House Report 107-457 - ENCOURAGING WORK AND SUPPORTING MARRIAGE ACT OF 2002

[House Report 107-457]
[From the U.S. Government Publishing Office]

107th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 107-457

======================================================================

ENCOURAGING WORK AND SUPPORTING MARRIAGE ACT OF 2002

_______

May 14, 2002.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Thomas, from the Committee on Ways and Means, submitted the
following

R E P O R T

[To accompany H.R. 4626]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the
bill (H.R. 4626) to amend the Internal Revenue Code of 1986 to
accelerate the marriage penalty relief in the standard
deduction, and to modify the work opportunity tax credit and
the welfare-to-work tax credit, having considered the same,
report favorably thereon with an amendment and recommend that
the bill as amended do pass.

CONTENTS

Page
I. Summary and Background............................................3
A. Purpose and Summary................................... 3
B. Background and Need for Legislation................... 4
C. Legislative History................................... 4
II. Explanation of the Bill...........................................4
III.Votes of the Committee...........................................10

IV. Budget Effects of the Bill.......................................10
A. Committee Estimate of Budgetary Effects............... 10
B. Budget Authority and Tax Expenditures................. 12
C. Cost Estimate Prepared by the Congressional Budget
Office............................................... 12
V. Other Matters To Be Discussed Under the Rules of the House.......13
A. Committee Oversight Findings and Recommendations...... 13
B. Statement of General Performance Goals and Objectives. 14
C. Constitutional Authority Statement.................... 14
D. Information Relating to Unfunded Mandates............. 14
E. Applicability of House Rule XX15(b)................... 14
F. Tax Complexity Analysis............................... 14
VI. Changes in Existing Law Made by the Bill as Reported.............17

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 ``Encouraging Work and Supporting
Marriage Act of 2002''.

TITLE I--ACCELERATION OF MARRIAGE PENALTY RELIEF

SEC. 101. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR JOINT
RETURNS.

(a) In General.--Paragraph (7) of section 63(c) of the Internal
Revenue Code of 1986, as amended by section 301 of the Economic Growth
and Tax Relief Reconciliation Act of 2001, is amended to read as
follows:
``(7) Applicable percentage.--For purposes of paragraph (2),
the applicable percentage shall be determined in accordance
with the following table:

``For taxable years beginning
The applicable
in calendar year--
percentage is--
2003 or 2004............................. 170
2005..................................... 174
2006..................................... 184
2007..................................... 187
2008..................................... 190
2009 and thereafter...................... 200.''.

(b) Conforming Amendment.--Subsection (d) of section 301 of the
Economic Growth and Tax Relief Reconciliation Act of 2001 is amended by
striking ``December 31, 2004'' and inserting ``December 31, 2002''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2002.

TITLE II--MODIFICATIONS TO WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK
CREDIT

SEC. 201. MODIFICATIONS TO WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK
CREDIT.

(a) Eligibility of Ex-Felons Determined Without Regard to Family
Income.--Paragraph (4) of section 51(d) of the Internal Revenue Code of
1986 is amended by adding ``and'' at the end of subparagraph (A), by
striking ``, and'' at the end of subparagraph (B) and inserting a
period, and by striking all that follows subparagraph (B).
(b) Increase in Maximum Age for Eligibility of Food Stamp
Recipients.--Clause (i) of section 51(d)(8)(A) of such Code is amended
by striking ``25'' and inserting ``30''.
(c) Clarification of Treatment of Individuals Under Individual Work
Plans.--Subparagraph (B) of section 51(d)(6) of such Code (relating to
vocational rehabilitation referral) is amended by striking ``or'' at
the end of clause (i), by striking the period at the end of clause (ii)
and inserting ``, or'', and by adding at the end the following new
clause:
``(iii) an individual work plan developed and
implemented by an employment network pursuant
to subsection (g) of section 1148 of the Social
Security Act with respect to which the
requirements of such subsection are met.''
(d) Effective Date.--The amendments made by this section shall apply
to individuals who begin work for the employer after December 31, 2002.

SEC. 202. CONSOLIDATION OF WORK OPPORTUNITY CREDIT WITH WELFARE-TO-WORK
CREDIT.

(a) In General.--Paragraph (1) of section 51(d) of the Internal
Revenue Code of 1986 is amended by striking ``or'' at the end of
subparagraph (G), by striking the period at the end of subparagraph (H)
and inserting ``, or'', and by adding at the end the following new
subparagraph:
``(I) a long-term family assistance recipient.''
(b) Long-Term Family Assistance Recipient.--Subsection (d) of section
51 of such Code is amended by redesignating paragraphs (10) through
(12) as paragraphs (11) through (13), respectively, and by inserting
after paragraph (9) the following new paragraph:
``(10) Long-term family assistance recipient.--The term
`long-term family assistance recipient' means any individual
who is certified by the designated local agency--
``(A) as being a member of a family receiving
assistance under a IV-A program (as defined in
paragraph (2)(B)) for at least the 18-month period
ending on the hiring date,
``(B)(i) as being a member of a family receiving such
assistance for 18 months beginning after August 5,
1997, and
``(ii) as having a hiring date which is not more than
2 years after the end of the earliest such 18-month
period, or
``(C)(i) as being a member of a family which ceased
to be eligible for such assistance by reason of any
limitation imposed by Federal or State law on the
maximum period such assistance is payable to a family,
and
``(ii) as having a hiring date which is not more than
2 years after the date of such cessation.''
(c) Increased Credit for Employment of Long-Term Family Assistance
Recipients.--Section 51 of such Code is amended by inserting after
subsection (d) the following new subsection:
``(e) Credit for Second-Year Wages for Employment of Long-Term Family
Assistance Recipients.--
``(1) In general.--With respect to the employment of a long-
term family assistance recipient--
``(A) the amount of the work opportunity credit
determined under this section for the taxable year
shall include 40 percent of the qualified second-year
wages for such year, and
``(B) in lieu of applying subsection (b)(3), the
amount of the qualified first-year wages, and the
amount of qualified second-year wages, which may be
taken into account with respect to such a recipient
shall not exceed $10,000 per year.
``(2) Qualified second-year wages.--For purposes of this
subsection, the term `qualified second-year wages' means
qualified wages--
``(A) which are paid to a long-term family assistance
recipient, and
``(B) which are attributable to service rendered
during the 1-year period beginning on the day after the
last day of the 1-year period with respect to such
recipient determined under subsection (b)(2).
``(3) Special rules for agricultural and railway labor.--If
such recipient is an employee to whom subparagraph (A) or (B)
of subsection (h)(1) applies, rules similar to the rules of
such subparagraphs shall apply except that--
``(A) such subparagraph (A) shall be applied by
substituting `$10,000' for `$6,000', and
``(B) such subparagraph (B) shall be applied by
substituting `$833.33' for `$500'.''
(d) Repeal of Separate Welfare-to-Work Credit.--
(1) In general.--Section 51A of such Code is hereby repealed.
(2) Clerical Amendment.--The table of sections for subpart F
of part IV of subchapter A of chapter 1 of such Code is amended
by striking the item relating to section 51A.
(e) Effective Date.--The amendments made by this section shall apply
to individuals who begin work for the employer after December 31, 2002.

