[Congressional Record Volume 147, Number 35 (Thursday, March 15, 2001)]
[Senate]
[Pages S2404-S2408]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DORGAN (for himself, Mr. Gregg, and Mr. Durbin):
  S. 551. A bill to amend the Internal Revenue Code of 1986 to simplify 
the individual income tax by providing an election for eligible 
individuals to only be subject to a 15 percent tax on wage income with 
a tax return free filing system, to reduce the burdens of the marriage 
penalty and alternative minimum tax, and for other purposes; to the 
Committee on Finance.
  Mr. DORGAN. Mr. President, there is a great deal of discussion and 
debate going on right now about cutting taxes. Everyone, it seems, 
supports a tax cut although there is great disagreement over how big it 
should be, when it should take effect and who it should benefit.
  The American people deserve and need a tax cut, and I hope they will 
get one.
  But there is another part to this discussion that's not getting much 
attention. The American people also deserve and need tax 
simplification. There is broad agreement on this question, much broader 
and much deeper than any consensus on the need for a tax cut.
  I think we ought to act to provide it.
  Just a few months ago, the press reported several independent studies 
showing that American families and business will spend at least $115 
billion trying to comply with federal tax laws this year. That is an 
enormous amount of money. It represents an enormous amount of time, an 
enormous amount of effort, and I'm pretty certain, it represents an 
enormous amount of frustration for tens of millions of American 
taxpayers.
  Lately there has been a lot of talk about lifting tax burdens, and we 
should be talking about that, but let's also talk about one of the 
biggest tax burdens of all: the tax compliance burden, the colossal 
hassle taxpayers face to file their tax returns each year. I think it 
is simply inexcusable that it is so complex, so difficult, and so 
expensive for Americans to fulfill this basic civic duty.
  I find it even more unacceptable that we should do nothing to lift 
this burden, even as the nation is focused on lifting the tax burden 
when it comes to what is owed.
  We must do both.
  As I mentioned, taxpayers will spend somewhere around $115 billion 
and more than 3 billion hours this year in the effort to meet their 
federal income tax obligations. At this very moment, millions of 
taxpayers are probably just beginning the gut-wrenching process of 
wading through complex forms and instruction books so they can meet 
this year's fast-approaching filing deadline. After completing this 
annual ritual, they will once again start barraging congressional 
offices with letters imploring us to simplify the tax code. I don't 
blame them for doing so.
  They are right. Each little provision in the tax code has a 
justification, but together they add up to a big headache for the 
American taxpayer. We can't blame the IRS for the misery endured this 
year or in the years ahead. There's no way to truly simplify tax day 
unless Congress changes the underlying law. Nevertheless, the President 
and Congress appear ready to move forward with tax relief of possibly 
historic proportions without addressing the tax compliance burden that 
most Americans urgently want fixed.
  That's why I am pleased to be joined by Senators Gregg and Durbin in 
re-introducing a tax reform proposal that we call the ``Fair and Simple 
Shortcut Tax'', FASST plan. Our plan would give most taxpayers the 
opportunity to pay their federal income taxes without having to prepare 
a tax return if they so choose. More than thirty countries already 
enable their citizens to pay their federal taxes in this way. We 
believe tax simplification along these lines can work in this country, 
too.
  Our bill is based on a principle that both sides of the aisle 
generally are eager to espouse, namely, choice. The bill would allow 
taxpayers to choose to pay their taxes without complexity, paperwork 
and hassle. Those who prefer to use the current system, with its

[[Page S2405]]

