[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1950 Introduced in House (IH)]

103d CONGRESS
  1st Session
                                H. R. 1950

    To provide assistance to families, enhance economic growth and 
               opportunity, and advance education reform.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 29, 1993

  Mr. Wolf (for himself, Mr. Allard, Mr. Armey, Mr. Kingston, and Mr. 
Levy) introduced the following bill; which was referred jointly to the 
  Committees on Ways and Means, Education and Labor, and the Judiciary

                             August 2, 1993

  Additional sponsors: Mr. Hutchinson, Mr. Bartlett of Maryland, Mr. 
 Hyde, Mr. King, Mr. Paxon, Mr. Taylor of North Carolina, Mr. Dornan, 
 Mr. Lightfoot, Mr. Crapo, Mr. Gallegly, Mr. Duncan, Mr. Gingrich, Mr. 
    Packard, Mr. Lipinski, Mr. Greenwood, Mr. Hunter, Mr. Baker of 
   California, Mr. Burton of Indiana, Mr. Pombo, Mr. Doolittle, Mr. 
               Sensenbrenner, Mr. Istook, and Mr. Inhofe

_______________________________________________________________________

                                 A BILL


 
    To provide assistance to families, enhance economic growth and 
               opportunity, and advance education reform.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as ``The Family and 
Economic Recovery Act''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

                    TITLE I--TAX RELIEF FOR FAMILIES

SEC. 101. TAX CREDIT FOR CHILDREN.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
(relating to foreign tax credit, etc.) is amended by adding at the end 
thereof the following new section:

``SEC. 30A. CREDIT FOR CHILDREN.

    ``(a) General Rule.--In the case of an eligible individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
and chapter 21 for the taxable year an amount equal to $600 multiplied 
by the number of qualifying children of the taxpayer who have not 
attained the age of 19 as of the close of the calendar year in which 
the taxable year of the taxpayer begins.
    ``(b) Limitation Based on Amount of Tax.--The credit allowed by 
subsection (a) for a taxable year shall not exceed the excess (if any) 
of--
            ``(1) the sum of the regular tax (reduced by the sum of the 
        credits allowable under subpart A and section 32) and the tax 
        imposed by chapter 21, over
            ``(2) the tentative minimum tax,
for the taxable year.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Eligible individual.--The term `eligible individual' 
        has the meaning given to such term by section 32(c)(1) 
        (determined without regard to subparagraph (B) thereof).
            ``(2) Qualifying child.--The term `qualifying child' has 
        the meaning given to such term by section 32(c)(3) (determined 
        without regard to subparagraphs (C) and (E) thereof).
            ``(3) Certain other rules apply.--Subsections (d) and (e) 
        of section 32 shall apply.''
    (b) Denial of Double Benefit.--Subparagraph (A) of section 21(b)(1) 
(defining qualifying individual) is amended by inserting ``(other than 
an individual described in section 30A(a))'' after ``taxpayer''.
    (c) Conforming Amendment.--The table of sections for such subpart B 
is amended by adding at the end thereof the following new item:

                              ``Sec. 30A. Credit for children.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

SEC. 102. REFUNDABLE CREDIT FOR ADOPTION EXPENSES.

    (a) Credit for Adoption Expenses.--
            (1) In general.--Subpart C of part IV of subchapter A of 
        chapter 1 (relating to refundable credits) is amended by 
        redesignating section 35 as section 36 and by inserting after 
        section 34 the following new section:

``SEC. 35. ADOPTION EXPENSES.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this subtitle 
for the taxable year the amount of the qualified adoption expenses paid 
or incurred by the taxpayer during such taxable year.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--The aggregate amount of qualified 
        adoption expenses which may be taken into account under 
        subsection (a) with respect to the adoption of a child shall 
        not exceed $5,000.
            ``(2) Income limitation.--The amount allowable as a credit 
        under subsection (a) for any taxable year shall be reduced (but 
        not below zero) by an amount which bears the same ratio to the 
        amount so allowable (determined without regard to this 
        paragraph but with regard to paragraph (1)) as--
                    ``(A) the amount (if any) by which the taxpayer's 
                adjusted gross income exceeds $60,000, bears to
                    ``(B) $40,000.
        For purposes of this paragraph, adjusted gross income shall be 
        determined without regard to section 136.
            ``(3) Denial of double benefit.--
                    ``(A) In general.--No credit shall be allowed under 
                subsection (a) for any expense for which a deduction or 
                credit is allowable under any other provision of this 
                chapter.
                    ``(B) Grants.--No credit shall be allowed under 
                subsection (a) for any expenses paid from any funds 
                received under any Federal, State, or local program.
    ``(c) Qualified Adoption Expenses.--For purposes of this section, 
the term `qualified adoption expenses' means reasonable and necessary 
adoption fees, court costs, attorney fees, and other expenses which are 
directly related to the legal adoption of a child by the taxpayer and 
which are not incurred in violation of State or Federal law or in 
carrying out any surrogate parenting arrangement. The term `qualified 
adoption expenses' shall not include any expenses in connection with 
the adoption by an individual of a child who is the child of such 
individual's spouse.''.
            (2) Clerical amendment.--The table of sections for such 
        subpart C is amended by striking the last item and inserting 
        the following:

                              ``Sec. 35. Adoption expenses.
                              ``Sec. 36. Overpayments of tax.''
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to taxable years beginning after December 31, 1993.

                  TITLE II--FAMILY SAVINGS INCENTIVES

     Subtitle A--Increase in Income Limitations for Deductible IRA 
   Contributions; Increase in IRA Contribution Limits; Penalty-Free 
    Withdrawals for Home Ownership, Education, and Medical Expenses

SEC. 201. INCREASE IN INCOME LIMITATIONS.

    (a) In General.--Subparagraph (B) of section 219(g)(3) is amended--
            (1) by striking ``$40,000'' in clause (i) and inserting 
        ``$100,000'', and
            (2) by striking ``$25,000'' in clause (ii) and inserting 
        ``$75,000''.
    (b) Cost-of-Living Adjustment.--Section 219(g)(3) is amended by 
adding at the end the following new subparagraph:
                    ``(C) Cost-of-living adjustment.--In the case of 
                taxable years beginning after 1994, the applicable 
                dollar amounts under subparagraph (B) shall be adjusted 
                in the same manner as under subsection (h), except that 
                such subsection shall be applied--
                            ``(i) by substituting `$20,000' for `$500' 
                        each place it appears in paragraph (1), and
                            ``(ii) by substituting the appropriate 
                        dollar amounts for the amounts contained in 
                        paragraph (2).''
    (c) IRA Allowed for Spouses Who Are Not Active Plan Participants.--
Section 219(g)(1) is amended by striking ``or the individual's 
spouse''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1994.

SEC. 202. INFLATION ADJUSTMENT FOR DEDUCTIBLE AMOUNT.

    (a) In General.--Section 219 is amended by redesignating subsection 
(h) as subsection (i) and by inserting after subsection (g) the 
following new subsection:
    ``(h) Cost-of-Living Adjustments.--
            ``(1) In general.--If the cost-of-living amount for any 
        calendar year is equal to or greater than $500, then each 
        applicable dollar amount (as previously adjusted under this 
        subsection) for any taxable year beginning in any subsequent 
        calendar year shall be increased by $500.
            ``(2) Cost-of-living amount.--The cost-of-living amount for 
        any calendar year is the excess (if any) of--
                    ``(A) $2,000, increased by the cost-of-living 
                adjustment for such calendar year, over
                    ``(B) the applicable dollar amount in effect under 
                subsection (b)(1)(A) for taxable years beginning in 
                such calendar year.
            ``(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 CPI for such calendar year, 
                        exceeds
                            ``(ii) the CPI for 1992.
                    ``(B) CPI for any calendar year.--The CPI for any 
                calendar year shall be determined in the same manner as 
                under section 1(f)(4).
            ``(4) Applicable dollar amount.--For purposes of this 
        subsection, the term `applicable dollar amount' means the 
        dollar amount in effect under any of the following provisions:
                    ``(A) Subsection (b)(1)(A).
                    ``(B) Subsection (c)(2)(A)(i).
                    ``(C) The last sentence of subsection (c)(2).''
    (b) Conforming Amendments.--
            (1) Section 408(a)(1) is amended by striking ``in excess of 
        $2,000 on behalf of any individual'' and inserting ``on behalf 
        of any individual in excess of the amount in effect for such 
        taxable year under section 219(b)(1)(A)''.
            (2) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
        and inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
            (3) Section 408(j) is amended by striking ``$2,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

SEC. 203. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY 
              TO PURCHASE FIRST HOMES, TO PAY HIGHER EDUCATION, OR 
              FINANCIALLY DEVASTATING MEDICAL EXPENSES, OR BY THE LONG-
              TERM UNEMPLOYED.

    (a) In General.--Paragraph (2) of section 72(t) (relating to 
exceptions to 10-percent additional tax on early distributions from 
qualified retirement plans) is amended by adding at the end thereof the 
following new subparagraph:
                    ``(D) Distributions from certain plans for first 
                home purchases or educational expenses.--Distributions 
                to an individual from an individual retirement plan, or 
                from amounts attributable to employer contributions 
                made pursuant to elective deferrals described in 
                subparagraph (A) or (C) of section 402(g)(3) or section 
                501(c)(18)(D)(iii)--
                            ``(i) which are qualified first-time 
                        homebuyer distributions (as defined in 
                        paragraph (6)); or
                            ``(ii) to the extent such distributions do 
                        not exceed the qualified higher education 
                        expenses (as defined in paragraph (7)) of the 
                        taxpayer for the taxable year.''
    (b) Financially Devastating Medical Expenses.--
            (1) In general.--Section 72(t)(3)(A) is amended by striking 
        ``(B),''.
            (2) Certain lineal descendants and ancestors treated as 
        dependents.--Subparagraph (B) of section 72(t)(2) is amended by 
        striking ``medical care'' and all that follows and inserting 
        ``medical care determined--
                            ``(i) without regard to whether the 
                        employee itemizes deductions for such taxable 
                        year, and
                            ``(ii) by treating such employee's 
                        dependents as including--
                                    ``(I) all children and 
                                grandchildren of the employee or such 
                                employee's spouse, and
                                    ``(II) all ancestors of the 
                                employee or such employee's spouse.''
            (3) Conforming amendment.--Subparagraph (B) of section 
        72(t)(2) is amended by striking ``or (C)'' and inserting ``, 
        (C) or (D)''.
    (c) Definitions.--Section 72(t) is amended by adding at the end 
thereof the following new paragraphs:
            ``(6) Qualified first-time homebuyer distributions.--For 
        purposes of paragraph (2)(D)(i)--
                    ``(A) In general.--The term `qualified first-time 
                homebuyer distribution' means any payment or 
                distribution received by an individual to the extent 
                such payment or distribution is used by the individual 
                before the close of the 60th day after the day on which 
                such payment or distribution is received to pay 
                qualified acquisition costs with respect to a principal 
                residence of a first-time homebuyer who is such 
                individual or the spouse, child, or grandchild of such 
                individual.
                    ``(B) Qualified acquisition costs.--For purposes of 
                this paragraph, the term `qualified acquisition costs' 
                means the costs of acquiring, constructing, or 
                reconstructing a residence. Such term includes any 
                usual or reasonable settlement, financing, or other 
                closing costs.
                    ``(C) First-time homebuyer; other definitions.--For 
                purposes of this paragraph--
                            ``(i) First-time homebuyer.--The term 
                        `first-time homebuyer' means any individual 
                        if--
                                    ``(I) such individual (and if 
                                married, such individual's spouse) had 
                                no present ownership interest in a 
                                principal residence during the 3-year 
                                period ending on the date of 
                                acquisition of the principal residence 
                                to which this paragraph applies, and
                                    ``(II) subsection (a)(6), (h), or 
                                (k) of section 1034 did not suspend the 
                                running of any period of time specified 
                                in section 1034 with respect to such 
                                individual on the day before the date 
                                the distribution is applied pursuant to 
                                subparagraph (A)(ii).
                        In the case of an individual described in 
                        section 143(i)(1)(C) for any year, an ownership 
                        interest shall not include any interest under a 
                        contract of deed described in such section.
                            ``(ii) Principal residence.--The term 
                        `principal residence' has the same meaning as 
                        when used in section 1034.
                            ``(iii) Date of acquisition.--The term 
                        `date of acquisition' means the date--
                                    ``(I) on which a binding contract 
                                to acquire the principal residence to 
                                which subparagraph (A) applies is 
                                entered into, or
                                    ``(II) on which construction or 
                                reconstruction of such a principal 
                                residence is commenced.
                    ``(D) Special rule where delay in acquisition.--If 
                any distribution from any individual retirement plan 
                fails to meet the requirements of subparagraph (A) 
                solely by reason of a delay or cancellation of the 
                purchase or construction of the residence, the amount 
                of the distribution may be contributed to an individual 
                retirement plan as provided in section 408(d)(3)(A)(i) 
                (determined by substituting `120 days' for `60 days' in 
                such section), except that--
                            ``(i) section 408(d)(3)(B) shall not be 
                        applied to such contribution, and
                            ``(ii) such amount shall not be taken into 
                        account in determining whether section 
                        408(d)(3)(A)(i) applies to any other amount.
            ``(7) Qualified higher education expenses.--For purposes of 
        paragraph (2)(D)(ii)--
                    ``(A) In general.--The term `qualified higher 
                education expenses' means tuition, fees, books, 
                supplies, and equipment required for the enrollment or 
                attendance of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) the taxpayer's child (as defined in 
                        section 151(c)(3)) or grandchild,
                at an eligible educational institution (as defined in 
                section 135(c)(3)).
                    ``(B) Coordination with savings bond provisions.--
                The amount of qualified higher education expenses for 
                any taxable year shall be reduced by any amount 
                excludable from gross income under section 135.''.
    (d) Penalty-Free Distributions for Certain Unemployed 
Individuals.--Paragraph (2) of section 72(t) is amended by adding at 
the end thereof the following new subparagraph:
            ``(E) Distributions to unemployed individuals.--A 
        distribution from an individual retirement plan (other than a 
        plan referred to in subclause (I) or (II) of paragraph 
        (6)(A)(iii)) to an individual after separation from employment, 
        if--
                    ``(i) such individual has received unemployment 
                compensation for 12 consecutive weeks under any Federal 
                or State unemployment compensation law by reason of 
                such separation, and
                    ``(ii) such distributions are made during any 
                taxable year during which such unemployment 
                compensation is paid or the succeeding taxable year.''.
    (e) Special Rule for Certain Disaster Victims.--For purposes of 
section 72(t)(6) of the Internal Revenue Code of 1986, an individual 
whose principal residence was destroyed or substantially damaged by 
Hurricane Andrew, Hurricane Iniki, or Typhoon Omar shall be treated as 
a first-time homebuyer with respect to such residence if the individual 
rebuilds it or with respect to any other principal residence acquired 
to replace such residence.
    (f) Conforming Amendments.--
            (1) Section 401(k)(2)(B)(i) is amended by striking ``or'' 
        at the end of subclause (III), by striking ``and'' at the end 
        of subclause (IV) and inserting ``or'', and by inserting after 
        subclause (IV) the following new subclause:
                                    ``(V) the date on which qualified 
                                first-time homebuyer distributions (as 
                                defined in section 72(t)(6)) or 
                                distributions for qualified higher 
                                education expenses (as defined in 
                                section 72(t)(7)) are made, and''.
            (2) Section 403(b)(11) is amended by striking ``or'' at the 
        end of subparagraph (A), by striking the period at the end of 
        subparagraph (B) and inserting ``, or'', and by inserting after 
        subparagraph (B) the following new subparagraph:
                    ``(C) for qualified first-time homebuyer 
                distributions (as defined in section 72(t)(6)) or for 
                the payment of qualified higher education expenses (as 
                defined in section 72(t)(7)).''.
    (g) Effective Date.--The amendments made by this section shall 
apply to payments and distributions after December 31, 1993.

