[House Report 108-94]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
 1st Session            HOUSE OF REPRESENTATIVES                 108-94
======================================================================
 
             JOBS AND GROWTH RECONCILIATION TAX ACT OF 2003

                                _______
                                

  May 8, 2003.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                         [To accompany H.R. 2]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2) to amend the Internal Revenue Code of 1986 to 
provide additional tax incentives to encourage economic growth, 
having considered the same, report favorably thereon with 
amendments and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background..........................................10
          A. Purpose and Summary.................................    10
          B. Background and Need for Legislation.................    12
          C. Legislative History.................................    12
 II. Explanation of the Bill.........................................12
     Title I--Acceleration of Certain Previously Enacted Tax Reductio12
          A. Accelerate the Increase in the Child Tax Credit 
              (sec. 101 of the bill and sec. 24 of the Code).....    12
          B. Accelerate Marriage Penalty Relief (secs. 102 and 
              103 of the bill and secs. 1 and 63 of the Code)....    14
              1. Standard deduction marriage penalty relief......    14
              2. Accelerate the expansion of the 15-percent rate 
                  bracket for married couples filing joint 
                  returns........................................    16
          C. Accelerate Reductions in Individual Income Tax Rates 
              (secs. 104, 105, and 106 of the bill and secs. 1 
              and 55 of the Code)................................    17
     Title II--Growth Incentives for Business........................21
          A. Special Depreciation Allowance for Certain Property 
              (sec. 201 of the bill and sec. 168 of the Code)....    21
          B. Increase Section 179 Expensing (sec. 202 of the bill 
              and sec. 179 of the Code)..........................    25
          C. Five-Year Carryback of Net Operating Losses (sec. 
              203 of the bill and secs. 172 and 56 of the Code)..    26
     Title III--Dividends and Capital Gains..........................28
          A. Reduce Individual Capital Gains Rates (sec. 301 of 
              the bill and sec. 1(h) of the Code)................    28
          B. Dividend Income of Individuals Taxed at Capital Gain 
              Rates (sec. 302 of the bill and sec. 1(h) of the 
              Code)..............................................    30
     Title IV--Modification to Corporate Estimated Tax Requirements 
     (sec. 401 of the bill)..........................................32
III. Votes of the Committee..........................................32
 IV. Budget Effects of the Bill......................................36
          A. Committee Estimate of Budgetary Effects.............    36
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    39
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    39
          D. Macroeconomic Impact Analysis.......................    44
  V. Other Matters To Be Discussed Under the Rules of the House......44
          A. Committee Oversight Findings and Recommendations....    44
          B. Statement of General Performance Goals and 
              Objectives.........................................    44
          C. Constitutional Authority Statement..................    44
          D. Information Relating to Unfunded Mandates...........    44
          E. Applicability of House Rule XXI 5(b)................    44
          F. Tax Complexity Analysis.............................    45
 VI. Changes in Existing Law Made by the Bill, as Reported...........56
VII. Dissenting Views................................................86
  The amendments are as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Jobs and Growth 
Reconciliation Tax Act of 2003''.
  (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.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; references; table of contents.

   TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS

Sec. 101. Acceleration of increase in child tax credit.
Sec. 102. Acceleration of 15-percent individual income tax rate bracket 
expansion for married taxpayers filing joint returns.
Sec. 103. Acceleration of increase in standard deduction for married 
taxpayers filing joint returns.
Sec. 104. Acceleration of 10-percent individual income tax rate bracket 
expansion.
Sec. 105. Acceleration of reduction in individual income tax rates.
Sec. 106. Minimum tax relief to individuals.

                TITLE II--GROWTH INCENTIVES FOR BUSINESS

Sec. 201. Increase and extension of bonus depreciation.
Sec. 202. Increased expensing for small business.
Sec. 203. 5-year carryback of certain net operating losses.

     TITLE III--REDUCTIONS IN TAXES ON DIVIDENDS AND CAPITAL GAINS

Sec. 301. Reduction in capital gains rates for individuals; repeal of 
5-year holding period requirement.
Sec. 302. Dividends of individuals taxed at capital gain rates.
Sec. 303. Sunset of title.

          TITLE IV--CORPORATE ESTIMATED TAX PAYMENTS FOR 2003.

Sec. 401. Time for payment of corporate estimated taxes.

   TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS

SEC. 101. ACCELERATION OF INCREASE IN CHILD TAX CREDIT.

  (a) In General.--The items relating to calendar years 2001 through 
2008 in the table contained in paragraph (2) of section 24(a) (relating 
to per child amount) are amended to read as follows:

    ``2003, 2004, 2005............................              $1,000 
     2006, 2007, or 2008..........................               700''.

  (b) Advance Payment of Portion of Increased Credit in 2003.--
          (1) In general.--Subchapter B of chapter 65 (relating to 
        abatements, credits, and refunds) is amended by inserting after 
        section 6428 the following new section:

``SEC. 6429. ADVANCE PAYMENT OF PORTION OF INCREASED CHILD CREDIT FOR 
                    2003.

