[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 102 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                 S. 102

To provide for line item veto; capital gains tax reduction; enterprise 
      zones; raising the social security earnings limit workfare.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

             January 21 (legislative day, January 5), 1993

Mr. Mack (for himself, Mr. Bond, Mr. Burns, Mr. Coats, Mr. D'Amato, Mr. 
Gramm, Mr. Craig, Mr. Grassley, Mr. Helms, Mr. Murkowski, Mr. Nickles, 
    Mr. Smith, Mr. Thurmond, Mr. Gorton, Mr. Brown, Mr. Wallop, Mr. 
    Kempthorne, Mr. Bennett, Mr. Lott, Mr. Dole, and Mr. Coverdell) 
introduced the following bill; which was read twice and referred to the 
                          Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To provide for line item veto; capital gains tax reduction; enterprise 
      zones; raising the social security earnings limit workfare.

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

                        TITLE I--LINE-ITEM VETO

SEC. 101. ENHANCEMENT OF SPENDING CONTROL BY THE PRESIDENT.

    The Impoundment Control Act of 1974 is amended by adding at the end 
thereof the following new title:

      ``TITLE XI--LEGISLATIVE LINE ITEM VETO RESCISSION AUTHORITY

       ``Part A--Legislative Line Item Veto Rescission Authority

                  ``grant of authority and conditions

    ``Sec. 1101. (a) In General.--(1) Notwithstanding part B of title X 
and subject to part B of this title, the President may rescind all or 
part of any budget authority, if the President--
            ``(A) determines that--
                    ``(i) such rescission would help balance the 
                Federal budget, reduce the Federal budget deficit, or 
                reduce the public debt;
                    ``(ii) such rescission will not impair any 
                essential Government functions; and
                    ``(iii) such rescission will not harm the national 
                interest; and
            ``(B)(i) notifies the Congress of such rescission by a 
        special message not later than 20 calendar days (not including 
        Saturdays, Sundays, or holidays) after the date of enactment of 
        a regular or supplemental appropriations Act or a joint 
        resolution making continuing appropriations providing such 
        budget authority; or
            ``(ii) notifies the Congress of such rescission by special 
        message accompanying the submission of the President's budget 
        to Congress and such rescissions have not been proposed 
        previously for that fiscal year.
    ``(2) The President shall submit a separate rescission message for 
each appropriations bill under paragraph (1)(B)(ii).
    ``(b) Rescission Effective Unless Disapproved.--(1)(A) Any amount 
of budget authority rescinded under this title as set forth in a 
special message by the President shall be deemed canceled unless, 
during the period described in subparagraph (B), a rescission 
disapproval bill making available all of the amount rescinded is 
enacted into law.
    ``(B) The period referred to in subparagraph (A) is--
            ``(i) a Congressional review period of 20 calendar days of 
        session under part B, during which Congress must complete 
        action on the rescission disapproval bill and present such bill 
        to the President for approval or disapproval;
            ``(ii) after the period provided in clause (i), an 
        additional 10 days (not including Sundays) during which the 
        President may exercise his authority to sign or veto the 
        rescission disapproval bill; and
            ``(iii) if the President vetoes the rescission disapproval 
        bill during the period described in clause (ii), an additional 
        5 calendar days of session after the date of the veto.
    ``(2) If a special message is transmitted by the President under 
this section during any Congress and the last session of such Congress 
adjourns sine die before the expiration of the period described in 
paragraph (1)(B)--
            ``(A) the rescission shall not take effect;
            ``(B) the message shall be deemed to have been 
        retransmitted on the first day of the succeeding Congress; and
            ``(C) the review period described in paragraph (1)(B) (with 
        respect to such message) shall run beginning after such first 
        day.

                             ``definitions

    ``Sec. 1102. For the purposes of this title, the term `rescission 
disapproval bill' means a bill or joint resolution which only 
disapproves a rescission of budget authority, in whole, rescinded in a 
special message transmitted by the President under section 1101.

  ``Part B--Congressional Consideration of Legislative Line Item Veto 
                              Rescissions

                     ``presidential special message

    ``Sec. 1111. When the President rescinds any budget authority as 
provided in section 1101, the President shall transmit to the House of 
Representatives and to the Senate a special message specifying--
            ``(1) the amount of budget authority rescinded;
            ``(2) any account, department, or establishment of the 
        Government to which such budget authority is available for 
        obligation, and the specific project or governmental functions 
        involved;
            ``(3) the reasons and justifications for the determination 
        to rescind budget authority pursuant to section 1101(a)(1);
            ``(4) to the maximum extent practicable, the estimated 
        fiscal, economic, and budgetary effect of the rescission; and
            ``(5) all facts, circumstances, and considerations relating 
        to or bearing upon the rescission and the decision to effect 
        the rescission, and to the maximum extent practicable, the 
        estimated effect of the rescission upon the objects, purposes, 
        and programs for which the budget authority is provided.

                ``transmission of messages; publication

    ``Sec. 1112. (a) Delivery to House and Senate.--(1) Each special 
message transmitted under sections 1101 and 1111 shall be transmitted 
to the House of Representatives and the Senate on the same day, and 
shall be delivered to the Clerk of the House of Representatives if the 
House of Representatives is not in session and to the Secretary of the 
Senate if the Senate is not in session.
    ``(2) Each special message transmitted pursuant to paragraph (1) 
shall be referred to the appropriate committees of the House of 
Representatives and the Senate and shall be printed as a document of 
each House.
    ``(b) Printing in Federal Register.--A special message transmitted 
under sections 1101 and 1111 shall be printed in the first issue of the 
Federal Register published after such transmittal.

                         ``procedure in senate

    ``Sec. 1113. (a) Referral.--(1) Any rescission disapproval bill 
introduced with respect to a special message shall be referred to the 
appropriate committees of the House of Representatives or the Senate, 
as the case may be.
    ``(2) Any rescission disapproval bill received in the Senate from 
the House of Representatives shall be considered in the Senate pursuant 
to this section.
    ``(b) Floor Consideration in the Senate.--
            ``(1) Debate in the Senate on any rescission disapproval 
        bill and debatable motions and appeals in connection therewith, 
        shall be limited to not more than 10 hours, with the time 
        equally divided between, and controlled by, the majority leader 
        and the minority leader or their designees.
            ``(2)(A) Debate in the Senate on any debatable motion or 
        appeal in connection with such a bill shall be limited to 1 
        hour equally divided between, and controlled by, the mover and 
        the manager of the bill, except that if the manager of the bill 
        is in favor of any such motion or appeal, the time in 
        opposition thereto shall be controlled by the minority leader 
        or the minority leader's designee.
            ``(B) Such leaders, or either of them, may, from the time 
        under their control on the passage of the bill, allot 
        additional time to any Senator during the consideration of any 
        debatable motion or appeal.
            ``(3) A motion to further limit debate shall not be 
        debatable, and a motion to recommit (except a motion to 
        recommit with instructions to report back within a specified 
        number of days, not to exceed 1, not counting any day on which 
        the Senate is not in session) shall not be in order.
    ``(c) Point of Order.--(1) It shall not be in order in the Senate 
or the House of Representatives to consider any rescission disapproval 
bill that relates to any matter other than the rescission of budget 
authority transmitted by the President under section 1101.
    ``(2) It shall not be in order in the Senate or the House of 
Representatives to consider any amendment to a rescission disapproval 
bill.
    ``(3) Paragraphs (1) and (2) may be waived or suspended in the 
Senate only by a vote of three-fifths of the members duly chosen and 
sworn.''.

                        TITLE II--CAPITAL GAINS

SEC. 201. DEDUCTION FOR CAPITAL GAINS ON CERTAIN SMALL BUSINESS STOCK.

    (a) In General.--Subchapter P of chapter 1 of the Internal Revenue 
Code of 1986 (relating to capital gains and losses) is amended by 
adding at the end thereof the following new part:

          ``PART VII--ENTERPRISE CAPITAL INVESTMENT INCENTIVES

                              ``Sec. 1301. Deduction for gain on 
                                        certain small business stock.
                              ``Sec. 1302. Definitions and special 
                                        rules.

``SEC. 1301. DEDUCTION FOR GAIN ON CERTAIN SMALL BUSINESS STOCK.

    ``(a) General Rule.--If a taxpayer has a qualified small business 
net capital gain for any taxable year, there shall be allowed as a 
deduction from gross income an amount equal to the sum of--
            ``(1) 50 percent of the excess (if any) of--
                    ``(A) qualified small business net capital gain, 
                over
                    ``(B) the amount of seed capital gain, plus
            ``(2) the seed capital gain deduction.
    ``(b) Qualified Small Business Net Capital Gain.--For purposes of 
this section, the term `qualified small business net capital gain' 
means the lesser of--
            ``(1) the net capital gain for the taxable year, or
            ``(2) the net capital gain for the taxable year determined 
        by taking into account only gain or loss from sales or 
        exchanges of qualified small business stock with a holding 
        period of more than 5 years at the time of sale or exchange.
    ``(c) Seed Capital Gain Deduction.--For purposes of this section--
            ``(1) In general.--The term `seed capital gain deduction' 
        means an amount equal to the sum of the amounts determined by 
        applying the applicable percentages to the appropriate 
        categories of seed capital gain under the table contained in 
        paragraph (2).
            ``(2) Computation of amount.--The seed capital gain 
        deduction shall be computed as follows:

                                                         The applicable
      ``In the case of:                                  percentage is:
          5-year gain.............................              50    5
          6-year gain.............................              60    5
          7-year gain.............................              70    5
          8-year gain.............................              80    5
          9-year gain.............................              90    5
          10-year gain............................             100.    
            ``(3) Seed capital gain.--For purposes of this subsection, 
        the term `seed capital gain' means the lesser of--
                    ``(A) the excess (if any) of--
                            ``(i) the net capital gain for the taxable 
                        year, over
                            ``(ii) the qualified small business net 
                        capital gain for the taxable year determined 
                        without regard to gain or loss described in 
                        subparagraph (B), or
                    ``(B) the net capital gain for the taxable year 
                determined by taking into account only gain or loss 
                from sales or exchanges of stock--
                            ``(i) which is qualified small business 
                        stock in a corporation which is a qualified 
                        small business (determined by substituting 
                        `$5,000,000' for `$100,000,000' in section 
                        1302(b)(1)), and
                            ``(ii) with a holding period of more than 5 
                        years at the time of the sale or exchange.
            ``(4) Categories of gain.--For purposes of this 
        subsection--
                    ``(A) 10-year gain.--The term `10-year gain' means 
                the lesser of--
                            ``(i) the seed capital gain, or
                            ``(ii) the seed capital gain determined by 
                        taking into account under paragraph (3)(B) only 
                        gain or loss from qualified small business 
                        stock with a holding period of more than 10 
                        years at the time of the sale or exchange.
                    ``(B) Other gain.--The terms `5-, 6-,   7-,   8-, 
                and 9-year gain' mean, with respect to any category, 
                the lesser of--
                            ``(i) the excess (if any) of--
                                    ``(I) seed capital gain, over
                                    ``(II) the amount determined under 
                                this paragraph for categories with a 
                                longer holding period, or
                            ``(ii) seed capital gain determined by 
                        taking into account under paragraph (3)(B) only 
                        gain or loss from qualified small business 
                        stock with a holding period of more than 5, 6, 
                        7, 8, or 9 years but not more than 6, 7, 8, 9, 
                        or 10 years, respectively.
    ``(d) Estates and Trusts.--In the case of an estate or trust, the 
deduction under subsection (a) shall be computed by excluding the 
portion (if any) of the gains for the taxable year from sales or 
exchanges of qualified small business stock which, under section 652 
and 662 (relating to inclusions of amounts in gross income of 
beneficiaries of trusts), is includible by the income beneficiaries as 
gains derived from the sale or exchange of capital assets.

``SEC. 1302. DEFINITIONS AND SPECIAL RULES.