 Subtitle B--Exclusion for Employer-Provided Educational Assistance To 
  Include Educational Assistance for Spouse and Dependents of Employee

SEC. 211. EXPANSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL 
              ASSISTANCE.

    (a) In General.--Paragraph (1) of section 127(b) (relating to 
educational assistance program) is amended by inserting ``or their 
spouses and dependents (as defined in section 152)'' after 
``employees'' the second place it appears.
    (b) Exclusion Made Permanent.--
            (1) Section 127 is amended by striking subsection (d) and 
        by redesignating subsection (e) as subsection (d).
            (2) Subsection (a) of section 103 of the Tax Extension Act 
        of 1991 is amended by striking paragraph (2).
    (c) Conforming Amendment.--Paragraph (1) of section 127(c) is 
amended--
            (1) by striking ``education of the employee'' in 
        subparagraph (A) and inserting ``education of a qualified 
        individual'',
            (2) by striking ``retained by the employee'' and inserting 
        ``retained by the qualified individual'', and
            (3) by adding at the end thereof the following new 
        sentence: ``For purposes of this paragraph, the term `qualified 
        individual' means the employee and the spouse and any dependent 
        (as defined in section 152) of the employee.''
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 1993.
            (2) Exclusion made permanent.--The amendments made by 
        subsection (b) shall apply to taxable years beginning after 
        December 31, 1991.

 TITLE III--MEDICAL CARE SAVINGS ACCOUNTS; HEALTH CARE COST CONTROLS; 
   DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS

SEC. 301. MEDICAL CARE SAVINGS BENEFITS.

    (a) In General.--Part III of subchapter B of chapter 1 is amended 
by inserting after section 125 the following new section:

``SEC. 125A. MEDICAL CARE SAVINGS BENEFITS.

    ``(a) In General.--A medical care savings benefit is a qualified 
benefit which consists of a Health Plan meeting the requirements of 
this section that includes, as part thereof, a Medical Care Savings 
Account, as set forth in section 408A.
    ``(b) Establishment of Medical Care Savings Benefit.--A medical 
care savings benefit shall be established as a Health Plan which 
provides that all or part of the premium differential realized by 
instituting a Qualified Higher Deductible Health Plan is credited to a 
participating employee during a plan year to pay for medical care 
described in section 213(d) and, to the extent that any amount remains 
credited to that participant at the end of each plan year, such amount 
is deposited to a section 408(A) medical care savings account for that 
participant.
    ``(c) Payments From Account Balance.--If the plan provides for 
level installment payments, the plan may also provide that the maximum 
amount of reimbursement at a particular time during the period of 
coverage may be limited to the amount of actual contributions to the 
arrangement. A participant may be advanced, interest free, such amounts 
necessary to cover incurred medical expenses which exceed the amount 
then credited to the participant's account, upon the participant's 
agreement to repay such advancement from future installments or upon 
ceasing to be a participant.
    ``(d) Reporting.--Employers shall cause to be issued to 
participating employees, not less frequently than quarterly, a 
statement setting forth amounts remaining in their accounts.
    ``(e) Limits on Amounts Contributed to Medical Care Savings 
Account.--The maximum amount that may be contributed annually to a 
Medical Care Savings Account shall not exceed the premium differential 
set forth in subsection (b). For purposes of determining the maximum 
premium differential in those years when only the Qualified Higher 
Deductible Plan is offered, the differential shall be the difference 
between the premiums for the Qualified Higher Deductible Plan and the 
plan previously offered, based on bona fide quotes for a Health Plan 
offering similar benefits for similar employees in the same geographic 
area. Additionally, this method for calculating said premium 
differential shall also be used by an employer that has not previously 
sponsored a Health Plan but desires to institute a medical care savings 
benefit.
    ``(f) Health Plan.--The term `Health Plan' means an employee 
welfare benefit plan providing medical care (as defined in section 
213(d) of the Internal Revenue Code of 1954) to participants or 
beneficiaries directly or through insurance, reimbursement, or 
otherwise.
    ``(g) Qualified Higher Deductible Plan.--The term `Qualified Higher 
Deductible Plan' is a Health Plan which provides for payment of covered 
benefits in excess of the higher deductible, which higher deductible 
shall not exceed $3,000 in 1992 and, adjusted annually thereafter for 
increases in the cost of living in accordance with regulations 
prescribed by the Secretary.
    ``(h) Preventative Health Care.--By allowing medical expenses 
payable from a medical care savings benefit to be those permitted under 
section 213(d) of the Internal Revenue Code, participating employees 
are encouraged to use this benefit to promote good health, to use 
preventative medical and health procedures, and to seek appropriate 
consultive and second opinions.
    ``(i) Preemption.--Insurance policies issued as a part of a medical 
care savings benefit shall not be required to duplicate expenses that 
may be proper expenses covered by the medical care savings benefit. 
Additionally, the higher deductible insurance plan may provide that the 
deductible specified in the policy may be increased by the amount of 
any benefits payable by any other health benefits program or plan.''.
    (b) Medical Care Savings Accounts.--Subpart A of part I of 
subchapter D of chapter 1 is amended by inserting after section 408 the 
following new section:

``SEC. 408A. MEDICAL CARE SAVINGS ACCOUNTS.

    ``(a) Medical Care Savings Accounts.--For purposes of this section, 
the term `medical care savings account' means a trust created or 
organized in the United States for the exclusive benefit of an 
individual, his dependents (as defined in section 152) or 
beneficiaries, but only if the written instrument creating the trust 
meets the following requirements:
            ``(1) No contributions will be accepted unless it is in 
        cash.
            ``(2) The trustee is a bank (as defined in subsection (d)), 
        insurance company (as defined in section 816), or such other 
        person who demonstrates to the satisfaction of the Secretary 
        that the manner in which such other person will administer the 
        trust will be consistent with the requirements of this section.
            ``(3) No part of the trust funds will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance of the 
        account is nonforfeitable.
            ``(5) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
    ``(b) Tax Treatment of Accounts.--
            ``(1) Exemption from tax.--Any medical care savings account 
        is exempt from taxation under this subtitle unless such account 
        has ceased to be a medical care savings account by reason of 
        paragraph (2) or (3). Notwithstanding the preceding sentence, 
        any such account is subject to the taxes imposed by section 511 
        (relating to imposition of tax on unrelated business income of 
        charitable, etc. organizations).
            ``(2) Loss of exemption of account where employee engages 
        in prohibited transaction.--
                    ``(A) In general.--If, during any taxable year of 
                the individual for whose benefit any medical care 
                savings account is established, that individual, 
                dependent, or his beneficiary engages in any 
                transaction prohibited by section 4975 with respect to 
                such account, such account ceases to be a medical care 
                savings account as of the first day of such taxable 
                year. For purposes of this paragraph the individual for 
                whose benefit any account was established is treated as 
                the creator of such account.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                a medical savings account by reason of subparagraph (A) 
                as of the first day of any taxable year, section 511 
                shall apply as if there were a distribution on such 
                first day in an amount equal to the fair market value 
                (on such first day) of all assets in the account (on 
                such first day).
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year of the individual for whose benefit a medical 
        care savings account is established, that individual uses the 
        account or any portion thereof as security for a loan, the 
        portion so used is treated as distributed to that individual.
            ``(4) Commingling medical care savings account amounts in 
        certain common trust funds and common investment funds.--Any 
        common trust fund or common investment fund of individual 
        medical care savings account assets which is exempt from 
        taxation under this subtitle does not cease to be exempt on 
        account of the participation or inclusion of assets of a trust 
        exempt from taxation under section 501(a) which is described in 
        section 401(a).
    ``(c) Treatment of Distributions.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, any amount paid or distributed out of a medical 
        savings account shall be included in gross income by the 
        distributee.
            ``(2) Distributions for medical expenses.--Distributions 
        from a medical care savings account shall not be taxable to the 
        distributee, for amounts paid directly or indirectly for 
        medical expenses as defined in section 213(d).
            ``(3) 10 percent additional tax for early withdrawals.--
        Distributions described in paragraph 1 and not described in 
        paragraph 2 shall be subject to an additional 10 percent tax 
        for distributions made prior to age 59\1/2\ of the distributee.
            ``(4) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution which shall not be 
        included in the gross income of the distributee if it meets the 
        requirements of subparagraphs (A) and (B).
                    ``(A) In general.--Paragraph (1) does not apply to 
                any amount paid or distributed out of a medical care 
                savings account to the individual for whose benefit the 
                account is maintained if the entire amount received is 
                paid into a medical care savings account for the 
                benefit of such individual not later than the sixtieth 
                day after the day on which he receives the payment or 
                distribution.
                    ``(B) Limitation.--This paragraph does not apply to 
                any amount described in paragraph (A) received by an 
                individual from a medical savings account if at any 
                time during the one-year period ending on the day of 
                such receipt such individual received any other amount 
                described in that subparagraph from a medical care 
                savings account which was not includible in his gross 
                income because of the application of this paragraph.
                    ``(C) Denial of rollover treatment for inherited 
                accounts, etc.--
                            ``(i) In general.--In the case of an 
                        inherited medical savings account--
                                    ``(I) this paragraph shall not 
                                apply to any amount received by an 
                                individual from such an account (and no 
                                amount transferred from such account to 
                                another medical care savings account 
                                shall be excluded from gross income by 
                                reason of such transfer), and
                                    ``(II) such inherited account shall 
                                not be treated as a medical care 
                                savings account for purposes of 
                                determining whether any other amount is 
                                a rollover contribution.
                            ``(ii) Inherited medical care savings 
                        account.--
                                    ``(I) the individual for whose 
                                benefit the account is maintained 
                                acquired such account by reason of the 
                                death of another individual, and
                                    ``(II) such individual was not the 
                                surviving spouse of such other 
                                individual.
    ``(d) Bank.--For purposes of subsection (a)(2), the term `bank' 
means--
            ``(1) a bank (as defined in section 581),
            ``(2) an insured credit union (within the meaning of 
        section 101(6) of the Federal Credit Union Act), and
            ``(3) a corporation which, under the laws of the State of 
        its incorporation, is subject to supervision and examination by 
        the Commissioner of Banking or other officer of such State in 
        charge of the administration of the banking laws of such 
        state.''.
    (c) Clerical Amendments.--
            (1) The table of sections for part III of subchapter B of 
        chapter 1 is amended by inserting after the item relating to 
        section 125 the following new item:

                              ``Sec. 125A. Medical care savings 
                                        benefits.''
            (2) The table of sections for subpart A of part I of 
        subchapter D of chapter 1 is amended by inserting after the 
        item relating to section 408 the following new item:

                              ``Sec. 408A. Medical care savings 
                                        accounts.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

SEC. 302. DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-EMPLOYED 
              INCREASED AND MADE PERMANENT.