  ``(a) In General.--Each taxpayer who claimed a credit under section 
24 on the return for the taxpayer's first taxable year beginning in 
2002 shall be treated as having made a payment against the tax imposed 
by chapter 1 for such taxable year in an amount equal to the child tax 
credit refund amount (if any) for such taxable year.
  ``(b) Child Tax Credit Refund Amount.--For purposes of this section, 
the child tax credit refund amount is the amount by which the aggregate 
credits allowed under part IV of subchapter A of chapter 1 for such 
first taxable year would have been increased if--
          ``(1) the per child amount under section 24(a)(2) for such 
        year were $1,000,
          ``(2) only qualifying children (as defined in section 24(c)) 
        of the taxpayer for such year who had not attained age 17 as of 
        December 31, 2003, were taken into account, and
          ``(3) section 24(d)(1)(B)(ii) did not apply.
  ``(c) Timing of Payments.--In the case of any overpayment 
attributable to this section, the Secretary shall, subject to the 
provisions of this title, refund or credit such overpayment as rapidly 
as possible and, to the extent practicable, before October 1, 2003. No 
refund or credit shall be made or allowed under this section after 
December 31, 2003.
  ``(d) Coordination With Child Tax Credit.--
          ``(1) In general.--The amount of credit which would (but for 
        this subsection and section 26) be allowed under section 24 for 
        the taxpayer's first taxable year beginning in 2003 shall be 
        reduced (but not below zero) by the payments made to the 
        taxpayer under this section. Any failure to so reduce the 
        credit shall be treated as arising out of a mathematical or 
        clerical error and assessed according to section 6213(b)(1).
          ``(2) Joint returns.--In the case of a payment under this 
        section with respect to a joint return, half of such payment 
        shall be treated as having been made to each individual filing 
        such return.
  ``(e) No Interest.--No interest shall be allowed on any overpayment 
attributable to this section.''.
          (2) Clerical amendment.--The table of sections for subchapter 
        B of chapter 65 is amended by adding at the end the following 
        new item:

        ``Sec. 6429. Advance payment of portion of increased child 
                        credit for 2003.''.

  (c) Effective Dates.--
          (1) Subsection (a).--The amendment made by subsection (a) 
        shall apply to taxable years beginning after December 31, 2002.
          (2) Subsection (b).--The amendments made by subsection (b) 
        shall take effect on the date of the enactment of this Act.

SEC. 102. ACCELERATION OF 15-PERCENT INDIVIDUAL INCOME TAX RATE BRACKET 
                    EXPANSION FOR MARRIED TAXPAYERS FILING JOINT 
                    RETURNS.

  (a) In General.--The item relating to 2005 in the table contained in 
subparagraph (B) of section 1(f )(8) (relating to applicable 
percentage) is amended to read as follows:

                  ``2003, 2004, and 2005...................      200''.

  (b) Conforming Amendments.--
          (1) Section 1(f)(8)(A) is amended by striking ``2004'' and 
        inserting ``2002''.
          (2) Section 302(c) of the Economic Growth and Tax Relief 
        Reconciliation Act of 2001 is amended by striking ``2004'' and 
        inserting ``2002''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 103. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR MARRIED 
                    TAXPAYERS FILING JOINT RETURNS.

  (a) In General.--The item relating to 2005 in the table contained in 
paragraph (7) of section 63(c) (relating to applicable percentage) is 
amended to read as follows:

                  ``2003, 2004, and 2005...................      200''.

  (b) Conforming Amendment.--Section 301(d) of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 is amended by striking ``2004'' 
and inserting ``2002''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 104. ACCELERATION OF 10-PERCENT INDIVIDUAL INCOME TAX RATE BRACKET 
                    EXPANSION.

  (a) In General.--Clause (i) of section 1(i)(1)(B) (relating to the 
initial bracket amount) is amended by striking ``($12,000 in the case 
of taxable years beginning before January 1, 2008)'' and inserting 
``($12,000 in the case of taxable years beginning after December 31, 
2005, and before January 1, 2008)''.
  (b) Inflation Adjustment.--Subparagraph (C) of section 1(i)(1) is 
amended to read as follows:
                  ``(C) Inflation adjustment.--In prescribing the 
                tables under subsection (f) which apply with respect to 
                taxable years beginning in calendar years after 2000--
                          ``(i) the Secretary shall make no adjustment 
                        to the $12,000 initial bracket amount for any 
                        taxable year,
                          ``(ii)(I) the Secretary shall make no 
                        adjustment to the $14,000 initial bracket 
                        amount for any taxable year beginning before 
                        January 1, 2004,
                          ``(II) the cost-of-living adjustment used in 
                        making adjustments to the $14,000 initial 
                        bracket amount for any taxable year beginning 
                        during 2004 or 2005 shall be determined under 
                        subsection (f)(3) by substituting `2002' for 
                        `1992' in subparagraph (B) thereof, and
                          ``(III) the cost-of-living adjustment used in 
                        making adjustments to the $14,000 initial 
                        bracket amount for any taxable year beginning 
                        after December 31, 2008, shall be determined 
                        under subsection (f)(3) by substituting `2007' 
                        for `1992' in subparagraph (B) thereof, and
                          ``(iii) the adjustments under clause (ii) 
                        shall not apply to the amount referred to in 
                        subparagraph (B)(iii).
                If any amount after adjustment under the preceding 
                sentence is not a multiple of $50, such amount shall be 
                rounded to the next lowest multiple of $50.''
  (c) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2002.
          (2) Tables for 2003.--The Secretary of the Treasury shall 
        modify each table which has been prescribed under section 1(f) 
        of the Internal Revenue Code of 1986 for taxable years 
        beginning in 2003 and which relates to the amendment made by 
        this section to reflect such amendment.

SEC. 105. ACCELERATION OF REDUCTION IN INDIVIDUAL INCOME TAX RATES.

