[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5323 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 5323

  To amend the Internal Revenue Code of 1986 to eliminate the double 
                         taxation of dividends.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 4, 2002

Mr. Cox (for himself, Mr. Istook, Mr. Kerns, Mr. Otter, and Mr. Wilson 
of South Carolina) introduced the following bill; which was referred to 
                    the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to eliminate the double 
                         taxation of dividends.

    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 ``Investor Protection, Market 
Stabilization, and Tax Fairness Restoration Act of 2002''.

SEC. 2. FINDINGS.

    Congress finds that:
            (1) Corporate earnings paid out as dividends are taxed once 
        at the full corporate rate, and again at the full individual 
        rate, leading to an effective rate that can be in excess of 
        60%.
            (2) This confiscatory taxation of dividends has contributed 
        to a steady diminution of dividend payout ratios and the 
        virtual elimination of dividends as the primary method of 
        rewarding equity investors for risk.
            (3) When taxation makes dividend distributions 
        uneconomical, investors are forced to look at sale or 
        collateralization of stock as essentially the only ways of 
        achieving an adequate rate of return on investment.
            (4) As a result, even companies with healthy earnings are 
        unable to protect their investors from loss during a stock 
        market downturn.

SEC. 3. PURPOSE.

    The purpose of this Act is to protect taxpaying investors in 
America's equity markets, promote a greater correlation between 
earnings and equity prices, and encourage economic growth by 
eliminating the unfair double taxation of dividends.

SEC. 4. ELIMINATION OF DOUBLE TAX ON DIVIDENDS.

    (a) Dividends Received by Individuals.--
            (1) Credit for tax paid by distributing corporation.--Part 
        IV of subchapter A of chapter 1 of the Internal Revenue Code of 
        1986 is amended by adding at the end thereof the following new 
        subpart:

               ``Subpart H--Individual Shareholder Credit

                              ``Sec. 54. Allowance of shareholder 
                                        credit.
                              ``Sec. 54A. Determination of shareholder 
                                        credit.
                              ``Sec. 54B. Inclusion of shareholder 
                                        credit.

``SEC. 54. ALLOWANCE OF SHAREHOLDER CREDIT.

    ``(a) General Rule.--In the case of a taxpayer other than a 
corporation, there shall be allowed as a credit against the tax imposed 
by this chapter for the taxable year an amount equal to the shareholder 
credits determined with respect to dividends from domestic corporations 
received by the taxpayer during the taxable year.
    ``(b) Limitation.--The amount allowed as a credit under subsection 
(a) for any taxable year shall not exceed the sum of--
            ``(1) the regular tax liability of the taxpayer for the 
        taxable year reduced by the sum of the credits allowable under 
        this part (other than subpart C), and
            ``(2) the minimum tax imposed by section 55.
    ``(c) Nonresident Aliens.--No credit shall be allowed under this 
section to any nonresident alien with respect to any dividend unless 
such dividend is taxable under section 871(b) (relating to income 
effectively connected with United States business).

``SEC. 54A. DETERMINATION OF SHAREHOLDER CREDIT.

    ``(a) General Rule.--For purposes of this subpart, the shareholder 
credit with respect to any dividend paid by a domestic corporation is 
an amount which bears the same ratio to such corporation's post-2002 
Federal income taxes as--
            ``(1) the amount of such dividend (determined without 
        regard to section 54B), bears to
            ``(2) such corporation's post-2002 undistributed earnings.
    ``(b) Post-2002 Federal Income Taxes.--For purposes of this 
section--
            ``(1) In general.--The term `post-2002 Federal income 
        taxes' means the sum of--
                    ``(A) the Federal income taxes with respect to the 
                taxable year of the distributing corporation in which 
                the dividend is distributed, plus
                    ``(B) the Federal income taxes with respect to 
                prior taxable years of such corporation beginning after 
                December 31, 2002, reduced by the amount of shareholder 
credits determined with respect to distributions by such corporation in 
such prior taxable years.
            ``(2) Federal income taxes.--The term `Federal income 
        taxes' means any tax paid by the corporation under this 
        chapter. Any shareholder credit determined under this section 
        with respect to a dividend received by the corporation during 
        any taxable year shall be treated as a tax paid by the 
        corporation under this chapter for such taxable year.
    ``(c) Post-2002 Undistributed Earnings.--For purposes of this 
section, the term `post-2002 undistributed earnings' means the earnings 
and profits of the distributing corporation accumulated in taxable 
years beginning after December 31, 2002, determined--
            ``(1) as of the close of the taxable year in which the 
        dividend is distributed, and
            ``(2) without diminution by reason of dividends distributed 
        during such taxable year.