    (a) Permanent Extension of Deduction.--
            (1) In general.--Subsection (l) of section 162 (relating to 
        special rules for health insurance costs of self-employed 
        individuals) is amended by striking paragraph (6).
            (2) Conforming amendment.--Paragraph (2) of section 110(a) 
        of the Tax Extension Act of 1991 is hereby repealed.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 1991.
    (b) Increase in Amount of Deduction.--
            (1) In general.--Paragraph (1) of section 162(l) is amended 
        by striking ``25 percent of'' and inserting ``100 percent (50 
        percent in the case of taxable years beginning in 1995 or 1996) 
        of''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after December 31, 1994.

SEC. 303. PREEMPTION FROM INSURANCE MANDATES FOR QUALIFIED SMALL 
              EMPLOYER PURCHASING GROUPS.

    (a) Qualified Small Employer Purchasing Group Defined.--For 
purposes of this section, an association is a qualified small employer 
purchasing group if--
            (1) the association submits an application to the Secretary 
        of Health and Human Services at such time and in such form as 
        the Secretary may require; and
            (2) on the basis of information contained in the 
        application and any other information the Secretary may 
        require, the Secretary determines that--
                    (A) the association is administered solely under 
                the authority and control of its member employers,
                    (B) the association's membership consists solely of 
                employers with not more than 100 employees (except that 
                an employer member of the group may retain its 
                membership in the group if, after the Secretary 
                determines that the association meets the requirements 
                of this paragraph, the number of employees of the 
                employer member increases to more than 100),
                    (C) with respect to each State in which its members 
                are located, the association consists of not fewer than 
                100 employers, and
                    (D) at the time the association submits its 
                application, the health benefit plans with respect to 
                the employer members of the association are in 
                compliance with applicable State laws relating to 
                health benefit plans.
    (b) Preemption From Insurance Mandates.--
            (1) Finding.--Congress finds that employer purchasing 
        groups organized for the purpose of obtaining health insurance 
        for employer members affect interstate commerce.
            (2) Preemption of state mandates.--In the case of a 
        qualified small employer purchasing group described in 
        subsection (a), no provision of State law shall apply that 
        requires the offering, as part of the health benefit plan with 
        respect to an employer member of such a group, of any services, 
        category of care, or services of any class or type of provider.
            (3) Preemption of provisions prohibiting employer groups 
        from purchasing health insurance.--In the case of a qualified 
        small employer purchasing group described in subsection (a), no 
        provision of State or local law shall apply that prohibits a 
        group of employers from purchasing health insurance with 
        respect to member employers of the group or their employees.
    (c) Effective Date.--This section shall take effect 60 days after 
the date of the enactment of this Act.

                 TITLE IV--EDUCATIONAL CHOICE PROGRAMS

SECTION 401. SHORT TITLE.

    This title may be cited as the ``Educational Choice Programs Act''.

SEC. 402. PURPOSES.

    The purposes of this title are--
            (1) to assist and encourage States and localities to--
                    (A) give children from middle- and low-income 
                families more of the same choices of all elementary and 
                secondary schools and other academic programs that 
                children from wealthier families already have;
                    (B) improve schools and other academic programs by 
                giving middle- and low-income parents increased 
                consumer power to choose the schools and programs that 
                they determine best fit the needs of their children;
                    (C) more fully engage middle- and low-income 
                parents in their children's schooling; and
                    (D) through families, provide new funds at the 
                school site that teachers and principals can use to 
                help all children achieve the high educational 
                standards called for by the National Education Goals;
            (2) to encourage the creation and use of supplementary 
        academic programs during and after regular school hours, on 
        weekends, and during school vacation periods for children of 
        middle- and low-income families; and
            (3) to demonstrate, through a competitive discretionary 
        grant program, the effects of State and local programs that 
        give middle- and low-income families more of the same choices 
        of all schools, public, private or religious, that wealthier 
        families have.

SEC. 403. AUTHORIZATION OF APPROPRIATIONS.

    (a) Authorization.--For the purpose of carrying out this title, 
there are authorized to be appropriated $1,000,000,000 for fiscal year 
1993 and such sums as may be necessary for each of the fiscal years 
1994 through 2000.
    (b) National Evaluation.--From the sums appropriated for any fiscal 
year for carrying out this title, the Secretary may reserve up to 
$2,000,000 to carry out the national evaluation described in section 
412.
    (c) Remainder of Funds.--The Secretary shall use any funds 
remaining after such reservation to make competitive grants to States 
and to localities to carry out eligible programs under this title.

SEC. 404. ELIGIBILITY.

    A State or locality is eligible for a grant under this title if--
            (1) it has taken significant steps to provide a choice of 
        schools to families with school children residing in the 
        program area described in the application submitted under 
        section 407, including families who are not eligible for 
        scholarships under this title;
            (2) during the year for which assistance is sought, 
        assurances are made that if awarded a grant under this title, 
        such State or locality will provide scholarships to parents of 
        eligible children that may be redeemed for elementary or 
        secondary education for their children at a broad variety of 
        public and private elementary and secondary schools, including 
        religious schools, if any, serving the area; and
            (3) it allows lawfully operating public and private 
        elementary and secondary schools, including religious schools, 
        if any, serving the area to participate in its program.

SEC. 405. SCHOLARSHIPS.

    (a) Scholarship Awards.--With funds awarded under this title, each 
grantee under this title shall provide scholarships to the parents of 
eligible children, in accordance with section 406.
    (b) Scholarship Value.--The value of each scholarship shall be the 
sum of--
            (1) $2,000 from funds provided under this title; and
            (2) an additional amount, if any, of State, local, and 
        nongovernmental funds.
    (c) Tax Exemption.--Scholarships shall not be deemed income of the 
parents for Federal income tax purposes or for determining eligibility 
for any other Federal program.

SEC. 406. ELIGIBLE CHILDREN.

    (a) Eligibility.--With funds awarded under this title, each grantee 
shall provide a scholarship--
            (1) to the parents of children who--
                    (A) reside in the program area described in the 
                application submitted under section 407;
                    (B) will attend a public or private elementary or 
                secondary school that is participating in the program; 
                and
                    (C) are from a middle- or low-income family, as 
                determined by the grantee in accordance with 
                regulations of the Secretary, except that the maximum 
                family income for eligibility may not exceed the State 
                or national median family income (adjusted for family 
                size), whichever is higher, as determined by the 
                Secretary, in consultation with the Bureau of the 
                Census, on the basis of the most recent satisfactory 
                data available; and
            (2) in each year of its program to each child who received 
        a scholarship during the previous year of the program, unless--
                    (A) the child no longer resides in the program 
                area;
                    (B) the child no longer attends school; or
                    (C) the child's family income exceeds, by 20 
                percent or more, the maximum family income of families 
                who received scholarship in the preceding year.
    (b) Priority.--If the amount of the grant under this title is not 
sufficient to provide a scholarship to each child up to the income 
level for which the grantee applied as described in subsection 
(a)(1)(C), the grantee shall provide scholarships to the lowest income 
families.

SEC. 407. APPLICATIONS.

    (a) Application.--Each State or locality that wishes to receive a 
grant under this title shall submit an application to the Secretary at 
such time and in such manner as the Secretary may reasonably require.
    (b) Contents.--Each such application shall contain--
            (1) a description of the program area;
            (2) an economic profile of children residing in the program 
        area, in terms of family income and poverty status;
            (3) the family income range of children who will be 
        eligible to participate in the proposed program, consistent 
        with section 406(a)(1)(C), and a description of the applicant's 
        method for identifying children who fall within that range;
            (4) an estimate of the number of children, within the 
        income range specified in paragraph (3), who would be eligible 
        to receive scholarships under the program;
            (5) information demonstrating that the applicant's proposed 
        program complies with the eligibility requirements of section 
        404 and with the other requirements of this title;
            (6) a description of the procedures the applicant has used, 
        including timely and meaningful consultation with private 
        school officials, to encourage public and private elementary 
        and secondary schools to participate in the programs and to 
        ensure maximum educational choices for the parents of eligible 
        children and for other children residing in the program area;
            (7) an identification of the public, private, and religious 
        elementary and secondary schools that are eligible and have 
        chosen to participate in the program;
            (8) a description of how the applicant will inform children 
        and their parents of the program and of the choices available 
        to them under the program, including the availability of 
        supplementary academic services under section 410(2);
            (9) a description of the procedures to be used to provide 
        scholarships to parents and to enable parents to use such 
        scholarships, such as the issuance of checks payable to both 
        parents and schools;
            (10) a description of--
                    (A) the procedures by which a school will make a 
                pro rata refund to the grantee of a scholarship for any 
                participating child who, before completing 50 percent 
                of the school attendance period for which the 
                scholarship was issued--
                            (i) is released or expelled from the 
                        school; or
                            (ii) withdraws for any reason; or
                    (B) another refund policy that addresses special 
                circumstances an applicant can reasonably anticipate 
                and that the applicant demonstrates, to the Secretary's 
                satisfaction, adequate protection of participating 
                children, in light of the purposes of this title;
            (11) a description of procedures the applicant will use 
        to--
                    (A) determine a child's continuing eligibility to 
                participate in the program; and
                    (B) bring new children into the program;
            (12) an assurance that the applicant will cooperate in 
        carrying out the national evaluation described in section 412;
            (13) an assurance that the applicant will maintain such 
        records relating to the program as the Secretary may require 
        and will comply with the Secretary's reasonable requests for 
        information about the program;
            (14) a description of State and local funds (including tax 
        benefits) and nongovernmental funds, if any, that will be 
        available under section 405(b)(2) to supplement scholarship 
        funds provided under this title; and
            (15) such other assurance and information as the Secretary 
        may require.
    (c) Revisions.--Each such application shall be updated annually as 
may be needed to reflect revised conditions.

SEC. 408. APPROVAL OF PROJECTS.

    (a) Selection.--From applications received each year, the Secretary 
shall select programs on the basis of--
            (1) the number and variety of educational choices that are 
        available under the program to families of eligible children;
            (2) the extent to which educational choices among public, 
        private, and religious schools are available to all families in 
        the program area, including families that are not eligible for 
        scholarships under this title;
            (3) the proportion of children who will participate in the 
        program who are from low-income families;
            (4) the applicant's financial support of the program, 
        including the amount of State, local, and nongovernmental funds 
        that will be provided to supplement Federal funds, including 
        not only direct expenditures for scholarships, but also other 
        economic incentives provided to families participating in the 
        program, such as a tax relief program. In considering this 
        factor, the Secretary may take differences in local conditions 
        into account; and
            (5) other criteria established by the Secretary.
    (b) Geographic Distribution.--The Secretary shall ensure that, to 
the extent feasible, grants are awarded for programs in urban and rural 
areas and in a variety of geographic areas throughout the Nation.

SEC. 409. AMOUNTS AND LENGTH OF GRANTS.

    (a) Awards.--The Secretary shall award annual grants taking into 
account the availability of appropriations, the number and quality of 
applications, and other factors related to the purposes of this title 
that the Secretary determines are appropriate.
    (b) Renewal.--Each grant under this title may be for a period of up 
to 4 years, and may be renewed for an additional 4-year period.

SEC. 410. USES OF FUNDS.

    The Federal portion of any scholarship awarded under this title 
shall be used for the following purposes:
            (1) first, for--
                    (A) the payment of tuition and fees at the school 
                selected by the parents of the child for whom the 
                scholarship was provided; and
                    (B) the reasonable costs of the child's 
                transportation to the school, if--
                            (i) the school is not the school to which 
                        the child would be assigned in the absence of a 
                        program under this title; and
                            (ii) the parents of an eligible child 
                        choose to use scholarship funds for that 
                        purpose;
            (2) second, if the parents so choose, to obtain 
        supplementary academic services for the child, at a cost of not 
        more than $500, from any provider chosen by the parents that 
        the grantee, in accordance with regulations of the Secretary, 
        determines is capable of providing such services and has an 
        appropriate refund policy; and
            (3) finally, any remaining funds shall be used--
                    (A) for educational programs that help students 
                achieve high levels of academic excellence in the 
                school attended by the child for whom a scholarship was 
                issued, if the child attends a public school; or
                    (B) by the grantee for additional scholarships in 
                the year or the succeeding year of its program, in 
                accordance with this title, if the child attends a 
                private school.

SEC. 411. EFFECT OF PROGRAMS.

