[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 35 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                 S. 35

    To provide relief to America's working families and to promote 
continued economic growth by returning a portion of the tax surplus to 
                         those who created it.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 22, 2001

 Mr. Gramm (for himself and Mr. Miller) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
    To provide relief to America's working families and to promote 
continued economic growth by returning a portion of the tax surplus to 
                         those who created it.

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

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Tax Cut With a 
Purpose Act of 2001''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Section 15 Not To Apply.--No amendment made by this Act shall 
be treated as a change in a rate of tax for purposes of section 15 of 
the Internal Revenue Code of 1986.
    (d) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.
           TITLE I--REDUCTIONS IN INDIVIDUAL INCOME TAX RATES

Sec. 101. Reduction in marginal income tax rates for individuals.
                TITLE II--REDUCTION OF MARRIAGE PENALTY

Sec. 201. Restoration of deduction for two-earner married couples.
               TITLE III--REPEAL OF ESTATE AND GIFT TAXES

Sec. 301. Phaseout of estate and gift taxes.
                    TITLE IV--PROMOTION OF EDUCATION

Sec. 401. Expansion of education IRAs.
                 TITLE V--INCREASE IN CHILD TAX CREDIT

Sec. 501. Modifications of child tax credit.
                TITLE VI--PROMOTION OF CHARITABLE GIVING

Sec. 601. Deduction for portion of charitable contributions to be 
                            allowed to individuals who do not itemize 
                            deductions.
Sec. 602. Tax-free distributions from individual retirement accounts 
                            for charitable purposes.
Sec. 603. Higher limitation on corporate charitable contributions.
                       TITLE VII--RESEARCH CREDIT

Sec. 701. Permanent extension of research credit.

           TITLE I--REDUCTIONS IN INDIVIDUAL INCOME TAX RATES

SEC. 101. REDUCTION IN MARGINAL INCOME TAX RATES FOR INDIVIDUALS.

    (a) Rates for 2002.--Section 1 (relating to tax imposed) is amended 
by striking subsections (a) through (d) and inserting the following:
    ``(a) Married Individuals Filing Joint Returns and Surviving 
Spouses.--There is hereby imposed on the taxable income of--
            ``(1) every married individual (as defined in section 7703) 
        who makes a single return jointly with his spouse under section 
        6013, and
            ``(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table:

``If taxable income is:             The tax is:
    Not over $12,000...............
                                        14% of taxable income.
    Over $12,000 but not over 
        $45,200.
                                        $1,680, plus 15% of the excess 
                                                over $12,000.
    Over $45,200 but not over 
        $109,250.
                                        $6,660, plus 27% of the excess 
                                                over $45,200.
    Over $109,250 but not over 
        $166,450.
                                        $23,953.50, plus 30% of the 
                                                excess over $109,250.
    Over $166,450 but not over 
        $297,300.
                                        $41,113.50, plus 35% of the 
                                                excess over $166,450.
    Over $297,300..................
                                        $86,911, plus 38% of the excess 
                                                over $297,300.
    ``(b) Heads of Households.--There is hereby imposed on the taxable 
income of every head of a household (as defined in section 2(b)) a tax 
determined in accordance with the following table:

``If taxable income is:             The tax is:
    Not over $10,000...............
                                        14% of taxable income.
    Over $10,000 but not over 
        $36,250.
                                        $1,400, plus 15% of the excess 
                                                over $10,000.
    Over $36,250 but not over 
        $93,600.
                                        $5,337.50, plus 27% of the 
                                                excess over $36,250.
    Over $93,600 but not over 
        $151,600.
                                        $20,822, plus 30% of the excess 
                                                over $93,600.
    Over $151,600 but not over 
        $297,300.
                                        $38,222, plus 35% of the excess 
                                                over $151,600.
    Over $297,300..................
                                        $89,217, plus 38% of the excess 
                                                over $297,300.
    ``(c) Unmarried Individuals (Other Than Surviving Spouses and Heads 
of Households).--There is hereby imposed on the taxable income of every 
individual (other than a surviving spouse as defined in section 2(a) or 
the head of a household as defined in section 2(b)) who is not a 
married individual (as defined in section 7703) a tax determined in 
accordance with the following table:

