) School.--The term ``school'' means any
school which provides elementary education or
secondary education (kindergarten through grade
12), as determined under State law.
(2) Coordination with exclusions.--A deduction shall
be allowed under subsection (a)(2)(D) for expenses only
to the extent the amount of such expenses exceeds the
amount excludable under section 135, 529(c)(1), or
530(d)(2) for the taxable year.
(3) Inflation adjustment.--In the case of any taxable
year beginning after [2015] 2019 , the [$250] $500
amount in subsection (a)(2)(D)shall be increased by an
amount equal to--
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in
which the taxable year begins, determined by
substituting ``calendar year [2014] 2018 '' for
``calendar year 2016'' in subparagraph (A)(ii)
thereof.
Any increase determined under the preceding sentence
shall be rounded to the nearest multiple of $50.
[Paragraph (3) of section 62(d) of the Internal
Revenue Code of 1986 is amended by section 4 of H.R.
5377 (as reported) and applies for taxable years
beginning after December 31, 2018 (shown above). Such
paragraph is further amended by section 5(c) of H.R.
5377 (as reported) and applies for taxable years
beginning after December 31, 2019 (shown below).]
(3) Inflation adjustment.--In the case of any taxable
year beginning after 2019, [the $500 amount in
subsection (a)(2)(D)] the $500 amount in each of
subparagraphs (D) and (F) of subsection (a)(2) shall be
increased by an amount equal to--
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in
which the taxable year begins, determined by
substituting ``calendar year 2018'' for
``calendar year 2016'' in subparagraph (A)(ii)
thereof.
Any increase determined under the preceding sentence
shall be rounded to the nearest multiple of $50.
(4) First responder.--For purposes of subsection
(a)(2)(F), the term ``first responder'' means, with
respect to any taxable year, any individual who is
employed as a law enforcement officer, firefighter,
paramedic, or emergency medical technician for at least
1000 hours during such taxable year.
(e) Unlawful discrimination defined.--For purposes of
subsection (a)(20), the term ``unlawful discrimination'' means
an act that is unlawful under any of the following:
(1) Section 302 of the Civil Rights Act of 1991 (42
U.S.C. 2000e-16b).
(2) Section 201, 202, 203, 204, 205, 206, or 207 of
the Congressional Accountability Act of 1995 (2 U.S.C.
1311, 1312, 1313, 1314, 1315, 1316, or 1317).
(3) The National Labor Relations Act (29 U.S.C. 151
et seq.).
(4) The Fair Labor Standards Act of 1938 (29 U.S.C.
201 et seq.).
(5) Section 4 or 15 of the Age Discrimination in
Employment Act of 1967 (29 U.S.C. 623 or 633a).
(6) Section 501 or 504 of the Rehabilitation Act of
1973 (29 U.S.C. 791 or 794).
(7) Section 510 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1140).
(8) Title IX of the Education Amendments of 1972 (20
U.S.C. 1681 et seq.).
(9) The Employee Polygraph Protection Act of 1988 (29
U.S.C. 2001 et seq.).
(10) The Worker Adjustment and Retraining
Notification Act (29 U.S.C. 2102 et seq.).
(11) Section 105 of the Family and Medical Leave Act
of 1993 (29 U.S.C. 2615).
(12) Chapter 43 of title 38, United States Code
(relating to employment and reemployment rights of
members of the uniformed services).
(13) Section 1977, 1979, or 1980 of the Revised
Statutes (42 U.S.C. 1981, 1983, or 1985).
(14) Section 703, 704, or 717 of the Civil Rights Act
of 1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
(15) Section 804, 805, 806, 808, or 818 of the Fair
Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or
3617).
(16) Section 102, 202, 302, or 503 of the Americans
with Disabilities Act of 1990 (42 U.S.C. 12112, 12132,
12182, or 12203).
(17) Any provision of Federal law (popularly known as
whistleblower protection provisions) prohibiting the
discharge of an employee, the discrimination against an
employee, or any other form of retaliation or reprisal
against an employee for asserting rights or taking
other actions permitted under Federal law.
(18) Any provision of Federal, State, or local law,
or common law claims permitted under Federal, State, or
local law--
(i) providing for the enforcement of civil
rights, or
(ii) regulating any aspect of the employment
relationship, including claims for wages,
compensation, or benefits, or prohibiting the
discharge of an employee, the discrimination
against an employee, or any other form of
retaliation or reprisal against an employee for
asserting rights or taking other actions
permitted by law.
* * * * * * *
PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
* * * * * * *
SEC. 164. TAXES.
