Individual income tax rate reduction after 2007

(a)

Rate reduction

(1)

In general

Subparagraph (A) of section 1(i)(1) of the Internal Revenue Code of 1986 (relating to tax imposed on individuals) is amended to read as follows:

(A)

In general

In the case of taxable years beginning after December 31, 2007— (i)the rate of tax under subsections (a), (b), (c), and (d) on taxable income not over the initial bracket amount shall be 5 percent, and (ii)the 15 percent rate of tax shall apply only to taxable income over the initial bracket amount but not over the maximum dollar amount for the 15-percent rate bracket.

(2)

Conforming amendments

(A)The heading for paragraph (1) of section 1(i) of such Code is amended by striking

10-percent

and inserting

5-percent

. (B)Subparagraph (D) of section 1(i)(1) of such Code is amended to read as follows:

(D)

Coordination with acceleration of 5 percent rate bracket benefit for 2008

This paragraph shall not apply to any taxable year to which section 6428 applies.

(3)

5-percent bracket made permanment

Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to paragraph (1) of section 1(i) of the Internal Revenue Code of 1986, as amended by this subsection. (b)

Advance payment of 5 percent rate bracket

Section 6428 of such Code is amended to read as follows:

6428.

Acceleration of 5 percent income tax rate bracket benefit for 2008

(a)

In general

In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by chapter 1 for the taxpayer's first taxable year beginning in 2008 an amount equal to 5 percent of so much of the taxpayer's taxable income as does not exceed the initial bracket amount (as defined in section 1(i)(1)(B)). (b)

Credit treated as nonrefundable personal credit

For purposes of this title, the credit allowed under this section shall be treated as a credit allowable under subpart A of part IV of subchapter A of chapter 1. (c)

Eligible individual

For purposes of this section, the term eligible individual means any individual other than— (1)any estate or trust, (2)any nonresident alien individual, and (3)any 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 the individual's taxable year begins. (d)

Coordination with advance refunds of credit

(1)

In general

The amount of credit which would (but for this paragraph) be allowable under this section shall be reduced (but not below zero) by the aggregate refunds and credits made or allowed to the taxpayer under subsection (e). Any failure to so reduce the credit shall be treated as arising out of a mathematical or clerical error and assessed according to section 6213(b)(1). (2)

Joint returns

In the case of a refund or credit made or allowed under subsection (e) with respect to a joint return, half of such refund or credit shall be treated as having been made or allowed to each individual filing such return. (e)

Advance refunds of credit based on prior year data

(1)

In general

Each individual who was an eligible individual for such individual's first taxable year beginning in 2006 shall be treated as having made a payment against the tax imposed by chapter 1 for such first taxable year in an amount equal to the advance refund amount for such taxable year. (2)

Advance refund amount

For purposes of paragraph (1), the advance refund amount is the amount that would have been allowed as a credit under this section for such first taxable year if— (A)this section (other than subsections (b) and (d) and this subsection) had applied to such taxable year, and (B)the credit for such taxable year were not allowed to exceed the excess (if any) of— (i)the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over (ii)the sum of the credits allowable under part IV of subchapter A of chapter 1 (other than the credits allowable under subpart C thereof, relating to refundable credits). (3)

Timing of payments

In the case of any overpayment attributable to this subsection, the Secretary shall, subject to the provisions of this title, refund or credit such overpayment as rapidly as possible and, to the extent practicable, before the date which is 30 days after the date of the enactment of this section. No refund or credit shall be made or allowed under this subsection after December 31, 2008. (4)

No interest

No interest shall be allowed on any overpayment attributable to this subsection.

(c)

Technical amendment

The item relating to section 6428 in the table of sections for subchapter B of chapter 65 of such Code is amended to read as follows:

Sec. 6428. Acceleration of 5 percent income tax rate bracket benefit for 2008..

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2007.