I. SUMMARY AND BACKGROUND

A. Purpose and Summary

The bill, H.R. 4626, as amended (the ``Encouraging Work and
Supporting Marriage Act of 2002''), provides income tax relief
to American families and encourages employment of individuals
whose lack of work history or other factors otherwise serves as
a disincentive to employment.
The bill provides net tax reductions of over $900 million
over fiscal years 2003-2007. This will provide needed marriage
penalty tax relief for over 21 million American taxpayers and
encourage employers to hire certain individuals who otherwise
may have significant barriers to employment.
The bill accelerates an increase of the basic standard
deduction for married couples filing joint returns.
Specifically, the bill increases the basic standard deduction
for married couples filing joint returns to 170 percent of the
standard deduction for single individuals for 2003 and 2004.
Finally, the bill combines and expands the work opportunity tax
credit and the welfare to work tax credit.

B. Background and Need for Legislation

The provisions approved by the Committee reflect the need
for additional marriage penalty relief for American families.
The provisions also should serve to encourage employment of
certain targeted groups. Finally, the combination of the work
opportunity tax credit and welfare to work tax credit will
simplify the operation of the credits for employers.

C. Legislative History

Committee Action

The Committee on Ways and Means marked up the provisions of
the bill on May 2, 2001, and approved the provisions, as
amended, on May 2, 2001, by a voice vote, with a quorum
present.

II. EXPLANATION OF THE BILL

A. Acceleration of the Basic Standard Deduction Marriage Penalty Relief

(Sec. 101 of the bill and sec. 63 of the Code)

Present Law

Marriage penalty

A married couple generally is treated as one tax unit that
must pay tax on the couple's total taxable income. Although
married couples may elect to file separate returns, the rate
schedules and other provisions are structured so that filing
separate returns usually results in a higher tax than filing a
joint return.
A ``marriage penalty'' exists when the combined tax
liability of a married couple filing a joint return is greater
than the sum of the tax liabilities of each individual computed
as if they were not married. A ``marriage bonus'' exists when
the combined tax liability of a married couple filing a joint
return is less than the sum of the tax liabilities of each
individual computed as if they were not married.

Basic standard deduction

Taxpayers who do not itemize deductions may choose the
basic standard deduction (and additional standard deductions,
if applicable),\1\ which is subtracted from adjusted gross
income (``AGI'') in arriving at taxable income. The size of the
basic standard deduction varies according to filing status and
is adjusted annually for inflation. For 2002, the basic
standard deduction amount for single filers is 60 percent of
the basic standard deduction amount for married couples filing
joint returns. Thus, two unmarried individuals have standard
deductions the sum of which exceeds the standard deduction for
a married couple filing a joint return.
---------------------------------------------------------------------------
\1\ Additional standard deductions are allowed with respect to any
individual who is elderly (age 65 or over) or blind.
---------------------------------------------------------------------------
Present law provides that the basic standard deduction for
a married couple filing a joint return will be increased to
twice the basic standard deduction for an unmarried individual
filing a single return. This increase in the basic standard
deduction is phased in over five years beginning in 2005, and
will be fully phased in by 2009. Table 1, below, shows the
standard deduction for married couples filing a joint return as
a percentage of the standard deduction for single individuals.

TABLE 1.--PHASE-IN OF THE INCREASE OF THE BASIC STANDARD DEDUCTION FOR
MARRIED COUPLES FILING JOINT RETURNS
------------------------------------------------------------------------
Standard
deduction for
joint returns
Calendar year as percentage
of standard
deduction for
single returns
------------------------------------------------------------------------
2002--2004.............................................. 167
2005.................................................... 174
2006.................................................... 184
2007.................................................... 187
2008.................................................... 190
2009 and later.......................................... 200
------------------------------------------------------------------------

Reasons for Change

The Committee continues to be concerned about the inequity
that arises when two single individuals marry and experience a
tax increase solely by reason of their marriage. The increase
in the standard deduction under the bill will mitigate this
marriage penalty and will benefit 21 million married couples.
It also allows 300,000 couples who currently itemize their
deductions to realize the simplification benefits of using the
larger basic standard deduction in 2003 and 2004.