``If taxable income is:             The tax is:
    Not over $6,000................
                                        14% of taxable income.
    Over $6,000 but not over 
        $27,050.
                                        $840, plus 15% of the excess 
                                                over $6,000.
    Over $27,050 but not over 
        $65,550.
                                        $3,997.50, plus 27% of the 
                                                excess over $27,050.
    Over $65,550 but not over 
        $136,750.
                                        $14,362.50, plus 30% of the 
                                                excess over $65,550.
    Over $136,750 but not over 
        $297,300.
                                        $35,752.50, plus 35% of the 
                                                excess over $136,750.
    Over $297,300..................
                                        $91,945, plus 38% of the excess 
                                                over $297,300.
    ``(d) Married Individuals Filing Separate Returns.--There is hereby 
imposed on the taxable income of every married individual (as defined 
in section 7703) who does not make a single return jointly with his 
spouse under section 6013, a tax determined in accordance with the 
following table:

``If taxable income is:             The tax is:
    Not over $6,000................
                                        14% of taxable income.
    Over $6,000 but not over 
        $22,600.
                                        $840, plus 15% of the excess 
                                                over $6,000.
    Over $22,600 but not over 
        $54,625.
                                        $3,330, plus 27% of the excess 
                                                over $22,600.
    Over $54,625 but not over 
        $83,225.
                                        $11,976.75, plus 30% of the 
                                                excess over $54,625.
    Over $83,225 but not over 
        $148,650.
                                        $20,556.75, plus 35% of the 
                                                excess over $83,225.
    Over $148,650..................
                                        $43,455.50, plus 38% of the 
                                                excess over 
                                                $148,650.''.
    (b) Phasein of Rate Reductions.--Section 1 is amended by adding at 
the end the following new subsection:
    ``(i) Phasein of 2006 Rates of 10, 15, 25, and 33 Percent.--
            ``(1) In general.--In the case of taxable years beginning 
        in a calendar year after 2002, the tax rates determined under 
        subsection (a), (b), (c), or (d) shall be the tax rates imposed 
        by such subsection in taxable years beginning in calendar year 
        2002, reduced--
                    ``(A) in the case of the 14 percent rate, by 1 
                percentage point in each taxable year beginning in a 
                calendar year after 2002 and before 2007,
                    ``(B) in the case of the 27 and 35 percent rates, 
                by 1 percentage point in taxable years beginning in 
                calendar year 2004, and by an additional 1 percentage 
                point in taxable years beginning in calendar year 2006, 
                and
                    ``(C) in the case of the 30 and 38 percent rate, by 
                1 percentage point in each taxable year beginning in a 
                calendar year after 2002 and before 2006, and by an 
                additional 2 percentage points in taxable years 
                beginning in calendar year 2006.
            ``(2) Adjustment of tables.--The Secretary shall adjust the 
        tables prescribed under subsection (f) to carry out the 
        reductions under this subsection.''.
    (c) Inflation Adjustment To Apply in Determining Rates for 2002.--
Subsection (f) of section 1 is amended--
            (1) by striking ``1993'' in paragraph (1) and inserting 
        ``2001'',
            (2) by striking ``1992'' in paragraph (3)(B) and inserting 
        ``2000'', and
            (3) by striking paragraph (7) and inserting the following 
        new paragraph:
            ``(7) Special rule for certain brackets.--
                    ``(A) Calendar years 2002 through 2006.--In 
                prescribing the tables under paragraph (1) which apply 