complexity and expenses, could do so if they wanted. But if they want 
something simpler, they could choose our approach instead.
  Under FASST, most taxpayers could forget about filing a federal tax 
return on April 15th. Instead, their entire income tax liability would 
be withheld at work. There would be no more deciphering statements from 
mutual funds, no more frantic search for records and receipts, and no 
last minute dash to the Post Office in order to meet the midnight 
deadline. According to Treasury Department officials who have studied 
it, the FASST plan could give at least 70 million Americans the 
opportunity to elect the no-return option.
  Specifically, under the FASST plan, most taxpayers could choose the 
no-filing option by filling out a slightly modified W- 4 form at work. 
Using tables prepared by the IRS, their employers would determine the 
employee's exact tax obligation at a single rate of 15 percent on 
wages, after several major adjustments, and withhold that amount. This 
amount would satisfy the taxpayer's entire federal income tax 
obligation for the year, absent some unforeseeable changes in 
circumstances.
  The FASST plan would be available for couples earning up to $100,000 
in wages and no more than $5,000 in other income such as interest, 
dividends or capital gains. In the case of individual taxpayers, the 
wage and non-wage income limits would be $50,000 and $2,500, 
respectively. Popular deductions would continue under this plan: the 
standard deduction, personal exemptions, the child credit and Earned 
Income Tax Credit, along with a deduction for home mortgage interest 
expenses and property taxes. Our bill would include critical 
savings incentives for average Americans by exempting up to $5,000 of 
all interest, dividends and capital gains income from taxation for 
couples, $2,500 for singles. Moreover, savings contributions made 
through employers would be excluded from the wage calculations in the 
beginning.

  Consider some of the advantages of this hassle-free plan:
  No taxpayers would lose. If a taxpayer prefers to file an ordinary 
return, he or she would still have that choice, and no one would be 
forced to lose a tax deduction that he or she wants to keep.
  Wages would be taxed at a single, low rate of 15 percent.
  A deduction for home mortgage interest expenses, the Earned Income 
Tax Credit, and other popular parts of our current tax code would be 
preserved. Other major tax reform plans would eliminate those 
deductions, which many people count on.
  The alternative minimum tax, AMT, and the marriage penalty would be 
eliminated.
  Compliance costs for taxpayers and government alike would fall. If 70 
million Americans chose the FASST option, hundreds of millions of 
dollars now spent on paper pushing could be used in more productive 
ways.
  Those taxpayers who continued to file under the old system would get 
relief too. The plan would reduce the marriage penalty by making the 
standard deduction for married couples double the amount available for 
single filers. Also, it would virtually eliminate the complicated AMT 
for most sole proprietors, farmers and other small businesses by 
exempting the first $1 million in self-employment income from the AMT 
calculations. This legislation also would provide a 50 percent credit 
for up to $1,000 in expenses that businesses might incur implementing 
the FASST plan. In addition, it would grant taxpayers who continue to 
use the current system a 50 percent tax credit for up to $200 in tax 
preparer expenses, provided they file their returns electronically. 
Finally, the bill would offer individuals a substantial incentive for 
savings and investment by exempting up to $500 of dividend and interest 
income, $1,000 for couples.
  Our bill is both simple and fair, and it gives most taxpayers the 
choice to avoid the annual tax filing nightmare that they have come to 
dread.
  In testimony before a Senate subcommittee last year, IRS Commissioner 
Rossotti testified that it's ``unquestionable that this bill provides 
significant tax simplification.'' Imagine how much better life would be 
if April 15th were just another day. Under the FASST plan, for millions 
of Americans, that could be true.
  I ask unanimous consent that the full text of this bill be printed in 
the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 551

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

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE

       (a) Short Title.--This Act may be cited as the ``Fair and 
     Simple Shortcut Tax Plan''.
       (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.

               TITLE I--FAIR AND SIMPLE SHORTCUT TAX PLAN

     SEC. 101. FAIR AND SIMPLE SHORTCUT TAX PLAN.

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

             ``PART VIII--FAIR AND SIMPLE SHORTCUT TAX PLAN

``Sec.  60.  Tax on individuals electing FASST.
``Sec.  60A.  Computation of applicable taxable income.
``Sec.  60B.  Credit against tax.
``Sec.  60C.  Election.
``Sec.  60D.  Liability for tax.

     ``SEC. 60. TAX ON INDIVIDUALS ELECTING FASST.

       ``(a) Tax Imposed.--If an individual who is an eligible 
     taxpayer has an election in effect under this part for a 
     taxable year, there is hereby imposed a tax equal to 15 
     percent of the taxpayer's applicable taxable income.
       ``(b) Coordination With Other Taxes.--The tax imposed by 
     this section shall be in lieu of any other tax imposed by 
     this subchapter. The preceding sentence shall not apply to 
     taxes described in section 26(b)(2) other than subparagraph 
     (A) thereof.