    (a) Chapter 1.--Notwithstanding any other provision of law, a local 
educational agency that, in the absence of an educational choice 
program that is funded under this title, would provide services to a 
participating child under part A of chapter 1 of title I of the 
Elementary and Secondary Education Act of 1965, shall provide such 
services to such child.
    (b) Individuals With Disabilities.--Nothing in this title shall be 
read to affect the applicability or requirements of part B of the 
Individuals With Disabilities Education Act.
    (c) Aid.--(1) Scholarships under this title are to aid families, 
not institutions. A parent's expenditure of scholarship funds at a 
school or for supplementary academic services shall not constitute 
Federal financial aid or assistance to that school or to the provider 
of supplementary academic services.
    (2) Notwithstanding paragraph (1), a school or provider of 
supplementary academic services that receives scholarship funds under 
this title shall, as a condition of participation under this title, 
comply with the anti discrimination provisions of section 601 of title 
VI of the Civil Rights Act of 1964 (42 U.S.C. 1681) and section 504 of 
the Rehabilitation Act of 1973 (27 U.S.C. 794).
    (3) The Secretary shall promulgate new regulations to implement the 
provisions of paragraph (2), taking into account the purposes of this 
title and the nature, variety, and missions of schools and providers 
that may participate in providing services to children under this 
title.
    (d) Other Federal Funds.--No Federal, State, or local agency may, 
in any year, take into account Federal funds provided to a grantee or 
to the parents of any child under this title in determining whether to 
provide any other funds from Federal, State, or local resources, or in 
determining the amount of such assistance, to such grantee or to a 
school attended by such child.
    (e) Existing Provisions of Law.--Nothing in this title shall be 
construed to supersede or modify any provision of a State constitution 
or State law that prohibits the expenditure of public funds in or by 
religious or other private institutions, except that no provision of a 
State constitution or State law shall be construed or applied to 
prohibit any grantee from paying the administrative costs of a program 
under this title or providing any Federal funds received under this 
title to parents for use at religious or other private institutions.
    (f) No Discretion.--Nothing in this title shall be construed to 
authorize the Secretary to exercise any direction, supervision, or 
control over the curriculum, program of instruction, administration, or 
personnel of any educational institution or school participating in a 
program under this title.
    (g) Discrimination.--No person shall, on the ground of race, color, 
or national origin, be excluded from participation in, be denied the 
benefits of, or be subjected to discrimination under any program or 
activity under this title.

SEC. 412. NATIONAL EVALUATION.

    With funds reserved under section 403(b), the Secretary shall 
conduct a national evaluation of the program authorized by this title. 
Such evaluation shall, at a minimum--
            (1) assess the implementation of assisted programs and 
        their effect on participants, schools, and communities in the 
        program area, including parental involvement in, and 
        satisfaction with, the program and their children's education;
            (2) compare educational achievement of participating 
        children with the achievement of similar non-participating 
        children before, during, and after the program; and
            (3) compare--
                    (A) educational achievement of children who use 
                scholarships to attend schools other than the ones they 
                would attend in the absence of the program; with
                    (B) educational achievement of children who attend 
                the schools they would attend in the absence of the 
                program.

SEC. 413. ENFORCEMENT.

    (a) Regulations.--The Secretary shall promulgate regulations to 
enforce the provisions of this title.
    (b) Private Cause.--No provision or requirement of this title shall 
be enforced through a private cause of action.

SEC. 414. DEFINITIONS.

    For the purpose of this title--
            (1) the terms ``elementary school'', ``local educational 
        agency'', ``parent'', ``secondary school'', and ``State 
        educational agency'' have the same meanings given such terms in 
        section 1471 of the Elementary and Secondary Education Act of 
        1965;
            (2) the term ``locality'' means--
                    (A) a unit of general purpose local government, 
                such as a city, township, or village; or
                    (B) a local educational agency;
            (3) the term ``Secretary'' means the Secretary of 
        Education; and
            (4) the term ``State'' means each of the 50 States, the 
        District of Columbia, and the Commonwealth of Puerto Rico.

   TITLE V--GRANTS TO ENCOURAGE EMPLOYERS TO ADOPT FLEXIBLE WORK AND 
                            FAMILY POLICIES

SEC. 501. PURPOSES.

    The purpose of this title is to provide grants as start up funds 
for employers to--
            (1) explore, initiate, or expand flexible work policies 
        (including for example, flexitime, part-time work, job sharing, 
        telecommuting, flexiplace, or compressed work weeks) in an 
        effort to ease the work and family demands on employees;
            (2) efficiently adapt to the Family and Medical Leave Act 
        of 1993 in a comprehensive manner while strategically planning 
        for changes in work force demographics;
            (3) assess the needs of employees and determine various 
        work and family policies and human resource policies that best 
        fit with a particular work force or workplace;
            (4) design work and family programs in such a way that 
        improves recruitment, retention and productivity in the context 
        of a changing work force; and
            (5) share and communicate successful work and family 
        policies with the outside business community.

SEC. 502. APPLICATIONS.

    (a) In General.--To receive a grant under this title, an employer 
must submit an application to the Secretary of Labor at such time and 
in such manner as such Secretary may prescribe.
    (b) Contents of Application.--Each application shall contain--
            (1) a description of the employer's business, including the 
        number of employees and their demographic makeup;
            (2) an economic and work profile of the families of 
        employees of such employer, including the work and family 
        situations of the employees who would benefit from a program 
        and their family income range;
            (3) a description of the work and family program the 
        employer plans to implement, including a description of--
                    (A) the methods to be used to assess the needs of 
                employees,
                    (B) the methods to be used to determine which work 
                and family policies best fit the needs of both the 
                employer and the employees,
                    (C) how the new policies will be piloted or 
                implemented, and
                    (D) which work policies will be focused upon, and 
                how support for such policies will be developed and 
                integrated into the management structure;
            (4) a profile of surrounding businesses that might benefit 
        from the type of program proposed and how information on that 
        program will be shared with those businesses; and
            (5) how, and the extent to which, the efforts of the 
        applicant will be communicated back to the Department of Labor.

SEC. 503. APPROVAL OF APPLICATIONS.

    (a) In General.--The Secretary of Labor shall approve applications 
on the basis of--
            (1) the comprehensiveness of the approach of the 
        applicant's work and family programs, the efforts made to 
        survey and assess the work and family needs of employees, and 
        the number of families impacted and the economic demands on the 
        families affected;
            (2) the applicant's ability and commitment to developing an 
        ongoing and comprehensive approach to flexible work and family 
        policies; and
            (3) the efforts by the applicant to share information of 
        its work and family policies with the surrounding business 
        community as well as their ability to provide information to 
        the Department of Labor on the development and implementation 
        of their policies.
    (b) Diversity of Approved Applications.--The Secretary of Labor 
shall ensure that, to the extent feasible, grants are awarded to a 
variety of businesses with varying work populations and economic means 
as well as variety in both urban and rural areas and in different 
geographic areas throughout the Nation.

SEC. 504. LIMIT ON AMOUNT OF GRANTS; AUTHORIZATION OF APPROPRIATIONS.

    (a) Limit on Amount of Grants.--The maximum grant that may be 
awarded under this title to a business for any year shall not exceed 
$50,000.
    (b) Authorization.--There are authorized to be appropriated to 
carry out this title $10,000,000 for fiscal year 1993, to remain 
available until expended or the close of fiscal year 1994.
    (c) Funds Not Used for Grants.--If funds appropriated pursuant to 
subsection (b) remain available as of the close of fiscal year 1994, 
the Secretary of Labor shall conduct a national evaluation of the 
various programs funded by grants under this title. Notwithstanding 
subsection (b), such funds may be used during fiscal year 1995 for such 
purpose.

 TITLE VI--REDUCING THE COST OF CAPITAL BY REDUCING CAPITAL GAINS TAX 
 RATES, INDEXING THE BASIS OF CERTAIN ASSETS, AND EXCLUDING GAIN FROM 
                     SALES OF PRINCIPAL RESIDENCES

SEC. 601. REDUCTION IN INDIVIDUAL CAPITAL GAINS RATE.

    (a) General Rule.--Subsection (h) of section 1 (relating to maximum 
capital gains rate) is amended to read as follows:
    ``(h) Maximum Capital Gains Rate.--If a taxpayer has a net capital 
gain for any taxable year, then the tax imposed by this section 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 taxable income reduced by the net capital gain, 
                plus
                    ``(B) a tax equal to 15 percent of the net capital 
                gain in excess of--
                            ``(i) the maximum amount of taxable income 
                        to which the 15-percent rate applies under the 
                        table applicable to the taxpayer, reduced by
                            ``(ii) the taxable income to which 
                        subparagraph (A) applies.
    (b) Phaseout of Personal Exemptions and Limitation on Deduction of 
Itemized Deductions Not To Result From Net Capital Gain.--
            (1)(A) Subparagraphs (A) and (B) of section 151(d)(3) 
        (relating to phaseout of exemption amount) are each amended by 
        inserting ``modified'' before ``adjusted gross income''.
            (B) Paragraph (3) of section 151(d) of such Code is amended 
        by redesignating subparagraphs (D) and (E) as subparagraphs (E) 
        and (F), respectively, and by inserting after subparagraph (C) 
        the following new subparagraph:
                    ``(D) Modified adjusted gross income.--For purposes 
                of this paragraph, the term `modified adjusted gross 
                income' means adjusted gross income reduced by net 
                capital gain.''
            (2) Subsection (a) of section 68 (relating to overall 
        limitation on itemized deductions) is amended by inserting 
        ``(reduced by net capital gain (determined in accordance with 
        the last sentence of section 151(d)(3)(D)))'' after ``adjusted 
        gross income''.
    (c) Technical Amendments.--
            (1) Paragraph (1) of section 170(e) is amended by striking 
        ``the amount of gain'' in the material following subparagraph 
        (B)(ii) and inserting ``13/28 (19/34 in the case of a 
        corporation) of the amount of gain''.
            (2)(A) The second sentence of section 7518(g)(6)(A) is 
        amended by striking ``28 percent (34 percent in the case of a 
        corporation)'' and inserting ``15 percent''.
            (B) The second sentence of section 607(h)(6)(A) of the 
        Merchant Marine Act, 1936, is amended by striking ``28 percent 
        (34 percent in the case of a corporation)'' and inserting ``15 
        percent''.

SEC. 602. REDUCTION IN CORPORATE CAPITAL GAINS RATE.

    (a) General Rule.--Section 1201 (relating to alternative tax for 
corporations) is amended by redesignating subsection (b) as subsection 
(c), and by striking subsection (a) and inserting the following:
    ``(a) General Rule.--If for any taxable year a corporation has a 
net capital gain, then, in lieu of the tax imposed by sections 11, 511, 
or 831(a) (whichever applies), there is hereby imposed a tax (if such 
tax is less than the tax imposed by such section) which shall consist 
of the sum of--
            ``(1) a tax computed on the taxable income reduced by the 
        net capital gain, at the same rates and in the same manner as 
        if this subsection had not been enacted, plus
            ``(2) a tax of 15 percent of the net capital gain.
    ``(b) Transitional Rule.--In the case of a taxable year which 
includes December 31, 1992, the amount of the net capital gain for 
purposes of subsection (a) shall not exceed the net capital gain 
determined by only taking into account gains and losses properly taken 
into account for the portion of the taxable year on or after such 
date.''
    (b) Technical Amendments.--
            (1) Clause (iii) of section 852(b)(3)(D) is amended by 
        striking ``66 percent'' and inserting ``85 percent''.
            (2) Paragraphs (1) and (2) of section 1445(e) are each 
        amended by striking ``34 percent'' and inserting ``15 
        percent''.

SEC. 603. REDUCTION OF MINIMUM TAX RATE ON CAPITAL GAINS.

    Subparagraph (A) of section 55(b)(1) (relating to tentative minimum 
tax) is amended to read as follows:
                    ``(A) the sum of--
                            ``(i) 15 percent of the lesser of--
                                    ``(I) the net capital gain 
                                (determined with the adjustments 
                                provided in this part and (to the 
                                extent applicable) the limitations of 
                                sections 1(h)(2) and 1201(b)), or
                                    ``(II) so much of the alternative 
                                minimum taxable income for the taxable 
                                year as exceeds the exemption amount, 
                                plus
                            ``(ii) 20 percent (24 percent in the case 
                        of a taxpayer other than a corporation) of the 
                        amount (if any) by which the excess referred to 
                        in clause (i)(II) exceeds the net capital gain 
                        (as so determined), reduced by''.

SEC. 604. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING GAIN 
              OR LOSS.

    (a) In General.--Part II of subchapter O of chapter 1 (relating to 
basis rules of general application) is amended by inserting after 
section 1021 the following new section:

``SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING 
              GAIN OR LOSS.