                with respect to taxable years beginning in calendar 
                years after 2001 and before 2007, the Secretary shall 
                make no adjustment to the dollar amounts at which the 
                first rate bracket begins or at which the second rate 
                bracket begins under any table contained in subsection 
                (a), (b), (c), or (d).
                    ``(B) Later calendar years.--In prescribing the 
                tables under paragraph (1) which apply with respect to 
                taxable years beginning in a calendar year after 2006, 
                the cost-of-living adjustment used in making 
                adjustments to the dollar amounts referred to in 
                subparagraph (A) shall be determined under paragraph 
                (3) by substituting `2005' for `2000'.''.
    (d) Conforming Amendments.--
            (1) The following provisions are each amended by striking 
        ``1992'' and inserting ``2000'' each place it appears:
                    (A) Section 32(j)(1)(B).
                    (B) Section 41(e)(5)(C).
                    (C) Section 42(h)(3)(H)(i)(II).
                    (D) Section 59(j)(2)(B).
                    (E) Section 63(c)(4)(B).
                    (F) Section 68(b)(2)(B).
                    (G) Section 132(f)(6)(A)(ii).
                    (H) Section 135(b)(2)(B)(ii).
                    (I) Section 146(d)(2)(B).
                    (J) Section 151(d)(4).
                    (K) Section 220(g)(2).
                    (L) Section 221(g)(1)(B).
                    (M) Section 512(d)(2)(B).
                    (N) Section 513(h)(2)(C)(ii).
                    (O) Section 685(c)(3)(B).
                    (P) Section 877(a)(2).
                    (Q) Section 911(b)(2)(D)(ii)(II).
                    (R) Section 2032A(a)(3)(B).
                    (S) Section 2503(b)(2)(B).
                    (T) Section 2631(c)(2).
                    (U) Section 4001(e)(1)(B).
                    (V) Section 4261(e)(4)(A)(ii).
                    (W) Section 6039F(d).
                    (X) Section 6323(i)(4)(B).
                    (Y) Section 6334(g)(1)(B).
                    (Z) Section 6601(j)(3)(B).
                    (AA) Section 7430(c)(1).
            (2) Sections 25A(h)(1)(A)(ii) and 25A(h)(2)(A)(ii) are each 
        amended by striking ``begins,'' and all that follows through 
        ``thereof''.
            (3) Subclause (II) of section 42(h)(6)(G)(i) is amended by 
        striking ``1987'' and inserting ``2000''.
    (e) Additional Conforming Amendments.--
            (1) Section 1(g)(7)(B)(ii)(II) is amended by striking ``15 
        percent'' and inserting ``10 percent''.
            (2) Section 1(h) is amended--
                    (A) by striking ``28 percent'' both places it 
                appears in paragraphs (1)(A)(ii)(I) and (1)(B)(i) and 
                inserting ``15 percent'', and
                    (B) by striking paragraph (13).
            (3) Section 531 is amended by striking ``39.6 percent'' and 
        inserting ``33 percent''.
            (4) Section 541 of such Code is amended by striking ``39.6 
        percent'' and inserting ``33 percent''.
            (5) Section 3402(p)(1)(B) is amended by striking ``7, 15, 
        28, or 31 percent'' and inserting ``5, 10, 15, or 25 percent''.
            (6) Section 3402(p)(2) is amended by striking ``15 
        percent'' and inserting ``10 percent''.
            (7) Section 3402(q)(1) is amended by striking ``28 
        percent'' and inserting ``15 percent''.
            (8) Section 3402(r)(3) is amended by striking ``31 
        percent'' and inserting ``25 percent''.
            (9) Section 3406(a)(1) is amended by striking ``31 
        percent'' and inserting ``25 percent''.
            (10) The Secretary of the Treasury may prescribe 
        percentages which shall apply in lieu of the percentages 
specified in the amendments made by this subsection in order to 
coordinate those percentages with the percentages specified in the 
tables prescribed under the last sentence of section 1(i)(1) of the 
Internal Revenue Code of 1986, as added by this section.
    (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, 2001.
            (2) Amendments to withholding provisions.--The amendments 
        made by paragraphs (5), (6), (7), (8), and (9) of subsection 
        (e) shall apply to amounts paid after December 31, 2001.