     ``SEC. 60A. COMPUTATION OF APPLICABLE TAXABLE INCOME.

       ``(a) In General.--For purposes of this part, the term 
     `applicable taxable income' means the taxpayer's applicable 
     wage income, minus--
       ``(1) the standard deduction,
       ``(2) the deductions for personal exemptions provided in 
     section 151, and
       ``(3) the homeowner expense deduction allowable under 
     subsection (c).
       ``(b) Applicable Wage Income.--For purposes of this part--
       ``(1) In general.--The term `applicable wage income' means, 
     with respect to an individual, wages received by such 
     individual for the taxable year for services performed as an 
     employee of an employer.
       ``(2) Employment.--The term `employment' has the meaning 
     given such term in section 3121(b).
       ``(3) Wages.--The term `wages' has the meaning given such 
     term in section 3401(a).
       ``(c) Homeowner Expense Deduction Allowed.--
       ``(1) In general.--For purposes of subsection (a), there 
     shall be allowed as a deduction for the taxable year an 
     amount equal to the product of--
       ``(A) $5,000, and
       ``(B) a fraction, the numerator of which is the number of 
     months in such year in which the taxpayer owned and used 
     property as the taxpayer's principal residence (within the 
     meaning of section 121) and the denominator of which is 12.
       ``(2) Special rules.--For purposes of this subsection--
       ``(A) Married individuals.--In the case of a married 
     individual, the ownership and use requirements of paragraph 
     (1) shall be treated as met for any month if either spouse 
     meets them.
       ``(B) Divorce; cooperative housing.--Rules similar to the 
     rules of paragraphs (3) and (4) of section 121(d) shall 
     apply.
       ``(C) Out-of-residence care.--If a taxpayer becomes 
     physically or mentally impaired while owning and using 
     property as a principal residence, then the taxpayer shall be 
     treated as meeting the ownership and use requirements of 
     paragraph (1) during any period the taxpayer owns the 
     property and resides in any facility (including a nursing 
     home) licensed by a State or political subdivision to care 
     for an individual in the taxpayer's condition.

     ``SEC. 60B. CREDITS AGAINST TAX.

       ``No credit shall be allowed against the tax imposed by 
     this part other than--
       ``(1) the credit allowable under section 24 (relating to 
     child tax credit),
       ``(2) the credit allowable under section 32 (relating to 
     earned income credit), and
       ``(3) the credit for overpayment of tax under section 6402.

     ``SEC. 60C. ELECTION.

       ``(a) Election.--An eligible taxpayer may elect to have 
     this part apply for any taxable year.
       ``(b) Eligible Taxpayer.--
       ``(1) In general.--For purposes of this part, the term 
     `eligible taxpayer' means, with respect to any taxable year, 
     a taxpayer who receives--

[[Page S2406]]