    ``(a) Qualified Small Business Stock.--For purposes of this part--
            ``(1) In general.--The term `qualified small business 
        stock' means any stock in a corporation which is originally 
        issued after December 31, 1991, if--
                    ``(A) as of the date of issuance, such corporation 
                is a qualified small business, and
                    ``(B) except as provided in subsections (d) and 
                (e), such stock is acquired by the taxpayer at its 
                original issue (directly or through an underwriter)--
                            ``(i) in exchange for money or other 
                        property (not including stock), or
                            ``(ii) as compensation for services (other 
                        than services performed as an underwriter of 
                        such stock).
            ``(2) 5-year active business requirement.--Stock in a 
        corporation shall not be treated as qualified small business 
        stock unless, during the testing period, such corporation meets 
        the active business requirements of subsection (c).
            ``(3) Certain redemptions, exchanges, etc. disqualified.--
        For purposes of paragraph (1)(B), and except as provided in 
        subsections (d) and (e), stock shall not be treated as acquired 
        by the taxpayer at its original issue if--
                    ``(i) it is issued directly or indirectly in 
                redemption of, or otherwise in exchange for, stock 
                which is not qualified small business stock, or
                    ``(ii) it is issued in an exchange described in 
                section 351 in exchange for property other than 
                qualified small business stock, if immediately after 
                the exchange, both the issuer and transferee of the 
                stock are members of the same controlled group of 
                corporations (as defined in section 1563).
    ``(b) Qualified Small Business.--For purposes of this part--
            ``(1) In general.--The term `qualified small business' 
        means any domestic corporation with respect to which the sum 
        of--
                    ``(A) the aggregate amount of money, other 
                property, and services received by the corporation for 
                stock, as a contribution to capital, and as paid-in 
                surplus, plus
                    ``(B) the accumulated earnings and profits of the 
                corporation,
        does not exceed $100,000,000. The determination under the 
        preceding sentence shall be made as of the time of such 
        issuance but shall include amounts received in such issuance 
        and all prior issuances.
            ``(2) Amount taken into account with respect to property 
        and services.--For purposes of paragraph (1)--
                    ``(A) Property.--The amount taken into account with 
                respect to any property other than money shall be an 
                amount equal to the adjusted basis of such property for 
                determining gain, reduced (but not below zero) by any 
                liability to which the property was subject or which 
                was assumed by the corporation. The determination under 
                the preceding sentence shall be made as of the time the 
                property was received by the corporation.
                    ``(B) Compensation for services.--The amount taken 
                into account with respect to stock issued for services 
                shall be the value of such services.
    ``(c) Active Business Requirement.--For purposes of this part--
            ``(1) In general.--For purposes of subsection (a)(2), the 
        requirements of this subsection are met if, during the testing 
        period--
                    ``(A) the corporation is engaged in the active 
                conduct of a trade or business, and
                    ``(B) substantially all of the assets of such 
                corporation are used in the active conduct of a trade 
                or business.
            ``(2) Special rule for certain activities.--For purposes of 
        paragraph (1), if, in connection with any future trade or 
        business, a corporation is engaged in--
                    ``(A) start-up activities described in section 
                195(c)(1)(A),
                    ``(B) activities resulting in the payment or 
                incurring of expenditures which may be treated as 
                research and experimental expenditures under section 
                174, or
                    ``(C) activities with respect to in-house research 
                expenses described in section 41(b)(4),
        such corporation shall be treated with respect to such 
        activities as engaged in (and assets used in such activities 
        shall be treated as used in) the active conduct of a trade or 
        business. Any determination under this paragraph shall be made 
        without regard to whether a corporation has any gross income 
        from such activities at the time of the determination.
            ``(3) Stock in other corporations.--
                    ``(A) Look-thru in case of subsidiaries.--For 
                purposes of this subsection, stock and debt in any 
                subsidiary corporation shall be disregarded and the 
                parent corporation shall be deemed to own its ratable 
                share of the subsidiary's assets, and to conduct its 
                ratable share of the subsidiary's activities.
                    ``(B) Portfolio stock.--A corporation shall be 
                treated as failing to meet the requirements of 
                paragraph (1) if, at any time during the testing 
                period, more than 10 percent of the value of its assets 
                (in excess of liabilities) consist of stock in other 
                corporations which are not subsidiaries of such 
                corporation.
                    ``(C) Subsidiary.--For purposes of this paragraph, 
                a corporation shall be considered a subsidiary if the 
                parent owns at least 50 percent of the combined voting 
                power of all classes of stock entitled to vote, or at 
                least 50 percent in value of all outstanding stock of 
                such corporation.
            ``(4) Working capital.--For purposes of paragraph (1)(B), 
        any assets which--
                    ``(A) are held for investment, and
                    ``(B) are to be used to finance future research and 
                experimentation or working capital needs of the 
                corporation,
        shall be treated as used in the active conduct of a trade or 
        business.
            ``(5) Maximum real estate holdings.--A corporation shall 
        not be treated as meeting the requirements of paragraph (1) if, 
        at any time during the testing period, more than 10 percent of 
        the total value of its assets is real property which is not 
        used in the active conduct of a trade or business. For purposes 
        of the preceding sentence, the ownership of, dealing in, or 
        renting of real property shall not be treated as the active 
        conduct of a trade or business.
            ``(6) Small business investment companies.--Paragraph (1) 
        shall not apply to any small business investment company 
        operating under the Small Business Investment Act of 1958.
            ``(7) Computer software royalties.--For purposes of 
        paragraph (1), rights to computer software which produces 
        income described in section 543(d) shall be treated as an asset 
        used in the active conduct of a trade or business.
            ``(8) Testing period.--For purposes of this section, the 
        term `testing period' means, with respect to any stock held by 
        a taxpayer, the 5-year period beginning with the first day of 
        the taxpayer's holding period for such stock.
    ``(d) Special Rules for Options, Warrants, and Certain Convertible 
Investments.-- For purposes of this part--
            ``(1) In general.--In the case of stock which is acquired 
        by the taxpayer through the exercise of an applicable option or 
        warrant, through the conversion of convertible debt, or in 
        exchange for securities of the corporation in a transaction 
        described in section 368--
                    ``(A) such stock shall be treated as acquired by 
                the taxpayer at original issue, and
                    ``(B) such stock shall be treated as having been 
                held during the period such option, warrant, or debt 
                was held, or such security was outstanding.
            ``(2) Issue price for convertible debt or security.--For 
        purposes of section 1302(b)(1) and notwithstanding section 
        1302(b)(2), in the case of a debt instrument converted to 
        stock, or stock issued in exchange for securities in a 
        transaction described in section 368, such stock shall be 
        treated as issued for an amount equal to the sum of--
                    ``(A) the principal amount of the debt or security 
                as of the time of the conversion or exchange, and
                    ``(B) accrued but unpaid interest on such loan or 
                security.
            ``(3) Applicable option or warrant.--For purposes of this 
        subsection, the term `applicable option or warrant' means an 
        option or warrant which--
                    ``(A) was issued in exchange for the performance of 
                services for the corporation issuing it, and
                    ``(B) is nontransferrable.
    ``(e) Certain Tax-Free and Other Transfers.--For purposes of this 
part--
            ``(1) In general.--In the case of a transfer of stock to 
        which this subsection applies, the transferee shall be treated 
        as--
                    ``(A) having acquired such stock in the same manner 
                as the transferor, and
                    ``(B) having held such stock during any continuous 
                period immediately preceding the transfer during which 
                it was held (or treated as held under this subsection) 
                by the transferor.
            ``(2) Transfers to which subsection applies.--This 
        subsection shall apply to any transfer--
                    ``(A) by gift,
                    ``(B) at death,
                    ``(C) to the extent that the basis of the property 
                in the hands of the transferee is determined by 
                reference to the basis of the property in the hands of 
                the transferor by reason of section 334(b), 723, or 
                732, or
                    ``(D) of qualified small business stock for other 
                qualified small business stock in a transaction 
                described in section 351 or a reorganization described 
                in section 368.
            ``(3) Incorporations and reorganizations involving 
        nonqualified stock.--
                    ``(A) In general.--In the case of a transaction 
                described in section 351 or a reorganization described 
                in section 368, if a qualified small business stock is 
                transferred for other stock which is not qualified 
                small business stock, such transfer shall be treated as 
                a transfer to which this subsection applies solely with 
                respect to the person receiving such other stock.
                    ``(B) Limitation.--This part shall apply to the 
                sale or exchange of stock treated as qualified small 
                business stock by reason of subparagraph (A) only to 
                the extent of the gain (if any) which would have been 
                recognized at the time of the transfer described in 
                subparagraph (A) if section 351 or 368 had not applied 
                at such time.
                    ``(C) Successive application.--For purposes of this 
                paragraph, stock treated as qualified small business 
                stock under subparagraph (A) shall be so treated for 
                subsequent transactions or reorganizations, except that 
                the limitation of subparagraph (B) shall be applied as 
                of the time of the first transfer to which subparagraph 
                (A) applied.
                    ``(D) Control test.--Except in the case of a 
                transaction described in section 368, this paragraph 
                shall apply only if, immediately after the transaction, 
                the corporation issuing the stock owns directly or 
                indirectly stock representing control (within the 
                meaning of section 368(c)) of the corporation whose 
                stock was transferred.
    ``(f) Stock Exchanged for Property.--For purposes of this part, in 
the case where the taxpayer transfers property (other than money or 
stock) to a corporation in exchange for stock in such corporation--
            ``(1) such stock shall be treated as having been acquired 
        by the taxpayer on the date of such exchange, and
            ``(2) the basis of such stock in the hands of the taxpayer 
        shall be treated as equal to the fair market value of the 
        property exchanged.
    ``(g) Pass-Thru Entities.--For purposes of this part, any gain or 
loss of a pass-thru entity which is treated for purposes of this 
subtitle as a gain or loss of any person holding an interest in such 
entity shall retain its character as qualified small business or seed 
capital gain or loss in the hands of such person.
    ``(h) Indexing.--In the case of any stock issued in a calendar year 
after 1992, the $5,000,000 and $100,000,000 amounts in section 
1301(c)(3)(B)(i) and subsection (b)(1) of this section shall be 
increased by an amount equal to--
            ``(1) such dollar amount, multiplied by
            ``(2) the cost-of-living adjustment determined under 
        section 1(f)(3) for such calendar year by substituting `1991' 
        for `1987' in subparagraph (B) thereof.''.
    (b) Maximum 14 Percent Tax Rate.--
            (1) Individuals.--Section 1(h) of such Code (relating to 
        maximum capital gains rate) is amended to read as follows:
    ``(h) Maximum Capital Gains Rate.--
            ``(1) In general.--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 rate and in the same 
                manner as if this subsection had not been enacted on 
                the greater of--
                            ``(i) taxable income reduced by the amount 
                        of the net capital gain, or
                            ``(ii) the amount of taxable income taxed 
                        at a rate below 28 percent, plus
                    ``(B) a tax of 28 percent of the amount of taxable 
                income in excess of the amount determined under 
                subparagraph (A).
            ``(2) Special rule where taxpayer has qualified small 
        business net capital or seed capital gain.--
                    ``(A) In general.--If a taxpayer has qualified 
                small business net capital gain or seed capital gain 
                for any taxable year, then the tax imposed by this 
                section shall not exceed the lesser of--
                            ``(i) the amount determined under paragraph 
                        (1), or
                            ``(ii) the sum of--
                                    ``(I) the amount determined under 
                                paragraph (1) without taking into 
                                account qualified small business net 
                                capital gain and seed capital gain for 
                                purposes of subparagraphs (A) and (B) 
                                thereof, plus
                                    ``(II) 14 percent of the qualified 
                                small business net capital gain and 
                                seed capital gain.
                    ``(B) Definitions.--For purposes of this paragraph, 
                the terms `qualified small business net capital gain' 
                and `seed capital gain' have the meanings given such 
                terms by section 1301 (b) and (c), respectively.''.
            (2) Corporations.--Section 1201(a) of such Code (relating 
        to alternative tax for corporations) is amended--
                    (A) by inserting ``or the corporation has a 
                qualified small business net capital gain or seed 
                capital gain'' before ``, then'', and
                    (B) by striking paragraph (2) and inserting:
            ``(2) a tax equal to the sum of--
                    ``(A) 34 percent of the sum of the net capital 
                gain, reduced by qualified small business net capital 
                gain and seed capital gain, plus
                    ``(B) 17 percent of the qualified small business 
                net capital gain and seed capital gain.''.
    (c) Treatment as Preference Item for Minimum Tax.--Section 57(a) of 
such Code (relating to items of tax preference under the alternative 
minimum tax) is amended by adding at the end thereof the following new 
paragraph:
            ``(8) Capital gains on sale of certain small business 
        stock.--An amount equal to the deduction for the taxable year 
        determined under section 1301(a)(1).''.
    (d) Losses on Small Business Stock.--Section 1244(c)(3)(A) of such 
Code (defining small business corporation) is amended by striking 
``$1,000,000'' and inserting ``$5,000,000 (adjusted at the same time 
and manner as under section 1302(g))''.
    (e) Conforming Amendments.--
            (1) Section 62(a) of such Code is amended by adding after 
        paragraph (13) the following new paragraph:
            ``(14) Long-term capital gains.--The deduction allowed by 
        section 1301.''.
            (2) Subparagraph (B) of section 170(e)(1) of such Code is 
        amended by inserting ``(or, in the case of qualified small 
        business stock under section 1301, 50 percent of the amount)'' 
        after ``the amount''.
            (3) Section 172(d)(2) of such Code is amended to read as 
        follows:
            ``(2) Capital gains and losses of taxpayers other than 
        corporations.--In the case of a taxpayer other than a 
        corporation--
                    ``(A) the amount deductible on account of losses 
                from sales or exchanges of capital assets shall not 
                exceed the amount includible on account of gains from 
                sales or exchanges of capital assets; and
                    ``(B) the deduction for long-term capital gains 
                provided by section 1301 shall not be allowed.''.
            (4) Subparagraph (B) of section 172(d)(4) of such Code is 
        amended by inserting ``, (2)(B),'' after ``paragraph (1)''.
            (5)(A) Section 220 of such Code is amended to read as 
        follows:

``SEC. 220. CROSS REFERENCES.

            ``(1) For deduction for long-term capital gains in the case 
        of sale of qualified small business stock, see section 1301.
            ``(2) For deductions in respect of a decedent, see section 
        691.''.
            (B) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by striking out ``reference'' 
        in the item relating to section 220 and inserting 
        ``references''.
            (6) Paragraph (4) of section 642(c) of such Code is amended 
        to read as follows:
            ``(4) Adjustments.--To the extent that the amount otherwise 
        allowable as a deduction under this subsection consists of gain 
        from the sale or exchange of qualified small business stock 
        held for more than 5 years, proper adjustment shall be made for 
        any deduction allowable to the estate or trust under section 
        1301 (relating to deduction for excess of capital gains over 
        capital losses). In the case of a trust, the deduction allowed 
        by this subsection shall be subject to section 681 (relating to 
        unrelated business income).''.
            (7) Paragraph (3) of section 643(a) of such Code is amended 
        by adding at the end thereof the following new sentence: ``The 
        deduction under section 1301 (relating to deduction for gain on 
        qualified small business stock) shall not be taken into 
        account.''.
            (8) Paragraph (4) of section 691(c) of such Code is amended 
        by striking out ``1(h), 1201, and 1211'' and inserting in lieu 
        thereof ``1(h), 1201, 1211, and 1301, and for purposes of 
        section 57(a)(8)''.
            (9) Clause (iii) of section 852(b)(3)(D) of such Code is 
        amended by striking out ``66 percent'' and inserting ``the rate 
        differential portion (within the meaning of section 
        904(b)(3)(E))''.
            (10) The second sentence of paragraph (2) of section 871(a) 
        of such Code is amended by inserting ``such gains and losses 
        shall be determined without regard to section 1301 (relating to 
        deduction for qualified small business net capital gains) and'' 
        after ``except that''.
            (11) Section 1402(i)(1) of such Code is amended to read as 
        follows:
            ``(1) In general.--In determining the net earnings from 
        self-employment of any options dealer or commodities dealer--
                    ``(A) notwithstanding subsection (a)(3)(A), there 
                shall not be excluded any gain or loss (in the normal 
                course of the taxpayer's activity of dealing in or 
                trading section 1256 contracts) from section 1256 
                contracts or property related to such contracts, and
                    ``(B) the deduction provided by section 1301 shall 
                not apply.''.
            (12) Section 1445(e)(1) of such Code is amended by striking 
        out ``34 percent (or, to the extent provided in regulations, 28 
        percent)'' and inserting ``34 percent (or, to the extent 
        provided in regulations, the alternative tax rate determined 
        under section 904(b)(3)(E)(iii))''.
    (f) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to stock issued after December 31, 1993.
            (2) Application of tax incentive to current stock holdings 
        of investors.--
                    (A) In general.--If--
                            (i) a taxpayer holds any stock on any date 
                        on or after the date determined under paragraph 
                        (1) which, at the time it was issued, would be 
                        treated as qualified small business stock (as 
                        defined in section 1302(a) of the Internal 
                        Revenue Code of 1986) without regard to the 
                        time it was issued, and
                            (ii) the value of such stock on such date 
                        exceeds its adjusted basis,
                the taxpayer may elect to treat such stock as having 
                been sold on such date for an amount equal to its value 
                on such date (and as having been reacquired on such 
                date for an amount equal to such value). The gain from 
                such sale shall be treated as received or accrued (and 
                the holding period of the reacquired stock shall be 
                treated as beginning) on such date. For purposes of 
                applying section 1301 of such Code, such stock shall be 
                treated after such reacquisition as acquired in the 
                same manner and at the same time as the original 
                acquisition and the requirement of section 1302(a)(1) 
                that the stock must have been issued after December 31, 
                1993, shall not apply.
                    (B) Election.--An election under subparagraph (A) 
                with respect to any stock shall be made in such manner 
                as the Secretary may prescribe. Such an election, once 
                made with respect to any stock, shall be irrevocable.

                TITLE III--SOCIAL SECURITY EARNINGS TEST

SEC. 301. RETIREMENT TEST EXEMPT AMOUNT INCREASED.