  (a) In General.--The table in paragraph (2) of section 1(i) (relating 
to reductions in rates after June 30, 2001) is amended to read as 
follows:


------------------------------------------------------------------------
                                     The corresponding percentages shall
                  ``In the case of    be substituted for  the following
                    taxable years                percentages:
                  beginning during  ------------------------------------
                   calendar year:      28%      31%      36%      39.6%
------------------------------------------------------------------------
                 2001..............   27.5%    30.5%    35.5%     39.1%
                 2002..............   27.0%    30.0%    35.0%     38.6%
                 2003 and             25.0%    28.0%    33.0%   35.0%''.
                  thereafter.
------------------------------------------------------------------------

  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 106. MINIMUM TAX RELIEF TO INDIVIDUALS.

  (a) In General.--
          (1) Subparagraph (A) of section 55(d)(1) is amended by 
        striking ``$49,000 in the case of taxable years beginning in 
        2001, 2002, 2003, and 2004'' and inserting ``$64,000 in the 
        case of taxable years beginning in 2003, 2004, and 2005''.
          (2) Subparagraph (B) of section 55(d)(1) is amended by 
        striking ``$35,750 in the case of taxable years beginning in 
        2001, 2002, 2003, and 2004'' and inserting ``$43,250 in the 
        case of taxable years beginning in 2003, 2004, and 2005''.
  (b) Effective date.--The amendments made by subsection (a) shall 
apply to taxable years beginning after December 31, 2002.

                TITLE II--GROWTH INCENTIVES FOR BUSINESS

SEC. 201. INCREASE AND EXTENSION OF BONUS DEPRECIATION.

  (a) In General.--Section 168(k) (relating to special allowance for 
certain property acquired after September 10, 2001, and before 
September 11, 2004) is amended by adding at the end the following new 
paragraph:
          ``(4) 50-percent bonus depreciation for certain property.--
                  ``(A) In general.--In the case of 50-percent bonus 
                depreciation property--
                          ``(i) paragraph (1)(A) shall be applied by 
                        substituting `50 percent' for `30 percent', and
                          ``(ii) except as provided in paragraph 
                        (2)(C), such property shall be treated as 
                        qualified property for purposes of this 
                        subsection.
                  ``(B) 50-percent bonus depreciation property.--For 
                purposes of this subsection, the term `50-percent bonus 
                depreciation property' means property described in 
                paragraph (2)(A)(i)--
                          ``(i) the original use of which commences 
                        with the taxpayer after May 5, 2003,
                          ``(ii) which is acquired by the taxpayer 
                        after May 5, 2003, and before January 1, 2006, 
                        but only if no written binding contract for the 
                        acquisition was in effect before May 6, 2003, 
                        and
                          ``(iii) which is placed in service by the 
                        taxpayer before January 1, 2006, or, in the 
                        case of property described in paragraph (2)(B) 
                        (as modified by subparagraph (C) of this 
                        paragraph), before January 1, 2007.
                  ``(C) Special rules.--Rules similar to the rules of 
                subparagraphs (B) and (D) of paragraph (2) shall apply 
                for purposes of this paragraph; except that references 
                to September 10, 2001, shall be treated as references 
                to May 5, 2003.
                  ``(D) Automobiles.--Paragraph (2)(E) shall be applied 
                by substituting `$9,200' for `$4,600' in the case of 
                50-percent bonus depreciation property.
                  ``(E) Election of 30 percent bonus.--If a taxpayer 
                makes an election under this subparagraph with respect 
                to any class of property for any taxable year, 
                subparagraph (A)(i) shall not apply to all property in 
                such class placed in service during such taxable 
                year.''
   (b) Extension of Placed in Service Dates, Etc. for 30-Percent Bonus 
Depreciation Property.--
          (1) In general.--Clause (iv) of section 168(k)(2)(A) is 
        amended--
                  (A) by striking ``January 1, 2005'' and inserting 
                ``January 1, 2006'', and
                  (B) by striking ``January 1, 2006'' (as in effect 
                before the amendment made by subparagraph (A)) and 
                inserting ``January 1, 2007''.
          (2) Portion of basis taken into account.--
                  (A) Subparagraphs (B)(ii) and (D)(i) of section 
                168(k)(2) are each amended by striking ``September 11, 
                2004'' each place it appears in the text and inserting 
                ``January 1, 2006''.
                  (B) Clause (ii) of section 168(k)(2)(B) is amended by 
                striking ``pre-september 11, 2004'' in the heading and 
                inserting ``pre-january 1, 2006''.
          (3) Acquisition date.--Clause (iii) of section 168(k)(2)(A) 
        is amended by striking ``September 11, 2004'' each place it 
        appears and inserting ``January 1, 2006''.
          (4) Election.--Clause (iii) of section 168(k)(2)(C) is 
        amended by adding at the end the following: ``The preceding 
        sentence shall be applied separately with respect to property 
        treated as qualified property by paragraph (4) and other 
        qualified property.''
  (c) Conforming Amendments.--
          (1) The subsection heading for section 168(k) is amended by 
        striking ``September 11, 2004'' and inserting ``January 1, 
        2006''.
          (2) The heading for clause (i) of section 1400L(b)(2)(C) is 
        amended by striking ``30-percent additional allowable 
        property'' and inserting ``Bonus depreciation property under 
        section 168(k)''.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years ending after the date of the enactment of this Act.

SEC. 202. INCREASED EXPENSING FOR SMALL BUSINESS.