       ``(A) applicable wage income in an amount not in excess 
     of--
       ``(i) $100,000, in the case of a taxpayer described in 
     section 1(a), and
       ``(ii) 50 percent of the amount in effect under clause (i) 
     for the taxable year, in the case of any other taxpayer, and
       ``(B) gross income (determined without regard to applicable 
     wage income) in an amount not in excess of--
       ``(i) $5,000, in the case of a taxpayer described in 
     section 1(a), and
       ``(ii) 50 percent of the amount in effect under clause (i) 
     for the taxable year, in the case of any other taxpayer.
       ``(2) Exclusions.--The term `eligible taxpayer' shall not 
     include--
       ``(A) a married individual unless the individual and the 
     spouse both have the same taxable year and both make the 
     election,
       ``(B) a nonresident alien individual, or
       ``(C) an estate or trust.
       ``(3) Inflation adjustments.--In the case of a taxable year 
     beginning after 2002, each dollar amount under paragraph (1) 
     shall be increased by an amount equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, determined by substituting `calendar year 2001' 
     for `calendar year 1992' in subparagraph (B) thereof.
       ``(b) Form of Election.--
       ``(1) In general.--An individual shall make an election to 
     have this part apply for any taxable year by furnishing an 
     election certificate to such individual's employer not later 
     than the close of the first payroll period after the 
     individual commences work for such employer or January 1 of 
     the taxable year to which such election relates, whichever is 
     later.
       ``(2) Contents of certificate.--The election certificate 
     furnished under paragraph (1) shall--
       ``(A) contain such information as the Secretary requires to 
     enable the Secretary to carry out this part and enable the 
     employer to withhold the appropriate amount of wages under 
     section 3402, and
       ``(B) contain a certification by the employee under penalty 
     of perjury that the information furnished is correct.
       ``(3) Amendment of certificate.--A new election certificate 
     shall be filed within 30 days after the date of any change in 
     the information required under paragraph (2).
       ``(4) Election certificate.--For purposes of this section, 
     the term `election certificate' means the withholding 
     exemption certificate used for purposes of chapter 24.
       ``(5) Advance payment of earned income amount.--The 
     Secretary shall prescribe such regulations as may be 
     necessary to allow an eligible taxpayer to treat an election 
     certificate furnished under this section as including an 
     earned income eligibility certificate under section 3507 in 
     the case of an eligible individual claiming the earned income 
     credit under section 32.
       ``(c) Period Election In Effect.--
       ``(1) In general.--Except as provided in paragraph (2), an 
     election under this section shall be effective for the 
     taxable year for which it is made and all subsequent taxable 
     years.
       ``(2) Termination.--An election under this part shall 
     terminate with respect to an individual for any taxable year 
     and all subsequent taxable years if at any time during such 
     taxable year such individual--
       ``(A) is no longer an eligible taxpayer,
       ``(B) elects to terminate such individual's election, or
       ``(C) commits fraud with respect to any information 
     required to be provided under this section.
       ``(d) Safe Harbor for Ineligibility.--In the case of an 
     individual who has a termination under subsection (c)(2)(A), 
     no addition to tax under section 6654 shall apply to any 
     underpayment attributable to eligible wage income of such 
     individual for such taxable year if such underpayment was not 
     due to fraud, negligence, or disregard of rules or 
     regulations (within the meaning of section 6662).
       ``(e) Marital Status.--For purposes of this part, marital 
     status shall be determined under section 7703.

     ``SEC. 60D. LIABILITY FOR TAX.

       ``(a) Amount Withheld Treated as Satisfaction of 
     Liability.--Except as provided in this section, any amount 
     withheld as tax under section 3402(t) for an eligible 
     individual with an election in effect under section 60C for 
     the taxable year shall be treated as complete satisfaction of 
     liability for the tax imposed by section 60(a) for such 
     taxable year.
       ``(b) Exceptions.--Notwithstanding subsection (a)--
       ``(1) Overpayment.--If the amount withheld as tax under 
     section 3402(t) for an eligible taxpayer with an election in 
     effect under section 60C for the taxable year exceeds the tax 
     imposed under section 60(a) for the taxable year, the excess 
     amount shall be treated as an overpayment for purposes of 
     section 6402.
       ``(2) Underpayment.--
       ``(A) In general.--If the Secretary determines that the 
     amount withheld as tax under section 3402(t) for an eligible 
     taxpayer is less than the tax imposed under section 60(a) and 
     such underpayment is not due to fraud, the Secretary may 
     assess and collect such underpayment in the same manner as if 
     such underpayment were on account of a mathematical or 
     clerical error appearing on a return of the individual for 
     the taxable year.
       ``(B) De minimis exception.--If the amount by which the tax 
     imposed by section 60(a) exceeds the amount withheld as tax 
     under section 3402(t) by less than the lesser of $100 or 10 
     percent of the tax so imposed, the taxpayer shall be treated 
     as having no underpayment.
       ``(c) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the provisions 
     of this section, including regulations--
       ``(1) to allow a refund of an overpayment under subsection 
     (b)(1) to a taxpayer without requiring additional filing of 
     information by the taxpayer, and
       ``(2) to notify taxpayers of eligibility for credits 
     allowable under section 60B and allow a claim and refund of 
     any credit not claimed by an eligible taxpayer during the 
     taxable year.''.
       (b) Withholding From Wages.--Section 3402 (relating to 
     income tax collected at source) is amended by adding at the 
     end the following new subsection:
       ``(t) Withholding Under the Fair and Simple Shortcut Tax 
     Plan.--
       ``(1) In general.--An employer making payment of wages to 
     an individual with an election in effect under section 60C 
     shall deduct and withhold upon such wages a tax (in lieu of 
     the tax required to be deducted and withheld under subsection 
     (a)) determined in accordance with tables prescribed by the 
     Secretary in accordance with paragraph (2).
       ``(2) Withholding tables.--The Secretary shall prescribe 1 
     or more tables which set forth amounts of wages and income 
     tax to be deducted and withheld based on information 
     furnished to the employer in the employee's election form and 
     to ensure that the aggregate amount withheld from such 
     employee's wages approximates the tax liability of such 
     individual for the taxable year. Any tables prescribed under 
     this paragraph shall--
       ``(A) apply with respect to the amount of wages paid during 
     such periods as the Secretary may prescribe, and
       ``(B) be in such form, and provide for such amounts to be 
     deducted and withheld, as the Secretary determines to be most 
     appropriate to carry out the purposes of this chapter and to 
     reflect the provisions of chapter 1 applicable to such 
     periods, including taking into account any credits allowable 
     under section 24 or 32.