                TITLE II--REDUCTION OF MARRIAGE PENALTY

SEC. 201. RESTORATION OF DEDUCTION FOR TWO-EARNER MARRIED COUPLES.

    (a) In General.--Part VII of subchapter B of chapter 1 (relating to 
additional itemized deductions for individuals) is amended by 
redesignating section 222 as section 223 and by inserting after section 
221 the following new section:

``SEC. 222. DEDUCTION FOR TWO-EARNER MARRIED COUPLES.

    ``(a) Deduction Allowed.--In the case of a joint return for the 
taxable year, there shall be allowed as a deduction an amount equal to 
10 percent of the lesser of--
            ``(1) the applicable dollar amount for the calendar year in 
        which such taxable year begins, or
            ``(2) the qualified earned income of the spouse with the 
        lower qualified earned income for such taxable year.
    ``(b) Applicable Dollar Amount.--For purposes of subsection (a)(1), 
the applicable dollar amount for any calendar year shall be determined 
under the following table:
                                                             Applicable
``Calendar year:                                         Dollar Amount:
    2002..........................................              $6,000 
    2003..........................................             $12,000 
    2004..........................................             $18,000 
    2005..........................................             $24,000 
    2006 and thereafter...........................             $30,000.
    ``(c) Qualified Earned Income.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified earned income' means an amount equal to the excess 
        of--
                    ``(A) the earned income of the spouse for the 
                taxable year, over
                    ``(B) an amount equal to the sum of the deductions 
                described in paragraphs (1), (2), (6), (7), (12), (13), 
                and (16) of section 62(a) to the extent such deductions 
                are properly allocable to or chargeable against earned 
                income described in subparagraph (A).
        The amount of qualified earned income shall be determined 
        without regard to any community property laws.
            ``(2) Earned income.--For purposes of paragraph (1), the 
        term `earned income' means income which is earned income within 
        the meaning of section 911(d)(2) or 401(c)(2)(C), except that--
                    ``(A) such term shall not include any amount--
                            ``(i) not includible in gross income,
                            ``(ii) received as a pension or annuity,
                            ``(iii) paid or distributed out of an 
                        individual retirement plan (within the meaning 
                        of section 7701(a)(37)),
                            ``(iv) received as deferred compensation, 
                        or
                            ``(v) received for services performed by an 
                        individual in the employ of his spouse (within 
                        the meaning of section 3121(b)(3)(A)), and
                    ``(B) section 911(d)(2)(B) shall be applied without 
                regard to the phrase `not in excess of 30 percent of 
                his share of the net profits of such trade or 
                business'.
    ``(d) Deduction Disallowed for Individual Claiming Benefits of 
Section 911 or 931.--No deduction shall be allowed under this section 
for any taxable year if either spouse claims the benefits of section 
911 or 931 for such taxable year.''.
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes Other 
Deductions.--Subsection (a) of section 62 (defining adjusted gross 
income) is amended by inserting after paragraph (17) the following new 
paragraph:
            ``(18) Deduction for two-earner married couples.--The 
        deduction allowed by section 222.''.
    (c) Conforming Amendments.--
            (1) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), and 
        219(g)(3)(A)(ii) are each amended by inserting ``222,'' after 
        ``221,''.
            (2) Subsection (f) of section 86 is amended by striking 
        ``and'' at the end of paragraph (3), by redesignating paragraph 
        (4) as paragraph (5), and by inserting after paragraph (3) the 
        following new paragraph:
            ``(4) section 222(c)(2) (defining earned income), and''.
            (3) Clause (i) of section 221(b)(2)(C) is amended by 
        inserting ``222,'' before ``911''.
            (4) Clause (iii) of section 469(i)(3)(E) is amended by 
        striking ``and 221'' and inserting ``, 221, and 222''.
            (5) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        222 and inserting the following:

                              ``Sec. 222. Deduction for two-earner 
                                        married couples.
                              ``Sec. 223. Cross reference.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2001.

               TITLE III--REPEAL OF ESTATE AND GIFT TAXES

SEC. 301. PHASEOUT OF ESTATE AND GIFT TAXES.

    (a) Repeal of Estate and Gift Taxes.--Subtitle B (relating to 
estate and gift taxes) is repealed effective with respect to estates of 
decedents dying, and gifts made, after December 31, 2008.
    (b) Phaseout of Tax.--Subsection (c) of section 2001 (relating to 
imposition and rate of tax) is amended by adding at the end the 
following new paragraph:
            ``(3) Phaseout of tax.--In the case of estates of decedents 
        dying, and gifts made, during any calendar year after 2001 and 
        before 2009--
                    ``(A) In general.--The tentative tax under this 
                subsection shall be determined by using a table 
                prescribed by the Secretary (in lieu of using the table 
                contained in paragraph (1)) which is the same as such 
                table; except that--
                            ``(i) each of the rates of tax shall be 
                        reduced (but not below zero) by the number of 
                        percentage points determined under subparagraph 
                        (B), and
                            ``(ii) the amounts setting forth the tax 
                        shall be adjusted to the extent necessary to 
                        reflect the adjustments under clause (i).
                    ``(B) Percentage points of reduction.--
                                                          The number of
``For calendar year:                              percentage points is:
    2002 or 2003..................................                   5 
    2004..........................................                  10 
    2005..........................................                  15 
    2006..........................................                  20 
    2007..........................................                  30 
    2008..........................................                  40.
                    ``(C) Coordination with paragraph (2).--Paragraph 
                (2) shall be applied by reducing the 55 percent 
                percentage contained therein by the number of 
percentage points determined for such calendar year under subparagraph 
(B).''.
    (c) Effective Date.--The amendments made by subsection (b) shall 
apply to estates of decedents dying, and gifts made, after December 31, 
2001.

                    TITLE IV--PROMOTION OF EDUCATION

SEC. 401. EXPANSION OF EDUCATION IRAS.