Explanation of Provision

The bill accelerates the increase of the basic standard
deduction for married couples filing joint returns. Table 2,
below, shows the standard deduction for married couples filing
a joint return as a percentage of the standard deduction for
single individuals during the phase-in period as modified under
the bill.

TABLE 2.--PHASE-IN OF THE INCREASE OF THE BASIC STANDARD DEDUCTION FOR
MARRIED COUPLES FILING JOINT RETURNS
------------------------------------------------------------------------
Standard
deduction for
joint returns
Calendar year as percentage
of standard
deduction for
single returns
------------------------------------------------------------------------
2002.................................................... 167
2003-2004............................................... 170
2005.................................................... 174
2006.................................................... 184
2007.................................................... 187
2008.................................................... 190
2009 and later.......................................... 200
------------------------------------------------------------------------

Effective Date

The provision is effective for taxable years beginning
after December 31, 2002.

B. Modification of the Work Opportunity Tax Credit and Welfare-To-Work
Tax Credit

(Sec. 201 of the bill and secs. 51 and 51A of the Code)

Present Law

Work opportunity tax credit

Targeted groups eligible for the credit
The work opportunity tax credit is available on an elective
basis for employers hiring individuals from one or more of
eight targeted groups. The eight targeted groups are: (1)
certain families eligible to receive benefits under the
Temporary Assistance for Needy Families (``TANF'') Program; (2)
high-risk youth; (3) qualified ex-felons; (4) vocational
rehabilitation referrals; (5) qualified summer youth employees;
(6) qualified veterans; (7) qualified food stamp recipients;
and (8) persons receiving certain Supplemental Security Income
(SSI) benefits.
A qualified ex-felon is an individual certified as: (1)
having been convicted of a felony under State or Federal law;
(2) being a member of an economically disadvantaged family; and
(3) having a hiring date within one year of the later of
release from prison or conviction.
Vocational rehabilitation referrals are those individuals
who have a physical or mental disability that constitutes a
substantial handicap to employment, and who are referred to the
employer while receiving, or after completing, vocational
rehabilitation services under an individualized, written
rehabilitation plan under a State plan approved under the
Rehabilitation Act of 1973 or under a rehabilitation plan for
veterans carried out under Chapter 31 of Title 38, U.S. Code.
Certification is provided by the designated local employment
agency upon assurances from the vocation rehabilitation agency
that the employee has met the above conditions.
Qualified food stamp recipients are individuals who have
attained age 18 but have not attained age 25 that are certified
as being a member of a family either currently or recently
receiving assistance under an eligible food stamp program.
Qualified wages
Generally, qualified wages are defined as cash wages paid
by the employer to a member of a targeted group. The employer's
deduction for wages is reduced by the amount of the credit.
Calculation of the credit
The credit equals 40 percent (25 percent for employment of
less than 400 hours) of qualified first-year wages. Generally,
qualified first-year wages are qualified wages (not in excess
of $6,000) attributable to service rendered by a member of a
targeted group during the one-year period beginning with the
day the individual began work for the employer. Therefore, the
maximum credit per employee is $2,400 (40 percent of the first
$6,000 of qualified first-year wages). With respect to
qualified summer youth employees, the maximum credit is $1,200
(40 percent of the first $3,000 of qualified first-year wages).
Minimum employment period
No credit is allowed for qualified wages paid to employees
who work less than 120 hours in the first year of employment.

Coordination of the work opportunity tax credit and the welfare-to-work
tax credit

An employer cannot claim the work opportunity tax credit
with respect to wages of any employee on which the employer
claims the welfare-to-work tax credit.

Other rules

The work opportunity tax credit is not allowed for wages
paid to a relative or dependent of the taxpayer. Similarly,
wages paid to replacement workers during a strike or lockout
are not eligible for the work opportunity tax credit. Wages
paid to any employee during any period for which the employer
received on-the-job training program payments with respect to
that employee are not eligible for the work opportunity tax
credit. The work opportunity tax credit generally is not
allowed for wages paid to individuals who had previously been
employed by the employer. In addition, many other technical
rules apply.

Welfare-to-work tax credit

Targeted group eligible for the credit
The welfare-to-work tax credit is available on an elective
basis to employers of qualified long-term family assistance
recipients. Qualified long-term family assistance recipients
are: (1) members of a family that has received TANF benefits
for at least 18 consecutive months ending on the hiring date;
(2) members of a family that has received such TANF benefits
for a total of at least 18 months (whether or not consecutive)
after August 5, 1997 (the date of enactment of the welfare-to-
work tax credit) if the individual is hired within 2 years
after the date that the 18-month total is reached; and (3)
members of a family who is no longer eligible for TANF benefits
because of either Federal or State time limits, if the
individual is hired within 2 years after the Federal or State
time limits made the family ineligible for TANF benefits.
Qualified wages
Qualified wages for purposes of the welfare-to-work tax
credit are defined more broadly than under the work opportunity
tax credit. In contrast to the definition of wages for the work
opportunity tax credit which includes only cash wages, the
definition of wages for the welfare-to-work tax credit includes
cash wages paid to an employee plus amounts paid by the
employer for: (1) educational assistance excludable under a
section 127 program; (2) certain health plan coverage for the
employee that is excludable from income under sections 105 and
106 for income tax purposes, but not more than the applicable
premium defined under section 4980B(f)(4); and (3) dependent
care assistance excludable under section 129. The employer's
deduction for wages is reduced by the amount of the credit.
Calculation of the credit
The welfare-to-work tax credit is available on an elective
basis to employers of qualified long-term family assistance
recipients during the first two years of employment. The
maximum credit is 35 percent of the first $10,000 of qualified
first-year wages and 50 percent of the first $10,000 of
qualified second-year wages. Qualified first-year wages are
defined as qualified wages (not in excess of $10,000)
attributable to service rendered by a member of the targeted
group during the one-year period beginning with the day the
individual began work for the employer. Qualified second-year
wages are defined as qualified wages (not in excess of $10,000)
attributable to service rendered by a member of the targeted
group during the one-year period beginning immediately after
the first year of that individual's employment for the
employer. The maximum credit is $8,500 per qualified employee.
Minimum employment period
No credit is allowed for qualified wages paid to a member
of the targeted group unless the member works at least 400
hours or 180 days in the first year of employment.