  (a) In General.--Paragraph (1) of section 179(b) (relating to dollar 
limitation) is amended to read as follows:
          ``(1) Dollar limitation.--The aggregate cost which may be 
        taken into account under subsection (a) for any taxable year 
        shall not exceed $25,000 ($100,000 in the case of taxable years 
        beginning after 2002 and before 2008).''.
  (b) Increase in Qualifying Investment at Which Phaseout Begins.--
Paragraph (2) of section 179(b) (relating to reduction in limitation) 
is amended by inserting ``($400,000 in the case of taxable years 
beginning after 2002 and before 2008)'' after ``$200,000''.
  (c) Off-the-Shelf Computer Software.--Paragraph (1) of section 179(d) 
(defining section 179 property) is amended to read as follows:
          ``(1) Section 179 property.--For purposes of this section, 
        the term `section 179 property' means property--
                  ``(A) which is--
                          ``(i) tangible property (to which section 168 
                        applies), or
                          ``(ii) computer software (as defined in 
                        section 197(e)(3)(B)) which is described in 
                        section 197(e)(3)(A)(i), to which section 167 
                        applies, and which is placed in service in a 
                        taxable year beginning after 2002 and before 
                        2008,
                  ``(B) which is section 1245 property (as defined in 
                section 1245(a)(3)), and
                  ``(C) which is acquired by purchase for use in the 
                active conduct of a trade or business.
        Such term shall not include any property described in section 
        50(b) and shall not include air conditioning or heating 
        units.''.
  (d) Adjustment of Dollar Limit and Phaseout Threshold for 
Inflation.--Subsection (b) of section 179 (relating to limitations) is 
amended by adding at the end the following new paragraph:
          ``(5) Inflation adjustments.--
                  ``(A) In general.--In the case of any taxable year 
                beginning in a calendar year after 2003 and before 
                2008, the $100,000 and $400,000 amounts in paragraphs 
                (1) and (2) shall each 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, 
                        by substituting `calendar year 2002' for 
                        `calendar year 1992' in subparagraph (B) 
                        thereof.
                  ``(B) Rounding.--
                          ``(i) Dollar limitation.--If the amount in 
                        paragraph (1) as increased under subparagraph 
                        (A) is not a multiple of $1,000, such amount 
                        shall be rounded to the nearest multiple of 
                        $1,000.
                          ``(ii) Phaseout amount.--If the amount in 
                        paragraph (2) as increased under subparagraph 
                        (A) is not a multiple of $10,000, such amount 
                        shall be rounded to the nearest multiple of 
                        $10,000.''.
  (e) Revocation of Election.--Paragraph (2) of section 179(c) 
(relating to election irrevocable) is amended to read as follows:
          ``(2) Revocation of election.--An election under paragraph 
        (1) with respect to any taxable year beginning after 2002 and 
        before 2008, and any specification contained in any such 
        election, may be revoked by the taxpayer with respect to any 
        property. Such revocation, once made, shall be irrevocable.''.
  (f) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 203. 5-YEAR CARRYBACK OF CERTAIN NET OPERATING LOSSES.

  (a) In General.--Subparagraph (H) of section 172(b)(1) is amended--
          (1) by inserting ``5-year carryback of certain losses.--'' 
        after ``(H)'', and
          (2) by striking ``or 2002'' and inserting ``, 2002, 2003, 
        2004 or 2005''.
  (b) Temporary Suspension of 90 Percent Limit on Certain NOL 
Carrybacks.--Subclause (I) of section 56(d)(1)(A)(ii) is amended--
          (1) by striking ``or 2002'' and inserting ``, 2002, 2003, 
        2004, or 2005'', and
          (2) by striking ``and 2002'' and inserting ``, 2002, 2003, 
        2004, or 2005''.
  (c) Technical Corrections.--
          (1) Subparagraph (H) of section 172(b)(1) is amended by 
        striking ``a taxpayer which has''.
          (2) Section 102(c)(2) of the Job Creation and Worker 
        Assistance Act of 2002 (Public Law 107-147) is amended by 
        striking ``before January 1, 2003'' and inserting ``after 
        December 31, 1990''.
          (3)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended by 
        striking ``attributable to carryovers''.
          (B) Subclause (I) of section 56(d)(1)(A)(ii) is amended--
                  (i) by striking ``for taxable years'' and inserting 
                ``from taxable years'', and
                  (ii) by striking ``carryforwards'' and inserting 
                ``carryovers''.
  (d) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to net operating 
        losses for taxable years ending after December 31, 2002.
          (2) Technical corrections.--The amendments made by subsection 
        (c) shall take effect as if included in the amendments made by 
        section 102 of the Job Creation and Worker Assistance Act of 
        2002.
          (3) Election.--In the case of a net operating loss for a 
        taxable year ending during 2003--
                  (A) any election made under section 172(b)(3) of such 
                Code may (notwithstanding such section) be revoked 
                before November 1, 2003, and
                  (B) any election made under section 172(j) of such 
                Code shall (notwithstanding such section) be treated as 
                timely made if made before November 1, 2003.

      TITLE III--REDUCTION IN TAXES ON DIVIDENDS AND CAPITAL GAINS

SEC. 301. REDUCTION IN CAPITAL GAINS RATES FOR INDIVIDUALS; REPEAL OF 
                    5-YEAR HOLDING PERIOD REQUIREMENT.