     The Secretary shall provide that any other provision of this 
     section shall not apply to the extent such provision is 
     inconsistent with the provisions of this subsection.
       ``(2) Election Certificate.--
       ``(A) In general.--In lieu of a withholding exemption 
     certificate, an employee shall furnish the employer with a 
     signed election certificate and any amended election 
     certificate at such time and containing such information as 
     required under section 60C.
       ``(B) When certificate takes effect.--
       ``(i) First certificate furnished.--An election certificate 
     furnished to an employer in cases in which no previous such 
     certificate is in effect shall take effect as of the 
     beginning of the first payroll period ending, or the first 
     payment of wages made without regard to a payroll period, on 
     or after the date on which such certificate is so furnished.
       ``(ii) Replacement certificate.--An election certificate 
     furnished to an employer which replaces an earlier 
     certificate shall take effect as of the beginning of the 1st 
     payroll period ending (or the 1st payment of wages made 
     without regard to a payroll period) on or after the 30th day 
     after the on which the replacement certificate is so 
     furnished.''.
       (c) Waiver of Requirement to File Return of Income.--
     Subsection (a)(1)(A) of section 6012 (relating to persons 
     required to make return of income) is amended by striking 
     ``or'' at the end of clause (iii), by striking the period at 
     the end of clause (iv) and inserting ``, or'', and by 
     inserting after clause (iv) the following new clause:
       ``(v) who is an eligible taxpayer with an election in 
     effect for the taxable year under section 60C.''.
       (d) Technical and Conforming Amendments.--
       (1) The table of parts for subchapter A of chapter 1 is 
     amended by adding at the end the following new item:

``Part VIII. Fair and Simple Shortcut Tax Plan.''.

       (2) Section 6654(a) is amended by inserting ``and section 
     60C(d)'' after ``this section''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 102. TAX CREDIT FOR EMPLOYER FASST PLAN STARTUP COSTS.

       (a) In General.--Subpart D of part IV of subchapter A of 
     chapter 1 (relating to business related credits) is amended 
     by adding at the end the following new section:

     ``SEC. 45E. FASST PLAN EMPLOYER START-UP CREDIT.

       ``(a) Credit Allowed.--
       ``(1) In general.--For purposes of section 38, the Fair and 
     Simple Shortcut Tax plan start-up credit determined under 
     this section for the taxable year is an amount equal to the 
     lesser of--
       ``(A) 50 percent of eligible start-up costs of the taxpayer 
     for the taxable year, or
       ``(B) $1,000.
       ``(2) Maximum credit.--The maximum credit allowed with 
     respect to a taxpayer under this subsection for all taxable 
     years shall not exceed the amount determined under paragraph 
     (1) for all taxable years.