    ``(a) General Rule.--
            ``(1) Indexed basis substituted for adjusted basis.--Except 
        as provided in paragraph (2), if an indexed asset which has 
        been held for more than 1 year is sold or otherwise disposed 
        of, for purposes of this title the indexed basis of the asset 
        shall be substituted for its adjusted basis.
            ``(2) Exception for depreciation, etc.--The deduction for 
        depreciation, depletion, and amortization shall be determined 
        without regard to the application of paragraph (1) to the 
        taxpayer or any other person.
    ``(b) Indexed Asset.--
            ``(1) In general.--For purposes of this section, the term 
        `indexed asset' means--
                    ``(A) stock in a corporation, and
                    ``(B) tangible property (or any interest therein), 
                which is a capital asset of property used in the trade 
                or business (as defined in section 1231(b)).
            ``(2) Certain property excluded.--For purposes of this 
        section, the term `indexed asset' does not include--
                    ``(A) Creditor's interest.--Any interest in 
                property which is in the nature of a creditor's 
                interest.
                    ``(B) Options.--Any option or other right to 
                acquire an interest in property.
                    ``(C) Net lease property.--In the case of a lessor, 
                net lease property (within the meaning of subsection 
                (h)(1)).
                    ``(D) Certain preferred stock.--Stock which is 
                fixed and preferred as to dividends and does not 
                participate in corporate growth to any significant 
                extent.
                    ``(E) Stock in certain corporations.--Stock in--
                            ``(i) an S corporation (within the meaning 
                        of section 1361),
                            ``(ii) a personal holding company (as 
                        defined in section 542), and
                            ``(iii) a foreign corporation.
            ``(3) Exception for stock in foreign corporation which is 
        regularly traded on national or regional exchange.--Clause 
        (iii) of paragraph (2)(E) shall not apply to stock in a foreign 
        corporation the stock of which is listed on the New York Stock 
        Exchange, the American Stock Exchange, or any domestic regional 
        exchange for which quotations are published on a regular basis 
        other than--
                    ``(A) stock of a foreign investment company (within 
                the meaning of section 1246(b)), and
                    ``(B) stock in a foreign corporation held by a 
                United States person who meets the requirements of 
                section 1248(a)(2).
    ``(c) Indexed Basis.--For purposes of this section--
            ``(1) Indexed basis.--The indexed basis for any asset is--
                    ``(A) the adjusted basis of the asset, multiplied 
                by
                    ``(B) the applicable inflation ratio.
            ``(2) Applicable inflation ratio.--The applicable inflation 
        ratio for any asset is the percentage arrived at by dividing--
                    ``(A) the gross national product deflator for the 
                calendar quarter in which the disposition takes place, 
                by
                    ``(B) the gross national product deflator for the 
                calendar quarter in which the asset was acquired by the 
                taxpayer (or, if later, the calendar quarter ending 
                December 31, 1992).
        The applicable inflation ratio shall not be taken into account 
        unless it is greater than 1. The applicable inflation ratio for 
        any asset shall be rounded to the nearest one-tenth of 1 
        percent.
                    ``(3) Gross national product deflator.--The gross 
                national product deflator for any calendar quarter is 
                the implicit price deflator for the gross national 
                product for such quarter (as shown in the first 
                revision thereof).
                    ``(4) Secretary to publish tables.--The Secretary 
                shall publish tables specifying the applicable 
                inflation ratios for each calendar quarter.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Treatment as separate asset.--In the case of any 
        asset, the following shall be treated as a separate asset:
                    ``(A) a substantial improvement to property,
                    ``(B) in the case of stock of a corporation, a 
                substantial contribution to capital, and
                    ``(C) any other portion of an asset to the extent 
                that separate treatment of such portion is appropriate 
                to carry out the purposes of this section.
            ``(2) Assets which are not indexed assets throughout 
        holding period.--
                    ``(A) In general.--The applicable inflation ratio 
                shall be appropriately reduced for calendar months at 
                any time during which the asset was not an indexed 
                asset.
                    ``(B) Certain short sales.--For purposes of 
                applying subparagraph (A), an asset shall be treated as 
                not an indexed asset for any short sale period during 
                which the taxpayer or the taxpayer's spouse sells short 
                property substantially identical to the asset. For 
                purposes of the preceding sentence, the short sale 
                period begins on the day after the substantially 
                identical property is sold and ends on the closing date 
                for the sale.
            ``(3) Treatment of certain distributions.--A distribution 
        with respect to stock in a corporation which is not a dividend 
        shall be treated as a disposition.
            ``(4) Section cannot increase ordinary loss.--To the extent 
        that (but for this paragraph) this section would create or 
        increase a net ordinary loss to which section 1231(a)(2) 
        applies or an ordinary loss to which any other provision of 
        this title applies, such provision shall not apply. The 
        taxpayer shall be treated as having a long-term capital loss in 
        an amount equal to the amount of the ordinary loss to which the 
        preceding sentence applies.
            ``(5) Acquisition date where there has been prior 
        application of subsection (a)(1) with respect to the 
        taxpayer.--If there has been a prior application of subsection 
        (a)(1) to an asset while such asset was held by the taxpayer, 
        the date of acquisition of such asset by the taxpayer shall be 
        treated as not earlier than the date of the most recent such 
        prior application.
            ``(6) Collapsible corporations.--The application of section 
        341(a) (relating to collapsible corporations) shall be 
        determined without regard to this section.
    ``(e) Certain Conduit Entities.--
            ``(1) Regulated investment companies; real estate 
        investment trusts; common trust funds.--
                    ``(A) In general.--Stock in a qualified investment 
                entity shall be an indexed asset for any calendar month 
                in the same ratio as the fair market value of the 
                assets held by such entity at the close of such month 
                which are indexed assets bears to the fair market value 
                of all assets of such entity at the close of such 
                month.
                    ``(B) Ratio of 90 percent or more.--If the ratio 
                for any calendar month determined under subparagraph 
                (A) would (but for the subparagraph) be 90 percent or 
                more, such ratio for such month shall be 100 percent.
                    ``(C) Ratio of 10 percent or less.--If the ratio 
                for any calendar month determined under subparagraph 
                (A) would (but for this subparagraph) be 10 percent or 
                less, such ratio for such month shall be zero.
                    ``(D) Valuation of assets in case of real estate 
                investment trusts.--Nothing in this paragraph shall 
                require a real estate investment trust to value its 
                assets more frequently than once each 36 months (except 
                where such trust ceases to exist). The ratio under 
                subparagraph (A) for any calendar month for which there 
                is no valuation shall be the trustee's good faith 
                judgment as to such valuation.
                    ``(E) Qualified investment entity.--For purposes of 
                this paragraph, the term `qualified investment entity' 
                means--
                            ``(i) a regulated investment company 
                        (within the meaning of section 851),
                            ``(ii) a real estate investment trust 
                        (within the meaning of section 856), and
                            ``(iii) a common trust fund (within the 
                        meaning of section 584).
            ``(2) Partnerships.--In the case of a partnership, the 
        adjustment made under subsection (a) at the partnership level 
        shall be passed through to the partners.
            ``(3) Subchapter s corporations.--In the case of an 
        electing small business corporation, the adjustment under 
        subsection (a) at the corporate level shall be passed through 
        to the shareholders.
    ``(f) Dispositions Between Related Persons.--
            ``(1) In general.--This section shall not apply to any sale 
        or other disposition of property between related persons except 
        to the extent that the basis of such property in the hands of 
        the transferee is a substituted basis.
            ``(2) Related persons defined.--For purposes of this 
        section, the term `related persons' means--
                    ``(A) persons bearing a relationship set forth in 
                section 267(b), and
                    ``(B) persons treated as single employer under 
                subsection (b) or (c) of section 414.
    ``(g) Transfers To Increase Indexing Adjustment or Depreciation 
Allowance.--If any person transfers cash, debt, or any other property 
to another person and the principal purpose of such transfer is--
            ``(1) to secure or increase an adjustment under subsection 
        (a), or
            ``(2) to increase (by reason of an adjustment under 
        subsection (a)) a deduction for depreciation, depletion, or 
        amortization,
the Secretary may disallow part or all of such adjustment or increase.
    ``(h) Definitions.--For purposes of this section--
            ``(1) Net lease property defined.--The term `net lease 
        property' means leased real property where--
                    ``(A) the term of the lease (taking into account 
                options to renew) was 50 percent or more of the useful 
                life of the property, and
                    ``(B) for the period of the lease, the sum of the 
                deductions with respect to such property which are 
                allowable to the lessor solely by reason of section 162 
                (other than rents and reimbursed amounts with respect 
                to such property) is 15 percent or less of the rental 
                income produced by such property.
            ``(2) Stock includes interest in common trust fund.--The 
        term `stock in a corporation' includes any interest in a common 
        fund (as defined in section 584(a)).
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''
    (b) Clerical Amendment.--This table of sections for part II of 
subchapter O of such chapter 1 is amended by inserting after the item 
relating to section 1021 the following new item:

                              ``Sec. 1022. Indexing of certain assets 
                                        for purposes of determining 
                                        gain or loss.''
    (c) Adjustment To Apply for Purposes of Determining Earnings and 
Profits.--Subsection (f) of section 312 (relating to effect on earnings 
and profits of gain or loss and of receipt of tax-free distributions) 
is amended by adding at the end thereof the following new paragraph:
            ``(3) Effect on earnings and profits of indexed basis.--For 
        substitution of indexed basis for adjusted basis in the case of 
        the disposition of certain assets after December 31, 1992, see 
        section 1022(a)(1).''

SEC. 605. INDEXING OF LIMITATION ON CAPITAL LOSSES OF INDIVIDUALS.

    Section 1211 (relating to limitation on capital losses) is amended 
by adding at the end thereof the following new subsection:
    ``(c) Indexation of Limitation on Noncorporate Taxpayers.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 1993, the $3,000 and $1,500 
        amounts under subsection (b)(1) shall be increased by an amount 
        equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the applicable inflation adjustment for the 
                calendar year in which the taxable year begins.
            ``(2) Applicable inflation adjustment.--For purposes of 
        paragraph (1), the applicable inflation adjustment for any 
        calendar year is the percentage (if any) by which--
                    ``(A) the gross national product deflator for the 
                last calendar quarter of the preceding calendar year, 
                exceeds
                    ``(B) the gross national product deflator for the 
                last calendar quarter of 1990.
        For purposes of this paragraph, the term `gross national 
        product deflator' has the meaning given such term by section 
        1022(c)(3).''

SEC. 606. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.

    (a) In General.--Section 121 (relating to one-time exclusion of 
gain from sale of principal residence by individual who has attained 
age 55) is amended to read as follows:

``SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.

    ``(a) General Rule.--Gross income does not include gain from the 
sale or exchange of property if such property has been owned and used 
by the taxpayer as the taxpayer's principal residence.
    ``(b) Special Rules.--
            ``(1) Tenant-stockholder in cooperative housing 
        corporation.--For purposes of this section, if the taxpayer 
        holds stock as a tenant-stockholder (as defined in section 216) 
        in a cooperative housing corporation (as defined in such 
        section), then the use requirements of subsection (a) shall be 
        applied to the house or apartment which the taxpayer was 
        entitled to occupy as such stockholder.
            ``(2)  Involuntary conversions.--For purposes of this 
        section, the destruction, theft, seizure, requisition, or 
        condemnation of property shall be treated as the sale of such 
        property.
            ``(3) Property used in part as principal residence.--In the 
        case of property only a portion of which has been owned and 
        used by the taxpayer as the taxpayer's principal residence, 
        this section shall apply with respect to so much of the gain 
        from sale or exchange of such property as is determined, under 
        regulations prescribed by the Secretary, to be attributable to 
        the portion of the property so owned and used by the 
        taxpayer.''
    (b) Conforming Amendments.--
            (1) Paragraph (3) of section 1033(h) is amended to read as 
        follows:
            ``(3) For exclusion from gross income of gain from 
        involuntary conversion of principal residence, see section 
        121.''
            (2) Subsection (l) of section 1034 is amended to read as 
        follows:
    ``(l) Termination.--This section shall not apply to any sale or 
exchange occurring after December 31, 1992, in taxable years ending 
after such date.''
            (3) Section 1038 is amended by striking subsection (e) and 
        redesignating subsections (f) and (g) as subsections (e) and 
        (f), respectively.
            (4) Paragraph (7) of section 1250(d) is amended to read as 
        follows:
            ``(7) Disposition of principal residence.--Subsection (a) 
        shall not apply to a disposition of property to the extent used 
        by the taxpayer as the taxpayer's principal residence (within 
        the meaning of section 121).''
            (5) Subsection (c) of section 6012 is amended by striking 
        ``one-time exclusion of gain from sale of principal residence 
        by individual who has attained age 55'' and inserting 
        ``exclusion of gain from sale of principal residence''.
    (c) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by striking the item relating to 
section 121 and inserting the following new item:

                              ``Sec. 121. Exclusion of gain from sale 
                                        of principal residence.''

SEC. 607. EFFECTIVE DATES.

    (a) In General.--Except as provided in subsection (b), the 
amendments made by this subtitle shall apply to sales or exchanges 
occurring after December 31, 1992, in taxable years ending after such 
date.
    (b) Indexing of Loss Limitation.--The amendments made by section 
605 shall apply to taxable years beginning after December 31, 1992.

                      TITLE VII--ENTERPRISE ZONES

SEC. 700. PURPOSE.

    It is the purpose of this title to provide for the establishment of 
enterprise zones in order to stimulate entrepreneurship, particularly 
by zone residents, the creation of new jobs, particularly for 
disadvantaged workers and long-term unemployed individuals, and to 
promote revitalization of economically distressed areas primarily by 
providing or encouraging--
            (1) tax relief at the Federal, State, and local levels;
            (2) regulatory relief at the Federal, State, and local 
        levels; and
            (3) improved local services and an increase in the economic 
        stake of enterprise zone residents in their own community and 
        its development, particularly through the increased involvement 
        of private, local, and neighborhood organizations.

              Subtitle A--Designation of Enterprise Zones

SEC. 701. DESIGNATION OF ZONES.

    (a) General Rule.--Chapter 80 (relating to general rules) is 
amended by adding at the end thereof the following new subchapter:

            ``Subchapter D--Designation of Enterprise Zones

                              ``Sec. 7880. Designation.

``SEC. 7880. DESIGNATION.