    (a) In General.--Section 203(f)(8)(D) of the Social Security Act 
(42 U.S.C. 403(f)(8)(D)) is amended to read as follows:
    ``(D) Notwithstanding any other provision of this subsection, the 
exempt amount which is applicable to an individual who has attained 
retirement age (as defined in section 216(l)) before the close of the 
taxable year involved shall be--
            ``(i) $925 for each month of any taxable year ending after 
        1992 and before 1994,
            ``(ii) $1,020 for each month of any taxable year ending 
        after 1993 and before 1995,
            ``(iii) $1,130 for each month of any taxable year ending 
        after 1994 and before 1996,
            ``(iv) $1,450 for each month of any taxable year ending 
        after 1995 and before 1997,
            ``(v) $1,750 for each month of any taxable year ending 
        after 1996 and before 1998,
            ``(vi) $2,250 for each month of any taxable year ending 
        after 1997 and before 1999,
            ``(vii) $2,670 for each month of any taxable year ending 
        after 1998 and before 2000,
            ``(viii) $3,500 for each month of any taxable year ending 
        after 1999 and before 2001, and
            ``(ix) $4,250 for each month of any taxable year ending 
        after 2000 and before 2002.''.
    (b) Conforming Amendment.--Section 203(f)(8)(B)(ii)(II) of such Act 
(42 U.S.C. 403(f)(8)(B)(ii)(II)) is amended by striking ``for the 
calendar year before the most recent calendar year in which an increase 
in the exempt amount was enacted or a determination resulting in such 
an increase was made under subparagraph (A)'' and inserting ``for the 
second calendar year before the calendar year in which the 
determination under subparagraph (A) is made''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 1992.

SEC. 302. REDUCTION FACTOR WITH RESPECT TO CERTAIN EARNINGS LOWERED TO 
              25 PERCENT.

    (a) In General.--Section 203(f)(3) of the Social Security Act (42 
U.S.C. 403(f)(3)) is amended by striking ``33\1/3\ percent'' and all 
that follows through ``paragraph (8)'' and inserting ``equal to the sum 
of (A) 25 percent of so much of his earnings for such year in excess of 
the product of the applicable exempt amount as determined under 
paragraph (8) as does not exceed $5,000, and (B) 33\1/3\ percent of so 
much of such earnings in excess of such product as exceeds $5,000,''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1997.

 TITLE IV--URBAN TAX ENTERPRISE ZONES AND RURAL DEVELOPMENT INVESTMENT 
                                 ZONES

SEC. 401. STATEMENT OF PURPOSE.

    It is the purpose of this title to establish a demonstration 
program of providing incentives for the creation of tax enterprise 
zones in order--
            (1) to revitalize economically and physically distressed 
        areas, primarily by encouraging the formation of new businesses 
        and the retention and expansion of existing businesses,
            (2) to promote meaningful employment for tax enterprise 
        zone residents, and
            (3) to encourage individuals to reside in the tax 
        enterprise zones in which they are employed.

               Subtitle A--Designation and Tax Incentives

SEC. 411. DESIGNATION AND TREATMENT OF URBAN TAX ENTERPRISE ZONES AND 
              RURAL DEVELOPMENT INVESTMENT ZONES.

    (a) In General.--Chapter 1 of the Internal Revenue Code of 1986 
(relating to normal taxes and surtaxes) is amended by inserting after 
subchapter T the following new subchapter:

   ``Subchapter U--Designation and Treatment of Tax Enterprise Zones

                              ``Part I. Designation of tax enterprise 
                                        zones.
                              ``Part II. Incentives for tax enterprise 
                                        zones.

             ``PART I--DESIGNATION OF TAX ENTERPRISE ZONES

                              ``Sec. 1391. Designation procedure.
                              ``Sec. 1392. Eligibility and selection 
                                        criteria.
                              ``Sec. 1393. Definitions and special 
                                        rules.

``SEC. 1391. DESIGNATION PROCEDURE.

    ``(a) In General.--For purposes of this title, the term `tax 
enterprise zone' means any area which is, under this part--
            ``(1) nominated by 1 or more local governments and the 
        State in which it is located for designation as a tax 
        enterprise zone, and
            ``(2) designated by--
                    ``(A) the Secretary of Housing and Urban 
                Development in the case of an urban tax enterprise 
                zone, or
                    ``(B) the Secretary of Agriculture, in consultation 
                with the Secretary of Commerce, in the case of a rural 
                development investment zone.
    ``(b) Number of Designations.--
            ``(1) Aggregate limit.--The appropriate Secretaries may 
        designate in the aggregate 50 nominated areas as tax enterprise 
        zones under this section, subject to the availability of 
        eligible nominated areas. Not more than 25 urban tax enterprise 
        zones may be designated and not more than 25 rural development 
        investment zones may be designated. Such designations may be 
        made only during calendar years after 1992 and before 1998.
            ``(2) Annual limits.--
                    ``(A) Urban tax enterprise zones.--The number of 
                urban tax enterprise zones designated under paragraph 
                (1)--
                            ``(i) before 1995 shall not exceed 8,
                            ``(ii) before 1996 shall not exceed 15, and
                            ``(iii) before 1997 shall not exceed 21.
                    ``(B) Rural development investment zones.--The 
                number of rural development investment zones designated 
                under paragraph (1)--
                            ``(i) before 1995 shall not exceed 8,
                            ``(ii) before 1996 shall not exceed 15, and
                            ``(iii) before 1997 shall not exceed 21.
            ``(3) Advance designations permitted.--For purposes of this 
        subchapter, a designation during any calendar year shall be 
        treated as made on January 1 of the following calendar year if 
        the appropriate Secretary, in making such designation, 
        specifies that such designation is effective as of such January 
        1.
    ``(c) Limitations on Designations.--The appropriate Secretary may 
not make any designation under subsection (a) unless--
            ``(1) the local governments and the State in which the 
        nominated area is located have the authority--
                    ``(A) to nominate the area for designation as a tax 
                enterprise zone, and
                    ``(B) to provide assurances satisfactory to the 
                appropriate Secretary that the commitments under 
                section 1392(c) will be fulfilled,
            ``(2) a nomination of the area is submitted within a 
        reasonable time before the calendar year for which designation 
        as a tax enterprise zone is sought (or, if later, a reasonable 
        time after the date of the enactment of this subchapter),
            ``(3) the appropriate Secretary determines that any 
        information furnished is reasonably accurate, and
            ``(4) the State and local governments certify that no 
        portion of the area nominated is already included in a tax 
        enterprise zone or in an area otherwise nominated to be a tax 
        enterprise zone.
    ``(d) Period for Which Designation Is In Effect.--
            ``(1) In general.--Any designation of an area as a tax 
        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 15th calendar year 
                following the calendar year in which such date occurs,
                    ``(B) the termination date designated by the State 
                and local governments as provided for in their 
                nomination, or
                    ``(C) the date the appropriate Secretary revokes 
                the designation under paragraph (2).
            ``(2) Revocation of designation.--
                    ``(A) In general.--The appropriate Secretary shall 
                revoke the designation of an area as a tax enterprise 
                zone if such Secretary determines that the local 
                government or the State in which it is located--
                            ``(i) has modified the boundaries of the 
                        area, or
                            ``(ii) is not complying substantially with 
                        the State and local commitments pursuant to 
                        section 1392(c).
                    ``(B) Applicable procedures.--A designation may be 
                revoked by the appropriate Secretary under subparagraph 
                (A) only after a hearing on the record involving 
                officials of the State or local government involved.

``SEC. 1392. ELIGIBILITY AND SELECTION CRITERIA.

    ``(a) In General.--The appropriate Secretary may make a designation 
of any nominated area under section 1391 only on the basis of the 
eligibility and selection criteria set forth in this section.
    ``(b) Eligibility Criteria.--
            ``(1) Urban tax enterprise zones.--A nominated area which 
        is not a rural area shall be eligible for designation under 
        section 1391 only if it meets the following criteria:
                    ``(A) Population.--The nominated area has a 
                population (as determined by the most recent census 
                data available) of not less than 4,000.
                    ``(B) Distress.--The nominated area is one of 
                pervasive poverty, unemployment, and general distress.
                    ``(C) Size.--The nominated area--
                            ``(i) does not exceed 20 square miles,
                            ``(ii) has a boundary which is continuous, 
                        or consists of not more than 3 noncontiguous 
                        parcels within the same metropolitan area,
                            ``(iii) is located entirely within 1 State, 
                        and
                            ``(iv) does not include any portion of a 
                        central business district (as such term is used 
                        for purposes of the most recent Census of 
                        Retail Trade).
                    ``(D) Unemployment rate.--The unemployment rate (as 
                determined by the appropriate available data) is not 
                less than 1.5 times the national unemployment rate.
                    ``(E) Poverty rate.--The poverty rate (as 
                determined by the most recent census data available) 
                for not less than 90 percent of the population census 
                tracts (or where not tracted, the equivalent county 
                divisions as defined by the Bureau of the Census for 
                the purposes of defining poverty areas) within the 
                nominated area is not less than 20 percent.
                    ``(F) Course of action.--There has been adopted for 
                the nominated area a course of action which meets the 
                requirements of subsection (c).
            ``(2) Rural development investment zones.--A nominated area 
        which is a rural area shall be eligible for designation under 
        section 1391 only if it meets the following criteria:
                    ``(A) Population.--The nominated area has a 
                population (as determined by the most recent census 
                data available) of not less than 1,000.
                    ``(B) Distress.--The nominated area is one of 
                general distress.
                    ``(C) Size.--The nominated area--
                            ``(i) does not exceed 10,000 square miles,
                            ``(ii) consists of areas within not more 
                        than 4 contiguous counties,
                            ``(iii) has a boundary which is continuous, 
                        or consists of not more than 3 noncontiguous 
                        parcels, and
                            ``(iv) is located entirely within 1 State.
                    ``(D) Additional criteria.--Not less than 2 of the 
                following criteria:
                            ``(i) Unemployment rate.--The criterion set 
                        forth in paragraph (1)(D).
                            ``(ii) Poverty rate.--The criterion set 
                        forth in paragraph (1)(E).
                            ``(iii) Job loss.--The amount of wages 
                        attributable to employment in the area, and 
                        subject to tax under section 3301 during the 
                        preceding calendar year, is not more than 95 
                        percent of such wages during the 5th preceding 
                        calendar year.
                            ``(iv) Out-migration.--The population of 
                        the area decreased (as determined by the most 
                        recent census data available) by 10 percent or 
                        more between 1980 and 1990.
                    ``(E) Course of action.--There has been adopted for 
                the nominated area a course of action which meets the 
                requirements of subsection (c).
            ``(3) Areas within indian reservations ineligible.--A 
        nominated area shall not be eligible for designation under 
        section 1391 if any portion of such area is within an Indian 
        reservation.
    ``(c) Required State and Local Course of Action.--
            ``(1) In general.--No nominated area may be designated as a 
        tax enterprise zone unless the local government and the State 
        in which it is located agree in writing that, during any period 
        during which the area is a tax enterprise zone, the governments 
        will follow a specified course of action designed to reduce the 
        various burdens borne by employers or employees in the area.
            ``(2) Course of action.--The course of action under 
        paragraph (1) may be implemented by both governments and 
        private nongovernmental entities, may not be funded from 
        proceeds of any Federal program (other than discretionary 
        proceeds), and may include--
                    ``(A) a certification by the State insurance 
                commissioner (or similar State official) that basic 
                commercial property insurance of a type comparable to 
                that insurance generally in force in urban or rural 
                areas, whichever is applicable, throughout the State is 
                available to businesses within the tax enterprise zone,
                    ``(B) a reduction of tax rates or fees applying 
                within the tax enterprise zone,
                    ``(C) an increase in the level, or efficiency of 
                delivery, of local public services within the tax 
                enterprise zone,
                    ``(D) actions to reduce, remove, simplify, or 
                streamline government paperwork requirements applicable 
                within the tax enterprise zone,
                    ``(E) the involvement in the program by public 
                authorities or private entities, organizations, 
                neighborhood associations, and community groups, 
                particularly those within the nominated area, including 
                a written commitment to provide jobs and job training 
                for, and technical, financial, or other assistance to, 
                employers, employees, and residents of the nominated 
                area,
                    ``(F) the giving of special preference to 
                contractors owned and operated by members of any 
                socially and economically disadvantaged group (within 
                the meaning of section 8(a) of the Small Business Act 
                (15 U.S.C. 637(a)),
                    ``(G) the gift (or sale at below fair market value) 
                of surplus land in the tax enterprise zone to 
                neighborhood organizations agreeing to operate a 
                business on the land,
                    ``(H) the establishment of a program under which 
                employers within the tax enterprise zone may purchase 
                health insurance for their employees on a pooled basis,
                    ``(I) the establishment of a program to encourage 
                local financial institutions to satisfy their 
                obligations under the Community Reinvestment Act of 
                1977 (12 U.S.C. 2901 et seq.) by making loans to 
                enterprise zone businesses, with emphasis on startup 
                and other small-business concerns (as defined in 
                section 3(a) of the Small Business Act (15 U.S.C. 
                632(a)),
                    ``(J) the giving of special preference to qualified 
                low-income housing projects located in tax enterprise 
                zones, in the allocation of the State housing credit 
                ceiling applicable under section 42, and
                    ``(K) the giving of special preference to 
                facilities located in tax enterprise zones, in the 
                allocation of the State ceiling on private activity 
                bonds applicable under section 146.
            ``(3) Recognition of past efforts.--In evaluating courses 
        of action agreed to by any State or local government, the 
        appropriate Secretary shall take into account the past efforts 
        of the State or local government in reducing the various 
        burdens borne by employers and employees in the area involved.
            ``(4) Prohibition of assistance for business relocations.--
                    ``(A) In general.--The course of action implemented 
                under paragraph (1) may not include any action to 
                assist any establishment in relocating from one area to 
                another area.
                    ``(B) Exception.--The limitation established in 
                subparagraph (A) shall not be construed to prohibit 
                assistance for the expansion of an existing business 
                entity through the establishment of a new branch, 
                affiliate, or subsidiary if--
                            ``(i) the establishment of the new branch, 
                        affiliate, or subsidiary will not result in an 
                        increase in unemployment in the area of 
                        original location or in any other area where 
                        the existing business entity conducts business 
                        operations, and
                            ``(ii) there is no reason to believe that 
                        the new branch, affiliate, or subsidiary is 
                        being established with the intention of closing 
                        down the operations of the existing business 
                        entity in the area of its original location or 
                        in any other area where the existing business 
                        entity conducts business operations.
    ``(d) Selection Criteria.--From among the nominated areas eligible 
for designation under subsection (b) by the appropriate Secretary, such 
appropriate Secretary shall make designations of tax enterprise zones 
on the basis of the following factors (each of which is to be given 
equal weight):
            ``(1) State and local commitments.--The strength and 
        quality of the commitments which have been promised as part of 
        the course of action relative to the fiscal ability of the 
        nominating State and local governments.
            ``(2) Implementation of course of action.--The 
        effectiveness and enforceability of the guarantees that the 
        course of action will actually be carried out, including the 
        specificity with which the commitments under paragraph (1) are 
        described in order that the applicable Secretary will be better 
        able to determine annually under section 1391(d)(2)(A)(ii) 
        whether the commitments are being carried out.
            ``(3) Private commitments.--The level of commitments by 
        private entities of additional resources and contributions to 
        the economy of the nominated area, including the creation of 
        new or expanded business activities.
            ``(4) Average rankings.--The average ranking with respect 
        to--
                    ``(A) the criteria set forth in subparagraphs (D) 
                and (E) of subsection (b)(1), in the case of an area 
                which is not a rural area, or
                    ``(B) the 2 criteria set forth in subsection 
                (b)(2)(D) that give the area a higher average ranking, 
                in the case of a rural area.
            ``(5) Revitalization potential.--The potential for the 
        revitalization of the nominated area as a result of zone 
        designation, taking into account particularly the number of 
        jobs to be created and retained.

``SEC. 1393. DEFINITIONS AND SPECIAL RULES.

