[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2547 Introduced in Senate (IS)]







110th CONGRESS
  2d Session
                                S. 2547

To amend the Internal Revenue Code of 1986 to reduce taxes by providing 
 an alternative determination of income tax liability for individuals, 
  repealing the estate and gift taxes, reducing corporate income tax 
 rates, reducing the maximum tax for individuals on capital gains and 
 dividends to 10 percent, indexing the basis of assets for purposes of 
   determining capital gain or loss, creating tax-free accounts for 
 retirement savings, lifetime savings, and life skills, repealing the 
   adjusted gross income threshold in the medical care deduction for 
individuals under age 65 who have no employer health coverage, and for 
                            other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 23, 2008

   Mr. Bond 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 reduce taxes by providing 
 an alternative determination of income tax liability for individuals, 
  repealing the estate and gift taxes, reducing corporate income tax 
 rates, reducing the maximum tax for individuals on capital gains and 
 dividends to 10 percent, indexing the basis of assets for purposes of 
   determining capital gain or loss, creating tax-free accounts for 
 retirement savings, lifetime savings, and life skills, repealing the 
   adjusted gross income threshold in the medical care deduction for 
individuals under age 65 who have no employer health coverage, 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, ETC.

    (a) Short Title.--This Act may be cited as the ``Fair and Simple 
Tax Act of 2008''.
    (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) Table of Contents.--

Sec. 1. Short title, etc.
Sec. 2. Simplified alternative determination of income tax liability 
                            for individuals.
Sec. 3. Repeal of estate and gift taxes.
Sec. 4. Alternative minimum tax exemption amounts indexed for 
                            inflation.
Sec. 5. Maximum corporate income tax rate reduced to 25 percent.
Sec. 6. 15 percent rate on dividends and capital gains of individuals 
                            reduced to 10 percent.
Sec. 7. Indexing of certain assets for purposes of determining gain or 
                            loss.
Sec. 8. Retirement savings accounts.
Sec. 9. Lifetime savings accounts.
Sec. 10. Lifetime skills accounts.
Sec. 11. Expanded deduction for medical care expenses; expansion of 
                            individuals to whom health savings accounts 
                            may be passed on death.
Sec. 12. Research credit made permanent.
Sec. 13. Tax provisions of prior laws made permanent.

SEC. 2. SIMPLIFIED ALTERNATIVE DETERMINATION OF INCOME TAX LIABILITY 
              FOR INDIVIDUALS.

    (a) In General.--Subchapter A of chapter 1 (relating to 
determination of tax liability) is amended by adding at the end the 
following new part:

``PART VIII--ALTERNATIVE DETERMINATION OF TAX LIABILITY FOR INDIVIDUALS

``Sec. 59B. Alternative determination of tax liability for individuals.

``SEC. 59B. ALTERNATIVE DETERMINATION OF TAX LIABILITY FOR INDIVIDUALS.

    ``(a) In General.--In the case of an individual, the net income tax 
of the taxpayer shall be the tax determined under this section.
    ``(b) Determination of Tax.--The tax determined under this section 
is the amount equal to--
            ``(1) the sum of--
                    ``(A) 10 percent of so much of simplified taxable 
                income as does not exceed $40,000,
                    ``(B) 15 percent of so much of simplified taxable 
                income as exceeds $40,000 but does not exceed $150,000, 
                and
                    ``(C) 30 percent of so much of simplified taxable 
                income as exceeds $150,000, reduced by
            ``(2) the sum of the credits allowed by--
                    ``(A) section 31 (relating to tax withheld on 
                wages), and
                    ``(B) section 24 (relating to child tax credit).
    ``(c) Simplified Taxable Income.--For purposes of this section, the 
term `simplified taxable income' means the amount equal to--
            ``(1) gross income, minus
            ``(2) the sum of--
                    ``(A) the deduction for personal exemptions allowed 
                by section 151,
                    ``(B) the deduction allowed by section 163 for 
                acquisition indebtedness (as defined in section 
                163(h)(2)(B)) with respect to the principal residence 
                (within the meaning of section 121) of the taxpayer,
                    ``(C) the deduction allowed by section 164 for 
                State and local income taxes,
                    ``(D) the deduction allowed by section 170 
                (relating to charitable, etc., contributions and gifts, 
                and
                    ``(E) the deduction allowed by section 213 
                (relating to medical, dental, etc., expenses) to the 
                extent such deduction is determined under section 
                213(a)(2) (relating to individuals who have not 
                attained age 65 and are not covered under an employer 
                health plan).
    ``(d) Net Income Tax.--For purposes of this section, the term `net 
income tax' means the sum of the regular tax liability and the tax 
imposed by section 55, reduced by the credits allowable under this 
part.
    ``(e) Estate and Trusts.--This section shall not apply to an estate 
or trust.
    ``(f) Section To Be Elective.--This section shall apply to a 
taxpayer for a taxable year only if elected by the taxpayer for such 
year. Such election, once made for a taxable year, shall be irrevocable 
without the consent of the Secretary.''.
    (b) Clerical Amendment.--The table of parts for such subchapter is 
amended by adding at the end the following new item:

      ``Part VIII--Alternative Determination of Tax Liability for 
                             Individuals.''

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

SEC. 3. REPEAL OF ESTATE AND GIFT TAXES.

    (a) In General.--Subtitle B is hereby repealed.
    (b) Effective Date.--The repeal made by subsection (a) shall apply 
to the estates of decedents dying, and gifts and generation-skipping 
transfers made, after December 31, 2008.

SEC. 4. ALTERNATIVE MINIMUM TAX EXEMPTION AMOUNTS INDEXED FOR 
              INFLATION.

