[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 593 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                 S. 593

  To amend the Internal Revenue Code of 1986 to increase the maximum 
 taxable income for the 15 percent rate bracket, to provide a partial 
  exclusion from gross income for dividends and interest received by 
    individuals, to provide a long-term capital gains deduction for 
 individuals, to increase the traditional IRA contribution limit, and 
                          for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 11, 1999

Mr. Coverdell (for himself, Mr. Torricelli, and Mr. Abraham) introduced 
the following bill; which was read twice and referred to the Committee 
                               on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to increase the maximum 
 taxable income for the 15 percent rate bracket, to provide a partial 
  exclusion from gross income for dividends and interest received by 
    individuals, to provide a long-term capital gains deduction for 
 individuals, to increase the traditional IRA contribution limit, and 
                          for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Savers Act of 1999''.

SEC 2. INCREASE IN MAXIMUM TAXABLE INCOME FOR 15 PERCENT RATE BRACKET.

    Section 1(f) of the Internal Revenue Code of 1986 (relating to 
adjustments in tax tables so that inflation will not result in tax 
increases) is amended--
            (1) in paragraph (2)--
                    (A) by redesignating subparagraphs (B) and (C) as 
                subparagraphs (C) and (D),
                    (B) by inserting after subparagraph (A) the 
                following:
                    ``(B) in the case of the tables contained in 
                subsections (a), (b), (c), and (d), by increasing the 
                maximum taxable income level for the 15 percent rate 
                bracket and the minimum taxable income level for the 28 
                percent rate bracket otherwise determined under 
                subparagraph (A) for taxable years beginning in any 
                calendar year after 1999, by the applicable dollar 
                amount for such calendar year,'', and
                    (C) by striking ``subparagraph (A)'' in 
                subparagraph (C) (as so redesignated) and inserting 
                ``subparagraphs (A) and (B)'', and
            (2) by adding at the end the following:
            ``(8) Applicable dollar amount.--For purposes of paragraph 
        (2)(B), the applicable dollar amount for any calendar year 
        shall be determined as follows:
                    ``(A) Joint returns and surviving spouses.--In the 
                case of the table contained in subsection (a)--

                                                             Applicable
``Calendar year:                                         Dollar Amount:
    2000..........................................              $2,000 
    2001..........................................              $4,000 
    2002..........................................              $6,000 
    2003..........................................              $8,000 
    2004 and thereafter...........................             $10,000.
                    ``(B) Other tables.--In the case of the table 
                contained in subsection (b), (c), or (d)--

                                                             Applicable
``Calendar year:                                         Dollar Amount:
    2000..........................................              $1,000 
    2001..........................................              $2,000 
    2002..........................................              $3,000 
    2003..........................................              $4,000 
    2004 and thereafter...........................            $5,000.''

SEC. 3. PARTIAL EXCLUSION OF DIVIDENDS AND INTEREST RECEIVED BY 
              INDIVIDUALS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to amounts specifically 
excluded from gross income) is amended by inserting after section 115 
the following new section:

``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTEREST RECEIVED BY 
              INDIVIDUALS.