    ``(a) Designation of Zones.--
            ``(1) Definition.--For purposes of this title, the term 
        `enterprise zone' means any area--
                    ``(A) which is nominated by one or more local 
                governments and the State or States in which it is 
                located for designation as an enterprise zone 
                (hereinafter in this section referred to as a 
                `nominated area'), and
                    ``(B) which the Secretary of Housing and Urban 
                Development, after consultation with--
                            ``(i) the Secretaries of Agriculture, 
                        Commerce, Labor, and the Treasury; the Director 
                        of the Office of Management and Budget; and the 
                        Administrator of the Small Business 
                        Administration, and
                            ``(ii) in the case of an area on an Indian 
                        reservation, the Secretary of the Interior,
                designates as an enterprise zone.
            ``(2) Authority to designate.--The Secretary of Housing and 
        Urban Development is authorized to designate enterprise zones 
        in accordance with the provisions of this section.
            ``(3) Limitations on designations.--
                    ``(A) Publication of regulations.--Before 
                designating any area as an enterprise zone and not 
                later than 4 months following the date of the enactment 
                of this section, the Secretary of Housing and Urban 
                Development shall prescribe by regulation, after 
                consultation with the officials described in paragraph 
                (1)(B)--
                            ``(i) the procedures for nominating an 
                        area, and
                            ``(ii) the procedures for designation as an 
                        enterprise zone, including a method for 
                        comparing courses of action under subsection 
                        (d) proposed for nominated areas, and the other 
                        factors specified in subsection (e).
                    ``(B) Time limitations.--The Secretary of Housing 
                and Urban Development shall designate nominated areas 
                as enterprise zones only during the 48-month period 
                beginning on the later of--
                            ``(i) the first day of the first month 
                        following the month in which the effective date 
                        of the regulations described in subparagraph 
                        (A) occurs, or
                            ``(ii) June 30, 1992.
                    ``(C) Number of designations.--
                            ``(i) In general.--The Secretary of Housing 
                        and Urban Development may designate--
                                    ``(I) not more than 50 nominated 
                                areas as enterprise zones under this 
                                section, and
                                    ``(II) not more than 15 nominated 
                                areas as enterprise zones during the 
                                first 12-month period beginning on the 
                                date determined under subparagraph (B), 
                                not more than 30 by the end of the 
                                second 12-month period, not more than 
                                45 by the end of the third 12-month 
                                period, and not more than 50 by the end 
                                of the fourth 12-month period.
                            ``(ii) Minimum designation in rural 
                        areas.--Of the areas designated as enterprise 
                        zones, at least one-third must be areas that 
                        are--
                                    ``(I) within a local government 
                                jurisdiction or jurisdictions with a 
                                population of less than 50,000 (as 
                                determined using the most recent census 
                                data available);
                                    ``(II) outside of a metropolitan 
                                statistical area (within the meaning of 
                                section 143(k)(2)(B)); or
                                    ``(III) determined by the Secretary 
                                of Housing and Urban Development, after 
                                consultation with the Secretary of 
                                Commerce, to be rural areas.
                    ``(D) Procedural rules.--The Secretary of Housing 
                and Urban Development shall not make any designations 
                under this section unless--
                            ``(i) the local government and the State in 
                        which the nominated area is located have the 
                        authority to--
                                    ``(I) nominate such area for 
                                designation as an enterprise zone,
                                    ``(II) make the State and local 
                                commitments under subsection (d), and
                                    ``(III) provide assurances 
                                satisfactory to the Secretary of 
                                Housing and Urban Development that such 
                                commitments will be fulfilled, and
                            ``(ii) a nomination therefor is submitted 
                        by such State and local governments in such a 
                        manner and in such form, and contains such 
                        information, as the Secretary of Housing and 
                        Urban Development shall prescribe by 
                        regulation.
            ``(4) Nomination process for indian reservations.--In the 
        case of a nominated area on an Indian reservation, the 
        reservation governing body (as determined by the Secretary of 
        the Interior) shall be deemed to be both the State and local 
        governments with respect to such area.
    ``(b) Time Period for Which Designation is in Effect.--
            ``(1) In general.--Any designation of an area as an 
        enterprise zone shall remain in effect during the period 
        beginning on the date of the designation and ending on the 
        earliest of--
                    ``(A) December 31 of the 24th calendar year 
                following the calendar year in which such date occurs,
                    ``(B) the termination date specified by the State 
                and local governments as provided in the nomination 
                submitted in accordance with subsection (a)(3)(D)(ii),
                    ``(C) such other date as the Secretary of Housing 
                and Urban Development shall specify as a condition of 
                designation, or
                    ``(D) the date upon which the Secretary of Housing 
                and Urban Development revokes such designation.
            ``(2) Revocation of designation.--The Secretary of Housing 
        and Urban Development, after consultation with the officials 
        described in subsection (a)(1)(B), may revoke the designation 
        of an area if the Secretary of Housing and Urban Development 
        determines that the State or a local government in which the 
        area is located is not complying substantially with the agreed 
        course of action for the area.
    ``(c) Area and Eligibility Requirements.--
            ``(1) In general.--The Secretary of Housing and Urban 
        Development may designate a nominated area as an enterprise 
        zone only if it meets the requirements of paragraphs (2) and 
        (3).
            ``(2) Area requirements.--A nominated area meets the 
        requirements of this paragraph if--
                    ``(A) the area is within the jurisdiction of the 
                local government;
                    ``(B) the boundary of the area is continuous; and
                    ``(C) the area--
                            ``(i) has a population, as determined by 
                        the most recent census data available, of not 
                        less than--
                                    ``(I) 4,000 if any portion of such 
                                area (other than a rural area described 
                                in subsection (a)(3)(C)(ii)) is located 
                                within a metropolitan statistical area 
                                (as designated by the Director of the 
                                Office of Management and Budget) with a 
                                population of 50,000 or more; or
                                    ``(II) 1,000 in any other case; or
                            ``(ii) is entirely within an Indian 
                        reservation (as determined by the Secretary of 
                        the Interior).
            ``(3) Eligibility requirements.--For purposes of paragraph 
        (1), a nominated area meets the requirements of this paragraph 
        if the State or local governments in which the nominated area 
        is located certifies, and the Secretary of Housing and Urban 
        Development accepts such certification, that--
                    ``(A) the area is one of pervasive poverty, 
                unemployment and general distress;
                    ``(B) the unemployment rate for the area, as 
                determined by the appropriate available data, was not 
                less than 1.5 times the national unemployment rate for 
                the period;
                    ``(C) the poverty rate (as determined by the most 
                recent census data available) for each populous census 
                tract (or where not tracted, the equivalent county 
                division as defined by the Bureau of the Census for the 
                purpose of defining poverty areas) within the area was 
                not less than 1.5 times the national poverty rate for 
                the period to which such data relate; and
                    ``(D) the area meets at least one of the following 
                criteria:
                            ``(i) Not less than 70 percent of the 
                        households living in the area have incomes 
                        below 80 percent of the median income of 
                        households of the local government (determined 
                        in the same manner as under section 119(b)(2) 
                        of the Housing and Community Development Act of 
                        1974).
                            ``(ii) The population of the area decreased 
                        by 20 percent or more between 1970 and 1980 (as 
                        determined from the most recent census 
                        available).
            ``(4) Eligibility requirements for rural areas.--For 
        purposes of paragraph (1), a nominated area that is a rural 
        area described in subsection (a)(3)(C)(ii) meets the 
        requirements of paragraph (3) if the State and local 
        governments in which it is located certify and the Secretary, 
        after such review of supporting data as he deems appropriate, 
        accepts such certification, that the area meets--
                    ``(A) the criteria set forth in subparagraphs (A) 
                and (B) of paragraph (3); and
                    ``(B) not less than one of the criteria set forth 
                in the other subparagraphs of paragraph (3).
    ``(d) Required State and Local Commitments.--
            ``(1) In general.--No nominated area shall be designated as 
        an enterprise zone unless the State and the local government or 
        governments of the jurisdictions in which the nominated area is 
        located agree in writing that, during any period during which 
        the nominated area is an enterprise zone, such governments will 
        follow a specified course of action designed to reduce the 
        various burdens borne by employers or employees in such area.
            ``(2) Course of action.--The course of action under 
        paragraph (1) may include, but is not limited to--
                    ``(A) the reduction or elimination of tax rates or 
                fees applying within the enterprise zone,
                    ``(B) actions to reduce, remove, simplify, or 
                streamline governmental requirements applying within 
                the enterprise zone,
                    ``(C) an increase in the level or efficiency of 
                local services within the enterprise zone, for example, 
                crime prevention, and drug enforcement prevention and 
                treatment,
                    ``(D) involvement in the program by private 
                entities, organizations, neighborhood associations, and 
                community groups, particularly those within the 
                nominated area, including a commitment from such 
                private entities to provide jobs and job training for, 
                and technical, financial or other assistance to, 
                employers, employees, and residents of the nominated 
                area,
                    ``(E) mechanisms to increase equity ownership by 
                residents and employees within the enterprise zone,
                    ``(F) donation (or sale below market value) of land 
                and buildings to benefit low and moderate income 
                people,
                    ``(G) linkages to--
                            ``(i) job training,
                            ``(ii) transportation,
                            ``(iii) education,
                            ``(iv) day care,
                            ``(v) health care, and
                            ``(vi) other social service support,
                    ``(H) provision of supporting public facilities, 
                and infrastructure improvements,
                    ``(I) encouragement of local entrepreneurship; and
                    ``(J) other factors determined essential to support 
                enterprise zone activities and encourage livability or 
                quality of life.
            ``(3) Later modification of a course of action.--The 
        Secretary of Housing and Urban Development may by regulation 
        prescribe procedures to permit or require a course of action to 
        be updated or modified during the time that a designation is in 
        effect.
    ``(e) Priority of Designation.--In choosing nominated areas for 
designation, the Secretary of Housing and Urban Development shall give 
preference to the nominated areas--
            ``(1) with respect to which the strongest and highest 
        quality contributions have been promised as part of the course 
        of action, taking into consideration the fiscal ability of the 
        nominating State and local governments to provide tax relief,
            ``(2) with respect to which the nominating State and local 
        governments have provided the most effective and enforceable 
        guarantees that the proposed course of action will actually be 
        carried out during the period of the enterprise zone 
        designation,
            ``(3) with respect to which private entities have made the 
        most substantial commitments in additional resources and 
        contributions, including the creation of new or expanded 
        business activities, and
            ``(4) which best exhibit such other factors determined by 
        the Secretary of Housing and Urban Development, including 
        relative distress, as are consistent with the intent of the 
        enterprise zone program and have the greatest likelihood of 
        success.
    ``(f) Geographic Distribution.--In making designations, the 
Secretary of Housing and Urban Development will take into consideration 
a reasonable geographic distribution of enterprise zones.
    ``(g) Definitions.--For the purposes of this title--
            ``(1) Governments.--If more than one government seeks to 
        nominate an area as an enterprise zone, any reference to, or 
        requirement of, this section shall apply to all such 
        governments.
            ``(2) State.--The term `State' shall also include the 
        Commonwealth of Puerto Rico, the Virgin Islands, Guam, American 
        Samoa, the Commonwealth of the Northern Mariana Islands, and 
        any other possession of the United States.
            ``(3) Local government.--The term `local government' 
        means--
                    ``(A) any county, city, town, township, parish, 
                village, or other general purpose political subdivision 
                of a State,
                    ``(B) any combination of political subdivisions 
                described in subparagraph (A) recognized by the 
                Secretary of Housing and Urban Development, and
                    ``(C) the District of Columbia.
    ``(h) Cross References for--

                                ``(1) definitions, see section 1391,
                                ``(2) treatment of employees in 
enterprise zones, see section 1392, and
                                ``(3) treatment of investments in 
enterprise zones, see sections 1393 and 1394.''.
    (b) Clerical Amendment.--The table of subchapters for chapter 80 is 
amended by adding at the end thereof the following new item:

                              ``Subchapter D. Designation of enterprise 
                                        zones.''.

SEC. 702. REPORTING REQUIREMENTS.

    Not later than the close of the second calendar year after the 
calendar year in which the Secretary of Housing and Urban Development 
first designates areas as enterprise zones, and at the close of each 
second calendar year thereafter, the Secretary of Housing and Urban 
Development shall submit to the Congress a report on the effects of 
such designation in accomplishing the purposes of this title.

SEC. 703. INTERACTION WITH OTHER FEDERAL PROGRAMS.

    (a) Coordination With Relocation Assistance.--The designation of an 
enterprise zone under section 7880 of the Internal Revenue Code of 1986 
(as added by this title) shall not--
            (1) constitute approval of a Federal or federally assisted 
        program or project (within the meaning of the Uniform 
        Relocation Assistance and Real Property Acquisition Policies 
        Act of 1970 (42 U.S.C. 4601)); or
            (2) entitle any person displaced from real property located 
        in such zone to any rights or any benefits under such title.
    (b) Coordination With Environmental Policy.--Designation of an 
enterprise zone under section 7880 of the Internal Revenue Code of 1986 
shall not constitute a Federal action for purposes of applying the 
procedural requirements of the National Environmental Policy Act of 
1969 (42 U.S.C. 4341) or other provisions of Federal law relating to 
the protection of the environment.

               Subtitle B--Federal Income Tax Incentives

SEC. 711. DEFINITIONS AND REGULATIONS; EMPLOYEE CREDIT; CAPITAL GAIN 
              EXCLUSION; STOCK EXPENSING.