    For purposes of this subchapter--
            ``(1) Urban tax enterprise zone.--The term `urban tax 
        enterprise zone' means a tax enterprise zone which meets the 
        requirements of section 1392(b)(1).
            ``(2) Rural development investment zone.--The term `rural 
        development investment zone' means a tax enterprise zone which 
        meets the requirements of section 1392(b)(2).
            ``(3) Governments.--If more than 1 local government seeks 
        to nominate an area as a tax enterprise zone, any reference to, 
        or requirement of, this subchapter shall apply to all such 
        governments.
            ``(4) Local government.--The term `local government' 
        means--
                    ``(A) any county, city, town, township, parish, 
                village, or other general purpose political subdivision 
                of a State, and
                    ``(B) any combination of political subdivisions 
                described in subparagraph (A) recognized by the 
                appropriate Secretary.
            ``(5) Nominated area.--The term `nominated area' means an 
        area which is nominated by 1 or more local governments and the 
        State in which it is located for designation as a tax 
        enterprise zone under this subchapter.
            ``(6) Rural area.--The term `rural area' means any area 
        which is--
                    ``(A) outside of a metropolitan statistical area 
                (within the meaning of section 143(k)(2)(B)), or
                    ``(B) determined by the Secretary of Agriculture, 
                after consultation with the Secretary of Commerce, to 
                be a rural area.
            ``(7) Appropriate secretary.--The term `appropriate 
        Secretary' means--
                    ``(A) the Secretary of Housing and Urban 
                Development in the case of urban tax enterprise zones, 
                and
                    ``(B) the Secretary of Agriculture in the case of 
                rural development investment zones.
            ``(8) State-chartered development corporations.--An area 
        shall be treated as nominated by a State and a local government 
        if it is nominated by an economic development corporation 
        chartered by the State.

             ``PART II--INCENTIVES FOR TAX ENTERPRISE ZONES

                              ``Subpart A. Enterprise zone employment 
                                        credit.
                              ``Subpart B. Investment incentives.
                              ``Subpart C. Regulations.

             ``Subpart A--Enterprise Zone Employment Credit

                              ``Sec. 1394. Enterprise zone employment 
                                        credit.
                              ``Sec. 1395. Other definitions and 
                                        special rules.

``SEC. 1394. ENTERPRISE ZONE EMPLOYMENT CREDIT.

    ``(a) Amount of Credit.--For purposes of section 38, the amount of 
the enterprise zone employment credit determined under this section 
with respect to any employer for any taxable year is 15 percent of the 
qualified zone wages paid or incurred during such taxable year.
    ``(b) Qualified Zone Wages.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified zone wages' means any wages paid or incurred by an 
        employer for services performed by an employee while such 
        employee is a qualified zone employee.
            ``(2) Only first $20,000 of wages per year taken into 
        account.--With respect to each qualified zone employee, the 
        amount of qualified zone wages which may be taken into account 
        for the taxable year shall not exceed $20,000.
            ``(3) Coordination with targeted jobs credit.--The term 
        `qualified zone wages' shall not include wages attributable to 
        service rendered during the 1-year period beginning with the 
        day the individual begins work for the employer if any portion 
        of such wages is taken into account in determining the credit 
        under section 51.
    ``(c) Qualified Zone Employee.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `qualified zone employee' means, with 
        respect to any period, any employee of an employer if--
                    ``(A) substantially all of the services performed 
                during such period by such employee for such employer 
                are performed within a tax enterprise zone in a trade 
                or business of the employer, and
                    ``(B) the principal place of abode of such employee 
                while performing such services is within such tax 
                enterprise zone.
            ``(2) Certain individuals not eligible.--The term 
        `qualified zone employee' shall not include--
                    ``(A) any individual described in subparagraph (A), 
                (B), or (C) of section 51(i)(1),
                    ``(B) any 5-percent owner (as defined in section 
                416(i)(1)(B)),
                    ``(C) any individual employed by the employer at 
                any facility described in section 144(c)(6)(B), and
                    ``(D) any individual employed by the employer in a 
                trade or business the principal activity of which is 
                farming (within the meaning of subparagraphs (A) or (B) 
                of section 2032A(e)(5)), but only if, as of the close 
                of the taxable year, the sum of--
                            ``(i) the aggregate unadjusted bases (or, 
                        if greater, the fair market value) of the 
                        assets owned by the employer which are used in 
                        such a trade or business, and
                            ``(ii) the aggregate value of assets leased 
                        by the employer which are used in such a trade 
                        or business (as determined under regulations 
                        prescribed by the Secretary),
                exceeds $500,000.
    ``(d) Early Termination of Employment by Employer.--
            ``(1) In general.--If the employment of any employee is 
        terminated by the taxpayer before the day 1 year after the day 
        on which such employee began work for the employer--
                    ``(A) no wages with respect to such employee shall 
                be taken into account under subsection (a) for the 
                taxable year in which such employment is terminated, 
                and
                    ``(B) the tax under this chapter for the taxable 
                year in which such employment is terminated shall be 
                increased by the aggregate credits (if any) allowed 
                under section 38(a) for prior taxable years by reason 
                of wages taken into account with respect to such 
                employee.
            ``(2) Carrybacks and carryovers adjusted.--In the case of 
        any termination of employment to which paragraph (1) applies, 
        the carrybacks and carryovers under section 39 shall be 
        properly adjusted.
            ``(3) Subsection not to apply in certain cases.--
                    ``(A) In general.--Paragraph (1) shall not apply 
                to--
                            ``(i) a termination of employment of an 
                        employee who voluntarily leaves the employment 
                        of the taxpayer,
                            ``(ii) a termination of employment of an 
                        individual who before the close of the period 
                        referred to in paragraph (1) becomes disabled 
                        to perform the services of such employment 
                        unless such disability is removed before the 
                        close of such period and the taxpayer fails to 
                        offer reemployment to such individual, or
                            ``(iii) a termination of employment of an 
                        individual if it is determined under the 
                        applicable State unemployment compensation law 
                        that the termination was due to the misconduct 
                        of such individual.
                    ``(B) Changes in form of business.--For purposes of 
                paragraph (1), the employment relationship between the 
                taxpayer and an employee shall not be treated as 
                terminated--
                            ``(i) by a transaction to which section 
                        381(a) applies if the employee continues to be 
                        employed by the acquiring corporation, or
                            ``(ii) by reason of a mere change in the 
                        form of conducting the trade or business of the 
                        taxpayer if the employee continues to be 
                        employed in such trade or business and the 
                        taxpayer retains a substantial interest in such 
                        trade or business.
            ``(4) Special rule.--Any increase in tax under paragraph 
        (1) shall not be treated as a tax imposed by this chapter for 
        purposes of--
                    ``(A) determining the amount of any credit 
                allowable under this chapter, and
                    ``(B) determining the amount of the tax imposed by 
                section 55.

``SEC. 1395. OTHER DEFINITIONS AND SPECIAL RULES.

    ``(a) Wages.--For purposes of this subpart, the term `wages' has 
the same meaning as when used in section 51.
    ``(b) Controlled Groups.--For purposes of this subpart--
            ``(1) all employers treated as a single employer under 
        subsection (a) or (b) of section 52 shall be treated as a 
        single employer for purposes of this subpart, and
            ``(2) the credit (if any) determined under section 1394 
        with respect to each such employer shall be its proportionate 
        share of the wages giving rise to such credit.
    ``(c) Certain Other Rules Made Applicable.--For purposes of this 
subpart, rules similar to the rules of section 51(k) and subsections 
(c), (d), and (e) of section 52 shall apply.
    ``(d) Notice of Availability of Advance Payment of Earned Income 
Credit.--Each employer shall take reasonable steps to notify all 
qualified zone employees of the availability to eligible individuals of 
receiving advanced payments of the credit under section 32 (relating to 
the earned income credit).

                   ``Subpart B--Investment Incentives

                              ``Sec. 1396. Deduction for purchase of 
                                        enterprise zone stock.
                              ``Sec. 1397. 50 percent exclusion for 
                                        gain from new zone investments.
                              ``Sec. 1397A. Nonrecognition of gain from 
                                        new zone investments.
                              ``Sec. 1397B. Other incentives.
                              ``Sec. 1397C. Enterprise zone business 
                                        defined.

``SEC. 1396. DEDUCTION FOR PURCHASE OF ENTERPRISE ZONE STOCK.

    ``(a) General Rule.--In the case of an individual, there shall be 
allowed as a deduction an amount equal to 50 percent of the aggregate 
amount paid in cash by the taxpayer during the taxable year for the 
purchase of enterprise zone stock.
    ``(b) Limitation.--
            ``(1) In general.--The maximum amount allowed as a 
        deduction under subsection (a) to a taxpayer for the taxable 
        year shall not exceed the lesser of--
                    ``(A) $25,000, or
                    ``(B) the excess of $250,000 over the amount 
                allowed as a deduction under this section to the 
                taxpayer for all prior taxable years.
            ``(2) Excess amounts.--If the amount otherwise deductible 
        by any person under subsection (a) exceeds the limitation under 
        paragraph (1)(A)--
                    ``(A) the amount of such excess shall be treated as 
                an amount paid to which subsection (a) applies during 
                the next taxable year, and
                    ``(B) the deduction allowed for any taxable year 
                shall be allocated proportionately among the enterprise 
                zone stock purchased by such person on the basis of the 
                respective purchase prices per share.
            ``(3) Aggregation with family members.--The taxpayer and 
        members of the taxpayer's family shall be treated as one person 
        for purposes of paragraph (1), and the limitations contained in 
        such paragraph shall be allocated among the taxpayer and such 
        members in accordance with their respective purchases of 
        enterprise zone stock. For purposes of this paragraph, an 
        individual's family includes only such individual's spouse and 
        minor children.
    ``(c) Enterprise Zone Stock.--For purposes of this section--
            ``(1) In general.--The term `enterprise zone stock' means 
        stock of a corporation if--
                    ``(A) such stock is acquired on original issue from 
                the corporation, and
                    ``(B) such corporation is, at the time of issue, a 
                qualified enterprise zone issuer.
            ``(2) Proceeds must be invested in qualified enterprise 
        zone property.--
                    ``(A) In general.--Such term shall include such 
                stock only to the extent that the proceeds of such 
                issuance are used by such issuer during the 12-month 
                period beginning on the date of issuance to purchase 
                (as defined in section 179(d)(2)) qualified enterprise 
                zone property.
                    ``(B) Qualified enterprise zone property.--For 
                purposes of this section, the term `qualified 
                enterprise zone property' means property to which 
                section 168 applies--
                            ``(i) the original use of which in a tax 
                        enterprise zone commences with the issuer, and
                            ``(ii) substantially all of the use of 
                        which is in a tax enterprise zone.
            ``(3) Redemptions.--The term `enterprise zone stock' shall 
        not include any stock acquired from a corporation which made a 
        substantial stock redemption or distribution (without a bona 
        fide business purpose therefor) in an attempt to avoid the 
        purposes of this section.
    ``(d) Qualified Enterprise Zone Issuer.--For purposes of this 
section, the term `qualified enterprise zone issuer' means any domestic 
C corporation if--
            ``(1) such corporation is an enterprise zone business or, 
        in the case of a new corporation, such corporation is being 
        organized for purposes of being an enterprise zone business,
            ``(2) such corporation does not have more than one class of 
        stock,
            ``(3) the sum of--
                    ``(A) the money,
                    ``(B) the aggregate unadjusted bases of property 
                owned by such corporation, and
                    ``(C) the value of property leased to the 
                corporation (as determined under regulations prescribed 
                by the Secretary),
        does not exceed $5,000,000, and
            ``(4) more than 20 percent of the total voting power, and 
        20 percent of the total value, of the stock of such corporation 
        is owned directly by individuals or estates or indirectly by 
        individuals through partnerships or trusts.
The determination under paragraph (3) shall be made as of the time of 
issuance of the stock in question but shall include amounts received 
for such stock.
    ``(e) Dispositions of Stock.--
            ``(1) Basis reduction.--For purposes of this title, the 
        basis of any enterprise zone stock shall be reduced by the 
        amount of the deduction allowed under this section with respect 
        to such stock.
            ``(2) Deduction recaptured as ordinary income.--For 
        purposes of section 1245--
                    ``(A) any stock the basis of which is reduced under 
                paragraph (1) (and any other property the basis of 
                which is determined in whole or in part by reference to 
                the adjusted basis of such stock) shall be treated as 
                section 1245 property, and
                    ``(B) any reduction under paragraph (1) shall be 
                treated as a deduction allowed for depreciation.
        If an exchange of any stock described in paragraph (1) 
        qualifies under section 354(a), 355(a), or 356(a), the amount 
        of gain recognized under section 1245 by reason of this 
        paragraph shall not exceed the amount of gain recognized in the 
        exchange (determined without regard to this paragraph).
            ``(3) Certain events treated as dispositions.--For purposes 
        of determining the amount treated as ordinary income under 
        section 1245 by reason of paragraph (2), paragraph (3) of 
        section 1245(b) (relating to certain tax-free transactions) 
        shall not apply.
            ``(4) Interest charged if disposition within 5 years of 
        purchase.--
                    ``(A) In general.--If--
                            ``(i) a taxpayer disposes of any enterprise 
                        zone stock with respect to which a deduction 
                        was allowed under subsection (a) (or any other 
                        property the basis of which is determined in 
                        whole or in part by reference to the adjusted 
                        basis of such stock) before the end of the 5-
                        year period beginning on the date such stock 
                        was purchased by the taxpayer, and
                            ``(ii) section 1245(a) applies to such 
                        disposition by reason of paragraph (2),
                then 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 of such disposition 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 such stock.
                    ``(C) Special rule.--Any increase in tax under 
                subparagraph (A) shall not be treated as a tax imposed 
                by this chapter for purposes of--
                            ``(i) determining the amount of any credit 
                        allowable under this chapter, and
                            ``(ii) determining the amount of the tax 
                        imposed by section 55.
    ``(f) Disqualification.--
            ``(1) Issuer ceases to qualify.--If, during the 10-year 
        period beginning on the date enterprise zone stock was 
        purchased by the taxpayer, the issuer of such stock ceases to 
        be a qualified enterprise zone issuer (determined without 
        regard to subsection (d)(3)), then notwithstanding any 
        provision of this subtitle other than paragraph (2), the 
        taxpayer shall be treated for purposes of subsection (e) as 
        disposing of such stock (and any other property the basis of 
        which is determined in whole or in part by reference to the 
        adjusted basis of such stock) during the taxable year during 
        which such cessation occurs at its fair market value as of the 
        1st day of such taxable year.
            ``(2) Cessation of enterprise zone status not to cause 
        recapture.--A corporation shall not fail to be treated as a 
        qualified enterprise zone issuer for purposes of paragraph (1) 
        solely by reason of the termination or revocation of a tax 
        enterprise zone designation.
    ``(g) Other Special Rules.--
            ``(1) Application of limits to partnerships and s 
        corporations.--In the case of a partnership or an S 
        corporation, the limitations under subsection (b) shall apply 
        at the partner and shareholder level and shall not apply at the 
        partnership or corporation level.
            ``(2) Deduction not allowed to estates and trusts.--Estates 
        and trusts shall not be treated as individuals for purposes of 
        this section.

``SEC. 1397. 50 PERCENT EXCLUSION FOR GAIN FROM NEW ZONE INVESTMENTS.