    ``(a) Exclusion From Gross Income.--Gross income does not include 
the sum of the amounts received during the taxable year by an 
individual as--
            ``(1) dividends from domestic corporations, or
            ``(2) interest.
    ``(b) Limitations.--
            ``(1) Maximum amount.--The aggregate amount excluded under 
        subsection (a) for any taxable year shall not exceed $250 ($500 
        in the case of a joint return).
            ``(2) Certain dividends excluded.--Subsection (a)(1) shall 
        not apply to any dividend from a corporation which, for the 
        taxable year of the corporation in which the distribution is 
        made, or for the next preceding taxable year of the 
        corporation, is a corporation exempt from tax under section 501 
        (relating to certain charitable, etc., organization) or section 
        521 (relating to farmers' cooperative associations).
    ``(c) Interest.--For purposes of this section, the term `interest' 
means--
            ``(1) interest on deposits with a bank (as defined in 
        section 581),
            ``(2) amounts (whether or not designated as interest) paid 
        in respect of deposits, investment certificates, or 
        withdrawable or repurchasable shares, by--
                    ``(A) a mutual savings bank, cooperative bank, 
                domestic building and loan association, industrial loan 
                association or bank, or credit union, or
                    ``(B) any other savings or thrift institution which 
                is chartered and supervised under Federal or State law,
        the deposits or accounts in which are insured under Federal or 
        State law or which are protected and guaranteed under State 
        law,
            ``(3) interest on--
                    ``(A) evidences of indebtedness (including bonds, 
                debentures, notes, and certificates) issued by a 
                domestic corporation in registered form, and
                    ``(B) to the extent provided in regulations 
                prescribed by the Secretary, other evidences of 
                indebtedness issued by a domestic corporation of a type 
                offered by corporations to the public,
            ``(4) interest on obligations of the United States, a 
        State, or a political subdivision of a State (not excluded from 
        gross income of the taxpayer under any other provision of law), 
        and
            ``(5) interest attributable to participation shares in a 
        trust established and maintained by a corporation established 
        pursuant to Federal law.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Distributions from regulated investment companies and 
        real estate investment trusts.--Subsection (a) shall apply with 
        respect to distributions by--
                    ``(A) regulated investment companies to the extent 
                provided in section 854(c), and
                    ``(B) real estate investment trusts to the extent 
                provided in section 857(c).
            ``(2) Distributions by a trust.--For purposes of subsection 
        (a), the amount of dividends and interest properly allocable to 
        a beneficiary under section 652 or 662 shall be deemed to have 
        been received by the beneficiary ratably on the same date that 
        the dividends and interest were received by the estate or 
        trust.
            ``(3) Certain nonresident aliens ineligible for 
        exclusion.--In the case of a nonresident alien individual, 
        subsection (a) shall apply only--
                    ``(A) in determining the tax imposed for the 
                taxable year pursuant to section 871(b)(1) and only in 
                respect of dividends and interest which are effectively 
                connected with the conduct of a trade or business 
                within the United States, or
                    ``(B) in determining the tax imposed for the 
                taxable year pursuant to section 877(b).''.
    (b) Conforming Amendments.--
            (1) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 115 the following new item:

                              ``Sec. 116. Partial exclusion of 
                                        dividends and interest received 
                                        by individuals.''.
            (2) Paragraph (2) of section 265(a) of such Code is amended 
        by inserting before the period at the end the following: ``, or 
        to purchase or carry obligations or shares, or to make 
        deposits, to the extent the interest thereon is excludable from 
        gross income under section 116''.
            (3) Subsection (c) of section 584 of such Code is amended 
        by adding at the end the following new flush sentence:
``The proportionate share of each participant in the amount of 
dividends or interest received by the common trust fund and to which 
section 116 applies shall be considered for purposes of such section as 
having been received by such participant.''.
            (4) Subsection (a) of section 643 of such Code is amended 
        by redesignating paragraph (7) as paragraph (8) and by 
        inserting after paragraph (6) the following new paragraph:
            ``(7) Dividends or interest.--There shall be included the 
        amount of any dividends or interest excluded from gross income 
        pursuant to section 116.''.
            (5) Section 854 of such Code is amended by adding at the 
        end the following new subsection:
    ``(c) Treatment Under Section 116.--
            ``(1) In general.--For purposes of section 116, in the case 
        of any dividend (other than a dividend described in subsection 
        (a)) received from a regulated investment company which meets 
        the requirements of section 852 for the taxable year in which 
        it paid the dividend--
                    ``(A) the entire amount of such dividend shall be 
                treated as a dividend if the sum of the aggregate 
                dividends and the aggregate interest received by such 
                company during the taxable year equals or exceeds 75 
                percent of its gross income, or
                    ``(B) if subparagraph (A) does not apply, there 
                shall be taken into account under section 116 only the 
                portion of such dividend which bears the same ratio to 
                the amount of such dividend as the sum of the aggregate 
                dividends received and aggregate interest received 
                bears to gross income.
        For purposes of the preceding sentence, gross income and 
        aggregate interest received shall each be reduced by so much of 
        the deduction allowable by section 163 for the taxable year as 
        does not exceed aggregate interest received for the taxable 
        year.
            ``(2) Notice to shareholders.--The amount of any 
        distribution by a regulated investment company which may be 
        taken into account as a dividend for purposes of the exclusion 
        under section 116 shall not exceed the amount so designated by 
        the company in a written notice to its shareholders mailed not 
        later than 60 days after the close of its taxable year.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Gross income.--The term `gross income' does 
                not include gain from the sale or other disposition of 
                stock or securities.
                    ``(B) Aggregate dividends.--The term `aggregate 
                dividends' includes only dividends received from 
                domestic corporations other than dividends described in 
                section 116(b)(2). In determining the amount of any 
                dividend for purposes of this subparagraph, the rules 
                provided in section 116(d)(1) (relating to certain 
                distributions) shall apply.
                    ``(C) Interest.--The term `interest' has the 
                meaning given such term by section 116(c).''.
            (6) Subsection (c) of section 857 of such Code is amended 
        to read as follows:
    ``(c) Limitations Applicable to Dividends Received From Real Estate 
Investment Trusts.--
            ``(1) In general.--For purposes of section 116 (relating to 
        an exclusion for dividends and interest received by 
        individuals) and section 243 (relating to deductions for 
        dividends received by corporations), a dividend received from a 
        real estate investment trust which meets the requirements of 
        this part shall not be considered as a dividend.
            ``(2) Treatment as interest.--For purposes of section 116, 
        in the case of a dividend (other than a capital gain dividend, 
        as defined in subsection (b)(3)(C)) received from a real estate 
        investment trust which meets the requirements of this part for 
        the taxable year in which it paid the dividend--
                    ``(A) such dividend shall be treated as interest if 
                the aggregate interest received by the real estate 
                investment trust for the taxable year equals or exceeds 
                75 percent of its gross income, or
                    ``(B) if subparagraph (A) does not apply, the 
                portion of such dividend which bears the same ratio to 
                the amount of such dividend as the aggregate interest 
                received bears to gross income shall be treated as 
                interest.
            ``(3) Adjustments to gross income and aggregate interest 
        received.--For purposes of paragraph (2)--
                    ``(A) gross income does not include the net capital 
                gain,
                    ``(B) gross income and aggregate interest received 
                shall each be reduced by so much of the deduction 
                allowable by section 163 for the taxable year (other 
                than for interest on mortgages on real property owned 
                by the real estate investment trust) as does not exceed 
                aggregate interest received by the taxable year, and
                    ``(C) gross income shall be reduced by the sum of 
                the taxes imposed by paragraphs (4), (5), and (6) of 
                section 857(b).
            ``(4) Interest.--The term `interest' has the meaning given 
        such term by section 116(c).
            ``(5) Notice to shareholders.--The amount of any 
        distribution by a real estate investment trust which may be 
        taken into account as interest for purposes of the exclusion 
        under section 116 shall not exceed the amount so designated by 
        the trust in a written notice to its shareholders mailed not 
        later than 60 days after the close of its taxable year.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 4. LONG-TERM CAPITAL GAINS DEDUCTION FOR INDIVIDUALS.

    (a) General Rule.--Part I of subchapter P of chapter 1 of the 
Internal Revenue Code of 1986 (relating to treatment of capital gains) 
is amended by redesignating section 1202 as section 1203 and by 
inserting after section 1201 the following new section:

``SEC. 1202. CAPITAL GAINS DEDUCTION FOR INDIVIDUALS.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a deduction for the taxable year an amount equal to the 
lesser of--
            ``(1) the net capital gain of the taxpayer for the taxable 
        year, or
            ``(2) $5,000.
    ``(b) Sales Between Related Parties.--Gains from sales and 
exchanges to any related person (within the meaning of section 267(b) 
or 707(b)(1)) shall not be taken into account in determining net 
capital gain.
    ``(c) Special Rule for Section 1250 Property.--Solely for purposes 
of this section, in applying section 1250 to any disposition of section 
1250 property, all depreciation adjustments in respect of the property 
shall be treated as additional depreciation.
    ``(d) Section Not To Apply to Certain Taxpayers.--No deduction 
shall be allowed under this section to--
            ``(1) an individual with respect to whom a deduction under 
        section 151 is allowable to another taxpayer for a taxable year 
        beginning in the calendar year in which such individual's 
        taxable year begins,
            ``(2) a married individual (within the meaning of section 
        7703) filing a separate return for the taxable year, or
            ``(3) an estate or trust.
    ``(e) Special Rule for Pass-Thru Entities.--
            ``(1) In general.--In applying this section with respect to 
        any pass-thru entity, the determination of when the sale or 
        exchange occurs shall be made at the entity level.
            ``(2) Pass-thru entity defined.--For purposes of paragraph 
        (1), the term `pass-thru entity' means--
                    ``(A) a regulated investment company,
                    ``(B) a real estate investment trust,
                    ``(C) an S corporation,
                    ``(D) a partnership,
                    ``(E) an estate or trust, and
                    ``(F) a common trust fund.''
    (b) Coordination With Maximum Capital Gains Rate.--Paragraph (3) of 
section 1(h) of the Internal Revenue Code of 1986 (relating to maximum 
capital gains rate) is amended to read as follows:
            ``(3) Coordination with other provisions.--For purposes of 
        this subsection, the amount of the net capital gain shall be 
        reduced (but not below zero) by the sum of--
                    ``(A) the amount of the net capital gain taken into 
                account under section 1202(a) for the taxable year, 
                plus
                    ``(B) the amount which the taxpayer elects to take 
                into account as investment income for the taxable year 
                under section 163(d)(4)(B)(iii).''
    (c) Deduction Allowable in Computing Adjusted Gross Income.--
Subsection (a) of section 62 (defining adjusted gross income) is 
amended by inserting after paragraph (17) the following new paragraph:
            ``(18) Long-term capital gains.--The deduction allowed by 
        section 1202.''
    (d) Treatment of Collectibles.--
            (1) In general.--Section 1222 of the Internal Revenue Code 
        of 1986 (relating to other terms relating to capital gains and 
        losses) is amended by inserting after paragraph (11) the 
        following new paragraph:
            ``(12) Special rule for collectibles.--
                    ``(A) In general.--Any gain or loss from the sale 
                or exchange of a collectible shall be treated as a 
                short-term capital gain or loss (as the case may be), 
                without regard to the period such asset was held. The 
                preceding sentence shall apply only to the extent the 
                gain or loss is taken into account in computing taxable 
                income.
                    ``(B) Treatment of certain sales of interest in 
                partnership, etc.--For purposes of subparagraph (A), 
                any gain from the sale or exchange of an interest in a 
                partnership, S corporation, or trust which is 
                attributable to unrealized appreciation in the value of 
                collectibles held by such entity shall be treated as 
                gain from the sale or exchange of a collectible. Rules 
                similar to the rules of section 751(f) shall apply for 
                purposes of the preceding sentence.
                    ``(C) Collectible.--For purposes of this paragraph, 
                the term `collectible' means any capital asset which is 
                a collectible (as defined in section 408(m) without 
                regard to paragraph (3) thereof).''
            (2) Charitable deduction not affected.--
                    (A) Paragraph (1) of section 170(e) of such Code is 
                amended by adding at the end the following new 
                sentence: ``For purposes of this paragraph, section 
                1222 shall be applied without regard to paragraph (12) 
                thereof (relating to special rule for collectibles).''
                    (B) Clause (iv) of section 170(b)(1)(C) of such 
                Code is amended by inserting before the period at the 
                end the following: ``and section 1222 shall be applied 
                without regard to paragraph (12) thereof (relating to 
                special rule for collectibles)''.
    (e) Conforming Amendments.--
            (1) Section 57(a)(7) of the Internal Revenue Code of 1986 
        is amended by striking ``1202'' and inserting ``1203''.
            (2) Clause (iii) of section 163(d)(4)(B) of such Code is 
        amended to read as follows:
                            ``(iii) the sum of--
                                    ``(I) the portion of the net 
                                capital gain referred to in clause 
                                (ii)(II) (or, if lesser, the net 
                                capital gain referred to in clause 
                                (ii)(I)) taken into account under 
                                section 1202, reduced by the amount of 
                                the deduction allowed with respect to 
                                such gain under section 1202, plus
                                    ``(II) so much of the gain 
                                described in subclause (I) which is not 
                                taken into account under section 1202 
                                and which the taxpayer elects to take 
                                into account under this clause.''
            (3) Subparagraph (B) of section 172(d)(2) of such Code is 
        amended to read as follows:
                    ``(B) the deduction under section 1202 and the 
                exclusion under section 1203 shall not be allowed.''
            (4) Section 642(c)(4) of such Code is amended by striking 
        ``1202'' and inserting ``1203''.
            (5) Section 643(a)(3) of such Code is amended by striking 
        ``1202'' and inserting ``1203''.
            (6) Paragraph (4) of section 691(c) of such Code is amended 
        inserting ``1203,'' after ``1202,''.
            (7) The second sentence of section 871(a)(2) of such Code 
        is amended by inserting ``or 1203'' after ``section 1202''.
            (8) The last sentence of section 1044(d) of such Code is 
        amended by striking ``1202'' and inserting ``1203''.
            (9) Paragraph (1) of section 1402(i) of such Code is 
        amended by inserting ``, and the deduction provided by section 
        1202 and the exclusion provided by section 1203 shall not 
        apply'' before the period at the end.
            (10) Section 121 of such Code is amended by adding at the 
        end the following new subsection:
    ``(h) Cross Reference.--