    (a) General Rule.--Chapter 1 (relating to normal tax and surtax 
rules) is amended by inserting after subchapter T the following new 
subchapter:

                    ``Subchapter U--Enterprise Zones

                              ``Sec. 1391. Definitions and regulatory 
                                        authority.
                              ``Sec. 1392. Credit for enterprise zone 
                                        employees.
                              ``Sec. 1393. Enterprise zone capital 
                                        gain.
                              ``Sec. 1394. Enterprise zone stock.

``SEC. 1391. DEFINITIONS AND REGULATORY AUTHORITY.

    ``(a) Enterprise Zone.--
            ``(1) In general.--For purposes of this subchapter, the 
        term `enterprise zone' means any area which the Secretary of 
        Housing and Urban Development designates pursuant to section 
        7880(a) as a Federal enterprise zone for purposes of this 
        title.
            ``(2) Termination of enterprise zone.--An area will cease 
        to constitute an enterprise zone once its designation as such 
        terminates or is revoked under section 7880(b).
    ``(b) Enterprise Zone Business.--
            ``(1) In general.--For purposes of this subchapter, the 
        term `enterprise zone business' means an activity constituting 
        the active conduct of a trade or business within an enterprise 
        zone, and with respect to which--
                    ``(A) at least 80 percent of the gross income in 
                each calendar year is attributable to the active 
                conduct of a trade or business within an enterprise 
                zone,
                    ``(B) less than 10 percent of the property (as 
                measured by unadjusted basis) constitutes stocks, 
                securities, or property held for use by customers,
                    ``(C) less than 10 percent of the property 
                constitutes collectibles (as defined in section 
                408(m)(2)), unless such collectibles constitute 
                property held primarily for sale to customers in the 
                ordinary course of the active trade or business,
                    ``(D) substantially all of the property (whether 
                owned or leased) is located within an enterprise zone, 
                and
                    ``(E) substantially all of the employees work 
                within an enterprise zone.
            ``(2) Related activities taken into account.--Except as 
        otherwise provided in regulations, all activities conducted by 
        a taxpayer and persons related to the taxpayer shall be treated 
        as one activity for purposes of paragraph (1).
            ``(3) Special rules.--
                    ``(A) Rental real property.--For purposes of 
                paragraph (1), real property located within an 
                enterprise zone and held for use by customers other 
                than related persons shall be treated as the active 
                conduct of a trade or business for purposes of 
                paragraph (1)(A) and as not subject to paragraph 
                (1)(B).
                    ``(B) Termination of enterprise zone business.--An 
                activity shall cease to be an enterprise zone business 
                if--
                            ``(i) the designation of the enterprise 
                        zone in which the activity is conducted 
                        terminates or is revoked pursuant to section 
                        7880(b);
                            ``(ii) more than 50 percent (by value) of 
                        the activity's property or services are 
                        obtained from related persons other than 
                        enterprise zone businesses; or
                            ``(iii) more than 50 percent of the 
                        activity's gross income is attributable to 
                        property or services provided to related 
                        persons other than enterprise zone businesses.
    ``(c) Enterprise Zone Property.--
            ``(1) In general.--For purposes of this subchapter, the 
        term `enterprise zone property' means any property used in the 
        active conduct of an enterprise zone business.
            ``(2) Termination of enterprise zone.--The treatment of 
        property as enterprise zone property under subparagraph (A) 
        shall not terminate upon the termination or revocation of the 
        designation of the enterprise zone in which the property is 
        located, but instead shall terminate immediately after the 
        first sale or exchange of such property occurring after the 
        expiration or revocation.
    ``(d) Related Persons.--For purposes of this subchapter, a person 
shall be treated as related to another person if--
            ``(1) the relationship of such persons is described in 
        section 267(b) or 707(b)(1), or
            ``(2) such persons are engaged in trades or businesses 
        under common control (within the meaning of subsections (a) and 
        (b) of section 52).
For purposes of paragraph (1), in applying section 267(b) or 707(b)(1), 
`33 percent' shall be substituted for `50 percent'.
    ``(e) Regulatory Authority.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of title VI of the Family and Economic Recovery Act, 
including--
            ``(1) providing that Federal tax relief is unavailable to 
        an activity that does not stimulate employment in, or 
        revitalization of, enterprise zones,
            ``(2) providing for appropriate coordination with other 
        Federal programs that, in combination, might enable activity 
        within enterprise zones to be more than 100 percent subsidized 
        by the Federal government, and
            ``(3) preventing the avoidance of the rules in this 
        subchapter.

``SEC. 1392. CREDIT FOR ENTERPRISE ZONE EMPLOYEES.

    ``(a) General Rule.--In the case of a taxpayer who is an enterprise 
zone employee, there shall be allowed as a credit against the tax 
imposed by this subtitle for the taxable year an amount equal to 5 
percent of so much of the qualified wages of the taxpayer for the 
taxable year as does not exceed $10,500.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Enterprise zone employee.--The term `enterprise zone 
        employee' means an individual--
                    ``(A) performing services during the taxable year 
                that are directly related to the conduct of an 
                enterprise zone business,
                    ``(B) substantially all of the services described 
                in paragraph (1)(A) are performed within an enterprise 
                zone, and
                    ``(C) the employer for whom the services described 
                in paragraph (1)(A) are performed is not the Federal 
                government, any State government or subdivision 
                thereof, or any local government.
            ``(2) Wages.--The term `wages' has the meaning given to 
        such term by subsection (b) of section 3306 (determined without 
        regard to any dollar limitation contained in such subsection).
            ``(3) Qualified wages.--The term `qualified wages' means 
        all wages of the taxpayer, to the extent attributable to 
        services described in paragraph (1).
    ``(c) Limitations.--
            ``(1) Phase-out of credit.--The amount of the credit 
        allowable to a taxpayer under subsection (a) for any taxable 
        year shall not exceed the excess (if any) of--
                    ``(A) $525, over
                    ``(B) 10.5 percent of so much of the taxpayer's 
                total wages (whether or not constituting qualified 
                wages) as exceeds $20,000.
            ``(2) Partial taxable year.--If designation of an area as 
        an enterprise zone occurs, expires, or is revoked pursuant to 
        section 7880 on a date other than the first or last day of the 
        taxable year of the taxpayer, or in the case of a short taxable 
        year, the limitations specified in subsection (c)(1) shall be 
        adjusted on a pro rata basis (based upon the number of days).
    ``(d) Reduction of Credit to Taxpayers Subject to Alternative 
Minimum Tax.--The credit allowed under this section for the taxable 
year shall be reduced by the amount (if any) of tax imposed by section 
55 (relating to the alternative minimum tax) with respect to such 
taxpayer for such year.
    ``(e) Credit Treated as Subpart C Credit.--For purposes of this 
title, the credit allowed under subsection (a) shall be treated as a 
credit allowed under subpart C of part IV of subchapter A of this 
chapter.

``SEC. 1393. ENTERPRISE ZONE CAPITAL GAIN.

    ``(a) General Rule.--Gross income does not include the amount of 
any gain constituting enterprise zone capital gain.
    ``(b) Definition.--For purposes of this section--
            ``(1) In general.--The term `enterprise zone capital gain' 
        means gain--
                    ``(A) treated as long-term capital gain,
                    ``(B) allocable in accordance with the rules under 
                subsection (b)(5) of section 338 to the sale or 
                exchange of enterprise zone property, and
                    ``(C) properly attributable to periods of use in an 
                enterprise zone business.
            ``(2) Limitations.--Enterprise zone capital gain does not 
        include any gain attributable to--
                    ``(A) the sale or exchange of property not 
                constituting enterprise zone property with respect to 
                the taxpayer throughout the period of twenty-four full 
                calendar months immediately preceding the sale or 
                exchange,
                    ``(B) any collectibles (as defined in section 
                408(m)), or
                    ``(C) sales or exchanges to persons controlled by 
                the same interests.
    ``(c) Basis.--Amounts excluded from gross income pursuant to 
subsection (a) shall not be applied in reduction to the basis of any 
property held by the taxpayer.

``SEC. 1394. ENTERPRISE ZONE STOCK.

    ``(a) General Rule.--At the election of any individual, the 
aggregate amount paid by such taxpayer during the taxable year for the 
purchase of enterprise zone stock on the original issue of such stock 
by a qualified issuer shall be allowed as a deduction.
    ``(b) Limitations.--
            ``(1) Ceiling.--The maximum amount allowed as a deduction 
        under subsection (a) to a taxpayer shall not exceed $100,000 
        for any taxable year, nor $500,000 during the taxpayer's 
        lifetime.
                    ``(A) Excess amounts.--If the amount otherwise 
                deductible by any person under subsection (a) exceeds 
                the limitation under this paragraph (1)--
                            ``(i) the amount of such excess shall be 
                        treated as an amount paid in the next taxable 
                        year, and
                            ``(ii) the deduction allowed for any 
                        taxable year shall be allocated among the 
                        enterprise zone stock purchased by such person 
                        in accordance with the purchase price per 
                        share.
            ``(2) Related person.--
                    ``(A) In general.--The taxpayer and all individuals 
                related to the taxpayer shall be treated as one person 
                for purposes of the limitations described in subsection 
                (b)(1).
                    ``(B) Excess amounts.--The limitations described in 
                subsection (b)(1) shall be allocated among the taxpayer 
                and related persons in accordance with their respective 
                purchases of enterprise zone stock.
            ``(3) Partial taxable year.--If designation of an area as 
        an enterprise zone occurs, expires, or is revoked pursuant to 
        section 7880 on a date other than the first or last day of the 
        taxable year of the taxpayer, or in the case of a short taxable 
        year, the limitations specified in subsection (b)(1) shall be 
        adjusted on a pro rata basis (based upon the number of days).
    ``(c) Dispositions of Stock.--
            ``(1) Gain treated as ordinary income.--Except as otherwise 
        provided in regulations, if a taxpayer disposes of any 
        enterprise zone stock with respect to which a deduction was 
        allowed under subsection (a), the amount realized upon such 
        disposition shall be treated as ordinary income and recognized 
        notwithstanding any other provision of this subtitle.
            ``(2) Interest charged if disposition within 5 years of 
        purchase.--
                    ``(A) In general.--If a taxpayer disposes of any 
                enterprise zone stock before the end of the 5-year 
                period beginning on the date such stock was purchased 
                by the taxpayer, the tax imposed by this chapter for 
                the taxable year in which such disposition occurs shall 
                be increased by the amount determined under 
                subparagraph (B).
                    ``(B) Additional amount.--For purposes of 
                subparagraph (A), the additional amount shall be equal 
                to the amount of interest (determined at the rate 
                applicable under section 6621(a)(2)) that would 
                accrue--
                            ``(i) during the period beginning on the 
                        date the stock was purchased by the taxpayer 
                        and ending on the date such stock was disposed 
                        of by the taxpayer,
                            ``(ii) on an amount equal to the aggregate 
                        decrease in tax of the taxpayer resulting from 
                        the deduction allowed under this subsection (a) 
                        with respect to the stock so disposed of.
    ``(d) Disqualification.--
            ``(1) Issuer or stock ceases to qualify.--If a taxpayer 
        elects the deduction under subsection (a) with respect to 
        enterprise zone stock, and either--
                    ``(A) the issuer with respect to which the election 
                was made ceases to be a qualified issuer, or
                    ``(B) the proceeds from the issuance of the 
                taxpayer's enterprise zone stock fail or otherwise 
                cease to be invested by the issuer in enterprise zone 
                property, then, notwithstanding any provision of this 
                subtitle other than paragraph (2) to the contrary, the 
                taxpayer shall recognize as ordinary income the amount 
                of the deduction allowed under subsection (a) with 
                respect to the issuer's enterprise zone stock.
            ``(2) Special rules.--
                    ``(A) Liquidation.--Where enterprise zone property 
                acquired with proceeds from the issuance of enterprise 
                zone stock is sold or exchanged pursuant to a plan of 
                complete liquidation, the treatment described in 
                paragraph (1) shall be inapplicable.
                    ``(B) Termination of enterprise zone.--The 
                treatment of an activity as an enterprise zone business 
                shall not cease for purposes of paragraph (1) solely by 
                reason of the termination or revocation of the 
                designation of the enterprise zone with respect to the 
                activity.
                    ``(C) Partial disqualification.--Where some, but 
                not all, of the property acquired by the issuer with 
                the proceeds of enterprise zone stock ceases to 
                constitute enterprise zone property, the treatment 
                described in paragraph (1) shall be modified as 
                follows--
                            ``(i) the total amount recognized as 
                        ordinary income by all shareholders of the 
                        issuer shall be limited to an amount of 
                        deduction allowed up to the unadjusted basis of 
                        property ceasing to constitute enterprise zone 
                        property,
                            ``(ii) the amount recognized shall be 
                        allocated among enterprise zone stock with 
                        respect to which the election in subsection (a) 
                        was made in the reverse order in which such 
                        stock was issued, and
                            ``(iii) the amount recognized shall be 
                        apportioned among taxpayers having made the 
                        election in subsection (a) in the ratios in 
                        which the stock described in paragraph 
                        (2)(C)(ii) was purchased.
            ``(3) Additional amount.--If income is recognized pursuant 
        to paragraph (1) at any time before the close of the 5th 
        calendar year ending after the date the enterprise zone stock 
        was purchased, the tax imposed by this chapter with respect to 
        such income shall be increased by an amount equal to the amount 
        of interest (determined at the rate applicable under section 
        6621(a)(2)) that would accrue--
                    ``(A) during the period beginning on the date the 
                stock was purchased by the taxpayer and ending on the 
                date of the disqualification event described in 
                paragraph (1),
                    ``(B) on an amount equal to the aggregate decrease 
                in tax of the taxpayer resulting from the deduction 
                allowed under this subsection (a) with respect to the 
                stock so disqualified.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Enterprise zone stock.--The term `enterprise zone 
        stock' means common stock issued by a qualified issuer, but 
        only to the extent that the amount of proceeds of such issuance 
        are used by such issuer no later than twelve months followed 
        issuance to acquire and maintain an equal amount of newly 
        acquired enterprise zone property.
            ``(2) Qualified issuer.--
                    ``(A) In general.--The term `qualified issuer' 
                means any subchapter C corporation which--
                            ``(i) does not have more than one class of 
                        stock,
                            ``(ii) is engaged solely in the conduct of 
                        one or more enterprise zone businesses,
                            ``(iii) does not own or lease more than 
                        $50,000,000 of total property (including 
                        money), as measured by the unadjusted basis of 
                        the property, and
                            ``(iv) more than 20 percent of the total 
                        voting power and 20 percent of the total value 
                        of the stock of such corporation is owned by 
                        individuals, partnerships, estates or trusts.
                    ``(B) Limitation on total issuances.--A qualified 
                issuer may issue no more than an aggregate of 
                $50,000,000 of enterprise zone stock.
                    ``(C) Aggregation.--For purposes of applying the 
                limitations under paragraph (2), the issuer and all 
                related persons shall be treated as one person.
            ``(3) Amount paid.--For purposes of subsection (a), the 
        amount `paid' by a taxpayer for any taxable year shall not 
        include the issuance of evidences of indebtedness of the 
        taxpayer (whether or not such indebtedness is guaranteed by 
        another person), nor amounts paid by the taxpayer after the 
        close of the taxable year.
    ``(f) Issuances in Exchange for Property.--If enterprise zone stock 
is issued in exchange for property, then notwithstanding any provision 
of subchapter C of this chapter to the contrary--
            ``(1) the issuance shall be treated for purposes of this 
        subtitle as the sale of the property at its then fair market 
        value to the corporation, and a contribution to the corporation 
        of the proceeds immediately thereafter in exchange for the 
        enterprise zone stock, and
            ``(2) the issuer's basis for the property shall be equal to 
        the fair market value of such property at the time of issuance.
    ``(g) Basis Adjustment.--For purposes of this subtitle, if a 
taxpayer elects the deduction under subsection (a), the taxpayer's 
basis (without regard to this subsection) for the enterprise zone stock 
with respect to such election shall be reduced by the deduction allowed 
or allowable.
    ``(h) Limitations on Assessment and Collection.--If a taxpayer 
elects the deduction under subsection (a) for any taxable year, then--
            ``(1) the period for assessment and collection of any 
        deficiency attributable to any part of the deduction shall not 
        expire before one year following expiration of such period of 
        the qualified issuer that includes the circumstances giving 
        rise to the deficiency, and
            ``(2) such deficiency may be assessed before expiration of 
        the period described in paragraph (1) notwithstanding any 
        provisions of this subtitle to the contrary.
    ``(i) Cross Reference.--