[[Page S2407]]

       ``(b) Eligible start-up costs.--For purposes of this 
     section, the term `eligible start-up costs' means amounts 
     paid or incurred by an employer (or any predecessor) during 
     the 1 year period beginning on the date on which the employer 
     first employs 1 or more employees with an election in effect 
     under section 60C for the taxable year, in connection with 
     carrying out the withholding requirements of section 3402.
       ``(c) Credit Available for Each Worksite.--If a taxpayer 
     maintains a separate worksite for employees, such person 
     shall be treated as a single employer with respect to such 
     worksite for purposes of the credit allowable under 
     subsection (a).''.
       (b) Conforming Amendments.--
       (1) Section 38(b) is amended--
       (A) by striking ``plus'' at the end of paragraph (12),
       (B) by striking the period at the end of paragraph (13), 
     and inserting a comma and ``plus'', and
       (C) by adding at the end the following new paragraph:
       ``(14) the Fair and Simple Shortcut Tax plan start-up 
     credit determined under section 45E.''.
       (2) The table of sections for subpart D of part IV of 
     subchapter A of chapter 1 is amended by adding at the end the 
     following new item:

``Sec. 45E. Fair and Simple Shortcut Tax plan start-up credit.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

             TITLE II--PROVISIONS TO SIMPLIFY THE TAX CODE

     SEC. 201. REDUCTION IN MARRIAGE PENALTY IN STANDARD 
                   DEDUCTION.

       (a) In General.--Section 63(c)(2) (relating to basic 
     standard deduction) is amended to read as follows:
       ``(2) Basic standard deduction.--For purposes of paragraph 
     (1), the basic standard deduction is--
       ``(A) 200 percent of the amount under subparagraph (C) for 
     the taxable year, in the case of a joint return or a 
     surviving spouse (as defined in section 2(a)),
       ``(B) 150 percent of such amount, in the case of a head of 
     household (as defined in section 2(b)), and
       ``(C) $3,000, in the case of an individual who is not 
     married and who is not a surviving spouse or head of 
     household or a married individual filing a separate 
     return.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 202. ALTERNATIVE MINIMUM TAX EXCLUSION OF SELF-
                   EMPLOYMENT INCOME AND CERTAIN ITEMS OF 
                   PREFERENCE AND ADJUSTMENTS.

       (a) Increased Exemption for Self-Employment Income.--
     Section 55(d)(1) (relating to exemption amount for taxpayers 
     other than corporations) is amended to read as follows:
       ``(1) Exemption amount for taxpayers other than 
     corporations.--In the case of a taxpayer other than a 
     corporation, the term `exemption amount' means the sum of--
       ``(A) an amount equal to--
       ``(i) $45,000 in the case of--

       ``(I) a joint return, or
       ``(II) a surviving spouse,

       ``(ii) $33,750 in the case of an individual who--

       ``(I) is not a married individual, or
       ``(II) is not a surviving spouse, and

       ``(iii) $22,500 in the case of--

       ``(I) a married individual who files a separate return, or
       ``(II) an estate or trust, and