    (a) In General.--Subsection (d) of section 55 (relating to 
exemption amount) is amended by adding at the end the following new 
paragraph:
            ``(4) Inflation adjustment.--
                    ``(A) In general.--In the case of any taxable year 
                beginning in a calendar year after 2007, the dollar 
                amounts contained in paragraphs (1), (2), and (3) shall 
                be increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) 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 2006' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Rounding.--Any increase determined under 
                subparagraph (A) shall be rounded to the nearest 
                multiple of $100.''.
    (b) Prior Increase Made Permanent.--Paragraph (1) of section 55(d) 
is amended--
            (1) by striking ``$45,000 ($66,250 in the case of taxable 
        years beginning in 2007)'' and inserting ``$66,250'',
            (2) by striking ``$33,750 ($44,350 in the case of taxable 
        years beginning in 2007)'' and inserting ``$44,350'', and
            (3) by striking ``paragraph (1)(A)'' and inserting 
        ``subparagraph (A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

SEC. 5. MAXIMUM CORPORATE INCOME TAX RATE REDUCED TO 25 PERCENT.

    (a) In General.--Paragraph (1) of section 11(b) (relating to amount 
of tax on corporations) is amended to read as follows:
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) shall be the sum of--
                    ``(A) 15 percent of so much of the taxable income 
                as does not exceed $50,000, and
                    ``(B) 25 percent of so much of the taxable income 
                as exceeds $50,000.''.
    (b) Personal Service Corporations.--Paragraph (2) of section 11(b) 
is amended by striking ``35 percent'' and inserting ``25 percent''.
    (c) Conforming Amendments.--Paragraphs (1) and (2) of section 
1445(e) are each amended by striking ``35 percent'' and inserting ``25 
percent''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008; except that 
the amendments made by subsection (c) shall take effect on January 1, 
2009.

SEC. 6. 15 PERCENT RATE ON DIVIDENDS AND CAPITAL GAINS OF INDIVIDUALS 
              REDUCED TO 10 PERCENT.

    (a) In General.--Subparagraph (C) of section 1(h)(1) (relating to 
maximum capital gains rate) is amended by striking ``15 percent'' and 
inserting ``10 percent''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2008.

SEC. 7. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING GAIN OR 
              LOSS.

    (a) In General.--Part II of subchapter O of chapter 1 (relating to 
basis rules of general application) is amended by redesignating section 
1023 as section 1024 and by inserting after section 1022 the following 
new section:

``SEC. 1023. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING 
              GAIN OR LOSS.