    ``(a) General Rule.--In the case of an individual, gross income 
shall not include 50 percent of any qualified capital gain recognized 
on the sale or exchange of a qualified zone asset held for more than 5 
years.
    ``(b) Qualified Zone Asset.--For purposes of this section--
            ``(1) In general.--The term `qualified zone asset' means--
                    ``(A) any qualified zone stock,
                    ``(B) any qualified zone business property, and
                    ``(C) any qualified zone partnership interest.
            ``(2) Qualified zone stock.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified zone stock' means 
                any stock in a domestic corporation if--
                            ``(i) such stock is acquired by the 
                        taxpayer on original issue from the corporation 
                        solely in exchange for cash,
                            ``(ii) as of the time such stock was 
                        issued, such corporation was an enterprise zone 
                        business (or, in the case of a new corporation, 
                        such corporation was being organized for 
                        purposes of being an enterprise zone business), 
                        and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such stock, such 
                        corporation qualified as an enterprise zone 
                        business.
                    ``(B) Exclusion of stock for which deduction under 
                section 1396 allowed.--The term `qualified zone stock' 
                shall not include any stock the basis of which is 
                reduced under section 1396(e)(1).
                    ``(C) Redemptions.--The term `qualified zone stock' 
                shall not include any stock acquired from a corporation 
                which made a substantial stock redemption or 
                distribution (without a bona fide business purpose 
                therefor) in an attempt to avoid the purposes of this 
                section.
            ``(3) Qualified zone business property.--
                    ``(A) In general.--The term `qualified zone 
                business property' means tangible property if--
                            ``(i) such property was acquired by the 
                        taxpayer by purchase (as defined in section 
                        179(d)(2)) after the date on which the 
                        designation of the tax enterprise zone took 
                        effect,
                            ``(ii) the original use of such property in 
                        a tax enterprise zone commences with the 
                        taxpayer, and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such property, 
                        substantially all of the use of such property 
                        was in a tax enterprise zone and in an 
                        enterprise zone business of the taxpayer.
                    ``(B) Special rule for substantial improvements.--
                The requirements of clauses (i) and (ii) of 
                subparagraph (A) shall be treated as satisfied with 
                respect to--
                            ``(i) property which is substantially 
                        improved by the taxpayer, and
                            ``(ii) any land on which such property is 
                        located.
                For purposes of the preceding sentence, property shall 
                be treated as substantially improved by the taxpayer 
                if, during any 24-month period beginning after the date 
                on which the designation of the tax enterprise zone 
                took effect, additions to basis with respect to such 
                property in the hands of the taxpayer exceed the 
                greater of (i) an amount equal to the adjusted basis at 
                the beginning of such 24-month period in the hands of 
                the taxpayer, or (ii) $5,000.
                    ``(C) Limitation on land.--The term `qualified zone 
                business property' shall not include land which is not 
                an integral part of a qualified business (as defined in 
                section 1397C(c)).
            ``(4) Qualified zone partnership interest.--The term 
        `qualified zone partnership interest' means any interest in a 
        partnership if--
                    ``(A) such interest is acquired by the taxpayer 
                from the partnership solely in exchange for cash,
                    ``(B) as of the time such interest was acquired, 
                such partnership was an enterprise zone business (or, 
                in the case of a new partnership, such partnership was 
                being organized for purposes of being an enterprise 
                zone business), and
                    ``(C) during substantially all of the taxpayer's 
                holding period for such interest, such partnership 
                qualified as an enterprise zone business.
        A rule similar to the rule of paragraph (2)(C) shall apply for 
        purposes of this paragraph.
            ``(5) Treatment of subsequent purchasers.--The term 
        `qualified zone asset' includes any property which would be a 
        qualified zone asset but for paragraph (2)(A)(i), (3)(A)(ii), 
        or (4)(A) in the hands of the taxpayer if such property was a 
        qualified zone asset in the hands of any prior holder.
            ``(6) 10-year safe harbor.--If any property ceases to be a 
        qualified zone asset by reason of paragraph (2)(A)(iii), 
        (3)(A)(iii), or (4)(C) after the 10-year period beginning on 
        the date the taxpayer acquired such property, such property 
        shall continue to be treated as meeting the requirements of 
        such paragraph; except that the amount of gain to which 
        subsection (a) applies on any sale or exchange of such property 
        shall not exceed the amount which would be qualified capital 
        gain had such property been sold on the date of such cessation.
            ``(7) Treatment of zone terminations.--The termination of 
        any designation of an area as a tax enterprise zone shall be 
        disregarded for purposes of determining whether any property is 
        a qualified zone asset.
    ``(c) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified capital gain.--Except as otherwise provided 
        in this subsection, the term `qualified capital gain' means any 
        long-term capital gain.
            ``(2) Certain gain on real property not qualified.--The 
        term `qualified capital gain' shall not include any gain which 
        would be treated as ordinary income under section 1250 if 
        section 1250 applied to all depreciation rather than the 
        additional depreciation.
            ``(3) Gain attributable to periods after termination of 
        zone designation not qualified.--The term `qualified capital 
        gain' shall not include any gain attributable to periods after 
        the termination of any designation of an area as a tax 
        enterprise zone.
    ``(d) Treatment of Pass-Thru Entities.--
            ``(1) Sales and exchanges.--Gain on the sale or exchange of 
        an interest in a pass-thru entity held by the taxpayer (other 
        than an interest in an entity which was an enterprise zone 
        business during substantially all of the period the taxpayer 
        held such interest) for more than 5 years shall be treated as 
        gain described in subsection (a) to the extent such gain is 
        attributable to amounts which would be qualified capital gain 
        on qualified zone assets (determined as if such assets had been 
        sold on the date of the sale or exchange) held by such entity 
        for more than 5 years and throughout the period the taxpayer 
        held such interest. A rule similar to the rule of paragraph 
        (2)(C) shall apply for purposes of the preceding sentence.
            ``(2) Income inclusions.--
                    ``(A) In general.--Any amount included in income by 
                reason of holding an interest in a pass-thru entity 
                (other than an entity which was an enterprise zone 
                business during substantially all of the period the 
                taxpayer held the interest to which such inclusion 
                relates) shall be treated as gain described in 
                subsection (a) if such amount meets the requirements of 
                subparagraph (B).
                    ``(B) Requirements.--An amount meets the 
                requirements of this subparagraph if--
                            ``(i) such amount is attributable to 
                        qualified capital gain recognized on the sale 
                        or exchange by the pass-thru entity of property 
                        which is a qualified zone asset in the hands of 
                        such entity and which was held by such entity 
                        for the period required under subsection (a), 
                        and
                            ``(ii) such amount is includible in the 
                        gross income of the taxpayer by reason of the 
                        holding of an interest in such entity which was 
                        held by the taxpayer on the date on which such 
                        pass-thru entity acquired such asset and at all 
                        times thereafter before the disposition of such 
                        asset by such pass-thru entity.
                    ``(C) Limitation based on interest originally held 
                by taxpayer.--Subparagraph (A) shall not apply to any 
                amount to the extent such amount exceeds the amount to 
                which subparagraph (A) would have applied if such 
                amount were determined by reference to the interest the 
                taxpayer held in the pass-thru entity on the date the 
                qualified zone asset was acquired.
            ``(3) Pass-thru entity.--For purposes of this subsection, 
        the term `pass-thru entity' means--
                    ``(A) any partnership,
                    ``(B) any S corporation,
                    ``(C) any regulated investment company, and
                    ``(D) any common trust fund.
    ``(e) Sales and Exchanges of Interests in Partnerships and S 
Corporations Which are Qualified Zone Businesses.--In the case of the 
sale or exchange of an interest in a partnership, or of stock in an S 
corporation, which was an enterprise zone business during substantially 
all of the period the taxpayer held such interest or stock, the amount 
of qualified capital gain shall be determined without regard to--
            ``(1) any intangible, and any land, which is not an 
        integral part of any qualified business (as defined in section 
        1397C(b)), and
            ``(2) gain attributable to periods before the designation 
        of an area as a tax enterprise zone.
    ``(f) Certain Tax-Free and Other Transfers.--For purposes of this 
section--
            ``(1) In general.--In the case of a transfer of a qualified 
        zone asset to which this subsection applies, the transferee 
        shall be treated as--
                    ``(A) having acquired such asset in the same manner 
                as the transferor, and
                    ``(B) having held such asset during any continuous 
                period immediately preceding the transfer during which 
                it was held (or treated as held under this subsection) 
                by the transferor.
            ``(2) Transfers to which subsection applies.--This 
        subsection shall apply to any transfer--
                    ``(A) by gift,
                    ``(B) at death, or
                    ``(C) from a partnership to a partner thereof of a 
                qualified zone asset with respect to which the 
                requirements of subsection (d)(2) are met at the time 
                of the transfer (without regard to the 5-year holding 
                requirement).
            ``(3) Certain rules made applicable.--Rules similar to the 
        rules of section 1244(d)(2) shall apply for purposes of this 
        section.
    ``(g) Certain Businesses Treated as Not Qualified Businesses.--For 
purposes of this section and section 1397A, the term `enterprise zone 
business' has the meaning given such term by section 1397C except that, 
in applying section 1397C for such purposes, the term `qualified 
business' shall not include any trade or business of producing property 
of a character subject to the allowance for depletion under section 
611.

``SEC. 1397A. NONRECOGNITION OF GAIN FROM NEW ZONE INVESTMENTS.

    ``(a) General Rule.--At the election of an individual, qualified 
capital gain (within the meaning of section 1397) from the sale or 
exchange of a qualified zone asset shall be recognized only to the 
extent that--
            ``(1) the amount realized from such sale or exchange, 
        exceeds
            ``(2) the cost (not heretofore taken into account under 
        this subsection) of any qualified zone asset purchased directly 
        by the taxpayer during the reinvestment period.
    ``(b) Qualified Zone Asset.--For purposes of this section--
            ``(1) In general.--The term `qualified zone asset' has the 
        meaning given such term by section 1397.
            ``(2) Time for testing.--
                    ``(A) Sales.--In the case of a sale or exchange of 
                property, the determination of whether such property is 
                a qualified zone asset shall be made as of the time of 
                the sale or exchange.
                    ``(B) Purchases.--In the case of a purchase of 
                property, the determination of whether such property is 
                a qualified zone asset shall be made as of the time of 
                such purchase.
    ``(c) Other Definitions.--For purposes of this section--
            ``(1) Reinvestment period.--The term `reinvestment period' 
        means, with respect to any sale or exchange, the 6-month period 
        beginning on the date of such sale or exchange.
            ``(2) Purchase.--The term `purchase' has the meaning given 
        to such term by section 179(d)(2).
    ``(d) Business or Property Ceases To Qualify.--
            ``(1) In general.--If, during the 10-year period beginning 
        on the date any qualified zone replacement asset was purchased 
        by the taxpayer, such asset ceases to be a qualified zone 
        asset, notwithstanding any provision of this subtitle other 
        than paragraph (3), the taxpayer shall be treated as disposing 
        of such asset during the taxable year during which such 
        cessation occurs at its fair market value as of the 1st day of 
        such taxable year.
            ``(2) Limitation on gain recognized.--The amount of gain 
        recognized pursuant to paragraph (1) with respect to any asset 
        shall not exceed the lesser of--
                    ``(A) the amount of gain which was not recognized 
                under subsection (a) by the reason of the purchase of 
                such asset, or
                    ``(B) the excess of the fair market value referred 
                to in paragraph (1) over the adjusted basis of such 
                asset.
            ``(3) Cessation of enterprise zone status not to cause 
        recapture.--An asset shall not fail to be treated as a 
        qualified zone asset for purposes of paragraph (1) solely by 
        reason of the termination of a tax enterprise zone designation.
            ``(4) Qualified zone replacement asset.--For purposes of 
        paragraph (1), the term `qualified zone replacement asset' 
        means any qualified zone asset the purchase of which resulted 
        in the nonrecognition of gain under subsection (a) with respect 
        to any other property.
    ``(e) Basis of Qualified Zone Replacement Asset.--If gain from the 
sale or exchange of any property is not recognized by reason of 
subsection (a), such gain shall be applied to reduce (in the order 
acquired) the basis of any qualified zone replacement asset (as defined 
in subsection (d)(4)) purchased during the reinvestment period.
    ``(f) Coordination With Installment Method Reporting.--This section 
shall not apply to any gain from any installment sale (as defined in 
section 453(b)) if section 453(a) applies to such sale.
    ``(g) Statute of Limitations.--If any gain is realized by the 
taxpayer on any sale or exchange to which an election under this 
section applies, then--
            ``(1) the statutory period for the assessment of any 
        deficiency with respect to such gain shall not expire before 
        the expiration of 3 years from the date the Secretary is 
        notified by the taxpayer (in such manner as the Secretary may 
        by regulations prescribe) of--
                    ``(A) the taxpayer's cost of purchasing any 
                qualified zone replacement asset,
                    ``(B) the taxpayer's intention not to purchase a 
                qualified zone replacement asset within the 
                reinvestment period, or
                    ``(C) a failure to make such purchase within the 
                reinvestment period, and
            ``(2) such deficiency may be assessed before the expiration 
        of such 3-year period notwithstanding the provisions of any law 
        or rule of law which would otherwise prevent such assessment.

``SEC. 1397B. ADDITIONAL INCENTIVES.

    ``(a) Increase in Expensing Under Section 179.--In the case of an 
enterprise zone business, section 179(b)(1) shall be applied by 
substituting `$20,000' for `$10,000'.
    ``(b) Ordinary Loss Treatment for Certain Property.--
            ``(1) In general.--Loss on any qualified zone asset (as 
        defined in section 1397(b)) held for more than 2 years (5 years 
        in the case of real property) shall be treated as an ordinary 
        loss.
            ``(2) Real property.--For purposes of paragraph (1), the 
        term `real property' means any property which is section 1250 
        property (as defined in section 1250(c)).
            ``(3) Special rules.--
                    ``(A) Certain rules made applicable.--For purposes 
                of this subsection, rules similar to the following 
                rules shall apply:
                            ``(i) Paragraphs (1), (2), and (3) of 
                        section 1244(d).
                            ``(ii) Subsections (b)(6), (c)(3), (d), 
                        (e), and (f) of section 1397.
                    ``(B) Coordination with section 1231.--Losses 
                treated as ordinary losses by reason of this subsection 
                shall not be taken into account in applying section 
                1231.

``SEC. 1397C. ENTERPRISE ZONE BUSINESS DEFINED.