  (a) In General.--
          (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by 
        striking ``10 percent'' and inserting ``5 percent''.
          (2) The following sections are each amended by striking ``20 
        percent'' and inserting ``15 percent'':
                  (A) Section 1(h)(1)(C).
                  (B) Section 55(b)(3)(C).
                  (C) Section 1445(e)(1).
                  (D) The second sentence of section 7518(g)(6)(A).
                  (E) The second sentence of section 607(h)(6)(A) of 
                the Merchant Marine Act, 1936.
  (b) Conforming Amendments.--
          (1) Section 1(h) is amended--
                  (A) by striking paragraphs (2) and (9),
                  (B) by redesignating paragraphs (3) through (8) as 
                paragraphs (2) through (7), respectively, and
                  (C) by redesignating paragraphs (10), (11), and (12) 
                as paragraphs (8), (9), and (10), respectively.
          (2) Paragraph (3) of section 55(b) is amended by striking 
        ``In the case of taxable years beginning after December 31, 
        2000, rules similar to the rules of section 1(h)(2) shall apply 
        for purposes of subparagraphs (B) and (C).''.
          (3) Paragraph (7) of section 57(a) is amended--
                  (A) by striking ``42 percent'' the first place it 
                appears and inserting ``7 percent'', and
                  (B) by striking the last sentence.
  (c) Transitional Rules for Taxable Years Which Include May 6, 2003.--
For purposes of applying section 1(h) of the Internal Revenue Code of 
1986 in the case of a taxable year which includes May 6, 2003--
          (1) The amount of tax determined under subparagraph (B) of 
        section 1(h)(1) of such Code shall be the sum of--
                  (A) 5 percent of the lesser of--
                          (i) the net capital gain determined by taking 
                        into account only gain or loss properly taken 
                        into account for the portion of the taxable 
                        year on or after May 6, 2003 (determined 
                        without regard to collectibles gain or loss, 
                        gain described in section 1(h)(6)(A)(i) of such 
                        Code, and section 1202 gain), or
                          (ii) the amount on which a tax is determined 
                        under such subparagraph (without regard to this 
                        subsection),
                  (B) 8 percent of the lesser of--
                          (i) the qualified 5-year gain (as defined in 
                        section 1(h)(9) of the Internal Revenue Code of 
                        1986, as in effect on the day before the date 
                        of the enactment of this Act) properly taken 
                        into account for the portion of the taxable 
                        year before May 6, 2003, over
                          (ii) the excess (if any) of--
                                  (I) the amount on which a tax is 
                                determined under such subparagraph 
                                (without regard to this subsection), 
                                over
                                  (II) the amount on which a tax is 
                                determined under subparagraph (A), plus
                  (C) 10 percent of the excess (if any) of--
                          (i) the amount on which a tax is determined 
                        under such subparagraph (without regard to this 
                        subsection), over
                          (ii) the sum of the amounts on which a tax is 
                        determined under subparagraphs (A) and (B).
          (2) The amount of tax determined under subparagraph (C) of 
        section (1)(h)(1) of such Code shall be the sum of--
                  (A) 15 percent of the lesser of--
                          (i) the excess (if any) of the amount of net 
                        capital gain determined under subparagraph 
                        (A)(i) of paragraph (1) of this subsection over 
                        the amount on which a tax is determined under 
                        subparagraph (A) of paragraph (1) of this 
                        subsection, or
                          (ii) the amount on which a tax is determined 
                        under such subparagraph (C) (without regard to 
                        this subsection), plus
                  (B) 20 percent of the excess (if any) of--
                          (i) the amount on which a tax is determined 
                        under such subparagraph (C) (without regard to 
                        this subsection), over
                          (ii) the amount on which a tax is determined 
                        under subparagraph (A) of this paragraph.
          (3) For purposes of applying section 55(b)(3) of such Code, 
        rules similar to the rules of paragraphs (1) and (2) of this 
        subsection shall apply.
          (4) In applying this subsection with respect to any pass-thru 
        entity, the determination of when gains and loss are properly 
        taken into account shall be made at the entity level.
          (5) For purposes of applying section 1(h)(11) of such Code, 
        as added by section 302 of this Act, to this subsection, 
        dividends which are qualified dividend income shall be treated 
        as gain properly taken into account for the portion of the 
        taxable year on or after May 6, 2003.
          (6) Terms used in this subsection which are also used in 
        section 1(h) of such Code shall have the respective meanings 
        that such terms have in such section.
  (d) Effective Dates.--
          (1) In general.--Except as otherwise provided by this 
        subsection, the amendments made by this section shall apply to 
        taxable years ending on or after May 6, 2003.
          (2) Withholding.--The amendment made by subsection (a)(2)(C) 
        shall apply to amounts paid after the date of the enactment of 
        this Act.
          (3) Small business stock.--The amendments made by subsection 
        (b)(3) shall apply to dispositions on or after May 6, 2003.

SEC. 302. DIVIDENDS OF INDIVIDUALS TAXED AT CAPITAL GAIN RATES.