Coordination of the work opportunity tax credit and the welfare-to-work
tax credit

An employer cannot claim the work opportunity tax credit
with respect to wages of any employee on which the employer
claims the welfare-to-work tax credit.

Other rules

The welfare-to-work tax credit incorporates directly or by
reference many of the other rules contained in the work
opportunity tax credit.

Reasons for Change

The Committee wishes to increase the employment
opportunities of certain individuals and promote simplification
of the Federal tax laws. Simplifying the work opportunity and
welfare-to-work tax credits achieving both objectives.
Simplification reduces burdens on employers that already claim
the credits. In addition, simplification may benefit
individuals in the targeted groups by reducing one possible
disincentive for employers to claim the credit. The Committee
bill also increases employment opportunities for individuals
directly by expanding the definition of three of the targeted
groups.
The work opportunity and welfare-to-work tax credits have
sources of complexity under present law. Employers of members
of the targeted groups must comply with two different though
very similar sets of rules to determine the amount of their
work opportunity tax credit and welfare-to-work tax credit.
Some large employers may be eligible for one or both credits
with respect to a fraction of their employees, yet fail to
claim the credits due to their complexity. Most small employers
do not claim either credit. While the certification process may
account for much of the perceived complexity of the two
credits, the other differences in the credit requirements
(e.g., definition of qualified wages and minimum employment
rules) may also act as a disincentive to employer
participation. The fact that so many members of one or more
targeted groups under the work opportunity tax credit also
qualify as qualified long-term family assistance recipients is
an additional source of complexity. In that instance, an
employer must calculate both the work opportunity tax credit
and welfare-to-work tax credit with respect to that employee to
determine which credit is most advantageous to claim on the
first year of employment for that individual.
Combining the credits and harmonizing the rules will
eliminate burdensome calculations and often-duplicative
compliance responsibilities. Employers will be able to look to
a uniform set of rules with regard to the employment of members
of any of the targeted groups.

Explanation of Provision

Combined credit

Targeted groups eligible for the combined credit
The bill combines the work opportunity and welfare to work
tax credits. The combined credit is available on an elective
basis for employers hiring individuals from one or more of all
nine present-law targeted groups.\2\
---------------------------------------------------------------------------
\2\ The Committee recognizes that a transition to the combined
credit will require additional taxpayer education. It is anticipated
that the Treasury Department take all appropriate action (e.g., timely
taxpayer guidance and distribution of new forms) to help employers
efficiently claim the combined credit.
---------------------------------------------------------------------------
The bill repeals the requirement that a qualified ex-felon
be a member of an economically disadvantaged family for
purposes of eligibility for the tax credit. Under the bill, a
qualified ex-felon is an individual certified as: (1) having
been convicted of a felony under State or Federal law; and (2)
having a hiring date within one year of the later of release
from prison or conviction.
The bill adds an additional type of individual eligible for
the credit under the category of vocational rehabilitation
referrals. Under the bill, certain individuals who have a
physical or mental disability that constitutes a substantial
handicap to employment and who are receiving vocational
services or have completed an individual work plan developed by
a private employment network as defined under section 1148(f)
of the Social Security Act qualify as members of the vocational
rehabilitation referral targeted group.
The bill increases the age limit for qualified food stamp
recipients by five years. Under the bill a food stamp recipient
is an individual who has attained age 18 but has not attained
age 30 who is certified as being a member of a family either
currently or recently receiving assistance under an eligible
food stamp program.
Qualified wages
Generally, qualified wages are defined as cash wages paid
by the employer to a member of a targeted group. Qualified
first-year wages for the eight work opportunity tax credit
categories, as modified by this proposal, remain capped at
$6,000. No credit is allowed for second-year wages. In the case
of long-term family assistance recipients, the cap of $6,000
isincreased to $10,000 for both qualified first-year wages and
qualified second-year wages. The employer's deduction for wages is
reduced by the amount of the credit.
Calculation of the credit
First-year wages.--The present-law work opportunity tax
credit rules are retained for the eight categories currently
eligible for the work opportunity tax credit. Specifically, the
credit equals 40 percent (25 percent for employment of less
than 400 hours) of qualified first-year wages. Generally,
qualified first-year wages are qualified wages (not in excess
of $6,000) attributable to service rendered by a member of a
targeted group during the one-year period beginning with the
day the individual begins work for the employer. Therefore, the
maximum credit per employee for members of the eight work
opportunity tax credit targeted groups remains $2,400 (40
percent of the first $6,000 of qualified first-year wages).
With respect to qualified summer youth employees, the maximum
credit remains $1,200 (40 percent of the first $3,000 of
qualified first-year wages).
In the case of long-term family assistance recipients, the
credit equals 40 percent (25 percent for employment of less
than 400 hours) of qualified first-year wages. The maximum
credit is $4,000 (40 percent of the first $10,000 of qualified
first-year wages) with respect to long-term family assistance
recipients.
Second year wages.--In the case of long-term family
assistance recipients the maximum credit is 40 percent of the
first $10,000 of qualified second-year wages.
Minimum employment period
No credit is allowed for qualified wages paid to employees
who work less than 120 hours in the first year of employment.