``SEC. 54B. INCLUSION OF SHAREHOLDER CREDIT.

    ``In the case of a taxpayer other than a corporation, gross income 
shall include the amount of the shareholder credits determined under 
section 54A with respect to dividends received by such shareholder.''
            (2) Clerical amendment.--The table of subparts for part IV 
        of subchapter A of chapter 1 of such Code is amended by adding 
        at the end thereof the following new item:

                              ``Subpart H. Individual shareholder 
                                        credit.''
            (3) Effective date.--The amendments made by this subsection 
        shall apply to dividends paid out of earnings and profits for 
        taxable years beginning after December 31, 2002.
    (b) Dividends Received by Corporations.--
            (1) In general.--Subsection (a) of section 243 of such Code 
        (relating to dividends received by corporations) is amended to 
        read as follows:
    ``(a) General Rule.--In the case of a corporation, there shall be 
allowed as a deduction an amount equal to 100 percent of the amount 
received as dividends from a domestic corporation which is subject to 
taxation under this chapter.''
            (2) Dividends on certain preferred stock.--Section 244 of 
        such Code (relating to dividends received on certain preferred 
        stock) is amended--
                    (A) by striking ``70 percent'' in subsection (a)(3) 
                and inserting ``100 percent'',
                    (B) by striking ``(a) In General.--'', and
                    (C) by striking subsection (b).
            (3) Technical, conforming and clerical amendments.--
                    (A) Section 243 of such Code (relating to dividends 
                received by corporations) is amended by striking 
                subsections (b) and (c) and by redesignating 
                subsections (d) and (e) as subsections (b) and (c), 
                respectively.
                    (B) Subsection (b) of section 246 of such Code 
                (relating to rules applying to deductions for dividends 
                received) is amended--
                            (i) in paragraph (1) by striking 
                        ``243(a)(1), 244(a)'' each time it appears and 
                        inserting ``243, 244'' and by striking ``the 
                        percentage determined under paragraph (3) of'', 
                        and
                            (ii) by striking paragraph (3).
                    (C)(i) Subparagraph (A) of section 805(a)(4) of 
                such Code (relating to dividends received by life 
                insurance companies) is amended by striking all that 
                follows ``subparagraph (B))'' and inserting a period.
                    (ii) Subparagraph (B) of section 805(a)(4) of such 
                Code is amended--
                            (I) by striking ``243(a)(1), 244(a)'' each 
                        place it appears and inserting ``243, 244'',
                            (II) by striking ``the percentage 
                        determined under section 246(b)(3) of'', and
                            (III) by striking ``(and such limitation 
                        shall be applied as provided in section 
                        246(b)(3))''.
                    (iii) Paragraph (4) of section 805(a) of such Code 
                is amended by striking subparagraphs (C), (D), (E), and 
                (F) and inserting the following:
                    ``(C) Distributions out of tax-exempt interest.--No 
                deduction shall be allowed by reason of this paragraph 
                with respect to any dividend to the extent the dividend 
                is a distribution out of tax-exempt interest.''
                    (D) Subparagraph (C) of section 861(a)(2) of such 
                Code (relating to income from sources within the United 
                States) is amended by striking ``243(e)'' and inserting 
                ``243(c)''.
                    (E) Subparagraph (B) of section 1504(c)(2) of such 
                Code (relating to definition of includible insurance 
                companies) is amended by striking clause (i) and by 
                redesignating clauses (ii) and (iii) as clauses (i) and 
                (ii), respectively.
            (4) Effective date.--The amendments made by this subsection 
        shall apply to taxable years ending after the date of the 
        enactment of this Act.
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