  (a) In General.--Section 1(h) (relating to maximum capital gains 
rate), as amended by section 301, is amended by adding at the end the 
following new paragraph:
          ``(11) Dividends taxed as net capital gain.--
                  ``(A) In general.--For purposes of this subsection, 
                the term `net capital gain' means net capital gain 
                (determined without regard to this paragraph), 
                increased by qualified dividend income.
                  ``(B) Qualified dividend income.--For purposes of 
                this paragraph--
                          ``(i) In general.--The term `qualified 
                        dividend income' means dividends received 
                        during the taxable year from domestic 
                        corporations.
                          ``(ii) Certain dividends excluded.--Such term 
                        shall not include--
                                  ``(I) any dividend from a corporation 
                                which for the taxable year of the 
                                corporation in which the distribution 
                                is made, or the preceding taxable year, 
                                is a corporation exempt from tax under 
                                section 501 or 521,
                                  ``(II) any amount allowed as a 
                                deduction under section 591 (relating 
                                to deduction for dividends paid by 
                                mutual savings banks, etc.), and
                                  ``(III) any dividend described in 
                                section 404(k).
                          ``(iii) Exclusion of certain dividends.--Such 
                        term shall not include any dividend on any 
                        share of stock--
                                  ``(I) with respect to which the 
                                holding period requirements of section 
                                246(c) are not met, or
                                  ``(II) to the extent that the 
                                taxpayer is under an obligation 
                                (whether pursuant to a short sale or 
                                otherwise) to make related payments 
                                with respect to positions in 
                                substantially similar or related 
                                property.
                  ``(C) Special rules.--
                          ``(i) Amounts taken into account as 
                        investment income.--Qualified dividend income 
                        shall not include any amount which the taxpayer 
                        takes into account as investment income under 
                        section 163(d)(4)(B).
                          ``(ii) Extraordinary dividends.--If an 
                        individual receives, with respect to any share 
                        of stock, qualified dividend income from 1 or 
                        more dividends which are extraordinary 
                        dividends (within the meaning of section 
                        1059(c)), any loss on the sale or exchange of 
                        such share shall, to the extent of such 
                        dividends, be treated as long-term capital 
                        loss.
                          ``(iii) Treatment of dividends from regulated 
                        investment companies and real estate investment 
                        trusts.--A dividend received from a regulated 
                        investment company or a real estate investment 
                        trust shall be subject to the limitations 
                        prescribed in sections 854 and 857.''
  (b) Exclusion of Dividends From Investment Income.--Subparagraph (B) 
of section 163(d)(4) (defining net investment income) is amended by 
adding at the end the following flush sentence:
                ``Such term shall include qualified dividend income (as 
                defined in section 1(h)(11)(B)) only to the extent the 
                taxpayer elects to treat such income as investment 
                income for purposes of this subsection.''
  (c) Treatment of Dividends From Regulated Investment Companies.--
          (1) Subsection (a) of section 854 (relating to dividends 
        received from regulated investment companies) is amended by 
        inserting ``section 1(h)(11) (relating to maximum rate of tax 
        on dividends and interest) and'' after ``For purposes of''.
          (2) Paragraph (1) of section 854(b) (relating to other 
        dividends) is amended by redesignating subparagraph (B) as 
        subparagraph (C) and by inserting after subparagraph (A) the 
        following new subparagraph:
                  ``(B) Maximum rate under section 1(h).--
                          ``(i) In general.--If the aggregate dividends 
                        received by a regulated investment company 
                        during any taxable year are less than 95 
                        percent of its gross income, then, in computing 
                        the maximum rate under section 1(h)(11), rules 
                        similar to the rules of subparagraph (A) shall 
                        apply.
                          ``(ii) Gross income.--For purposes of clause 
                        (i), in the case of 1 or more sales or other 
                        dispositions of stock or securities, the term 
                        `gross income' includes only the excess of--
                                  ``(I) the net short-term capital gain 
                                from such sales or dispositions, over
                                  ``(II) the net long-term capital loss 
                                from such sales or dispositions.''
          (3) Subparagraph (C) of section 854(b)(1), as redesignated by 
        paragraph (2), is amended by striking ``subparagraph (A)'' and 
        inserting ``subparagraph (A) or (B)''.
          (4) Paragraph (2) of section 854(b) is amended by inserting 
        ``the maximum rate under section 1(h)(11) and'' after ``for 
        purposes of''.
          (5) Subsection (b) of section 854 is amended by adding at the 
        end the following new paragraph:
          ``(5) Coordination with section 1(h)(11).--For purposes of 
        paragraph (1)(B), an amount shall be treated as a dividend only 
        if the amount is qualified dividend income (within the meaning 
        of section 1(h)(11)(B)).''
  (d) Treatment of Dividends Received From Real Estate Investment 
Trusts.--Section 857(c) (relating to restrictions applicable to 
dividends received from real estate investment trusts) is amended to 
read as follows:
  ``(c) Restrictions Applicable To Dividends Received From Real Estate 
Investment Trusts.--
          ``(1) Section 243.--For purposes of 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 a dividend.
          ``(2) Section 1(h)(11).--For purposes of section 1(h)(11) 
        (relating to maximum rate of tax on dividends), rules similar 
        to the rules of section 854(b)(1)(B) shall apply to dividends 
        received from a real estate trust which meets the requirements 
        of this part.''
  (e) Conforming Amendments.--
          (1) Paragraph (3) of section 1(h), as redesignated by section 
        301, is amended to read as follows:
          ``(3) Adjusted net capital gain.--For purposes of this 
        subsection, the term `adjusted net capital gain' means the sum 
        of--
                  ``(A) net capital gain (determined without regard to 
                paragraph (11)) reduced (but not below zero) by the sum 
                of--
                          ``(i) unrecaptured section 1250 gain, and
                          ``(ii) 28-percent rate gain, plus
                  ``(B) qualified dividend income (as defined in 
                paragraph (11)).''
          (2) Subsection (f) of section 301 is amended adding at the 
        end the following new paragraph:
          ``(4) For taxation of dividends received by individuals at 
        capital gain rates, see section 1(h)(11).''
          (3) Paragraph (1) of section 306(a) is amended by adding at 
        the end the following new subparagraph:
                  ``(D) Treatment as dividend.--For purposes of section 
                l(h)(11), any amount treated as ordinary income under 
                this paragraph shall be treated as a dividend received 
                from the corporation.''
          (4)(A) Subpart C of part II of subchapter C of chapter 1 
        (relating to collapsible corporations) is repealed.
          (B)(i) Section 338(h) is amended by striking paragraph (14).
          (ii) Sections 467(c)(5)(C), 1255(b)(2), and 1257(d) are each 
        amended by striking ``, 341(e)(12),''.
          (iii) The table of subparts for part II of subchapter C of 
        chapter 1 is amended by striking the item related to subpart C.
          (5) Section 531 is amended by striking ``equal to'' and all 
        that follows and inserting ``equal to 15 percent of the 
        accumulated taxable income.''
          (6) Section 541 is amended by striking ``equal to'' and all 
        that follows and inserting ``equal to 15 percent of the 
        undistributed personal holding company income.''
          (7) Section 584(c) is amended by adding at the end the 
        following new flush sentence:
``The proportionate share of each participant in the amount of 
dividends received by the common trust fund and to which section 
1(h)(11) applies shall be considered for purposes of such paragraph as 
having been received by such participant.''
          (8) Paragraph (5) of section 702(a) is amended to read as 
        follows:
          ``(5) dividends with respect to which section 1(h)(11) or 
        part VII of subchapter B applies,''.
  (f) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 303. SUNSET OF TITLE.