    (a) Tax-Free Expenditures for Elementary and Secondary School 
Expenses.--
            (1) In general.--Section 530(b)(2) (defining qualified 
        higher education expenses) is amended to read as follows:
            ``(2) Qualified education expenses.--
                    ``(A) In general.--The term `qualified education 
                expenses' means--
                            ``(i) qualified higher education expenses 
                        (as defined in section 529(e)(3)); and
                            ``(ii) qualified elementary and secondary 
                        education expenses (as defined in paragraph 
                        (4)).
                Such expenses shall be reduced as provided in section 
                25A(g)(2).
                    ``(B) Qualified state tuition programs.--Such term 
                shall include amounts paid or incurred to purchase 
                tuition credits or certificates, or to make 
                contributions to an account, under a qualified State 
                tuition program (as defined in section 529(b)) for the 
                benefit of the beneficiary of the account.''.
            (2) Qualified elementary and secondary education 
        expenses.--Section 530(b) (relating to definitions and special 
        rules) is amended by adding at the end the following new 
        paragraph:
            ``(4) Qualified elementary and secondary education 
        expenses.--
                    ``(A) In general.--The term `qualified elementary 
                and secondary education expenses' means--
                            ``(i) expenses for tuition, fees, academic 
                        tutoring, special needs services, books, 
                        supplies, computer equipment (including related 
                        software and services), and other equipment 
                        which are incurred in connection with the 
                        enrollment or attendance of the designated 
                        beneficiary of the trust as an elementary or 
                        secondary school student at a public, private, 
                        or religious school, or
                            ``(ii) expenses for room and board, 
                        uniforms, transportation, and supplementary 
                        items and services (including extended day 
                        programs) which are required or provided by a 
                        public, private, or religious school in 
                        connection with such enrollment or attendance.
                    ``(B) Special rule for homeschooling.--Such term 
                shall include expenses described in subparagraph (A)(i) 
                in connection with education provided by homeschooling 
                if the requirements of any applicable State or local 
                law are met with respect to such education.
                    ``(C) School.--The term `school' means any school 
                which provides elementary education or secondary 
                education (kindergarten through grade 12), as 
                determined under State law.''.
            (3) Conforming amendments.--Subsections (b)(1) and (d)(2) 
        of section 530 are each amended by striking ``higher'' each 
        place it appears in the text and heading thereof.
    (b) Maximum Annual Contributions.--
            (1) In general.--Section 530(b)(1)(A)(iii) (defining 
        education individual retirement account) is amended by striking 
        ``$500'' and inserting ``the applicable dollar amount for the 
        calendar year in which such taxable year begins''.
            (2) Applicable dollar amount.--Section 530(b) is amended by 
        adding at the end the following new paragraph:
            ``(4) Applicable dollar amount.--For purposes of paragraph 
        (1)(A)(iii), the applicable dollar amount for any calendar year 
        shall be determined under the following table:
                                                             Applicable
``Calendar year:                                         Dollar Amount:
    2002..........................................              $1,000 
    2003..........................................              $2,000 
    2004..........................................              $3,000 
    2005..........................................              $4,000 
    2006 and thereafter...........................           $5,000.''.
            (3) Conforming amendment.--Section 4973(e)(1)(A) is amended 
        by striking ``$500'' and inserting ``the applicable dollar 
        amount for the calendar year in which such taxable year 
        begins''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

                 TITLE V--INCREASE IN CHILD TAX CREDIT

SEC. 501. MODIFICATIONS OF CHILD TAX CREDIT.