       ``(B) an amount equal to the lesser of--
       ``(i) the self employment income (as defined in section 
     1402(b)) of the taxpayer for the taxable year, or
       ``(ii) $1,000,000.
     For purposes of this paragraph, the term `surviving spouse' 
     has the meaning given to such term by section 2(a), and 
     marital status shall be determined under section 7703.''.
       (b) Exclusion of Certain Items of Preference and 
     Adjustments.--Section 55 (relating to alternative minimum tax 
     imposed) is amended by adding at the end the following new 
     subsection:
       ``(f) Special Rule for Small Businesses.--
       ``(1) In general.--For purposes of this part, in computing 
     the alternative minimum taxable income of a taxpayer to which 
     this subsection applies for any taxable year--
       ``(A) no adjustments provided in section 56 which are 
     attributable to a trade or business of the taxpayer shall be 
     made, and
       ``(B) taxable income shall not be increased by any item of 
     tax preference described in section 57 which is so 
     attributable.
       ``(2) Application.--
       ``(A) In general.--This subsection shall apply to a 
     taxpayer for a taxable year if the taxpayer is not a 
     corporation and the gross receipts of the taxpayer for the 
     taxable year from all trades or businesses do not exceed 
     $1,000,000.
       ``(B) Special rules.--Rules similar to the rules of 
     paragraphs (2), (3)(B), and (3)(C) of section 448(c) shall 
     apply for purposes of this subsection.''.
       (c) Conforming Amendments.--Section 55(d)(3) is amended--
       (1) by striking ``paragraph (1)(A)'' and inserting 
     ``paragraph (1)(A)(i)'' in subparagraph (A),
       (2) by striking ``paragraph (1)(B)'' and inserting 
     ``paragraph (1)(A)(ii)'' in subparagraph (B),
       (3) by striking ``paragraph (1)(C)'' and inserting 
     ``paragraph (1)(A)(iii)'' in subparagraph (C), and
       (4) by striking ``paragraph (1)(C)(i)'' and inserting 
     ``paragraph (1)(A)(iii)(I)'' in the second sentence.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 203. NONREFUNDABLE TAX CREDIT FOR TAX PREPARATION 
                   EXPENSES.

       (a) In General.--Subpart A of part IV of subchapter A of 
     chapter 1 (relating to nonrefundable personal credits) is 
     amended by adding at the end the following new section:

     ``SEC. 25B. TAX PREPARATION EXPENSES.

       ``(a) Allowance of Credit.--In the case of an individual, 
     there shall be allowed as a credit against the tax imposed by 
     this chapter for the taxable year an amount equal to the 
     lesser of--
       ``(1) 50 percent of the qualified tax preparation expenses 
     of the taxpayer for the taxable year, or
       ``(2) $100.
       ``(b) Qualified Tax Preparation Expenses.--For purposes of 
     this section, the term `qualified tax preparation expenses' 
     means expenses paid or incurred during the taxable year by an 
     individual in connection with the preparation of the 
     taxpayer's Federal income tax return for such taxable year, 
     but only if such return is electronically filed. Such term 
     shall include any expenses related to an income tax return 
     preparer.
       ``(c) Denial of Deduction.--No deduction shall be allowed 
     under this chapter for any amount taken into account in 
     determining the credit under this section.''.
       (b) Conforming Amendment.--The table of sections for 
     subpart A of part IV of subchapter A of chapter 1 is amended 
     by adding at the end the following new item:

``Sec. 25B. Tax preparation expenses.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to expenses paid or incurred for taxable years 
     beginning after December 31, 2001.

     SEC. 204. EXEMPTION OF CERTAIN INTEREST AND DIVIDEND INCOME 
                   FROM TAX.

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

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

       ``(a) Exclusion From Gross Income.--In the case of an 
     individual who does not have an election in effect under 
     section 60C for the taxable year, gross income does not 
     include dividends and interest otherwise includible in gross 
     income which are received during the taxable year by such 
     individual.
       ``(b) Limitation.--The aggregate amount excluded under 
     subsection (a) for any taxable year shall not exceed $500 
     ($1,000 in the case of a joint return).
       ``(c) Certain Dividends Excluded.--Subsection (a) shall not 
     apply to any dividend from a corporation which, for the 
     taxable year of the corporation in which the distribution is 
     made, or for the next preceding taxable year of the 
     corporation, is a corporation exempt from tax under section 
     501 (relating to certain charitable, etc., organization) or 
     section 521 (relating to farmers' cooperative associations).
       ``(d) Special Rules.--For purposes of this section--
       ``(1) Treatment of certain dividends.--

  ``For treatment of dividends received from regulated investment 
companies and real estate investment trusts, see sections 854(a), 
854(b), and 857(c).