  All provisions of, and amendments made by, this title shall not apply 
to taxable years beginning after December 31, 2012, and the Internal 
Revenue Code of 1986 shall be applied and administered to such years as 
if such provisions and amendments had never been enacted.

          TITLE IV--CORPORATE ESTIMATED TAX PAYMENTS FOR 2003

SEC. 401. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

  Notwithstanding section 6655 of the Internal Revenue Code of 1986, 52 
percent of the amount of any required installment of corporate 
estimated tax which is otherwise due in September 2003 shall not be due 
until October 1, 2003.

  Amend the title so as to read:

      A bill to provide for reconciliation pursuant to section 
201 of the concurrent resolution on the budget for fiscal year 
2004.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 2, as amended, provides needed economic 
growth incentives and makes other necessary changes to the tax 
laws.
    The bill provides net tax reductions of over $475 billion 
over fiscal years 2003-2008. This will provide needed income 
tax relief, stimulate the economy, and promote long-term 
economic growth.
    The amount of the child credit is increased to $1,000 for 
2003 through 2005. For 2003, the increased amount of the child 
credit will be paid in advance beginning in July 2003 on the 
basis of information on each taxpayer's 2002 return filed in 
2003. Advance payments will be made in a similar manner to the 
advance payment checks issued by the Treasury in 2001 to 
reflect the creation of the 10-percent regular income tax rate 
bracket.
    The accelerates the increase in the basic standard 
deduction amount for joint returns to twice the basic standard 
deduction amount for single returns effective for 2003, 2004, 
and 2005. Also, the bill accelerates the increase of the size 
of the 15-percent regular income tax rate bracket for joint 
returns to twice the width of the 15-percent regular income tax 
rate bracket for single returns effective for 2003, 2004, and 
2005.
    The bill accelerates the scheduled increase in the taxable 
income levels for the ten-percent rate bracket from 2008 to 
2003, 2004, and 2005. Also, the bill accelerates the reductions 
in the regular income tax rates in excess of the 15-percent 
regular income tax rate that are scheduled for 2004 and 2006. 
The bill increases the AMT exemption amount for married 
taxpayers filing a joint return and surviving spouses to 
$64,000, and for unmarried taxpayers to $43,250, for taxable 
years beginning in 2003, 2004, and 2005.
    The bill provides an additional first-year depreciation 
deduction equal to 50 percent of the adjusted basis of 
qualified property. Qualified property is defined in the same 
manner as for purposes of the 30-percent additional first-year 
depreciation deduction provided by the Job Creation and Workers 
Assistance Act of 2002, except that the applicable time period 
for acquisition (or self construction) of the property is 
modified. In general, in order to qualify the property must be 
acquired after May 5, 2003, and before January 1, 2006, and no 
binding written contract for the acquisition is in effect 
before May 6, 2003. Property eligible for the 50-percent 
additional first year depreciation deduction is not eligible 
for the 30-percent additional first year depreciation 
deduction.
    The bill provides that the maximum dollar amount that may 
be deducted under section 179 is increased to $100,000 for 
property placed in service in 2003 through 2007. In addition, 
the $200,000 amount is increased to $400,000 for property 
placed in service in 2003 through 2007. Both of these dollar 
limitations are indexed annually for inflation for taxable 
years beginning after 2003 and before 2008. The bill also 
includes off-the-shelf computer software placed in service 
beginning in 2003 through 2007, as qualifying property. With 
respect to a taxable year beginning after 2002 and before 2008, 
the bill permits taxpayers to make or revoke expensing 
elections on amended returns without the consent of the 
Commissioner.
    The bill reduces the 10- and 20-percent rates on the 
adjusted net capital gain to five and 15 percent, respectively. 
These lower rates apply to both the regular tax and the 
alternative minimum tax. The lower rates apply to assets held 
more than one year. The bill applies to taxable years ending on 
or after May 6, 2003, and beginning before January 1, 2013.
    Finally, under the bill, dividends received by an 
individual shareholder from domestic corporations are treated 
as net capital gain for purposes of applying the capital gain 
tax rates. This treatment applies for purposes of both the 
regular tax and the alternative minimum tax. Thus, under the 
proposal, dividends will be taxed at rates of five and 15 
percent, the same rates applicable to net capital gain.