    ``(a) In General.--For purposes of this subpart, the term 
`enterprise zone business' means--
            ``(1) any qualified business entity, and
            ``(2) any qualified proprietorship.
    ``(b) Qualified Business Entity.--For purposes of this section, the 
term `qualified business entity' means, with respect to any taxable 
year, any corporation or partnership if for such year--
            ``(1)(A) every trade or business of such entity is the 
        active conduct of a qualified business within a tax enterprise 
        zone, and
            ``(B) at least 80 percent of the total gross income of such 
        entity is derived from the active conduct of such business,
            ``(2) substantially all of the use of the tangible property 
        of such entity (whether owned or leased) is within a tax 
        enterprise zone,
            ``(3) substantially all of the intangible property of such 
        entity is used in, and exclusively related to, the active 
        conduct of any such business,
            ``(4) substantially all of the services performed for such 
        entity by its employees are performed in a tax enterprise zone,
            ``(5) at least \1/3\ of its employees are residents of a 
        tax enterprise zone,
            ``(6) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such entity is attributable 
        to collectibles (as defined in section 408(m)(2)) other than 
        collectibles that are held primarily for sale to customers in 
        the ordinary course of such business, and
            ``(7) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such entity is attributable 
        to nonqualified financial property.
    ``(c) Qualified Proprietorship.--For purposes of this section, the 
term `qualified proprietorship' means, with respect to any taxable 
year, any qualified business carried on by an individual as a 
proprietorship if for such year--
            ``(1) at least 80 percent of the total gross income of such 
        individual from such business is derived from the active 
        conduct of such business in a tax enterprise zone,
            ``(2) substantially all of the use of the tangible property 
        of such individual in such business (whether owned or leased) 
        is within a tax enterprise zone,
            ``(3) substantially all of the intangible property of such 
        business is used in, and exclusively related to, the active 
        conduct of such business,
            ``(4) substantially all of the services performed for such 
        individual in such business by employees of such business are 
        performed in a tax enterprise zone,
            ``(5) at least \1/3\ of such employees are residents of a 
        tax enterprise zone,
            ``(6) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such individual which is 
        used in such business is attributable to collectibles (as 
        defined in section 408(m)(2)) other than collectibles that are 
        held primarily for sale to customers in the ordinary course of 
        such business, and
            ``(7) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such individual which is 
        used in such business is attributable to nonqualified financial 
        property.
For purposes of this subsection, the term `employee' includes the 
proprietor.
    ``(d) Qualified Business.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `qualified business' means any trade or 
        business.
            ``(2) Rental of real property.--The rental to others of 
        real property located in a tax enterprise zone shall be treated 
        as a qualified business if and only if--
                    ``(A) in the case of real property which is not 
                residential rental property (as defined in section 
                168(e)(2)), the lessee is an enterprise zone business, 
                or
                    ``(B) in the case of residential rental property 
                (as so defined)--
                            ``(i) such property was originally placed 
                        in service after the date the tax enterprise 
                        zone was designated, or
                            ``(ii) such property is rehabilitated after 
                        such date in a rehabilitation which meets 
                        requirements based on the principles of section 
                        42(e)(3).
            ``(3) Rental of tangible personal property.--The rental to 
        others of tangible personal property shall be treated as a 
        qualified business if and only if substantially all of the 
        rental of such property is by enterprise zone businesses or by 
        residents of a tax enterprise zone.
            ``(4) Treatment of business holding intangibles.--The term 
        `qualified business' shall not include any trade or business 
        consisting predominantly of the development or holding of 
        intangibles for sale or license.
            ``(5) Certain businesses excluded.--The term `qualified 
        business' shall not include--
                    ``(A) any trade or business consisting of the 
                operation of any facility described in section 
                144(c)(6)(B), and
                    ``(B) any trade or business the principal activity 
                of which is farming (within the meaning of 
                subparagraphs (A) or (B) of section 2032A(e)(5)), but 
                only if, as of the close of the preceding taxable year, 
                the sum of--
                            ``(i) the aggregate unadjusted bases (or, 
                        if greater, the fair market value) of the 
                        assets owned by the taxpayer which are used in 
                        such a trade or business, and
                            ``(ii) the aggregate value of assets leased 
                        by the taxpayer which are used in such a trade 
                        or business,
                exceeds $500,000.
        For purposes of subparagraph (B), rules similar to the rules of 
        section 1395(b) shall apply.
    ``(e) Nonqualified Financial Property.--For purposes of this 
section, the term `nonqualified financial property' means debt, stock, 
partnership interests, options, futures contracts, forward contracts, 
warrants, notional principal contracts, annuities, and other similar 
property specified in regulations; except that such term shall not 
include--
            ``(1) reasonable amounts of working capital held in cash, 
        cash equivalents, or debt instruments with a term of 18 months 
        or less, or
            ``(2) debt instruments described in section 1221(4).

                        ``Subpart C--Regulations

                              ``Sec. 1397C. Regulations.

``SEC. 1397C. REGULATIONS.

    ``The Secretary shall prescribe such regulations as may be 
necessary or appropriate to carry out the purposes of this part, 
including--
            ``(1) regulations limiting the benefit of this part in 
        circumstances where such benefits, in combination with benefits 
        provided under other Federal programs, would result in an 
        activity being 100 percent or more subsidized by the Federal 
        Government,
            ``(2) regulations preventing abuse of the provisions of 
        this part, and
            ``(3) regulations dealing with inadvertent failures of 
        entities to be qualified zone businesses.''.
    (b) Clerical Amendment.--The table of subchapters for chapter 1 of 
such Code is amended by inserting after the item relating to subchapter 
T the following new item:

                              ``Subchapter U. Designation and treatment 
                                        of tax enterprise zones.''.

SEC. 412. TECHNICAL AND CONFORMING AMENDMENTS.

    (a) Enterprise Zone Employment Credit Part of General Business 
Credit.--
            (1) Subsection (b) of section 38 of the Internal Revenue 
        Code of 1986 (relating to current year business credit) is 
        amended by striking ``plus'' at the end of paragraph (6), by 
        striking the period at the end of paragraph (7) and inserting 
        ``, plus'', and by adding at the end the following new 
        paragraph:
            ``(8) the enterprise zone employment credit determined 
        under section 1394(a).''.
            (2) Subsection (d) of section 39 of such Code is amended by 
        adding at the end thereof the following new paragraph:
            ``(3) No carryback of section 1394 credit before 
        enactment.--No portion of the unused business credit for any 
        taxable year which is attributable to the enterprise zone 
        employment credit determined under section 1394 may be carried 
        to a taxable year ending before the date of the enactment of 
        section 1394.''.
    (b) Nonitemizers Allowed Deduction for Enterprise Zone Stock.--
Subsection (a) of section 62 of such Code is amended by adding at the 
end thereof the following new paragraph:
            ``(14) Enterprise zone stock.--The deduction allowed by 
        section 1396.''.
    (c) Denial of Deduction for Portion of Wages Equal to Enterprise 
Zone Employment Credit.--
            (1) Subsection (a) of section 280C of such Code (relating 
        to rule for targeted jobs credit) is amended--
                    (A) by striking ``the amount of the credit 
                determined for the taxable year under section 51(a)'' 
                and inserting ``the sum of the credits determined for 
                the taxable year under sections 51(a) and 1394(a)'', 
                and
                    (B) by striking ``Targeted Jobs Credit'' in the 
                subsection heading and inserting ``Employment 
                Credits''.
            (2) Subsection (c) of section 196 of such Code (relating to 
        deduction for certain unused business credits) is amended by 
        striking ``and'' at the end of paragraph (4), by striking the 
        period at the end of paragraph (5) and inserting ``, and'', and 
        by adding at the end the following new paragraph:
            ``(6) the enterprise zone employment credit determined 
        under section 1394(a).''.
    (d) Other Amendments.--
            (1)(A) Section 172(d)(2) of such Code (relating to 
        modifications with respect to net operating loss deduction) is 
        amended to read as follows:
            ``(2) Capital gains and losses of taxpayers other than 
        corporations.--In the case of a taxpayer other than a 
        corporation--
                    ``(A) the amount deductible on account of losses 
                from sales or exchanges of capital assets shall not 
                exceed the amount includable on account of gains from 
                sales or exchanges of capital assets; and
                    ``(B) the exclusion provided by section 1397 shall 
                not be allowed.''.
            (B) Subparagraph (B) of section 172(d)(4) of such Code is 
        amended by inserting ``, (2)(B),'' after ``paragraph (1)''.
            (2) Subsection (c) of section 381 of such Code (relating to 
        carryovers in certain corporate acquisitions) is amended by 
        adding at the end the following new paragraph:
            ``(26) Enterprise zone provisions.--The acquiring 
        corporation shall take into account (to the extent proper to 
        carry out the purposes of this section and subchapter U, and 
        under such regulations as may be prescribed by the Secretary) 
        the items required to be taken into account for purposes of 
        subchapter U in respect of the distributor or transferor 
        corporation.''.
            (3) Paragraph (4) of section 642(c) of such Code is amended 
        to read as follows:
            ``(4) Adjustments.--To the extent that the amount otherwise 
        allowable as a deduction under this subsection consists of gain 
        described in section 1397(a), proper adjustment shall be made 
        for any exclusion allowable to the estate or trust under 
        section 1397. In the case of a trust, the deduction allowed by 
        this subsection shall be subject to section 681 (relating to 
        unrelated business income).''.
            (4) Paragraph (3) of section 643(a) of such Code is amended 
        by adding at the end thereof the following new sentence: ``The 
        exclusion under section 1397 shall not be taken into 
        account.''.
            (5) Paragraph (4) of section 691(c) of such Code is amended 
        by striking ``1201, and 1211'' and inserting ``1201, 1397, and 
        1211''.
            (6) The second sentence of paragraph (2) of section 871(a) 
        of such Code is amended by inserting ``such gains and losses 
        shall be determined without regard to section 1397 and'' after 
        ``except that''.
            (7) Paragraph (1) of section 1371(d) of such Code (relating 
        to coordination with investment credit recapture) is amended by 
        inserting before the period at the end the following ``and for 
        purposes of section 1394(d)(3)''.
            (8) Subsection (a) of section 1016 of such Code (relating 
        to adjustments to basis) is amended by striking ``and'' at the 
        end of paragraph (23), by striking the period at the end of 
        paragraph (24) and inserting a semicolon, and by adding at the 
        end thereof the following new paragraphs:
            ``(25) in the case of stock with respect to which a 
        deduction was allowed under section 1396(a), to the extent 
        provided in section 1396(e); and
            ``(26) in the case of property the acquisition of which 
        resulted under section 1397A in the nonrecognition of any part 
        of the gain realized on the sale or exchange of other property, 
        to the extent provided in section 1397A(e).''.
            (9) Section 1223 of such Code (relating to holding period 
        of property) is amended by redesignating paragraph (15) as 
        paragraph (16) and by inserting after paragraph (14) the 
        following new paragraph:
            ``(15) In determining the period for which the taxpayer has 
        held property the acquisition of which resulted under section 
        1397A in the nonrecognition of any part of the gain realized on 
        the sale or exchange of any qualified zone asset (as defined in 
        section 1397A(b)), there shall be included the period for which 
        such asset had been held as of the date of such sale or 
        exchange.''.

SEC. 413. EFFECTIVE DATE.

    (a) General Rule.--The amendments made by this subtitle shall take 
effect on the date of the enactment of this Act.
    (b) Requirement for Rules.--Not later than the date 4 months after 
the date of the enactment of this Act, the appropriate Secretaries 
shall issue rules--
            (1) establishing the procedures for nominating areas for 
        designation as tax enterprise zones,
            (2) establishing a method for comparing the factors listed 
        in section 1392(d) of the Internal Revenue Code of 1986 (as 
        added by this part),
            (3) establishing recordkeeping requirements necessary or 
        appropriate to assist the studies required by subtitle E, and
            (4) providing that State and local governments shall have 
        at least 30 days after such rules are published to file 
        applications for nominated areas before such applications are 
        evaluated and compared and any area designated as a tax 
        enterprise zone.

        Subtitle B--Redevelopment Bonds for Tax Enterprise Zones

SEC. 421. SPECIAL RULES FOR REDEVELOPMENT BONDS PROVIDING FINANCING FOR 
              TAX ENTERPRISE ZONES.

    (a) In General.--Subsection (c) of section 144 of the Internal 
Revenue Code of 1986 (relating to qualified redevelopment bonds) is 
amended by adding at the end thereof the following new paragraph:
            ``(9) Special rules for tax enterprise zones.--For purposes 
        of this subsection, in the case of bonds issued during the 60-
        month period beginning on the date a tax enterprise zone is 
        designated--
                    ``(A) Treatment as designated blighted area.--Such 
                tax enterprise zone shall be treated as a designated 
                blighted area during such 60-month period (or, if 
                shorter, the period such designation is in effect). Any 
                area designated by reason of the preceding sentence 
                shall not be taken into account in applying paragraph 
                (4)(C).
                    ``(B) Security for bonds.--The requirements of 
                paragraph (2)(B) shall be treated as met with respect 
                to a financed area that is within a tax enterprise zone 
                if the general purpose governmental unit guarantees the 
                payment of principal and interest on the issue either 
                directly or through insurance, a letter of credit, or a 
                similar agreement but only if the cost thereof is 
                financed other than with proceeds of any tax-exempt 
                private activity bond or earnings on such proceeds.
                    ``(C) Expansion of redevelopment purposes.--
                            ``(i) In general.--The term `redevelopment 
                        purposes' includes the making of loans to any 
                        enterprise zone business (as defined in section 
                        1397B) for--
                                    ``(I) the acquisition of land 
                                within the tax enterprise zone for use 
                                in such business, or
                                    ``(II) the acquisition, 
                                construction, reconstruction, or 
                                improvement by such business of land, 
                                or property of a character subject to 
                                the allowance for depreciation, for use 
                                in such business.
                            ``(ii) $2,500,000 limitation.--Clause (i) 
                        shall apply to loans made to any enterprise 
                        zone business only if the aggregate principal 
                        amount of such loans (whether or not financed 
                        by the same issue) does not exceed $2,500,000. 
                        For purposes of the preceding sentence, all 
                        persons treated as a single employer under 
                        subsection (a) or (b) of section 52 shall be 
                        treated as 1 person.
                            ``(iii) Loans must be made within 18 months 
                        after bonds issued; repayments must be used for 
                        redemptions.--Clause (i) shall apply only to 
                        loans--
                                    ``(I) made during the 18-month 
                                period beginning on the date of 
                                issuance of the issue financing such 
                                loan,
                                    ``(II) repayments of principal on 
                                which are used not later than the close 
                                of the 1st semiannual period beginning 
                                after the date the repayment is 
                                received to redeem bonds which are part 
                                of such issue, and
                                    ``(III) the effective rate of 
                                interest on which does not exceed the 
                                yield on the issue by more than 0.125 
                                percentage points.
                        In determining the effective rate of interest 
                        for purposes of subclause (III), there shall be 
                        taken into account all fees, charges, and other 
                        amounts (other than amounts for any credit 
                        report) borne by the borrower which are 
                        attributable to the loan or the bond issue.
                            ``(iv) Housing loans excluded.--Clause (i) 
                        shall not apply to any loan to be used directly 
                        or indirectly to provide residential real 
                        property.
                            ``(v) Coordination with restrictions on use 
                        of proceeds.--Paragraphs (6) and (8) shall 
                        apply notwithstanding clause (i); except that 
                        in applying paragraph (6), subsection (a)(8) 
                        shall be treated as not including a reference 
                        to a facility the primary purpose of which is 
                        retail food services.
                    ``(D) Issuer to designate amount of issue to be 
                used for loans.--Subparagraph (C) shall not apply with 
                respect to any issue unless the issuer designates 
                before the date of issuance the amount of the proceeds 
                of such issue which is to be used for loans to which 
                subparagraph (C)(i) applies. If such amount exceeds the 
                principal amount of loans to which subparagraph (C)(i) 
                applies, an amount of proceeds equal to such excess 
                shall be used not later than the close of the 1st 
                semiannual period beginning after the close of the 18-
                month period referred to in subparagraph (C)(iii) to 
                redeem bonds which are part of such issue.
                    ``(E) De minimis redemptions not required.--
                Subparagraphs (C)(iii) and (D) shall not be construed 
                to require amounts of less than $250,000 to be used to 
                redeem bonds. The Secretary may by regulation treat 
                related issues as 1 issue for purposes of the preceding 
                sentence.
                    ``(F) Penalty.--
                            ``(i) In general.--In the case of property 
                        with respect to which financing was provided 
                        under this paragraph, if at any time during the 
                        10-period beginning on the date such financing 
                        was provided--
                                    ``(I) such property ceases to be in 
                                use in an enterprise zone business (as 
                                defined in section 1397B), or
                                    ``(II) substantially all of the use 
                                of such property ceases to be in a tax 
                                enterprise zone,
                        there is hereby imposed on the trade or 
                        business to which such financing was provided a 
                        penalty equal to 1.25 percent of so much of the 
                        face amount of all financing provided (whether 
                        or not from the same issue and whether or not 
                        such issue is outstanding) before such 
                        cessation to the trade or business using such 
                        property.
                            ``(ii) No penalty by reason of zone 
                        termination.--No penalty shall be imposed under 
                        clause (i) solely by reason of the termination 
                        or revocation of a tax enterprise zone 
                        designation.
                            ``(iii) Exception for bankruptcy.--Clause 
                        (i) shall not apply to any cessation resulting 
                        from bankruptcy.''.
    (b) Volume Cap Only Charged With 50 Percent of Tax Enterprise Zone 
Redevelopment Bonds.--Subsection (g) of section 146 of such Code is 
amended by striking ``and'' at the end of paragraph (3), by striking 
the period at the end of paragraph (4) and inserting ``, and'', and by 
adding at the end thereof the following new paragraph:
            ``(5) 50 percent of any qualified redevelopment bond 
        issued--
                    ``(A) as part of an issue 95 percent or more of the 
                net proceeds of which are to be used for 1 or more 
                redevelopment purposes (as defined in section 144(c)) 
                in a tax enterprise zone, and
                    ``(B) during the 60-month period beginning on the 
                date of the designation of such zone.''.
    (c) Penalties for Loans Made To Businesses That Cease To Be 
Enterprise Zone Businesses, Etc.--Subsection (b) of section 150 of such 
Code is amended by adding at the end thereof the following new 
paragraph:
            ``(6) Enterprise zone redevelopment bonds.--In the case of 
        any financing provided by an issue the interest on which is 
        exempt from tax by reason of section 144(c)(9)--
                    ``(A) In general.--No deduction shall be allowed 
                under this chapter for interest on such financing which 
                accrues during the period beginning on the first day of 
                the calendar year which includes the date on which--
                            ``(i) the trade or business to which the 
                        financing was provided ceases to be an 
                        enterprise zone business (as defined in section 
                        1397B), or
                            ``(ii) substantially all of the use of the 
                        property (determined in accordance with 
                        subchapter U) with respect to which the 
                        financing was provided ceases to be in a tax 
                        enterprise zone.
                The preceding sentence shall not apply solely by reason 
                of the termination or revocation of a tax enterprise 
                zone designation.
                    ``(B) Exception for bankruptcy.--This paragraph 
                shall not apply to any cessation resulting from 
                bankruptcy.''.