    (a) In General.--Subsection (a) of section 24 (relating to child 
tax credit) is amended to read as follows:
    ``(a) Allowance of Credit.--
            ``(1) In general.--There shall be allowed as a credit 
        against the tax imposed by this chapter for the taxable year 
        with respect to each qualifying child of the taxpayer an amount 
        equal to the applicable dollar amount for the calendar year in 
        which such taxable year begins.
            ``(2) Applicable dollar amount.--For purposes of paragraph 
        (1), the applicable dollar amount for any calendar year shall 
        be determined under the following table:
                                                             Applicable
``Calendar year:                                         Dollar Amount:
    2002..........................................                $600 
    2003..........................................                $700 
    2004..........................................                $800 
    2005..........................................                $900 
    2006 and thereafter...........................           $1,000.''.
    (b) Increase in Phase-out Threshold.--
            (1) Before 2006.--Section 24(b)(2) is amended--
                    (A) by inserting ``, increased by $18,000 with 
                respect to each taxable year beginning after December 
                31, 2001'' after ``return'' in subparagraph (A),
                    (B) by inserting ``, increased by $25,000 with 
                respect to each taxable year beginning after December 
                31, 2001'' after ``married'' in subparagraph (B), and
                    (C) by inserting ``, increased by $9,000 with 
                respect to each taxable year beginning after December 
                31, 2001'' after ``return'' in subparagraph (C).
            (2) After 2005.--Paragraph (2) of section 24(b) is amended 
        to read as follows:
            ``(2) Threshold amount.--For purposes of paragraph (1), the 
        term `threshold amount' means $200,000 ($100,000 in the case of 
        a married individual (as determined under section 7703) filing 
        a separate return).''.
    (c) Reduction in Phase-out Rate.--Section 24(b)(1) is amended by 
striking ``$50'' and inserting ``$20''.
    (d) Repeal of Reduction of Credit for Taxpayers Subject to 
Alternative Minimum Tax.--Subsection (d) of section 24 is amended by 
striking paragraph (2) and by redesignating paragraph (3) as paragraph 
(2).
    (e) Effective Dates.--
            (1) In general.--The amendments made by subsections (a), 
        (b)(1), and (d) shall apply to taxable years beginning after 
        December 31, 2001.
            (2) 2006 phase-out rate and amount.--The amendments made by 
        subsections (b)(2) and (c) shall apply to taxable years 
        beginning after December 31, 2005.

                TITLE VI--PROMOTION OF CHARITABLE GIVING

SEC. 601. DEDUCTION FOR PORTION OF CHARITABLE CONTRIBUTIONS TO BE 
              ALLOWED TO INDIVIDUALS WHO DO NOT ITEMIZE DEDUCTIONS.

    (a) In General.--Subsection (b) of section 63 is amended by 
striking ``and'' at the end of paragraph (1), by striking the period at 
the end of paragraph (2) and inserting ``, and'', and by adding at the 
end the following:
            ``(3) the applicable percentage of the deduction provided 
        by section 170 (relating to charitable, etc., contributions and 
        gifts), in an amount not to exceed the standard deduction.
For purposes of paragraph (3), the applicable percentage shall be 
determined under the following table:

``For taxable years beginning in          The applicable percentage is:
        calendar year:
    2002..........................................                  20 
    2003..........................................                  40 
    2004..........................................                  60 
    2005..........................................                  80 
    2006 and thereafter...........................              100.''.
    (b) Conforming Amendment.--Subsection (d) of section 63 is amended 
by striking ``and'' at the end of paragraph (1), by striking the period 
at the end of paragraph (2) and inserting ``, and'', and by adding at 
the end thereof the following new paragraph:
            ``(3) the deduction provided by section 170 as determined 
        under subsection (b)(3).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 602. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS 
              FOR CHARITABLE PURPOSES.

    (a) In General.--Subsection (d) of section 408 (relating to 
individual retirement accounts) is amended by adding at the end the 
following new paragraph:
            ``(8) Distributions for charitable purposes.--
                    ``(A) In general.--No amount shall be includible in 
                gross income by reason of a qualified charitable 
                distribution from an individual retirement account to 
                an organization described in section 170(c).
                    ``(B) Qualified charitable distribution.--For 
                purposes of this paragraph, the term `qualified 
                charitable distribution' means any distribution from an 
                individual retirement account--
                            ``(i) which is made on or after the date 
                        that the individual for whose benefit the 
                        account is maintained has attained age 59\1/2\, 
                        and
                            ``(ii) which is made directly from the 
                        account to an organization described in section 
                        170(c).
                    ``(C) Denial of deduction.--The amount allowable as 
                a deduction under section 170 to the taxpayer for the 
                taxable year shall be reduced (but not below zero) by 
                the sum of the amounts of the qualified charitable 
                distributions during such year which would be 
                includible in the gross income of the taxpayer for such 
                year but for this paragraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 603. HIGHER LIMITATION ON CORPORATE CHARITABLE CONTRIBUTIONS.

    (a) In General.--Paragraph (2) of section 170(b) (relating to 
percentage limitations) is amended by striking ``10 percent'' and 
inserting ``15 percent''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2001.

                       TITLE VII--RESEARCH CREDIT

SEC. 701. PERMANENT EXTENSION OF RESEARCH CREDIT.

    (a) In General.--Section 41 (relating to credit for increasing 
research activities) is amended by striking subsection (h).
    (b) Conforming Amendment.--Paragraph (1) of section 45C(b) is 
amended by striking subparagraph (D).
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after the date of the enactment of 
this Act.
                                 <all>