Coordination of the work opportunity tax credit and the welfare-to-work
tax credit

Coordination is no longer necessary because the two credits
are combined under the bill.

Effective Date

The provision is effective for wages paid or incurred with
respect to qualified individuals who begin work for an employer
after December 31, 2002.

III. VOTES OF THE COMMITTEE

The bill was ordered reported by a voice vote, with a
quorum present.

IV. BUDGET EFFECTS OF THE BILL

A. Committee Estimate of Budgetary Effects

In compliance with clause 3(d)(2) of the rule XIII of the
Rules of the House of Representatives, the following statement
is made concerning the effects on the budget of the revenue
provisions of the bill, H.R. 4626 as reported.
The bill is estimated to have the following effects on
budget receipts for fiscal years 2003-2007:

ESTIMATED REVENUE EFFECTS OF THE CHAIRMAN'S AMENDMENT TO H.R. 4626, THE ``ENCOURAGING WORK AND SUPPORTING MARRIAGE ACT OF 2002,'' SCHEDULED FOR MARKUP BY THE COMMITTEE ON WAYS AND MEANS ON MAY
2, 2002
[Fiscal Years 2003-2012, in millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Provision Effective 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003-07 2003-12
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Accelerate the Increase in the Standard tyba 12/31/02........................ -241 -465 -155 ....... ....... ....... ....... ....... ....... ....... -861 -861
Deduction for Married Couples Filing Jointly
(the standard deduction would increase to:
170% of the amount of the deduction for
single filers in 2003 and 2004).
Modification of the Work Opportunity Tax
Credit (``WOTC'') and the Welfare-to-Work
Tax Credit (``WWTC''):
1. Combine the WOTC and the WWTC; target wpoifibwa 12/31/02................... -6 -7 -1 (\2\) (\3\) (\3\) (\2\) (\2\) ....... ....... -13 -13
groups are the 8 groups currently
covered under the WOTC and long-term
TANF recipients currently covered under
the WWTC; present-law WOTC definition of
wages; 40% credit with respect to
employment of 400 or more hours and 25%
credit for between 120-400 hours, no
credit for less than 120 hours; first
year credit applies to first $6,000 of
wages for WOTC groups and first $10,000
of wages for WWTC group; WWTC group
would be eligible for a 40% credit on
first $10,000 for 2nd year of employment
\1\.
2. Eliminate the family income test that wpoifibwa 12/31/02................... -1 -1 (\3\) (\3\) (\3\) ....... ....... ....... ....... ....... -2 -2
applies to ex-felons under the WOTC \1\.
3. Increase the WOTC eligibility age for wpoifibwa 12/31/02................... -8 -12 -5 -2 -2 -1 (\3\) ....... ....... ....... -29 -30
food stamp recipients from 25 to 30 \1\.
4. Modify definition of a vocational wpoifibwa 12/31/02................... -1 -1 (\3\) (\3\) (\3\) ....... ....... ....... ....... ....... -2 -2
rehabilitation referral \1\.
Total of Modification of the WOTC and ..................................... -16 -21 -6 -2 -2 -1 (\3\) (\2\) ....... ....... -46 -47
WWTC.
Net Total.............................. ..................................... -257 -486 -161 -2 -2 -1 (\3\) (\2\) ....... ....... -907 -908
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Proposal expires, like present-law WOTC and WWTC, on December 31, 2003.
\2\ Gain of less than $500,000.
\3\ Loss of less than $500,000.

Legend for ``Effective'' column: tyba = taxable years beginning after; wpoifibwa = wages paid or incurred for individuals beginning work after.

Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority

In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority (as detailed
in the statement by the Congressional Budget Office (``CBO'');
see Part IV.C., below). The Committee further states that the
revenue reducing income tax provisions involve increased tax
expenditures. (See amounts in table in Part IV.A., above.)

C. Cost Estimate Prepared by the Congressional Budget Office

In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.

U.S. Congress,
Congressional Budget Office,
Washington, DC, May 9, 2002.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4626, the
Encouraging Work and Supporting Marriage Act of 2002.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Erin
Whitaker.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.

H.R. 4626--Encouraging Work and Supporting Marriage Act of 2002

Summary: The Congressional Budget Office and the Joint
Committee on Taxation (JCT) estimate that enacting H.R. 4626
would reduce revenues by $257 million in fiscal year 2003, by
$907 million over the 2003-2007 period, and by $908 million
over the 2003-2012 period. Because the bill would affect
receipts, pay-as-you-go procedures would apply.
H.R. 4626 would provide increases in the standard deduction
for married taxpayers filing jointly that would take effect
before the increases enacted in the Economic Growth and Tax
Relief Reconciliation Act of 2001 (EGTRRA). As a result, the
standard deduction would increase in the years 2003 and 2004
above the amounts applicable under current law. The bill also
would combine the work opportunity tax credit with the welfare-
to-work tax credit for employers who hire employees from one of
nine targeted groups. The combined credit would expire at the
end of 2003, like the separate credits under current law. The
credit would be calculated in the same manner as under current
law for employees in those groups targeted under the work
opportunity tax credit. For employees in those groups targeted
under the welfare-to-work tax credit, the credit would equal 40
percent of qualified first year wages, or 25 percent of such
wages if the employee were to work less than 400 hours.
In addition, the bill would eliminate the requirement that
ex-felons be members of lower-income earning families in order
for their employers to receive the credit, increase the age
limit from 25 to 30 for food stamp recipients so that their
employers are still eligible for the credit, and make eligible
certain individuals with substantial handicaps to employment
who are receiving vocational services as members of the
vocational rehabilitation targeted group.
H.R. 4626 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would not affect the budgets of state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 4626 is shown in the following table.
All estimates of the revenue effects of the bill were provided
by JCT. The provision of the bill that would have the greatest
impact on revenues would increase the standard deduction for
married taxpayers filing jointly in 2003 and 2004. This
provision would, if enacted, reduce revenues by $241 million in
2003, by $861 million over the 2003-2007 period, and by the
same amount over the 2003-2012 period.