 Subtitle C--Credit for Contributions to Certain Community Development 
                              Corporations

SEC. 431. CREDIT FOR CONTRIBUTIONS TO CERTAIN COMMUNITY DEVELOPMENT 
              CORPORATIONS.

    (a) In General.--For purposes of section 38 of the Internal Revenue 
Code of 1986, the current year business credit shall include the credit 
determined under this section.
    (b) Determination of Credit.--The credit determined under this 
section for each taxable year in the credit period with respect to any 
qualified CDC contribution made by the taxpayer is an amount equal to 5 
percent of such contribution.
    (c) Credit Period.--For purposes of this section, the credit period 
with respect to any qualified CDC contribution is the period of 10 
taxable years beginning with the taxable year during which such 
contribution was made.
    (d) Qualified CDC Contribution.--For purposes of this section--
            (1) In general.--The term ``qualified CDC contribution'' 
        means any transfer of cash--
                    (A) which is made to a selected community 
                development corporation during the 5-year period 
                beginning on the date such corporation was selected for 
                purposes of this section,
                    (B) the amount of which is available for use by 
                such corporation for at least 10 years,
                    (C) which is to be used by such corporation for 
                qualified low-income assistance within its operational 
                area, and
                    (D) which is designated by such corporation for 
                purposes of this section.
            (2) Limitations on amount designated.--The aggregate amount 
        of contributions to a selected community development 
        corporation which may be designated by such corporation shall 
        not exceed $2,000,000.
    (e) Selected Community Development Corporations.--
            (1) In general.--For purposes of this section, the term 
        ``selected community development corporation'' means any 
        corporation--
                    (A) which is described in section 501(c)(3) of such 
                Code and exempt from tax under section 501(a) of such 
                Code,
                    (B) the principal purposes of which include 
                promoting employment of, and business opportunities 
                for, low-income individuals who are residents of the 
                operational area, and
                    (C) which is selected by the Secretary of Housing 
                and Urban Development for purposes of this section.
            (2) Only 10 corporations may be selected.--
                    (A) In general.--The Secretary of Housing and Urban 
                Development may select 10 corporations for purposes of 
                this section, subject to the availability of eligible 
                corporations. Such selections may be made only before 
                January 1, 1995. At least 4 of the operational areas of 
                the corporations selected must be rural areas (as 
                defined by section 1393(6) of such Code).
                    (B) Priority of designations.--In selecting 
                corporations for purposes of this section, such 
                Secretary shall give priority to corporations with a 
                demonstrated record of performance in administering 
                community development programs which target at least 75 
                percent of the jobs emanating from their investment 
                funds to low income or unemployed individuals.
            (3) Operational areas must have certain characteristics.--A 
        corporation may be selected for purposes of this section only 
        if its operational area meets the following criteria:
                    (A) The area meets the size requirements under 
                paragraph (1)(C) or (2)(C) of section 1391(b) which 
                would apply if such area were to be designated as a tax 
                enterprise zone.
                    (B) The unemployment rate (as determined by the 
                appropriate available data) is not less than the 
                national unemployment rate.
                    (C) The median family income of residents of such 
                area does not exceed 80 percent of the median gross 
                income of residents of the jurisdiction of the local 
                government which includes such area.
    (f) Qualified Low-Income Assistance.--For purposes of this section, 
the term ``qualified low-income assistance'' means assistance--
            (1) which is designed to provide employment of, and 
        business opportunities for, low-income individuals who are 
        residents of the operational area of the community development 
        corporation, and
            (2) which is approved by the Secretary of Housing and Urban 
        Development.

              Subtitle D--Indian Employment and Investment

SEC. 441. INVESTMENT TAX CREDIT FOR PROPERTY ON INDIAN RESERVATIONS.

    (a) Allowance of Indian Reservation Credit.--Section 46 of the 
Internal Revenue Code of 1986 (relating to investment credits) is 
amended by striking ``and'' at the end of paragraph (2), by striking 
the period at the end of paragraph (3) and inserting ``, and'', and by 
adding after paragraph (3) the following new paragraph:
            ``(4) the Indian reservation credit.''.
    (b) Amount of Indian Reservation Credit.--
            (1) In general.--Section 48 of such Code (relating to the 
        energy credit and the reforestation credit) is amended by 
        adding after subsection (b) the following new subsection:
    ``(c) Indian Reservation Credit.--
            ``(1) In general.--For purposes of section 46, the Indian 
        reservation credit for any taxable year is the Indian 
        reservation percentage of the qualified investment in qualified 
        Indian reservation property placed in service during such 
        taxable year, determined in accordance with the following 
        table:

          ``In the case of qualified
                                                                       
                  Indian reservation property
                                                 The Indian reservation
                  which is:
                                                         percentage is:
                  Reservation personal property......         105      
                  New reservation construction                155      
                    property.
                  Reservation infrastructure                  15.      
                    investment.
            ``(2) Qualified investment in qualified indian reservation 
        property defined.--For purposes of this subpart--
                    ``(A) In general.--The term `qualified Indian 
                reservation property' means property--
                            ``(i) which is--
                                    ``(I) reservation personal 
                                property,
                                    ``(II) new reservation construction 
                                property, or
                                    ``(III) reservation infrastructure 
                                investment, and
                            ``(ii) not acquired (directly or 
                        indirectly) by the taxpayer from a person who 
                        is related to the taxpayer (within the meaning 
                        of section 465(b)(3)(C)).
                The term `qualified Indian reservation property' does 
                not include any property (or any portion thereof) 
                placed in service for purposes of conducting or housing 
                class I, II, or III gaming (as defined in section 4 of 
                the Indian Regulatory Act (25 U.S.C. 2703)).
                    ``(B) Qualified investment.--The term `qualified 
                investment' means--
                            ``(i) in the case of reservation 
                        infrastructure investment, the amount expended 
                        by the taxpayer for the acquisition or 
                        construction of the reservation infrastructure 
                        investment; and
                            ``(ii) in the case of all other qualified 
                        Indian reservation property, the taxpayer's 
                        basis for such property.
                    ``(C) Reservation personal property.--The term 
                `reservation personal property' means qualified 
                personal property which is used by the taxpayer 
                predominantly in the active conduct of a trade or 
                business within an Indian reservation. Property shall 
                not be treated as `reservation personal property' if it 
                is used or located outside the Indian reservation on a 
                regular basis.
                    ``(D) Qualified personal property.--The term 
                `qualified personal property' means property--
                            ``(i) for which depreciation is allowable 
                        under section 168,
                            ``(ii) which is not--
                                    ``(I) nonresidential real property,
                                    ``(II) residential rental property, 
                                or
                                    ``(III) real property which is not 
                                described in (I) or (II) and which has 
                                a class life of more than 12.5 years.
                For purposes of this subparagraph, the terms 
                `nonresidential real property', `residential rental 
                property', and `class life' have the respective 
                meanings given such terms by section 168.
                    ``(E) New reservation construction property.--The 
                term `new reservation construction property' means 
                qualified real property--
                            ``(i) which is located in an Indian 
                        reservation,
                            ``(ii) which is used by the taxpayer 
                        predominantly in the active conduct of a trade 
                        or business within an Indian reservation, and
                            ``(iii) which is originally placed in 
                        service by the taxpayer.
                    ``(F) Qualified real property.--The term `qualified 
                real property' means property for which depreciation is 
                allowable under section 168 and which is described in 
                clause (I), (II), or (III) of subparagraph (D)(ii).
                    ``(G) Reservation infrastructure investment.--
                            ``(i) In general.--The term `reservation 
                        infrastructure investment' means qualified 
                        personal property or qualified real property 
                        which--
                                    ``(I) benefits the tribal 
                                infrastructure,
                                    ``(II) is available to the general 
                                public, and
                                    ``(III) is placed in service in 
                                connection with the taxpayer's active 
                                conduct of a trade or business within 
                                an Indian reservation.
                            ``(ii) Property may be located outside the 
                        reservation.--Qualified personal property and 
                        qualified real property used or located outside 
                        an Indian reservation shall be reservation 
                        infrastructure investment only if its purpose 
                        is to connect to existing tribal infrastructure 
                        in the reservation, and shall include, but not 
                        be limited to, roads, power lines, water 
                        systems, railroad spurs, and communications 
                        facilities.
                    ``(H) Coordination with other credits.--The term 
                `qualified Indian reservation property' shall not 
                include any property with respect to which the energy 
                credit or the rehabilitation credit is allowed.
            ``(3) Real estate rentals.--For purposes of this section, 
        the rental to others of real property located within an Indian 
        reservation shall be treated as the active conduct of a trade 
        or business in an Indian reservation.
            ``(4) Indian reservation defined.--For purposes of this 
        subpart, the term `Indian reservation' means a reservation, as 
        defined in--
                    ``(A) section 3(d) of the Indian Financing Act of 
                1974 (25 U.S.C. 1452(d)), or
                    ``(B) section 4(10) of the Indian Child Welfare Act 
                of 1978 (25 U.S.C. 1903(10)).
            ``(5) Limitation based on unemployment.--
                    ``(A) General rule.--The Indian reservation credit 
                allowed under section 46 for any taxable year shall 
                equal--
                            ``(i) if the Indian unemployment rate on 
                        the applicable Indian reservation for which the 
                        credit is sought exceeds 300 percent of the 
                        national average unemployment rate at any time 
                        during the calendar year in which the property 
                        is placed in service or during the immediately 
                        preceding 2 calendar years, 100 percent of such 
                        credit,
                            ``(ii) if such Indian unemployment rate 
                        exceeds 150 percent but not 300 percent, 50 
                        percent of such credit, and
                            ``(iii) if such Indian unemployment rate 
                        does not exceed 150 percent, 0 percent of such 
                        credit.
                    ``(B) Special rule for large projects.--In the case 
                of a qualified Indian reservation property which has 
                (or is a component of a project which has) a projected 
                construction period of more than 2 years or a cost of 
                more than $1,000,000, subparagraph (A) shall apply by 
                substituting `during the earlier of the calendar year 
                in which the taxpayer enters into a binding agreement 
                to make a qualified investment or the first calendar 
                year in which the taxpayer has expended at least 10 
                percent of the taxpayer's qualified investment, or the 
                preceding calendar year' for `during the calendar year 
                in which the property is placed in service or during 
                the immediately preceding 2 calendar years'.
                    ``(C) Determination of indian unemployment.--For 
                purposes of this paragraph, with respect to any Indian 
                reservation, the Indian unemployment rate shall be 
                based upon Indians unemployed and able to work, and 
                shall be certified by the Secretary of the Interior.
            ``(6) Coordination with nonrevenue laws.--Any reference in 
        this subsection to a provision not contained in this title 
        shall be treated for purposes of this subsection as a reference 
        to such provision as in effect on the date of the enactment of 
        this paragraph.''.
            (2) Lodging to qualify.--Paragraph (2) of section 50(b) of 
        such Code (relating to property used for lodging) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (C),
                    (B) by striking the period at the end of 
                subparagraph (D) and inserting ``; and'' and
                    (C) by adding at the end thereof the following 
                subparagraph:
                    ``(E) new reservation construction property.''.
    (c) Recapture.--Subsection (a) of section 50 of such Code (relating 
to recapture in case of dispositions, etc.), is amended by adding at 
the end thereof the following new paragraph:
            ``(6) Special rules for indian reservation property.--
                    ``(A) In general.--If, during any taxable year, 
                property with respect to which the taxpayer claimed an 
                Indian reservation credit--
                            ``(i) is disposed of, or
                            ``(ii) in the case of reservation personal 
                        property--
                                    ``(I) otherwise ceases to be 
                                investment credit property with respect 
                                to the taxpayer, or
                                    ``(II) is removed from the Indian 
                                reservation, converted or otherwise 
                                ceases to be Indian reservation 
                                property,
                the tax under this chapter for such taxable year shall 
                be increased by the amount described in subparagraph 
                (B).
                    ``(B) Amount of increase.--The increase in tax 
                under subparagraph (A) shall equal the aggregate 
                decrease in the credits allowed under section 38 by 
                reason of section 48(c) for all prior taxable years 
                which would have resulted had the qualified investment 
                taken into account with respect to the property been 
                limited to an amount which bears the same ratio to the 
                qualified investment with respect to such property as 
                the period such property was held by the taxpayer bears 
                to the applicable recovery period under section 168(g).
                    ``(C) Coordination with other recapture 
                provisions.--In the case of property to which this 
                paragraph applies, paragraph (1) shall not apply and 
                the rules of paragraphs (3), (4), and (5) shall 
                apply.''.
    (d) Basis Adjustment To Reflect Investment Credit.--Paragraph (3) 
of section 50(c) of such Code (relating to basis adjustment to 
investment credit property) is amended by striking ``energy credit or 
reforestation credit'' and inserting ``energy credit, reforestation 
credit or Indian reservation credit other than with respect to any 
expenditure for new reservation construction property''.
    (e) Certain Governmental Use Property To Qualify.--Paragraph (4) of 
section 50(b) of such Code (relating to property used by governmental 
units or foreign persons or entities) is amended by redesignating 
subparagraphs (D) and (E) as subparagraphs (E) and (F), respectively, 
and inserting after subparagraph (C) the following new subparagraph:
                    ``(D) Exception for reservation infrastructure 
                investment.--This paragraph shall not apply for 
                purposes of determining the Indian reservation credit 
                with respect to reservation infrastructure 
                investment.''.
    (f) Application of At-Risk Rules.--Subparagraph (C) of section 
49(a)(1) of such Code is amended by striking ``and'' at the end of 
clause (ii), by striking the period at the end of clause (iii) and 
inserting ``, and'', and by adding at the end the following new clause:
                            ``(iv) the qualified investment in 
                        qualified Indian reservation property.''.
    (g) Clerical Amendments.--
            (1) The caption of section 48 of such Code is amended by 
        deleting the period at the end thereof and adding ``; indian 
        reservation credit.''
            (2) The table of sections for subpart E of part IV of 
        subchapter A of chapter 1 of such Code is amended by striking 
        out the item relating to section 48 and inserting the 
        following:

                              ``Sec. 48. Energy credit; reforestation 
                                        credit; Indian reservation 
                                        credit.''.
    (h) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 1993.