(a) General rule.--Except as otherwise provided in this
section, the following taxes shall be allowed as a deduction
for the taxable year within which paid or accrued:
(1) State and local, and foreign, real property
taxes.
(2) State and local personal property taxes.
(3) State and local, and foreign, income, war
profits, and excess profits taxes.
(4) The GST tax imposed on income distributions.
In addition, there shall be allowed as a deduction State and
local, and foreign, taxes not described in the preceding
sentence which are paid or accrued within the taxable year in
carrying on a trade or business or an activity described in
section 212 (relating to expenses for production of income).
Notwithstanding the preceding sentence, any tax (not described
in the first sentence of this subsection) which is paid or
accrued by the taxpayer in connection with an acquisition or
disposition of property shall be treated as part of the cost of
the acquired property or, in the case of a disposition, as a
reduction in the amount realized on the disposition.
(b) Definitions and special rules.--For purposes of this
section--
(1) Personal property taxes.--The term ``personal
property tax'' means an ad valorem tax which is imposed
on an annual basis in respect of personal property.
(2) State or local taxes.--A State or local tax
includes only a tax imposed by a State, a possession of
the United States, or a political subdivision of any of
the foregoing, or by the District of Columbia.
(3) Foreign taxes.--A foreign tax includes only a tax
imposed by the authority of a foreign country.
(4) Special rules for GST tax.--
(A) In general.--The GST tax imposed on
income distributions is--
(i) the tax imposed by section 2601,
and
(ii) any State tax described in
section 2604 (as in effect before its
repeal),
but only to the extent such tax is imposed on a
transfer which is included in the gross income
of the distributee and to which section 666
does not apply.
(B) Special rule for tax paid before due
date.--Any tax referred to in subparagraph (A)
imposed with respect to a transfer occurring
during the taxable year of the distributee (or,
in the case of a taxable termination, the
trust) which is paid not later than the time
prescribed by law (including extensions) for
filing the return with respect to such transfer
shall be treated as having been paid on the
last day of the taxable year in which the
transfer was made.
(5) General sales taxes.--For purposes of subsection
(a)--
(A) Election to deduct State and local sales
taxes in lieu of State and local income
taxes.--At the election of the taxpayer for the
taxable year, subsection (a) shall be applied--
(i) without regard to the reference
to State and local income taxes, and
(ii) as if State and local general
sales taxes were referred to in a
paragraph thereof.
(B) Definition of general sales tax.--The
term ``general sales tax'' means a tax imposed
at one rate with respect to the sale at retail
of a broad range of classes of items.
(C) Special rules for food, etc..--In the
case of items of food, clothing, medical
supplies, and motor vehicles--
(i) the fact that the tax does not
apply with respect to some or all of
such items shall not be taken into
account in determining whether the tax
applies with respect to a broad range
of classes of items, and
(ii) the fact that the rate of tax
applicable with respect to some or all
of such items is lower than the general
rate of tax shall not be taken into
account in determining whether the tax
is imposed at one rate.
(D) Items taxed at different rates.--Except
in the case of a lower rate of tax applicable
with respect to an item described in
subparagraph (C), no deduction shall be allowed
under this paragraph for any general sales tax
imposed with respect to an item at a rate other
than the general rate of tax.
(E) Compensating use taxes.--A compensating
use tax with respect to an item shall be
treated as a general sales tax. For purposes of
the preceding sentence, the term ``compensating
use tax'' means, with respect to any item, a
tax which--
(i) is imposed on the use, storage,
or consumption of such item, and
(ii) is complementary to a general
sales tax, but only if a deduction is
allowable under this paragraph with
respect to items sold at retail in the
taxing jurisdiction which are similar
to such item.
(F) Special rule for motor vehicles.--In the
case of motor vehicles, if the rate of tax
exceeds the general rate, such excess shall be
disregarded and the general rate shall be
treated as the rate of tax.
(G) Separately stated general sales taxes.--
If the amount of any general sales tax is
separately stated, then, to the extent that the
amount so stated is paid by the consumer (other
than in connection with the consumer's trade or
business) to the seller, such amount shall be
treated as a tax imposed on, and paid by, such
consumer.
(H) Amount of deduction may be determined
under tables.--
(i) In general.--At the election of
the taxpayer for the taxable year, the
amount of the deduction allowed under
this paragraph for such year shall be--
(I) the amount determined
under this paragraph (without
regard to this subparagraph)
with respect to motor vehicles,
boats, and other items
specified by the Secretary, and
(II) the amount determined
under tables prescribed by the
Secretary with respect to items
to which subclause (I) does not
apply.