Estimated Revenues............................ 0 -257 -486 -161 -2 -2
----------------------------------------------------------------------------------------------------------------

Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in governmental receipts that are subject to pay-as-
you-go procedures are shown in the following table. For the
purposes of enforcing pay-as-you-go procedures, only the
effects through 2006 are counted.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
----------------------------------------------------------------------------------------------------------------
Changes in outlays........... Not applicable
Changes in receipts.......... 0 -257 -486 -161 -2 -2 -1 0 0 0 0
----------------------------------------------------------------------------------------------------------------

Intergovernmental and private-sector impact: H.R. 4626
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Estimate prepared by: Erin Whitaker.
Estimate approved by: G. Thomas Woodward, 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 of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was a result of the Committee's
oversight review concerning the tax burden on individual
taxpayers and the level of complexity in the tax system that
the Committee concluded that it is appropriate and timely to
enact the revenue provisions included in the bill as reported.

B. Statement of General Performance Goals and Objectives

With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.

C. Constitutional Authority Statement

With respect to clause 3(d)(1) of the rule XIII of the
Rules of the House of Representatives (relating to
Constitutional Authority), the Committee states that the
Committee's action in reporting this bill is derived from
Article I of the Constitution, Section 8 (``The Congress shall
have Power to lay and collect Taxes, Duties, Imposts and
Excises * * *''), and from the 16th Amendment to the
Constitution.

D. Information Relating to Unfunded Mandates

This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, and tribal
governments.

E. Applicability of House Rule XXI 5(b)

Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the provisions of the bill, and states that
the provisions of the bill do not involve any Federal income
tax rate increases within the meaning of the rule.

F. Tax Complexity Analysis

The following tax complexity analysis is provided pursuant
to section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998, which requires the staff of the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service (``IRS'') and the Treasury Department) to
provide a complexity analysis of tax legislation reported by
the House Committee on Ways and Means, the Senate Committee on
Finance, or a Conference Report containing tax provisions. The
complexity analysis is required to report on the complexity and
administrative issues raised by provisions that directly or
indirectly amend the Internal Revenue Code and that have
widespread applicability to individuals or small businesses.
For each such provision identified by the staff of the Joint
Committee on Taxation, a summary description of the provision
is provided along with an estimate of the number and type of
affected taxpayers, and a discussion regarding the relevant
complexity and administrative issues.
Following the analysis of the staff of the Joint Committee
on Taxation are the comments of the IRS and the Treasury
Department regarding each of the provisions included in the
complexity analysis, including a discussion of the likely
effect on IRS forms and any expected impact on the IRS.

1. Standard deduction tax relief

Summary description of provision

Present law provides for an increase in the basic standard
deduction for married taxpayers filing a joint return to twice
the basic standard deduction for an unmarried individual. The
increase is phased-in over five years beginning in 2005 and
will be fully phased-in for 2009 and thereafter. The bill will
accelerate this increase of the basic standard deduction for
married couples filing joint returns. Specifically, the bill
increases the standard deduction for married couples filing
joint returns to 170 percent of the standard deduction for
single individuals for 2003 and 2004. The bill does not change
the phase-in for 2005 and thereafter.

Number of affected taxpayers

It is estimated that the provision will affect
approximately 21 million individual returns.

Discussion

It is not anticipated that individuals will need to keep
additional records due to this provision. The higher basic
standard deduction should not result in an increase in disputes
with the IRS, nor will regulatory guidance be necessary to
implement this provision. In addition, the provision should not
increase individuals' tax preparation costs.
Some taxpayers who currently itemize deductions may respond
to the provision by claiming the increased standard deduction
in lieu of itemizing. According to estimates by the staff of
the Joint Committee on Taxation, approximately three hundred
thousand individual tax returns will realize greater tax
savings from the increased standard deduction than from
itemizing their deductions. In addition to the tax savings,
such taxpayers will no longer have to file Schedule A to Form
1040 and a significant number of which will no longer need to
engage in the record keeping inherent in itemizing below-the-
line deductions. Moreover, by claiming the standard deduction,
such taxpayers may qualify to use simpler versions of the Form
1040 (i.e., Form 1040EZ or Form 1040A) that are not available
to individuals who itemize their deductions.These forms
simplify the return preparation process by eliminating from the Form
1040 those items that do not apply to particular taxpayers.
This reduction in complexity and record keeping also may
result in a decline in the number of individuals using a tax
preparation service or a decline in the cost of using such a
service. Furthermore, if the provision results in a taxpayer
qualifying to use one of the simpler versions of the Form 1040,
the taxpayer may be eligible to file a paperless Federal tax
return by telephone. The provision also should reduce the
number of disputes between taxpayers and the IRS regarding
substantiation of itemized deductions.

Department of the Treasury,
Internal Revenue Service,
Washington, DC, May 6, 2002.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washington, DC.
Dear Ms. Paull: Enclosed are the combined comments of the
Internal Revenue Service and the Treasury Department on the
provision from the House Committee on Ways and Means markup of
H.R. 4626, the ``Encouraging Work and Supporting Marriage Act
of 2002,'' that you identified for complexity analysis in your
letter of May 2, 2002. Due to the short turnaround time, our
comments are provisional and subject to change upon a more
complete and in-depth analysis of the provision.
Sincerely,
Charles O. Rossotti.
Enclosure.