                                ``For treatment of the deduction under 
subsection (a) for purposes of the alternative minimum tax, see section 
56.''.
    (b) Technical Amendment.--Subsection (a) of section 1016 (relating 
to adjustments to basis) is amended by striking out ``and'' at the end 
of paragraph (23); by striking out the period at the end of paragraph 
(24) and inserting in lieu thereof ``; and''; and by adding at the end 
thereof the following new paragraph:
            ``(25) to the extent provided in section 1394(g), in the 
        case of stock with respect to which a deduction was allowed or 
        allowable under section 1394(a).''.
    (c) Clerical Amendment.--The table of subchapters for chapter 1 is 
amended by inserting after the item relating to subchapter T the 
following new item:

                              ``Subchapter U. Enterprise zones.''.

SEC. 712. CORPORATE ALTERNATIVE MINIMUM TAX.

    Section 56(g)(4)(B) (relating to adjustments based on adjusted 
current earnings of corporations) is amended by adding the following 
new clause at the end thereof:
                            ``(iii) Exclusion of enterprise zone 
                        capital gain.--Clause (i) shall not apply in 
                        the case of any enterprise zone capital gain 
                        (as defined in section 1393(b)), and such gain 
                        shall not be included in income for purposes of 
                        computing alternative minimum taxable income.''

SEC. 713. ADJUSTED GROSS INCOME DEFINED.

    Section 62(a) (relating to the definition of adjusted gross income) 
is amended by inserting after paragraph (13) the following new 
paragraph:
            ``(14) Enterprise zone stock.--The deduction allowed by 
        section 1394.''.

SEC. 714. EFFECTIVE DATE.

    The amendments made by this subtitle shall apply to taxable years 
ending after December 31, 1993.

                   Subtitle C--Regulatory Flexibility

SEC. 721. DEFINITION OF SMALL ENTITIES IN ENTERPRISE ZONE FOR PURPOSES 
              OF ANALYSIS OF REGULATORY FUNCTIONS.

    Section 601 of title 5, United States Code, is amended by--
            (1) striking out ``and'' at the end of paragraph (5); and
            (2) striking out paragraph (6) and inserting in lieu 
        thereof the following:
            ``(6) the term `small entity' means--
                    ``(A) a small business, small organization, or 
                small governmental jurisdiction defined in paragraphs 
                (3), (4), and (5) of this section, respectively; and
                    ``(B) any qualified enterprise zone business; any 
                unit of government that nominated an area which the 
                Secretary of Housing and Urban Development designates 
                as an enterprise zone (within the meaning of section 
                7880 of the Internal Revenue Code of 1986) that has a 
                rule pertaining to the carrying out of any project, 
                activity, or undertaking within such zone; and any not-
                for-profit enterprise carrying out a significant 
                portion of its activities within such a zone; and
            ``(7) the term `qualified enterprise zone business' means 
        any person, corporation, or other entity--
                    ``(A) which is engaged in the active conduct of a 
                trade or business within an enterprise zone (within the 
                meaning of section 7880 of the Internal Revenue Code of 
                1986); and
                    ``(B) for whom at least 50 percent of its employees 
                are qualified employees (within the meaning of section 
                1392(b)(1) of such Code).''

SEC. 722. WAIVER OR MODIFICATION OF AGENCY RULES IN ENTERPRISE ZONES.

    (a) Chapter 6 of title 5, United States Code, is amended by 
redesignating sections 611 and 612 as sections 612 and 613, 
respectively, and inserting the following new section immediately after 
section 610:
``Sec. 611. Waiver or modification of agency rules in enterprise zones
    ``(a) Upon the written request of any government which nominated an 
area that the Secretary of Housing and Urban Development has designated 
as an enterprise zone under section 7880 of the Internal Revenue Code 
of 1986, an agency is authorized, in order to further the job creation, 
community development, or economic revitalization objectives with 
respect to such zone, to waive or modify all or part of any rule which 
it has authority to promulgate, as such rule pertains to the carrying 
out of projects, activities, or undertakings within such zone.
    ``(b) Nothing in this section shall authorize an agency to waive or 
modify any rule adopted to carry out a statute or Executive order which 
prohibits, or the purpose of which is to protect persons against, 
discrimination on the basis of race, color, religion, sex, familial 
status, national origin, age, or handicap.
    ``(c) A request under subsection (a) shall specify the rule or 
rules to be waived or modified and the change proposed, and shall 
briefly describe why the change would promote the achievement of the 
job creation, community development, or economic revitalization 
objectives of the enterprise zone. If such a request is made to any 
agency other than the Department of Housing and Urban Development, the 
requesting government shall send a copy of the request to the Secretary 
of Housing and Urban Development at the time the request is made.
    ``(d) In considering a request, the agency shall weigh the extent 
to which the proposed change is likely to further job creation, 
community development, or economic revitalization within the enterprise 
zone against the effect the change is likely to have on the underlying 
purposes of applicable statutes in the geographic area which would be 
affected by the change. The agency shall approve the request whenever 
it finds, in its discretion, that the public interest which the 
proposed change would serve in furthering such job creation, community 
development, or economic revitalization outweighs the public interest 
which continuation of the rule unchanged would serve. The agency shall 
not approve any request to waive or modify a rule if that waiver or 
modification would--
            ``(1) violate a statutory requirement (including any 
        requirements of the Fair Labor Standards Act of 1938 (52 Stat. 
        1060; 29 U.S.C. 201 et seq.)); or
            ``(2) be likely to present a significant risk to the public 
        health, including environmental or occupational health or 
        safety, or of environmental pollution.
    ``(e) If a request is disapproved, the agency shall inform all the 
requesting governments, and the Department of Housing and Urban 
Development, in writing of the reasons therefor and shall, to the 
maximum extent possible, work with such governments to develop an 
alternative, consistent with the standards contained in subsection (d).
    ``(f) Agencies shall discharge their responsibilities under this 
section in an expeditious manner, and shall make a determination on 
requests not later than 90 days after their receipt.
    ``(g) A waiver or modification of a rule under subsection (a) shall 
not be considered to be a rule, rulemaking, or regulation under chapter 
5 of this title. To facilitate reaching its decision on any requested 
waiver or modification, the agency may seek the views of interested 
parties and, if the views are to be sought, determine how they should 
be obtained and to what extent, if any, they should be taken into 
account in considering the request. The agency shall publish a notice 
in the Federal Register stating any waiver or modification of a rule 
under this section, the time such waiver or modification takes effect 
and its duration, and the scope of applicability of such waiver or 
modification.
    ``(h) In the event that an agency proposes to amend a rule for 
which a waiver or modification under this section is in effect, the 
agency shall not change the waiver or modification to impose additional 
requirements unless it determines, consistent with standards contained 
in subsection (d), that such action is necessary. Such determinations 
shall be published with the proposal to amend such rule.
    ``(i) No waiver or modification of a rule under this section shall 
remain in effect with respect to an enterprise zone after the 
enterprise zone designation has expired or has been revoked.
    ``(j) For purposes of this section, the term `rule' means (1) any 
rule as defined in section 551(4) of this title or (2) any rulemaking 
conducted on the record after opportunity for an agency hearing 
pursuant to sections 556 and 557 of this title.''.
    (b) The analysis for chapter 6 of title 5, United States Code, is 
amended by redesignating the items relating to sections 611 and 612 as 
items relating to sections 612 and 613, respectively, and by inserting 
after the item relating to section 610 the following new item:

                              ``611. Waiver or modification of agency 
                                        rules in enterprise zones.''.
    (c) Section 601(2) of such title 5 is amended by inserting 
``(except for purposes of section 611'' immediately before ``means''.
    (d) Section 613 of such title 5, as redesignated by subsection (a), 
is amended--
            (1) in subsection (a) by inserting ``(except section 611)'' 
        immediately after ``chapter''; and
            (2) in subsection (b) by inserting ``as defined in section 
        601(2)'' immediately before the period at the end of the first 
        sentence.

SEC. 723. FEDERAL AGENCY SUPPORT OF ENTERPRISE ZONES.

    In order to maximize all agencies' support of enterprise zones, the 
Secretary of Housing and Urban Development is authorized to convene 
regional and local coordinating councils of any appropriate agencies to 
assist State and local governments to achieve the objectives agreed to 
in the course of action under section 7880 of the Internal Revenue Code 
of 1986.

  Subtitle D--Establishment of Foreign-Trade Zones in Enterprise Zones

SEC. 731. FOREIGN-TRADE ZONE PREFERENCES.

    (a) Preference in Establishment of Foreign-Trade Zones in 
Revitalization Areas.--In processing applications for the establishment 
of foreign-trade zones pursuant to an Act ``To provide for the 
establishment, operation, and maintenance of foreign-trade zones in 
ports of entry of the United States, to expedite and encourage foreign 
commerce, and for other purposes'', approved June 18, 1934 (48 Stat. 
998), the Foreign-Trade Zone Board shall consider on a priority basis 
and expedite, to the maximum extent possible, the processing of any 
application involving the establishment of a foreign-trade zone within 
an enterprise zone designated pursuant to section 7880 of the Internal 
Revenue Code of 1986.
    (b) Application Procedure.--In processing applications for the 
establishment of ports of entry pursuant to ``An Act making 
appropriations for sundry civil expenses of the Government for the 
fiscal year ending June thirtieth, nineteen hundred and fifteen, and 
for other purposes'', approved August 1, 1914 (38 Stat. 609), the 
Secretary of the Treasury shall consider on a priority basis and 
expedite, to the maximum extent possible, the processing of any 
application involving the establishment of a port of entry which is 
necessary to permit the establishment of a foreign-trade zone within an 
enterprise zone so designated.
    (c) Application Evaluation.--In evaluating applications for the 
establishment of foreign-trade zones and ports of entry in connection 
with enterprise zones so designated, the Foreign-Trade Zone Board and 
the Secretary of the Treasury shall approve the applications, to the 
maximum extent practicable, consistent with their respective statutory 
responsibilities.

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