                                ``For treatment of eligible gain not 
excluded under subsection (a), see section 1202.''
            (11) Section 1203 of such Code, as redesignated by 
        subsection (a), is amended by adding at the end the following 
        new subsection:
    ``(l) Cross Reference.--

                                ``For treatment of eligible gain not 
excluded under subsection (a), see section 1202.''
            (12) The table of sections for part I of subchapter P of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 1202 and by inserting after the item relating to 
        section 1201 the following new items:

                              ``Sec. 1202. Capital gains deduction.
                              ``Sec. 1203. 50-percent exclusion for 
                                        gain from certain small 
                                        business stock.''
    (f) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 1999.
            (2) Collectibles.--The amendments made by subsection (d) 
        shall apply to sales and exchanges after December 31, 1999.

SEC. 5. INCREASE IN CONTRIBUTION LIMITS FOR TRADITIONAL IRAS.

    (a) Increase in Contribution Limit.--Paragraph (1)(A) of section 
219(b) of the Internal Revenue Code of 1986 (relating to maximum amount 
of deduction) is amended by striking ``$2,000'' and inserting 
``$3,000''.
    (b) Inflation Adjustment.--Section 219 of the Internal Revenue Code 
of 1986 (relating to deduction for retirement savings) is amended by 
redesignating subsection (h) as subsection (i) and by inserting after 
subsection (g) the following new subsection:
    ``(h) Cost-of-Living Adjustment.--
            ``(1) Deductible amounts.--In the case of any taxable year 
        beginning in a calendar year after 2009, the $3,000 amount 
        under subsection (b)(1)(A) shall be increased by an amount 
        equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 2008' for `calendar year 1992' in 
                subparagraph (B) thereof.
            ``(2) Rounding rules.--If any amount after adjustment under 
        paragraph (1) is not a multiple of $100, such amount shall be 
        rounded to the next lower multiple of $100.''
    (c) Conforming Amendments.--
            (1) Section 408(a)(1) is amended by striking ``in excess of 
        $2,000 on behalf of any individual'' and inserting ``on behalf 
        of any individual in excess of the amount in effect for such 
        taxable year under section 219(b)(1)(A)''.
            (2) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
        and inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
            (3) Section 408(b) is amended by striking ``$2,000'' in the 
        matter following paragraph (4) and inserting ``the dollar 
        amount in effect under section 219(b)(1)(A)''.
            (4) Section 408(j) is amended by striking ``$2,000''.
            (5) Section 408(p)(8) is amended by striking ``$2,000'' and 
        inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''
            (6) Section 408A(c)(2)(A) of such Code is amended to read 
        as follows:
                    ``(A) $2,000, over''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.
                                 <all>