Complexity Analysis of H.R. 4626, Encouraging Work and Supporting
Marriage Act of 2002

Accelerate Increase in Standard Deduction for Joint Filers

Provision

Present law provides for an increase in the basic standard
deduction for married taxpayers filing a joint return to twice
the basic standard deduction for an unmarried individual. The
increase is phased in over five years beginning in 2005.
The provision would increase the standard deduction for
married couples filing joint returns to 170 percent of the
standard deduction for single individuals for 2003 and 2004.
The provision would not change the phase-in for 2005 and
thereafter.

IRS and Treasury comments

The increase in the basic standard deduction for
married taxpayers would be incorporated in the instructions for
Forms 1040, 1040A, 1040EZ, and on Forms 1040, 1040A, 1040EZ,
and 1040-ES for 2003. No new forms would be required.
Programming changes would be required to reflect
the increased standard deduction for married taxpayers.
Currently, IRS tax computation programs are updated annually to
incorporate mandated inflation adjustments. Programming changes
necessitate by this provision would be included during that
process.
The larger standard deduction would reduce the
number of taxpayers who itemize deductions by nearly 300,000 in
2003 and by nearly 400,000 in 2004.

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

* * * * * * *

Subtitle A--Income Taxes

* * * * * * *

CHAPTER 1--NORMAL TAXES AND SURTAXES

* * * * * * *

Subchapter A--Determination of Tax Liability

* * * * * * *

PART IV--CREDIT AGAINST TAX

* * * * * * *

Subpart F--Rules for Computing Work Opportunity Credit

Sec. 51. Amount of credit.
[Sec. 51A. Temporary incentives for employing long-term family
assistance recipients.]
* * * * * * *

SEC. 51. AMOUNT OF CREDIT.

(a) * * *

* * * * * * *

(d) Members of Targeted Groups.--For purposes of this
subpart--
(1) In general.--An individual is a member of a
targeted group if such individual is--
(A) * * *

* * * * * * *

(G) a qualified food stamp recipient, [or]
(H) a qualified SSI recipient[.], or
(I) a long-term family assistance recipient.

* * * * * * *

(4) Qualified ex-felon.--The term ``qualified ex-
felon'' means any individual who is certified by the
designated local agency--
(A) as having been convicted of a felony
under any statute of the United States or any
State, and
(B) as having a hiring date which is not more
than 1 year after the last date on which such
individual was so convicted or was released
from prison[, and].
[(C) as being a member of a family which had
an income during the 6 months immediately
preceding the earlier of the month in which
such income determination occurs or the month
in which the hiring date occurs, which, on an
annual basis, would be 70 percent or less of
the Bureau of Labor Statistics lower living
standard.
Any determination under subparagraph (C) shall be valid
for the 45-day period beginning on the date such
determination is made.]

* * * * * * *

(6) Vocational rehabilitation referral.--The term
``vocational rehabilitation referral'' means any
individual who is certified by the designated local
agency as--
(A) * * *
(B) having been referred to the employer upon
completion of (or while receiving)
rehabilitative services pursuant to--
(i) an individualized written plan
for employment under a State plan for
vocational rehabilitation services
approved under the Rehabilitation Act
of 1973, [or]
(ii) a program of vocational
rehabilitation carried out under
chapter 31 of title 38, United States
Code[.], or
(iii) an individual work plan
developed and implemented by an
employment network pursuant to
subsection (g) of section 1148 of the
Social Security Act with respect to
which the requirements of such
subsection are met.

* * * * * * *

(8) Qualified food stamp recipient.--
(A) In general.--The term ``qualified food
stamp recipient'' means any individual who is
certified by the designated local agency--
(i) as having attained age 18 but not
age [25] 30 on the hiring date, and

* * * * * * *

(10) Long-term family assistance recipient.--The term
``long-term family assistance recipient'' means any
individual who is certified by the designated local
agency--
(A) as being a member of a family receiving
assistance under a IV-A program (as defined in
paragraph (2)(B)) for at least the 18-month
period ending on the hiring date,
(B)(i) as being a member of a family
receiving such assistance for 18 months
beginning after August 5, 1997, and
(ii) as having a hiring date which is not
more than 2 years after the end of the earliest
such 18-month period, or
(C)(i) as being a member of a family which
ceased to be eligible for such assistance by
reason of any limitation imposed by Federal or
State law on the maximum period such assistance
is payable to a family, and
(ii) as having a hiring date which is not
more than 2 years after the date of such
cessation.
[(10)] (11) Hiring date.--The term ``hiring date''
means the day the individual is hired by the employer.
[(11)] (12) Designated local agency.--The term
``designated local agency'' means a State employment
security agency established in accordance with the Act
of June 6, 1933, as amended (29 U.S.C. 49-49n).
[(12)] (13) Special rules for certifications.--
(A) In general.--An individual shall not be
treated as a member of a targeted group
unless--
(i) * * *

* * * * * * *

(e) Credit for Second-Year Wages for Employment of Long-Term
Family Assistance Recipients.--
(1) In general.--With respect to the employment of a
long-term family assistance recipient--
(A) the amount of the work opportunity credit
determined under this section for the taxable
year shall include 40 percent of the qualified
second-year wages for such year, and
(B) in lieu of applying subsection (b)(3),
the amount of the qualified first-year wages,
and the amount of qualified second-year wages,
which may be taken into account with respect to
such a recipient shall not exceed $10,000 per
year.
(2) Qualified second-year wages.--For purposes of
this subsection, the term ``qualified second-year
wages'' means qualified wages--
(A) which are paid to a long-term family
assistance recipient, and
(B) which are attributable to service
rendered during the 1-year period beginning on
the day after the last day of the 1-year period
with respect to such recipient determined under
subsection (b)(2).
(3) Special rules for agricultural and railway
labor.--If such recipient is an employee to whom
subparagraph (A) or (B) of subsection (h)(1) applies,
rules similar to the rules of such subparagraphs shall
apply except that--
(A) such subparagraph (A) shall be applied by
substituting ``$10,000'' for ``$6,000'', and
(B) such subparagraph (B) shall be applied by
substituting ``$833.33'' for ``$500''.