(ii) Requirements for tables.--The
tables prescribed under clause (i)--
(I) shall reflect the
provisions of this paragraph,
(II) shall be based on the
average consumption by
taxpayers on a State-by-State
basis (as determined by the
Secretary) of items to which
clause (i)(I) does not apply,
taking into account filing
status, number of dependents,
adjusted gross income, and
rates of State and local
general sales taxation, and
(III) need only be determined
with respect to adjusted gross
incomes up to the applicable
amount (as determined under
section 68(b)).
(6) Limitation on individual deductions for taxable
years 2018 through 2025.--In the case of an individual
and a taxable year beginning after December 31, 2017,
and before January 1, 2026--
(A) foreign real property taxes shall not be
taken into account under subsection (a)(1), and
(B) in the case of a taxable year beginning
before January 1, 2020, or after December 31,
2021, the aggregate amount of taxes taken into
account under paragraphs (1), (2), and (3) of
subsection (a) and paragraph (5) of this
subsection for any taxable year shall not
exceed $10,000 ($5,000 in the case of a married
individual filing a separate return).
The preceding sentence shall not apply to any foreign
taxes described in subsection (a)(3) or to any taxes
described in paragraph (1) and (2) of subsection (a)
which are paid or accrued in carrying on a trade or
business or an activity described in section 212. [For
purposes of subparagraph (B)] For purposes of this
section , an amount paid in a taxable year beginning
before [January 1, 2018] January 1, 2022 , with respect
to a State or local income tax imposed for a taxable
year beginning after [December 31, 2017, shall]
December 31, 2021, shall be treated as paid on the last
day of the taxable year for which such tax is so
imposed. For purposes of this section, in the case of
State or local taxes with respect to any real or
personal property paid during a taxable year beginning
in 2020 or 2021, the Secretary shall prescribe rules
which treat all or a portion of such taxes as paid in a
taxable year or years other than the taxable year in
which actually paid as necessary or appropriate to
prevent the avoidance of the limitations of this
subsection.
(7) Special rule for limitation on individual
deductions for 2019.--In the case of a taxable year
beginning after December 31, 2018, and before January
1, 2020, paragraph (6) shall be applied by substituting
``($20,000 in the case of a joint return)'' for
``($5,000 in the case of a married individual filing a
separate return)''.
(c) Deduction denied in case of certain taxes.--No deduction
shall be allowed for the following taxes:
(1) Taxes assessed against local benefits of a kind
tending to increase the value of the property assessed;
but this paragraph shall not prevent the deduction of
so much of such taxes as is properly allocable to
maintenance or interest charges.
(2) Taxes on real property, to the extent that
subsection (d) requires such taxes to be treated as
imposed on another taxpayer.
(d) Apportionment of taxes on real property between seller
and purchaser.--
(1) General rule.--For purposes of subsection (a), if
real property is sold during any real property tax
year, then--
(A) so much of the real property tax as is
properly allocable to that part of such year
which ends on the day before the date of the
sale shall be treated as a tax imposed on the
seller, and
(B) so much of such tax as is properly
allocable to that part of such year which
begins on the date of the sale shall be treated
as a tax imposed on the purchaser.
(2) Special rules.--
(A) In the case of any sale of real property,
if--
(i) a taxpayer may not, by reason of
his method of accounting, deduct any
amount for taxes unless paid, and
(ii) the other party to the sale is
(under the law imposing the real
property tax) liable for the real
property tax for the real property tax
year,
then for purposes of subsection (a) the
taxpayer shall be treated as having paid, on
the date of the sale, so much of such tax as,
under paragraph (1) of this subsection, is
treated as imposed on the taxpayer. For
purposes of the preceding sentence, if neither
party is liable for the tax, then the party
holding the property at the time the tax
becomes a lien on the property shall be
considered liable for the real property tax for
the real property tax year.
(B) In the case of any sale of real property,
if the taxpayer's taxable income for the
taxable year during which the sale occurs is
computed under an accrual method of accounting,
and if no election under section 461(c)
(relating to the accrual of real property
taxes) applies, then, for purposes of
subsection (a), that portion of such tax
which--
(i) is treated, under paragraph (1)
of this subsection, as imposed on the
taxpayer, and
(ii) may not, by reason of the
taxpayer's method of accounting, be
deducted by the taxpayer for any
taxable year,
shall be treated as having accrued on the date
of the sale.