    ``(a) General Rule.--
            ``(1) Indexed basis substituted for adjusted basis.--Solely 
        for purposes of determining gain or loss on the sale or other 
        disposition by a taxpayer (other than a corporation) of an 
        indexed asset which has been held for more than 3 years, the 
        indexed basis of the asset shall be substituted for its 
        adjusted basis.
            ``(2) Exception for depreciation, etc.--The deductions for 
        depreciation, depletion, and amortization shall be determined 
        without regard to the application of paragraph (1) to the 
        taxpayer or any other person.
    ``(b) Indexed Asset.--
            ``(1) In general.--For purposes of this section, the term 
        `indexed asset' means--
                    ``(A) common stock in a C corporation (other than a 
                foreign corporation), and
                    ``(B) tangible property,
        which is a capital asset or property used in the trade or 
        business (as defined in section 1231(b)).
            ``(2) Stock in certain foreign corporations included.--For 
        purposes of this section--
                    ``(A) In general.--The term `indexed asset' 
                includes common stock in a foreign corporation which is 
                regularly traded on an established securities market.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to--
                            ``(i) stock in a passive foreign investment 
                        company (as defined in section 1296), and
                            ``(ii) stock in a foreign corporation held 
                        by a United States person who meets the 
                        requirements of section 1248(a)(2).
                    ``(C) Treatment of american depository receipts.--
                An American depository receipt for common stock in a 
                foreign corporation shall be treated as common stock in 
                such corporation.
    ``(c) Indexed Basis.--For purposes of this section--
            ``(1) In general.--The indexed basis for any asset is--
                    ``(A) the adjusted basis of the asset, increased by
                    ``(B) the applicable inflation adjustment.
            ``(2) Applicable inflation adjustment.--The applicable 
        inflation adjustment for any asset is an amount equal to--
                    ``(A) the adjusted basis of the asset, multiplied 
                by
                    ``(B) the percentage (if any) by which--
                            ``(i) the gross domestic product deflator 
                        for the last calendar quarter ending before the 
                        asset is disposed of, exceeds
                            ``(ii) the gross domestic product deflator 
                        for the last calendar quarter ending before the 
                        asset was acquired by the taxpayer (or, if 
                        later, the calendar quarter ending on December 
                        31, 2007).
                The percentage under subparagraph (B) shall be rounded 
                to the nearest \1/10\ of 1 percentage point.
            ``(3) Gross domestic product deflator.--The gross domestic 
        product deflator for any calendar quarter is the implicit price 
        deflator for the gross domestic product for such quarter (as 
        shown in the last revision thereof released by the Secretary of 
        Commerce before the close of the following calendar quarter).
    ``(d) Suspension of Holding Period Where Diminished Risk of Loss; 
Treatment of Short Sales.--
            ``(1) In general.--If the taxpayer (or a related person) 
        enters into any transaction which substantially reduces the 
        risk of loss from holding any asset, such asset shall not be 
        treated as an indexed asset for the period of such reduced 
        risk.
            ``(2) Short sales.--
                    ``(A) In general.--In the case of a short sale of 
                an indexed asset with a short sale period in excess of 
                3 years, for purposes of this title, the amount 
                realized shall be an amount equal to the amount 
                realized (determined without regard to this paragraph) 
                increased by the applicable inflation adjustment. In 
                applying subsection (c)(2) for purposes of the 
                preceding sentence, the date on which the property is 
                sold short shall be treated as the date of acquisition 
                and the closing date for the sale shall be treated as 
                the date of disposition.
                    ``(B) Short sale period.--For purposes of 
                subparagraph (A), the short sale period begins on the 
                day that the property is sold and ends on the closing 
                date for the sale.
    ``(e) Treatment of Regulated Investment Companies and Real Estate 
Investment Trusts.--
            ``(1) Adjustments at entity level.--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the adjustment under subsection (a) 
                shall be allowed to any qualified investment entity 
                (including for purposes of determining the earnings and 
                profits of such entity).
                    ``(B) Exception for corporate shareholders.--Under 
                regulations--
                            ``(i) in the case of a distribution by a 
                        qualified investment entity (directly or 
                        indirectly) to a corporation--
                                    ``(I) the determination of whether 
                                such distribution is a dividend shall 
                                be made without regard to this section, 
                                and
                                    ``(II) the amount treated as gain 
                                by reason of the receipt of any capital 
                                gain dividend shall be increased by the 
                                percentage by which the entity's net 
                                capital gain for the taxable year 
                                (determined without regard to this 
                                section) exceeds the entity's net 
                                capital gain for such year determined 
                                with regard to this section, and
                            ``(ii) there shall be other appropriate 
                        adjustments (including deemed distributions) so 
                        as to ensure that the benefits of this section 
                        are not allowed (directly or indirectly) to 
                        corporate shareholders of qualified investment 
                        entities.
                For purposes of the preceding sentence, any amount 
                includible in gross income under section 852(b)(3)(D) 
                shall be treated as a capital gain dividend and an S 
                corporation shall not be treated as a corporation.
                    ``(C) Exception for qualification purposes.--This 
                section shall not apply for purposes of sections 851(b) 
                and 856(c).
                    ``(D) Exception for certain taxes imposed at entity 
                level.--
                            ``(i) Tax on failure to distribute entire 
                        gain.--If any amount is subject to tax under 
                        section 852(b)(3)(A) for any taxable year, the 
                        amount on which tax is imposed under such 
                        section shall be increased by the percentage 
                        determined under subparagraph (B)(i)(II). A 
                        similar rule shall apply in the case of any 
                        amount subject to tax under paragraph (2) or 
                        (3) of section 857(b) to the extent 
                        attributable to the excess of the net capital 
                        gain over the deduction for dividends paid 
                        determined with reference to capital gain 
                        dividends only. The first sentence of this 
                        clause shall not apply to so much of the amount 
                        subject to tax under section 852(b)(3)(A) as is 
                        designated by the company under section 
                        852(b)(3)(D).
                            ``(ii) Other taxes.--This section shall not 
                        apply for purposes of determining the amount of 
                        any tax imposed by paragraph (4), (5), or (6) 
                        of section 857(b).
            ``(2) Adjustments to interests held in entity.--
                    ``(A) Regulated investment companies.--Stock in a 