SEC. 442. INDIAN EMPLOYMENT CREDIT.

    (a) Allowance of Indian Employment Credit.--Section 38(b) of the 
Internal Revenue Code of 1986 (relating to general business credits), 
as amended by section 412, is amended by striking ``plus'' at the end 
of paragraph (7), by striking the period at the end of paragraph (8) 
and inserting ``, plus'', and by adding after paragraph (8) the 
following new paragraph:
            ``(9) the Indian employment credit as determined under 
        section 45(a).''.
    (b) Amount of Indian Employment Credit.--Subpart D of Part IV of 
subchapter A of chapter 1 of such Code (relating to business related 
credits) is amended by adding at the end thereof the following new 
section:

``SEC. 45. INDIAN EMPLOYMENT CREDIT.

    ``(a) Amount of Credit.--
            ``(1) In general.--For purposes of section 38, the amount 
        of the Indian employment credit determined under this section 
        with respect to any employer for any taxable year is 10 percent 
        (30 percent in the case of an employer with at least 85 percent 
        Indian employees throughout the taxable year) of the sum of--
                    ``(A) the qualified wages paid or incurred during 
                such taxable year, plus
                    ``(B) qualified employee health insurance costs 
                paid or incurred during such taxable year.
        In no event shall the amount of the Indian employment credit 
        for any taxable year exceed the credit limitation amount 
        determined under subsection (e) for such taxable year.
            ``(2) Indian employee.--For purposes of paragraph (1), the 
        term `Indian employee' means an employee who is an enrolled 
        member of an Indian tribe or the spouse of such a member.
    ``(b) Qualified Wages; Qualified Employee Health Insurance Costs.--
For purposes of this section--
            ``(1) Qualified wages.--
                    ``(A) In general.--The term `qualified wages' means 
                any wages paid or incurred by an employer for services 
                performed by an employee while such employee is a 
                qualified employee.
                    ``(B) Coordination with targeted jobs credit.--The 
                term `qualified wages' shall not include wages 
                attributable to service rendered during the 1-year 
                period beginning with the day the individual begins 
                work for the employer if any portion of such wages is 
                taken into account in determining the credit under 
                section 51.
            ``(2) Qualified employee health insurance costs.--
                    ``(A) In general.--The term `qualified employee 
                health insurance costs' means any amount paid or 
                incurred by an employer for health insurance to the 
                extent such amount is attributable to coverage provided 
                to any employee while such employee is a qualified 
                employee.
                    ``(B) Exception for amounts paid under salary 
                reduction arrangements.--No amount paid or incurred for 
                health insurance pursuant to a salary reduction 
                arrangement shall be taken into account under 
                subparagraph (A).
    ``(c) Qualified Employee.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `qualified employee' means, with respect 
        to any period, any employee of an employer if--
                    ``(A) substantially all of the services performed 
                during such period by such employee for such employer 
                are performed within an Indian reservation,
                    ``(B) the principal place of abode of such employee 
                while performing such services is on or near the 
                reservation in which the services are performed, and
                    ``(C) the employee began work for such employer on 
                or after January 1, 1993.
            ``(2) Credit allowed only for first 7 years.--An employee 
        shall not be treated as a qualified employee for any period 
        after the date 7 years after the day on which such employee 
        first began work for the employer.
            ``(3) Individuals receiving wages in excess of $30,000 not 
        eligible.--An employee shall not be treated as a qualified 
        employee for any taxable year of the employer if the total 
        amount of the wages paid or incurred by such employer to such 
        employee during such taxable year (whether or not for services 
        within an Indian reservation) exceeds the amount determined at 
        an annual rate of $30,000. The Secretary shall adjust the 
        $30,000 amount contained in the preceding sentence for years 
        beginning after 1993 at the same time and in the same manner as 
        under section 415(d).
            ``(4) Employment must be trade or business employment.--An 
        employee shall be treated as a qualified employee for any 
        taxable year of the employer only if more than 50 percent of 
        the wages paid or incurred by the employer to such employee 
        during such taxable year are for services performed in a trade 
        or business of the employer. Any determination as to whether 
        the preceding sentence applies with respect to any employee for 
        any taxable year shall be made without regard to subsection 
        (f)(2).
            ``(5) Certain employees not eligible.--The term `qualified 
        employee' shall not include--
                    ``(A) any individual described in subparagraph (A), 
                (B), or (C) of section 51(i)(1),
                    ``(B) any 5-percent owner (as defined in section 
                416(i)(1)(B)),
                    ``(C) any individual who is neither an enrolled 
                member of an Indian tribe nor the spouse of an enrolled 
                member of an Indian tribe, and
                    ``(D) any individual if the services performed by 
                such individual for the employer involve the conduct of 
                class I, II, or III gaming as defined in section 4 of 
                the Indian Gaming Regulatory Act (25 U.S.C. 2703), or 
                are performed in a building housing such gaming 
                activity.
            ``(6) Indian tribe defined.--The term `Indian tribe' means 
        any Indian tribe, band, nation, pueblo, or other organized 
        group or community, including any Alaska Native village, or 
        regional or village corporation, as defined in, or established 
        pursuant to, the Alaska Native Claims Settlement Act (43 U.S.C. 
        1601 et seq.) which is recognized as eligible for the special 
        programs and services provided by the United States to Indians 
        because of their status as Indians.
            ``(7) Indian reservation defined.--The term `Indian 
        reservation' means a reservation, as defined in--
                    ``(A) section 3(d) of the Indian Financing Act of 
                1974 (25 U.S.C. 1452(d)), or
                    ``(B) section 4(10) of the Indian Child Welfare Act 
                of 1978 (25 U.S.C. 1903 (10)).
    ``(d) Early Termination of Employment by Employer.--
            ``(1) In general.--If the employment of any employee is 
        terminated by the taxpayer before the day 1 year after the day 
        on which such employee began work for the employer--
                    ``(A) no wages (or qualified employee health 
                insurance costs) with respect to such employee shall be 
                taken into account under subsection (a) for the taxable 
                year in which such employment is terminated, and
                    ``(B) the tax under this chapter for the taxable 
                year in which such employment is terminated shall be 
                increased by the aggregate credits (if any) allowed 
                under section 38(a) for prior taxable years by reason 
                of wages (or qualified employee health insurance costs) 
                taken into account with respect to such employee.
            ``(2) Carrybacks and carryovers adjusted.--In the case of 
        any termination of employment to which paragraph (1) applies, 
        the carrybacks and carryovers under section 39 shall be 
        properly adjusted.
            ``(3) Subsection not to apply in certain cases.--
                    ``(A) In general.--Paragraph (1) shall not apply 
                to--
                            ``(i) a termination of employment of an 
                        employee who voluntarily leaves the employment 
                        of the taxpayer,
                            ``(ii) a termination of employment of an 
                        individual who before the close of the period 
                        referred to in paragraph (1) becomes disabled 
                        to perform the services of such employment 
                        unless such disability is removed before the 
                        close of such period and the taxpayer fails to 
                        offer reemployment to such individual, or
                            ``(iii) a termination of employment of an 
                        individual if it is determined under the 
                        applicable State unemployment compensation law 
                        that the termination was due to the misconduct 
                        of such individual.
                    ``(B) Changes in form of business.--For purposes of 
                paragraph (1), the employment relationship between the 
                taxpayer and an employee shall not be treated as 
                terminated--
                            ``(i) by a transaction to which section 
                        381(a) applies if the employee continues to be 
                        employed by the acquiring corporation, or
                            ``(ii) by reason of a mere change in the 
                        form of conducting the trade or business of the 
                        taxpayer if the employee continues to be 
                        employed in such trade or business and the 
                        taxpayer retains a substantial interest in such 
                        trade or business.
            ``(4) Special rule.--Any increase in tax under paragraph 
        (1) shall not be treated as a tax imposed by this chapter for 
        purposes of--
                    ``(A) determining the amount of any credit 
                allowable under this chapter, and
                    ``(B) determining the amount of the tax imposed by 
                section 55.
    ``(e) Credit Limitation Amount.--For purposes of this section--
            ``(1) Credit limitation amount.--The credit limitation 
        amount for a taxable year shall be an amount equal to the 
        credit rate (10 or 30 percent as determined under subsection 
        (a)) multiplied by the increased credit base.
            ``(2) Increased credit base.--The increased credit base for 
        a taxable year shall be the excess of--
                    ``(A) the sum of any qualified wages and qualified 
                employee health insurance costs paid or incurred by the 
                employer during the taxable year with respect to 
                employees whose wages (paid or incurred by the 
                employer) during the taxable year do not exceed the 
                amount determined under paragraph (3) of subsection 
                (c), over
                    ``(B) the sum of any qualified wages and qualified 
                employee health insurance costs paid or incurred by the 
                employer (or any predecessor) during calendar year 1993 
                with respect to employees whose wages (paid or incurred 
                by the employer or any predecessor) during 1993 did not 
                exceed $30,000.
            ``(3) Special rule for short taxable years.--For any 
        taxable year having less than 12 months--
                    ``(A) the amounts paid or incurred by the employer 
                shall be annualized for purposes of determining the 
                increased credit base, and
                    ``(B) the credit limitation amount shall be 
                multiplied by a fraction, the numerator of which is the 
                number of days in the taxable year and the denominator 
                of which is 365.
    ``(f) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Wages.--The term `wages' has the same meaning given 
        to such term in section 51.
            ``(2) Controlled groups.--
                    ``(A) All employers treated as a single employer 
                under section (a) or (b) of section 52 shall be treated 
                as a single employer for purposes of this section.
                    ``(B) The credit (if any) determined under this 
                section with respect to each such employer shall be its 
                proportionate share of the wages and qualified employee 
                health insurance costs giving rise to such credit.
            ``(3) Certain other rules made applicable.--Rules similar 
        to the rules of section 51(k) and subsections (c), (d), and (e) 
        of section 52 shall apply.
            ``(4) Coordination with nonrevenue laws.--Any reference in 
        this section to a provision not contained in this title shall 
        be treated for purposes of this section as a reference to such 
        provision as in effect on the date of the enactment of this 
        paragraph.''.
    (c) Denial of Deduction for Portion of Wages Equal to Indian 
Employment Credit.--
            (1) Subsection (a) of section 280C of such Code (relating 
        to rule for targeted jobs credit) is amended by striking 
        ``51(a)'' and inserting ``45(a), 51(a), and''.
            (2) Subsection (c) of section 196 of such Code (relating to 
        deduction for certain unused business credits) is amended by 
        striking ``and'' at the end of paragraph (5), by striking the 
        period at the end of paragraph (6) and inserting ``, and'', and 
        by adding at the end the following new paragraph:
            ``(7) the Indian employment credit determined under section 
        45(a).''.
    (d) Denial of Carrybacks to Preenactment Years.--Subsection (d) of 
section 39 of such Code is amended by adding at the end thereof the 
following new paragraph:
            ``(4) No carryback of section 45 credit before enactment.--
        No portion of the unused business credit for any taxable year 
        which is attributable to the Indian employment credit 
        determined under section 45 may be carried to a taxable year 
        ending before the date of the enactment of section 45.''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of such Code is amended by adding 
at the end thereof the following:

                              ``Sec. 45. Indian employment credit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to wages paid or incurred after December 31, 1993.

                           Subtitle E--Study

SEC. 451. STUDY OF EFFECTIVENESS OF TAX ENTERPRISE ZONE INCENTIVES.

    (a) In General.--The Secretary of the Treasury, in consultation 
with the appropriate Secretary (as defined in section 1393(7) of the 
Internal Revenue Code of 1986, as added by this title), shall contract 
within 3 months of the date of the enactment of this Act, with the 
National Academy of Sciences (hereafter in this section referred to as 
the ``Academy'') to conduct a study of the relative effectiveness of 
the incentives provided by this title in achieving the purposes of such 
title in tax enterprise zones.
    (b) Conduct of Study.--If the Academy contracts for the conduct of 
the study described in subsection (a), the Academy shall develop a 
study methodology and shall oversee and manage the conduct of such 
study.
    (c) Reports.--The Academy shall submit to the Committee on Ways and 
Means of the House of Representatives and the Committee on Finance of 
the Senate--
            (1) not later than July 1, 1997, an interim report setting 
        forth the findings as a result of such study, and
            (2) not later than July 1, 2002, a final report setting 
        forth the findings as a result of such study.

                           TITLE V--WORKFARE

SEC. 501. DEVELOPMENT OF A COMPREHENSIVE LEGISLATIVE PROPOSAL REQUIRING 
              ADULTS RECEIVING AFDC TO ENTER THE WORKFORCE.

    (a) In General.--The Secretary of Labor (hereinafter referred to as 
the ``Secretary''), in consultation with the Secretary of Health and 
Human Services shall develop a comprehensive legislative proposal which 
would require adults receiving aid to families with dependent children 
under title IV of the Social Security Act (hereinafter referred to as 
``AFDC'') to enter the workforce within two years of receiving such 
aid.
    (b) Specific Matters To Be Included.--The proposal developed 
pursuant to subsection (a) shall include plans--
            (1) for education, training, and child care which would 
        permit adults receiving AFDC to gain the skills necessary to 
        become financially independent;
            (2) to assist adults receiving AFDC in finding employment 
        in the private sector; and
            (3) providing for placement in meaningful community service 
        jobs for those adults receiving AFDC who cannot find employment 
        in the private sector.
    (c) Report.--No later then one hundred days after January 20, 1993, 
the Secretary shall submit the proposal developed pursuant to 
subsection (a) to the Congress.

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