(e) Taxes of shareholder paid by corporation.--Where a
corporation pays a tax imposed on a shareholder on his interest
as a shareholder, and where the shareholder does not reimburse
the corporation, then--
(1) the deduction allowed by subsection (a) shall be
allowed to the corporation; and
(2) no deduction shall be allowed the shareholder for
such tax.
(f) Deduction for one-half of self-employment taxes.--
(1) In general.--In the case of an individual, in
addition to the taxes described in subsection (a),
there shall be allowed as a deduction for the taxable
year an amount equal to one-half of the taxes imposed
by section 1401 (other than the taxes imposed by
section 1401(b)(2)) for such taxable year.
(2) Deduction treated as attributable to trade or
business.--For purposes of this chapter, the deduction
allowed by paragraph (1) shall be treated as
attributable to a trade or business carried on by the
taxpayer which does not consist of the performance of
services by the taxpayer as an employee.
(g) Cross references.--
(1) For provisions disallowing any deduction
for certain taxes, see section 275.
(2) For treatment of taxes imposed by Indian
tribal governments (or their subdivisions), see
section 7871.
* * * * * * *
VII. DISSENTING VIEWS
At its core, this bill is about providing a massive tax cut
to the wealthy at the expense of small businesses. These are
the same risk takers and entrepreneurs who are helping us drive
our economy forward--the same job creators who experienced
historic levels of optimism, hiring, new investments, and pay
raises for their workers following the passage of the Tax Cuts
and Jobs Act (TCJA).
Before and after tax reform, taxpayers have had a choice of
either taking a simple standard deduction or itemizing a more
complicated series of deductions, including the state and local
tax (SALT) deduction. Even before tax reform, taking the
standard deduction was already the option of choice for the
vast majority of taxpayers. In the process of reforming our
outdated, uncompetitive, and complicated tax code, placing a
reasonable limit of $10,000 on the SALT deduction, which is a
regressive tax break that disproportionately favors the most
affluent taxpayers, enabled a near doubling of the simpler
standard deduction in tax reform. At the same time, this SALT
limit effectively held harmless low and middle-income tax
payers who itemized and took the SALT deduction. This not only
put more money in the pockets of middle-class taxpayers but
also provided much-needed tax simplification to millions of
Americans who will no longer need to struggle with itemizing
deductions when they file taxes.
It is also worth noting that tax reform, which not a single
member of the Majority supported, also addressed two provisions
in the tax code that previously hit people who took the SALT
deduction with a stealth tax hike. TCJA repealed the so-called
Pease limitation, under which taxpayers of certain income
levels could lose up to 80% of their itemized deductions,
including SALT and the charitable deduction. Tax reform also
provided generous alternative minimum tax (AMT) relief. AMT
taxpayers lose the ability to take any SALT deduction. And
before TCJA, taking a very large SALT deduction in the process
of filling out a tax return had often pushed many taxpayers
into the AMT trap. The combination of a much larger AMT
exemption and a reasonable limitation on SALT through tax
reform now means that only the most affluent taxpayers will pay
AMT. We hope that the most strident supporters of SALT on this
committee will remember this when we debate extending or
hopefully making provisions of tax reform permanent.
In order to blunt the criticism that expanding SALT is a
massive giveaway to the wealthy, the Majority raised the top
marginal income tax rate to 39.6% and expanded the number of
people who will be subject to the highest rate. This
unfortunately has a disproportionate effect on small business.
In fact, the non-partisan Joint Committee on Taxation (JCT)
confirmed that over a third of the tax increase in this bill
will hit the income of passthrough businesses, which is the tax
structure of choice for nearly all small businesses. Democrats
must have been acutely aware that raising the top income tax
rate to 39.6% would hurt small businesses, since they voted
against an amendment to exempt small businesses from their tax
hike, claiming that the amendment protecting small businesses
would not allow them to raise enough revenue to pay for their
massive SALT giveaway to the wealthy.
In order to further distract from how their SALT scam was
benefiting the highest-income taxpayers, the Majority added two
provisions to this bill that benefit teachers and first
responders--a doubling of the existing above-the-line deduction
for teacher classroom expenses, and a brand new above-the-line
deduction for certain expenses of first responders. Democrats
on the committee repeatedly invoked these two important groups
as a defense of their SALT scam for the wealthy. But facts are
stubborn things. The median income of an elementary school
teacher is about $58,000, while the median income of a first
responder is roughly $55,000. Under TCJA, which was opposed by
Democrats, a typical married couple with two children
consisting of a teacher married to a firefighter would have
likely seen a tax cut of over $2,400 under tax reform. In
contrast, under the SALT expansion in the bill, the average tax
cut for a typical teacher or first responder with those levels
of income in 2021, a year the SALT deduction would be uncapped
under the bill, would be roughly $3.60. Some might call this
``crumbs.'' At the same time, the average tax cut for
millionaires would be nearly $60,000, which is larger than each
of the teacher's or first responder's entire salaries. This is
ironic for a bill with ``fairness'' in its title.