                regulated investment company (within the meaning of 
                section 851) shall be an indexed asset for any calendar 
                quarter in the same ratio as--
                            ``(i) the average of the fair market values 
                        of the indexed assets held by such company at 
                        the close of each month during such quarter, 
                        bears to
                            ``(ii) the average of the fair market 
                        values of all assets held by such company at 
                        the close of each such month.
                    ``(B) Real estate investment trusts.--Stock in a 
                real estate investment trust (within the meaning of 
                section 856) shall be an indexed asset for any calendar 
                quarter in the same ratio as--
                            ``(i) the fair market value of the indexed 
                        assets held by such trust at the close of such 
                        quarter, bears to
                            ``(ii) the fair market value of all assets 
                        held by such trust at the close of such 
                        quarter.
                    ``(C) Ratio of 80 percent or more.--If the ratio 
                for any calendar quarter determined under subparagraph 
                (A) or (B) would (but for this subparagraph) be 80 
                percent or more, such ratio for such quarter shall be 
                100 percent.
                    ``(D) Ratio of 20 percent or less.--If the ratio 
                for any calendar quarter determined under subparagraph 
                (A) or (B) would (but for this subparagraph) be 20 
                percent or less, such ratio for such quarter shall be 
                zero.
                    ``(E) Look-thru of partnerships.--For purposes of 
                this paragraph, a qualified investment entity which 
                holds a partnership interest shall be treated (in lieu 
                of holding a partnership interest) as holding its 
                proportionate share of the assets held by the 
                partnership.
            ``(3) Treatment of return of capital distributions.--Except 
        as otherwise provided by the Secretary, a distribution with 
        respect to stock in a qualified investment entity which is not 
        a dividend and which results in a reduction in the adjusted 
        basis of such stock shall be treated as allocable to stock 
        acquired by the taxpayer in the order in which such stock was 
        acquired.
            ``(4) Qualified investment entity.--For purposes of this 
        subsection, the term `qualified investment entity' means--
                    ``(A) a regulated investment company (within the 
                meaning of section 851), and
                    ``(B) a real estate investment trust (within the 
                meaning of section 856).
    ``(f) Other Pass-Thru Entities.--
            ``(1) Partnerships.--
                    ``(A) In general.--In the case of a partnership, 
                the adjustment made under subsection (a) at the 
                partnership level shall be passed through to the 
                partners.
                    ``(B) Special rule in the case of section 754 
                elections.--In the case of a transfer of an interest in 
                a partnership with respect to which the election 
                provided in section 754 is in effect--
                            ``(i) the adjustment under section 
                        743(b)(1) shall, with respect to the transferor 
                        partner, be treated as a sale of the 
                        partnership assets for purposes of applying 
                        this section, and
                            ``(ii) with respect to the transferee 
                        partner, the partnership's holding period for 
                        purposes of this section in such assets shall 
                        be treated as beginning on the date of such 
                        adjustment.
            ``(2) S corporations.--In the case of an S corporation, the 
        adjustment made under subsection (a) at the corporate level 
        shall be passed through to the shareholders. This section shall 
        not apply for purposes of determining the amount of any tax 
        imposed by section 1374 or 1375.
            ``(3) Common trust funds.--In the case of a common trust 
        fund, the adjustment made under subsection (a) at the trust 
        level shall be passed through to the participants.
            ``(4) Indexing adjustment disregarded in determining loss 
        on sale of interest in entity.--Notwithstanding the preceding 
        provisions of this subsection, for purposes of determining the 
        amount of any loss on a sale or exchange of an interest in a 
        partnership, S corporation, or common trust fund, the 
        adjustment made under subsection (a) shall not be taken into 
        account in determining the adjusted basis of such interest.
    ``(g) Dispositions Between Related Persons.--
            ``(1) In general.--This section shall not apply to any sale 
        or other disposition of property between related persons except 
        to the extent that the basis of such property in the hands of 
        the transferee is a substituted basis.
            ``(2) Related persons defined.--For purposes of this 
        section, the term `related persons' means--
                    ``(A) persons bearing a relationship set forth in 
                section 267(b), and
                    ``(B) persons treated as single employer under 
                subsection (b) or (c) of section 414.
    ``(h) Transfers To Increase Indexing Adjustment.--If any person 
transfers cash, debt, or any other property to another person and the 
principal purpose of such transfer is to secure or increase an 
adjustment under subsection (a), the Secretary may disallow part or all 
of such adjustment or increase.
    ``(i) Special Rules.--For purposes of this section--
            ``(1) Treatment of improvements, etc.--If there is an 
        addition to the adjusted basis of any tangible property or of 
        any stock in a corporation during the taxable year by reason of 
        an improvement to such property or a contribution to capital of 
        such corporation--
                    ``(A) such addition shall never be taken into 
                account under subsection (c)(1)(A) if the aggregate 
                amount thereof during the taxable year with respect to 
                such property or stock is less than $1,000, and
                    ``(B) such addition shall be treated as a separate 
                asset acquired at the close of such taxable year if the 
                aggregate amount thereof during the taxable year with 
                respect to such property or stock is $1,000 or more.
        A rule similar to the rule of the preceding sentence shall 
        apply to any other portion of an asset to the extent that 
        separate treatment of such portion is appropriate to carry out 
        the purposes of this section.
            ``(2) Assets which are not indexed assets throughout 
        holding period.--The applicable inflation adjustment shall be 
        appropriately reduced for periods during which the asset was 
        not an indexed asset.
            ``(3) Treatment of certain distributions.--A distribution 
        with respect to stock in a corporation which is not a dividend 
        shall be treated as a disposition.
            ``(4) Section cannot increase ordinary loss.--To the extent 
        that (but for this paragraph) this section would create or 
        increase a net ordinary loss to which section 1231(a)(2) 
        applies or an ordinary loss to which any other provision of 
        this title applies, such provision shall not apply. The 
        taxpayer shall be treated as having a long-term capital loss in 
        an amount equal to the amount of the ordinary loss to which the 
        preceding sentence applies.
            ``(5) Acquisition date where there has been prior 
        application of subsection (a)(1) with respect to the 
        taxpayer.--If there has been a prior application of subsection 
        (a)(1) to an asset while such asset was held by the taxpayer, 
        the date of acquisition of such asset by the taxpayer shall be 
        treated as not earlier than the date of the most recent such 
        prior application.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Clerical Amendment.--The table of sections for part II of 
subchapter O of chapter 1 is amended by striking the item relating to 
section 1023 and inserting after the item relating to section 1022 the 
following new items:

``Sec. 1023. Indexing of certain assets for purposes of determining 
                            gain or loss.
``Sec. 1024. Cross references.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to dispositions after December 31, 2008, in taxable years ending 
after such date.

SEC. 8. RETIREMENT SAVINGS ACCOUNTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
(relating to pension, profit-sharing, stock bonus plans, etc.) is 
amended by inserting after section 408A the following new section:

``SEC. 408B. RETIREMENT SAVINGS ACCOUNTS.

    ``(a) General Rule.--Except as provided in this section, a 
Retirement Savings Account shall be treated for purposes of this title 
in the same manner as an individual retirement plan.
    ``(b) Retirement Savings Account.--For purposes of this title, the 
term `Retirement Savings Account' means an individual retirement plan 
(as defined in section 7701(a)(37) which is designated at the time of 
establishment of the plan as a Retirement Savings Account. Such 
designation shall be made in such manner as the Secretary may 
prescribe.
    ``(c) Treatment of Contributions.--
            ``(1) No deduction allowed.--No deduction shall be allowed 
        under section 219 for a contribution to a Retirement Savings 
        Account.
            ``(2) Contribution limit.--The aggregate amount of 
        contributions for any taxable year to all Retirement Savings 
        Accounts maintained for the benefit of an individual shall not 
        exceed $5,000.
            ``(3) Contributions permitted after age 70\1/2\.--
        Contributions to a Retirement Savings Account may be made even 
        after the individual for whom the account is maintained has 
        attained age 70\1/2\.
            ``(4) Mandatory distribution rules not to apply before 
        death.--Notwithstanding subsections (a)(6) and (b)(3) of 
        section 408 (relating to required distributions), the following 
        provisions shall not apply to any Retirement Savings Account:
                    ``(A) Section 401(a)(9)(A).
                    ``(B) The incidental death benefit requirements of 
                section 401(a).
            ``(5) Rollover contributions.--
                    ``(A) In general.--No rollover contribution may be 
                made to or from a Retirement Savings Account except 
                from or to another such Account, as the case may be.
                    ``(B) Coordination with limit.--Any rollover 
                permitted under subparagraph (A) shall not be taken 
                into account for purposes of paragraph (2).
            ``(6) Time when contributions made.--For purposes of this 
        section, the rule of section 219(f)(3) shall apply.
    ``(d) Distribution Rules.--Any qualified distribution (as defined 
in section 408B(d)((2)) from a Retirement Savings Account shall not be 
includible in gross income.''.
    (b) Conforming Amendments.--
            (1) Clause (vi) of section 1361(c)(2)(A) is amended by 
        inserting ``or a Retirement Savings Account under section 
        408B'' after ``Roth IRA under section 408A''.
            (2) Section 4973 (relating to tax on excess contributions 
        to certain tax-favored accounts and annuities) is amended by 
        inserting after subsection (g) the following new subsection:
    ``(h) Excess Contributions to Retirement Savings Accounts.--For 
purposes of this section, in the case of contributions to a Retirement 
Savings Account (within the meaning of section 408B(b)), the term 
`excess contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the taxable year 
                to Retirement Savings Accounts (other than a rollover 
                contribution from another such Account), over
                    ``(B) $5,000, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the Accounts for the 
                taxable year, and
                    ``(B) the excess (if any) of $5,000 over the amount 
                contributed by the individual to all Retirement Savings 
                Accounts for the taxable year.
        For purposes of this subsection, any contribution which is 
        distributed from a Retirement Savings Account in a distribution 
        described in section 408(d)(4) shall be treated as an amount 
        not contributed.''.
            (3) The table of sections for subpart A of part I of 
        subchapter D of chapter 1 is amended by inserting after the 
        item relating to section 408A the following new item:

``Sec. 408B. Retirement Savings Accounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts contributed for taxable years beginning after December 
31, 2008.

SEC. 9. LIFETIME SAVINGS ACCOUNTS.

    (a) In General.--Subchapter F of chapter 1 (relating to exempt 
organizations) is amended by adding at the end the following new part:

                 ``PART IX--LIFETIME SAVINGS ACCOUNTS.

``Sec. 530C. Lifetime Savings Accounts.

``SEC. 530C. LIFETIME SAVINGS ACCOUNTS.

    ``(a) In General.--A Lifetime Savings Account shall be exempt from 
taxation under this subtitle. Notwithstanding the preceding sentence, 
the Lifetime Savings Account shall be subject to the taxes imposed by 
section 511 (relating to imposition of tax on unrelated business income 
of charitable organizations).
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Lifetime savings account.--The term `Lifetime Savings 
        Account' means a trust created or organized in the United 
        States exclusively for the benefit of an individual who is the 
        designated beneficiary of the trust (and designated as a 
        Lifetime Savings Account at the time created or organized), but 
        only if the written governing instrument creating the trust 
        meets the following requirements:
                    ``(A) No contribution will be accepted--
                            ``(i) unless it is in cash, and
                            ``(ii) except in the case of rollover 
                        contributions from another Lifetime Savings 
                        Account, if such contribution would result in 
                        aggregate contributions for the taxable year 
                        exceeding $5,000.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)) or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                that person will administer the trust will be 
                consistent with the requirements of this section or who 
                has so demonstrated with respect to any individual 
                retirement plan.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The assets of the trust shall not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
            ``(2) Time when contributions deemed made.--An individual 
        shall be deemed to have made a contribution to a Lifetime 
        Savings Account on the last day of the preceding taxable year 
        if the contribution is made on account of such taxable year and 
        is made not later than the time prescribed by law for filing 
        the return for such taxable year (not including extensions 
        thereof).
            ``(3) Contributions returned before due date of return.--A 
        rule similar to the rule of section 408(d)(4) shall apply for 
        purposes of this section.
    ``(c) Distribution Not Includible.--Distributions from a Lifetime 
Savings Account shall not be includible in gross income.
    ``(d) Tax Treatment of Accounts.--Rules similar to the rules of 
paragraphs (2) and (4) of section 408(e) shall apply to any Lifetime 
Savings Account.
    ``(e) Community Property Laws.--This section shall be applied 
without regard to any community property laws.
    ``(f) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if the assets of such 
account are held by a bank (as defined in section 408(n) or another 
person who demonstrates, to the satisfaction of the Secretary, that the 
manner in which he will administer the account will be consistent with 
the requirements of this section, and if the custodial account would, 
except for the fact that it is not a trust, constitute an account 
described in subsection (b)(1). For purposes of this title, in the case 
of a custodial account treated as a trust by reason of the preceding 
sentence, the custodian of such account shall be treated as the trustee 
thereof.
    ``(g) Reports.--The trustee of a Lifetime Savings Account shall 
make such reports regarding such Account to the Secretary and to the 
beneficiary of the Account with respect to contributions, 
distributions, and such other matters as the Secretary may require. The 
reports required by this subsection shall be filed at such time and in 
such manner and furnished to such individuals at such time and in such 
manner as may be required.''.
    (b) Tax of Excess Contributions.--
            (1) Subsection (a) of section 4973 (relating to tax on 
        excess contributions to certain tax-favored accounts and 
        annuities) is amended by striking ``or'' at the end of 
        paragraph (4), by adding ``or'' at the end of paragraph (5), 
        and by inserting after paragraph (5) the following new 
        paragraph:
            ``(6) a Lifetime Savings Account (as defined by section 
        530C(b)),''.
            (2) Section 4973 is amended by inserting after subsection 
        (h) the following new subsection:
    ``(i) Excess Contributions to Lifetime Savings Accounts.--For 
purposes of this section, in the case of contributions to a Lifetime 
Savings Account (within the meaning of section 530C(b)), the term 
`excess contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the taxable year 
                to Lifetime Savings Accounts (other than a rollover 
                contribution from another such Account), over
                    ``(B) $5,000, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of such Accounts for 
                the taxable year, and
                    ``(B) the excess (if any) of $5,000 over the amount 
                contributed by the individual to all such Accounts for 
                the taxable year.
        For purposes of this subsection, any contribution which is 
        distributed from a Lifetime Savings Account in a distribution 
        described in section 530C(b)(3) shall be treated as an amount 
        not contributed.''.
    (c) Tax on Prohibited Transactions.--
            (1) In general.--Paragraph (1) of section 4975(e) (relating 
        to prohibited transactions) is amended by striking ``or'' at 
        the end of subparagraph (F), by redesignating subparagraph (G) 
        as subparagraph (H), and by inserting after subparagraph (F) 
        the following new subparagraph:
                    ``(G) a Lifetime Savings Account described in 
                section 530C, or''.
            (2) Special rule.--Subsection (c) of section 4975 is 
        amended by inserting after paragraph (6) the following new 
        paragraph:
            ``(7) Special rules for lifetime savings accounts.--An 
        individual for whose benefit a Lifetime Savings Account is 
        established and any contributor to such account shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if section 530C(d) applies with 
        respect to such transaction.''.
    (d) Failure To Provide Reports.--Paragraph (2) of section 6693(a) 
(relating to failure to provide reports on certain tax-favored accounts 
or annuities; penalties relating to designated nondeductible 
contributions) is amended by striking ``and'' at the end of 
subparagraph (D), by striking the period at the end of subparagraph (E) 
and inserting ``, and'', and by inserting after subparagraph (E) the 
end the following new subparagraph:
                    ``(F) section 530C(g) (relating to Lifetime Savings 
                Accounts).''.
    (e) Clerical Amendment.--The table of parts for subchapter F of 
chapter 1 is amended by adding at the end the following new item:

``Part IX--Lifetime Savings Accounts.''.

SEC. 10. LIFETIME SKILLS ACCOUNTS.

    (a) In General.--Part VIII of subchapter F of chapter 1 (relating 
to higher education savings entities) is amended by adding at the end 
the following new section:

``SEC. 530A. LIFETIME SKILLS ACCOUNTS.

    ``(a) In General.--A Lifetime Skills Account shall be exempt from 
taxation under this subtitle. Notwithstanding the preceding sentence, 
the Lifetime Skills Account shall be subject to the taxes imposed by 
section 511 (relating to imposition of tax on unrelated business income 
of charitable organizations).
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Lifetime skills account.--The term `Lifetime Skills 
        Account' means a trust created or organized in the United 
        States exclusively for the purpose of paying the qualified life 
        skills expenses of an individual who is the designated 
        beneficiary of the trust (and designated as a Lifetime Skills 
        Account at the time created or organized), but only if the 
        written governing instrument creating the trust meets the 
        following requirements:
                    ``(A) No contribution will be accepted--
                            ``(i) unless it is in cash, and
                            ``(ii) except in the case of rollover 
                        contributions from another such Account, if 
                        such contribution would result in aggregate 
                        contributions for the taxable year exceeding 
                        $1,000.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)) or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                that person will administer the trust will be 
                consistent with the requirements of this section or who 
                has so demonstrated with respect to any individual 
                retirement plan.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The assets of the trust shall not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
            ``(2) Qualified life skills expenses.--The term `qualified 
        life skills expenses' means expenses for any of the following 
        services:
                    ``(A) Comprehensive and specialized assessments of 
                the skill levels and service needs of adults and 
                dislocated workers, which may include--
                            ``(i) diagnostic testing and use of other 
                        assessment tools, and
                            ``(ii) in-depth interviewing and evaluation 
                        to identify employment barriers and appropriate 
                        employment goals.
                    ``(B) Development of an individual employment plan, 
                to identify the employment goals, appropriate 
                achievement objectives, and appropriate combination of 
                services for the participant to achieve the employment 
                goals.
                    ``(C) Individual counseling and career planning.
                    ``(D) Short-term prevocational services, including 
                development of learning skills, communication skills, 
                interviewing skills, punctuality, personal maintenance 
                skills, and professional conduct, to prepare 
                individuals for unsubsidized employment or training.
                    ``(E) Occupational skills training, including 
                training for nontraditional employment.
                    ``(F) On-the-job training.
                    ``(G) Programs that combine workplace training with 
                related instruction, which may include cooperative 
                education programs.
                    ``(H) Training programs operated by the private 
                sector.
                    ``(I) Skill upgrading and retraining.
                    ``(J) Entrepreneurial training.
                    ``(K) Job readiness training.
                    ``(L) Adult education and literacy activities 
                provided in combination with services described in any 
                of subparagraphs (E) through (K).
                    ``(M) Customized training conducted with a 
                commitment by an employer or group of employers to 
                employ an individual upon successful completion of the 
                training.
            ``(3) Time when contributions deemed made.--An individual 
        shall be deemed to have made a contribution to a Lifetime 
        Skills Account on the last day of the preceding taxable year if 
        the contribution is made on account of such taxable year and is 
        made not later than the time prescribed by law for filing the 
        return for such taxable year (not including extensions 
        thereof).
    ``(c) Tax Treatment of Distributions.--
            ``(1) In general.--Any distribution from a Lifetime Skills 
        Account shall be includible in the gross income of the 
        distributee in the manner provided in section 72.
            ``(2) Distributions for qualified life skills expenses.--
                    ``(A) In general.--No amount shall be includible in 
                gross income under paragraph (1) if the qualified life 
                skills expenses of the designated beneficiary during 
                the taxable year are not less than the aggregate 
                distributions during the taxable year.
                    ``(B) Distributions in excess of expenses.--If such 
                aggregate distributions exceed such expenses during the 
                taxable year, the amount otherwise includible in gross 
                income under paragraph (1) shall be reduced by the 
                amount which bears the same ratio to the amount which 
                would be includible in gross income under paragraph (1) 
                (without regard to this subparagraph) as the qualified 
                life skills expenses bear to such aggregate 
                distributions.
                    ``(C) Coordination with other education savings 
                incentives.--For purposes of subparagraph (A), rules 
                similar to the rules of subparagraph (C) of section 
                530(d)(2) shall apply.
                    ``(D) Disallowance of excluded amounts as 
                deduction, credit, or exclusion.--No deduction, credit, 
                or exclusion shall be allowed to the taxpayer under any 
                other section of this chapter for any qualified life 
                skills expenses to the extent taken into account in 
                determining the amount of the exclusion under this 
                paragraph.
            ``(3) Special rules for applying estate and gift taxes with 
        respect to account.--Rules similar to the rules of paragraphs 
        (2), (4), and (5) of section 529(c) shall apply for purposes of 
        this section.
            ``(4) Additional tax for distributions not used for life 
        skills expenses.--
                    ``(A) In general.--The tax imposed by this chapter 
                for any taxable year on any taxpayer who receives a 
                payment or distribution from a Lifetime Skills Account 
                which is includible in gross income shall be increased 
                by 10 percent of the amount which is so includible.
                    ``(B) Exceptions.--Rules similar to the following 
                rules shall apply for purposes of this subsection:
                            ``(i) Subparagraphs (B) and (C) of section 
                        530(d)(4).
                            ``(ii) Paragraphs (5), (6), (7), and (8) of 
                        section 530(d).
    ``(d) Tax Treatment of Accounts.--Rules similar to the rules of 
paragraphs (2) and (4) of section 408(e) shall apply to any Lifetime 
Skills Account.
    ``(e) Community Property Laws.--This section shall be applied 
without regard to any community property laws.
    ``(f) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if the assets of such 
account are held by a bank (as defined in section 408(n) or another 
person who demonstrates, to the satisfaction of the Secretary, that the 
manner in which he will administer the account will be consistent with 
the requirements of this section, and if the custodial account would, 
except for the fact that it is not a trust, constitute an account 
described in subsection (b)(1). For purposes of this title, in the case 
of a custodial account treated as a trust by reason of the preceding 
sentence, the custodian of such account shall be treated as the trustee 
thereof.
    ``(g) Reports.--The trustee of a Lifetime Skills Account shall make 
such reports regarding such account to the Secretary and to the 
beneficiary of the Account with respect to contributions, 
distributions, and such other matters as the Secretary may require. The 
reports required by this subsection shall be filed at such time and in 
such manner and furnished to such individuals at such time and in such 
manner as may be required.''.
    (b) Tax on Excess Contributions.--
            (1) In general.--Subsection (a) of section 4973, as amended 
        by section 9 of this Act, is amended by striking ``or'' at the 
        end of paragraph (5), by adding ``or'' at the end of paragraph 
        (6), and by inserting after paragraph (6) the following new 
        paragraph:
            ``(7) a Lifetime Skills Account (as defined in section 
        530A(b)),''.
            (2) Excess contribution defined.--Section 4973 is amended 
        by inserting after subsection (i) the following new subsection:
    ``(j) Excess Contributions to Lifetime Skills Accounts.--For 
purposes of this section, in the case of contributions to a Lifetime 
Skills Account (within the meaning of section 530B(b)), the term 
`excess contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the taxable year 
                to Lifetime Skills Accounts (other than a rollover 
                contribution from another such Account), over
                    ``(B) $1,000, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of such Accounts for 
                the taxable year, and
                    ``(B) the excess (if any) of $1,000 over the amount 
                contributed by the individual to all such Accounts for 
                the taxable year.
        For purposes of this subsection, any contribution which is 
        distributed from a Lifetime Skills Account in a distribution to 
        which rules similar to the rules of section 530(d)(4)(C) apply 
        under section 530B(c)(4)(B)(i) shall be treated as an amount 
        not contributed.''.
    (c) Tax on Prohibited Transactions.--
            (1) In general.--Paragraph (1) of section 4975(e) (relating 
        to prohibited transactions), as amended by section 9 of this 
        Act, is amended by striking ``or'' at the end of subparagraph 
        (G), by redesignating subparagraph (H) as subparagraph (I), and 
        by inserting after subparagraph (G) the following new 
        subparagraph:
                    ``(H) a Lifetime Skills Account described in 
                section 530A, or''.
            (2) Special rule.--Subsection (c) of section 4975, as 
        amended by section 9 of this Act, is amended by adding at the 
        end the following new paragraph:
            ``(8) Special rules for lifetime skills accounts.--An 
        individual for whose benefit a Lifetime Skills Account is 
        established and any contributor to such account shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if section 530A(d) applies with 
        respect to such transaction.''.
    (d) Failure To Provide Reports.--Paragraph (2) of section 6693(a) 
(relating to failure to provide reports on certain tax-favored accounts 
or annuities; penalties relating to designated nondeductible 
contributions), as amended by section 9 of this Act, is amended by 
striking ``and'' at the end of subparagraph (E), by striking the period 
at the end of subparagraph (F) and inserting ``, and'', and by adding 
at the end the following new subparagraph:
                    ``(G) section 530A(g) (relating to Lifetime Skills 
                Accounts).''.
    (e) Technical Amendments.--
            (1) Section 26(b)(2) is amended by striking ``and'' at the 
        end of subparagraph (U), by striking the period at the end of 
        subparagraph (V) and inserting ``, and'', and by adding at the 
        end the following new subparagraph:
                    ``(W) section 530A(c)(4) (relating to Lifetime 
                Skills Accounts).''.
            (2) Paragraph (9) of section 72(e) is amended--
                    (A) by striking ``coverdell'' in the heading,
                    (B) by striking ``or under a Coverdell'' and 
                inserting ``, under a Coverdell'', and
                    (C) by inserting ``, or under a Lifetime Skills 
                Account (as defined in section 530A(b))'' after 
                ``530(b))''.
            (3) Subparagraph (C) of section 135(c)(2) is amended--
                    (A) in the heading by striking ``and'' and by 
                adding at the end ``, and lifetime skills accounts'',
                    (B) by striking ``or to a Coverdell'' and inserting 
                ``to a Coverdell'', and
                    (C) by inserting ``, or to a Lifetime Skills 
                Account (as defined in section 530A(b))'' after 
                ``530)''.
            (4) Subparagraph (A) of section 221(d)(2) is amended by 
        striking ``or 530'' and inserting ``530, or 530A''.
            (5) Subparagraph (B) of section 222(c)(2) is amended by 
        striking ``or 530(d)(2)'' and inserting ``530(d)(2), or 
        530A(c)(2)''.
            (6) Clause (vi) of section 529(c)(3)(B) is amended--
                    (A) by adding at the end of the heading ``and 
                lifetime skills accounts'', and
                    (B) by striking ``and section 530(d)(2)(A) apply'' 
                each place it appears and inserting ``, section 
                530(d)(2)(A), and 530A(c)(2)(A) apply''.
            (7) The table of sections for part VIII of subchapter F of 
        chapter 1 is amended by adding at the end the following new 
        item:

``Sec. 530A. Lifetime Skills Accounts.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

SEC. 11. EXPANDED DEDUCTION FOR MEDICAL CARE EXPENSES; EXPANSION OF 
              INDIVIDUALS TO WHOM HEALTH SAVINGS ACCOUNTS MAY BE PASSED 
              ON DEATH.

    (a) In General.--Subsection (a) of section 213 (relating to 
medical, dental, etc., expenses) is amended to read as follows:
    ``(a) Allowance of Deduction.--
            ``(1) In general.--There shall be allowed as a deduction 
        the expenses paid during the taxable year, not compensated for 
        by insurance or otherwise, for medical care of the taxpayer, 
        his spouse, or a dependent (as defined in section 152, 
        determined without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof), to the extent that such expenses exceed 7.5 
        percent of adjusted gross income.
            ``(2) Individuals who have not attained age 65 and are not 
        covered under an employer plan.--
                    ``(A) In general.--The expenses for medical care of 
                an individual which are incurred while the individual 
                is an eligible individual may be taken into account 
                under paragraph (1) without regard to the adjusted 
                gross income threshold.
                    ``(B) Eligible individual.--For purposes of this 
                paragraph, the term `eligible individual' means any 
                individual--
                            ``(i) who has not attained age 65 as of the 
                        close of the taxable year, and
                            ``(ii) who is not covered by any plan 
                        sponsored by an employer of such individual, 
                        such individual's spouse, or of any other 
                        individual with respect to whom such individual 
                        is a dependent (within the meaning of paragraph 
                        (1)).
                    ``(C) Limitations.--
                            ``(i) Per individual.--The amount of each 
                        individual's expenses which may be taken into 
                        account by reason of subparagraph (A) for the 
                        taxable year shall not exceed $7,500.
                            ``(ii) Per taxpayer.--If expenses for the 
                        medical care of more than 1 eligible individual 
                        are paid by the taxpayer, clause (i) shall not 
                        apply and the aggregate expenses which may be 
                        taken into account by reason of subparagraph 
                        (A) for the taxable year shall not exceed 
                        $15,000.
                    ``(D) Unused limitation may be deposited into 
                health savings account.--
                            ``(i) In general.--Except as otherwise 
                        provided in this subparagraph, if the 
                        limitation under subparagraph (C) applicable to 
                        an individual exceeds the expenses taken into 
                        account by reason of subparagraph (A), then, 
                        for purposes of section 223 (relating to health 
                        savings accounts)--
                                    ``(I) such individual shall be 
                                treated as an eligible individual for 
                                purposes of such section, and
                                    ``(II) the limitation otherwise 
                                applicable under section 223(b) shall 
                                be increased by an amount equal to such 
                                excess.
                            ``(ii) Allocation of per taxpayer 
                        limitation.--For purposes of clause (i), the 
                        limitation under subparagraph (C)(ii) shall be 
                        allocated among the individuals's whose 
                        expenses are paid in proportion to their 
                        respective shares of such expenses.
                            ``(iii) Treatment of dependents.--Clause 
                        (i) shall not apply to a dependent (within the 
                        meaning of paragraph (1)) of the taxpayer, and 
                        any excess determined under clause (i) for such 
                        dependent shall be allowed to the taxpayer. In 
                        the case of a joint return, any excess allowed 
                        to the taxpayer under the preceding sentence 
                        shall be divided equally between the husband 
                        and wife.''.
    (b) Heath Savings Accounts May Be Passed to Other Than Spouse.--
Paragraph (8) of section 223(f) (relating to treatment after death of 
account beneficiary) is amended to read as follows:
            ``(8) Treatment after death of account beneficiary.--If an 
        individual acquires the account beneficiary's interest in a 
        health savings account by reason of being the designated 
        beneficiary of such account at the death of the account 
        beneficiary, such health savings account shall be treated as if 
        the individual were the account beneficiary.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

SEC. 12. RESEARCH CREDIT MADE PERMANENT.

    (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 December 31, 2007.

SEC. 13. TAX PROVISIONS OF PRIOR LAWS MADE PERMANENT.

    (a) Economic Growth and Tax Relief Reconciliation Act of 2001.--
Title IX of the Economic Growth and Tax Relief Reconciliation Act of 
2001 (relating to sunset of provisions of Act) is hereby repealed.
    (b) Jobs and Growth Tax Relief Reconciliation Act of 2003.--Section 
107 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 
(relating to application of EGTRRA sunset to this title) is hereby 
repealed.
                                 <all>