       ``(2) Certain nonresident aliens ineligible for 
     exclusion.--In the case of a nonresident alien individual, 
     subsection (a) shall apply only--
       ``(A) in determining the tax imposed for the taxable year 
     under section 871(b)(1) and only in respect of dividends 
     which are effectively connected with the conduct of a trade 
     or business within the United States, or
       ``(B) in determining the tax imposed for the taxable year 
     under section 877(b).
       ``(3) Dividends from employee stock ownership plans.--
     Subsection (a) shall not apply to any dividend described in 
     section 404(k).''.
       (b) Conforming Amendments.--
       (1) Subparagraph (C) of section 32(c)(5) is amended by 
     striking ``or'' at the end of clause (i), by striking the 
     period at the end of clause (ii) and inserting ``; or'', and 
     by inserting after clause (ii) the following new clause:
       ``(iii) interest and dividends received during the taxable 
     year which are excluded from gross income under section 
     116.''.
       (2) Subparagraph (A) of section 32(i)(2) is amended by 
     inserting ``(determined without regard to section 116)'' 
     before the comma.
       (3) Subparagraph (B) of section 86(b)(2) is amended to read 
     as follows:
       ``(B) increased by the sum of--
       ``(i) the amount of interest received or accrued by the 
     taxpayer during the taxable year which is exempt from tax, 
     and
       ``(ii) the amount of interest and dividends received during 
     the taxable year which are excluded from gross income under 
     section 116.''.
       (4) Subsection (d) of section 135 is amended by 
     redesignating paragraph (4) as paragraph (5) and by inserting 
     after paragraph (3) the following new paragraph:

[[Page S2408]]

       ``(4) Coordination with section 116.--This section shall be 
     applied before section 116.''.
       (5)(A) Subsection (a) of section 246A is amended--
       (i) by inserting ``or the exclusion from gross income under 
     section 116,'' after ``245(a)'' in the matter preceding 
     paragraph (1), and
       (ii) by inserting ``received by a corporation'' after 
     ``dividend'' in paragraph (1).
       (B) Subsection (e) of section 246A is amended by inserting 
     ``or the exclusion from gross income under section 116'' 
     after ``245''.
       (6) Paragraph (2) of section 265(a) is amended by inserting 
     before the period ``, or to purchase or carry obligations or 
     shares, or to make deposits, to the extent the interest 
     thereon is excludable from gross income under section 116''.
       (7) Subsection (c) of section 584 is amended by adding at 
     the end the following new flush sentence:

     ``The proportionate share of each participant in the amount 
     of dividends or interest received by the common trust fund 
     and to which section 116 applies shall be considered for 
     purposes of such section as having been received by such 
     participant.''.
       (8) Subsection (a) of section 643 is amended by 
     redesignating paragraph (7) as paragraph (8) and by inserting 
     after paragraph (6) the following new paragraph:
       ``(7) Dividends or interest.--There shall be included the 
     amount of any dividends or interest excluded from gross 
     income under section 116.''.
       (9)(A) Subsection (a) of section 854 is amended by 
     inserting ``section 116 (relating to partial exclusion of 
     dividends and interest received by individuals) and'' after 
     ``For purposes of''.
       (B) Paragraph (1) of section 854(b) is amended--
       (i) by striking ``subparagraph (A)'' in subparagraph (B) 
     and inserting ``subparagraphs (A) and (B)'',
       (ii) by redesignating subparagraph (B) as subparagraph (C), 
     and
       (iii) by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) Exclusion under section 116.--If the aggregate 
     dividends and interest received by a regulated investment 
     company during any taxable year are less than 95 percent of 
     its gross income, then, in computing the exclusion under 
     section 116, rules similar to the rules of subparagraph (A) 
     shall apply.''.
       (C) Paragraph (2) of section 854(b) is amended by inserting 
     ``the exclusion under section 116 and'' after ``for purposes 
     of''.
       (10) Subsection (c) of section 857 is amended to read as 
     follows:
       ``(c) Restrictions Applicable to Dividends Received From 
     Real Estate Investment Trusts.--For purposes of section 116 
     (relating to partial exclusion of dividends and interest 
     received by individuals) and section 243 (relating to 
     deductions for dividends received by corporations), a 
     dividend received from a real estate investment trust which 
     meets the requirements of this part shall not be considered 
     as a dividend.''.
       (11) The table of sections for part III of subchapter B of 
     chapter 1 is amended by inserting after the item relating to 
     section 115 the following new item:

``Sec. 116. Partial exclusion of dividends and interest received by 
              individuals.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.
                                 ______