There were several other ironies and also blatant
falsehoods in the committee markup of this legislation. After
repeatedly criticizing tax reform for not being offset and
adding to the deficit, the Majority began chipping away at one
of the largest offsets in tax reform, the limit on the SALT
deduction, which again allowed a large tax cut for the middle
class financed by affluent taxpayers. They also seemed to
ignore the hundreds of billions that they have added to the
deficit since they took control of Congress and this committee
this year. Additionally, 13 members of this committee from the
other side of the dais voted for $4 trillion of unpaid-for tax
cuts, as determined by JCT, when they voted for the so-called
fiscal cliff deal that became law in 2013. Admittedly, this
deal was necessary in order to prevent a massive tax increase
that would have wrecked our economy, but they should at least
``own'' their vote and recognize the hypocrisy. Part of that
compromise was a reinstatement of the Pease limitation that
slashed itemized deductions like SALT and the charitable
deduction for the same group of taxpayers they now seem to be
trying to favor.
Democrats at the markup also repeated a false claim labeled
by independent fact checkers as ``misleading'' that 83% of the
benefits of tax reform went to the top 1% of taxpayers. But
they proved which party was the party of the wealthy when they
voted against two amendments--One that would have denied the
benefits of the SALT tax break to the top 10% of taxpayers
while uncapping the deduction for the bottom 90%, and one that
would have denied the bill's expansion of the SALT tax break to
the top 1% of taxpayers.
The Majority also repeated the falsehood that no hearings
were held on tax reform. Numerous hearings on tax reform have
been held over the years, including one on how tax reform would
affect state and local governments. They then shifted to the
claim that no hearings were held on the SALT limitation
following the introduction of tax reform. But if the new
standard for ``regular order'' is that a hearing must be held
after a bill is introduced before it passes committee, then the
Democrats violated their own rule with this bill. If we had
held a hearing on this bill, we would have had an opportunity
to probe issues such as whether the small business tax increase
would damage economic growth and employment and wage growth, as
well as whether the SALT expansion would lead to greater income
inequality, a favorite topic of Democrats. But given the
extremely short notice before this markup, we doubt that
Democrats would have had time to throw together such a hearing.
Regardless, Democrats appeared to concede that the small
business tax hike would damage the economy, since they voted
against an amendment that would have required the Treasury
Department to issue a determination that employment and wage
growth will not suffer from the tax hike before the bill could
go into effect.
Also ironic, after complaining at a hearing on temporary
provisions that TCJA included temporary policy, which was
necessary in order to comply with Senate rules at the time, the
Majority's bill uses a six-year tax hike to pay for a temporary
three-year boost in the SALT deduction.
At the SALT hearing in June, local officials called by the
Democrats described crushing levels of property taxes that they
imposed on their residents. While claiming that the SALT
limitation hurt the middle class living in their area, one of
their witnesses seemed to indicate that the middle class
included anyone who did not own a yacht. These witnesses
apparently wanted Congress to lift the SALT cap so that it
would be easier to impose even more oppressive levels of
taxation on their constituents. The majority seems unconcerned
that a boost in the SALT limit may incentivize even higher
property taxes for their constituents, since they voted against
an amendment that would have put the brakes on their SALT scam
if property taxes increased.
Rather than giving an unlimited federal subsidy for state
and local tax increases and providing a green light for state
and local officials to raise taxes even further, the better
course of action would be for officials in high-tax states,
which experienced tax collection windfalls following tax
reform, to lower tax burdens for their community friends and
neighbors and learn to be more efficient with the greater
number of dollars they have as a result of tax reform when they
are providing services.
For years Republicans had been labeled the party of the
rich and elite. Increasingly, Democrats are claiming that
title, punctuated by this SALT scam legislation. We do not
doubt the sincerity of our colleagues who are supporting this
bill because they believe it will benefit the people they
represent. At the same time, the bill confirms that Republicans
are becoming the party of middle-class working families, small
businesses, and a strong economy that benefits everyone,
including the most vulnerable Americans who were left behind in
the weak Obama-era economy.
That is a mantle we gladly embrace.
Kevin Brady,
Republican Leader, Committee
on Ways and Means.