* * * * * * *

[SEC. 51A. TEMPORARY INCENTIVES FOR EMPLOYING LONG-TERM FAMILY
ASSISTANCE RECIPIENTS.

[(a) Determination of Amount.--For purposes of section 38,
the amount of the welfare-to-work credit determined under this
section for the taxable year shall be equal to--
[(1) 35 percent of the qualified first-year wages for
such year, and
[(2) 50 percent of the qualified second-year wages
for such year.
[(b) Qualified Wages Defined.--For purposes of this section--
[(1) In general.--The term ``qualified wages'' means
the wages paid or incurred by the employer during the
taxable year to individuals who are long-term family
assistance recipients.
[(2) Qualified first-year wages.--The term
``qualified first-year wages'' means, with respect to
any individual, qualified wages attributable to service
rendered during the 1-year period beginning with the
day the individual begins work for the employer.
[(3) Qualified second-year wages.--The term
``qualified second-year wages'' means, with respect to
any individual, qualified wages attributable to service
rendered during the 1-year period beginning on the day
after the last day of the 1-year period with respect to
such individual determined under paragraph (2).
[(4) Only first $10,000 of wages per year taken into
account.--The amount of the qualified first-year wages,
and the amount of qualified second-year wages, which
may be taken into account with respect to any
individual shall not exceed $10,000 per year.
[(5) Wages.--
[(A) In general.--The term ``wages'' has the
meaning given such term by section 51(c),
without regard to paragraph (4) thereof.
[(B) Certain amounts treated as wages.--The
term ``wages'' includes amounts paid or
incurred by the employer which are excludable
from such recipient's gross income under--
[(i) section 105 (relating to amounts
received under accident and health
plans),
[(ii) section 106 (relating to
contributions by employer to accident
and health plans),
[(iii) section 127 (relating to
educational assistance programs), but
only to the extent paid or incurred to
a person not related to the employer,
or
[(iv) section 129 (relating to
dependent care assistance programs).
The amount treated as wages by clause (i) or
(ii) for any period shall be based on the
reasonable cost of coverage for the period, but
shall not exceed the applicable premium for the
period under section 4980B(f)(4).
[(C) Special rules for agricultural and
railway labor.--If such recipient is an
employee to whom subparagraph (A) or (B) of
section 51(h)(1) applies, rules similar to the
rules of such subparagraphs shall apply except
that--
[(i) such subparagraph (A) shall be
applied by substituting ``$10,000'' for
``$6,000'', and
[(ii) such subparagraph (B) shall be
applied by substituting ``$833.33'' for
``$500''.
[(c) Long-Term Family Assistance Recipients.--For purposes of
this section--
[(1) In general.--The term ``long-term family
assistance recipient'' means any individual who is
certified by the designated local agency (as defined in
section 51(d)(11)--
[(A) as being a member of a family receiving
assistance under a IV-A program (as defined in
section 51(d)(2)(B) for at least the 18-month
period ending on the hiring date,
[(B)(i) as being a member of a family
receiving such assistance for 18 months
beginning after the date of the enactment of
this section, and
[(ii) as having a hiring date which is not
more than 2 years after the end of the earliest
such 18-month period, or
[(C)(i) as being a member of a family which
ceased to be eligible after the date of the
enactment of this section for such assistance
by reason of any limitation imposed by Federal
or State law on the maximum period such
assistance is payable to a family, and
[(ii) as having a hiring date which is not
more than 2 years after the date of such
cessation.
[(2) Hiring date.--The term ``hiring date'' has the
meaning given such term by section 51(d).
[(d) Certain Rules To Apply.--
[(1) In general.--Rules similar to the rules of
section 52, and subsections (d)(11), (f), (g), (i) (as
in effect on the day before the date of the enactment
of the Taxpayer Relief Act of 1997), (j), and (k) of
section 51, shall apply for purposes of this section.
[(2) Credit to be part of general business credit,
etc.--References to section 51 in section 38(b),
280C(a), and 1396(c)(3) shall be treated as including
references to this section.
[(e) Coordination With Work Opportunity Credit.--If a credit
is allowed under this section to an employer with respect to an
individual for any taxable year, then for purposes of applying
section 51 to such employer, such individual shall not be
treated as a member of a targeted group for such taxable year.
[(f) Termination.--This section shall not apply to
individuals who begin work for the employer after December 31,
2003.]

* * * * * * *

Subchapter B--Computation of Taxable Income

* * * * * * *

PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.

* * * * * * *

SEC. 63. TAXABLE INCOME DEFINED.

(a) * * *

* * * * * * *

[(7) Applicable percentage.--For purposes of
paragraph (2), the applicable percentage shall be
determined in accordance with the following table:

[For taxable years beginning The applicable
in calendar year-- percentage is--
2005................................................ 174
2006................................................ 184
2007................................................ 187
2008................................................ 190
2009 and thereafter................................. 200.]

(7) Applicable percentage.--For purposes of paragraph
(2), the applicable percentage shall be determined in
accordance with the following table:

For taxable years beginning The applicable
in calendar year-- percentage is--
2003 or 2004........................................ 170
2005................................................ 174
2006................................................ 184
2007................................................ 187
2008................................................ 190
200. 2009 and thereafter.................................

* * * * * * *

----------

SECTION 301 OF THE ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF
2001

SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

(a) * * *

* * * * * * *

(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
[2004] 2002.