                 B. Background and Need for Legislation

    The provisions of the bill reflect the need for an economic 
stimulus and growth package in a financially prudent manner. 
The provisions of the bill should serve to improve the economy. 
The bill also comports with the continuing goal to provide 
additional tax relief to the American people.

                         C. Legislative History

    The House Committee on Ways and Means marked up the Jobs 
and Growth Reconciliation Tax Act of 2003 on May 6, 2003, and 
ordered the bill, as amended, favorably reported by a vote of 
24 to 15.

                      II. EXPLANATION OF THE BILL


   TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS


           A. Accelerate the Increase in the Child Tax Credit


(Sec. 101 of the bill and sec. 224 of the Code)

                              PRESENT LAW

In general

    For 2003, an individual may claim a $600 tax credit for 
each qualifying child under the age of 17. In general, a 
qualifying child is an individual for whom the taxpayer can 
claim a dependency exemption and who is the taxpayer's son or 
daughter (or descendent of either), stepson or stepdaughter (or 
descendent of either), or eligible foster child.
    The child tax credit is scheduled to increase to $1,000, 
phased in over several years.
    Table 1, below, shows the scheduled increases of the child 
tax credit as provided under the Economic Growth and Tax Relief 
Reconciliation Act of 2001 (``EGTRRA'').

          TABLE 1.--SCHEDULED INCREASE OF THE CHILD TAX CREDIT
------------------------------------------------------------------------
                                                                Credit
                        Taxable year                          amount per
                                                                child
------------------------------------------------------------------------
2003-2004..................................................         $600
2005-2008..................................................          700
2009.......................................................          800
2010 \1\...................................................        1,000
------------------------------------------------------------------------
\1\ The credit reverts to $500 in taxable years beginning after December
  31, 2010, under the sunset provision of EGTRRA.

    The child tax credit is phased out for individuals with 
income over certain thresholds. Specifically, the otherwise 
allowable child tax credit is reduced by $50 for each $1,000 
(or fraction thereof) of modified adjusted gross income over 
$75,000 for single individuals or heads of households, $110,000 
for married individuals filing joint returns, and $55,000 for 
married individuals filing separate returns.\1\ The length of 
the phase-out range depends on the number of qualifying 
children. For example, the phase-out range for a single 
individual with one qualifying child is between $75,000 and 
$85,000 of modified adjusted gross income. The phase-out range 
for a single individual with two qualifying children is between 
$75,000 and $95,000.
---------------------------------------------------------------------------
    \1\ Modified adjusted gross income is the taxpayer's total gross 
income plus certain amounts excluded from gross income (i.e., excluded 
income of U.S. citizens or residents living abroad (sec. 911); 
residents of Guam, American Samoa, and the Northern Mariana Islands 
(sec. 931); and residents of Puerto Rico (sec. 933)).
---------------------------------------------------------------------------
    The amount of the tax credit and the phase-out ranges are 
not adjusted annually for inflation.

Refundability

    For 2003, the child credit is refundable to the extent of 
10 percent of the taxpayer's earned income in excess of 
$10,500.\2\ The percentage is increased to 15 percent for 
taxable years beginning in 2005 and thereafter. Families with 
three or more children are allowed a refundable credit for the 
amount by which the taxpayer's social security taxes exceed the 
taxpayer's earned income credit, if that amount is greater than 
the refundable credit based on the taxpayer's earned income in 
excess of $10,500 (for 2003). The refundable portion of the 
child credit does not constitute income and is not treated as 
resources for purposes of determining eligibility or the amount 
or nature of benefits or assistance under any Federal program 
or any State or local program financed with Federal funds. For 
taxable years beginning after December 31, 2010, the sunset 
provision of EGTRRA applies to the rules allowing refundable 
child credits.
---------------------------------------------------------------------------
    \2\ The $10,500 amount is indexed for inflation.
---------------------------------------------------------------------------

Alternative minimum tax liability

    The child credit is allowed against the individual's 
regular income tax and alternative minimum tax. For taxable 
years beginning after December 31, 2010, the sunset provision 
of EGTRRA applies to the rules allowing the child credit 
against alternative minimum tax.

                           REASONS FOR CHANGE

    This provision accelerates the increase in the child tax 
credit in order to provide additional tax relief to families to 
help offset the significant costs of raising a child. Further, 
the bill provides immediate tax relief to American taxpayers in 
the form of the advance payment of the increased amount of the 
child credit. The Committee believes that such immediate tax 
relief may encourage short-term growth in the economy by 
providing individuals with additional cash to spend.

                        EXPLANATION OF PROVISION

    The amount of the child credit is increased to $1,000 for 
2003 through 2005. After 2005, the child credit will revert to 
the levels provided under present law. For 2003, the increased 
amount of the child credit will be paid in advance beginning in 
July, 2003, on the basis of information on each taxpayer's 2002 
return filed in 2003. Such payments will be made in a manner 
similar to the advance payment checks issued by the Treasury in 
2001 to reflect the creation of the 10-percent regular income 
tax rate bracket.\3\
---------------------------------------------------------------------------
    \3\ The increase in refundability to 15 percent of the taxpayer's 
earned income, scheduled for calendar years 2005 and thereafter, is not 
accelerated under the provision.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2002, and before January 1, 2006.

                 B. Accelerate Marriage Penalty Relief


(Secs. 102 and 103 of the bill and secs. 1 and 63 of the Code)

1. Standard deduction marriage penalty relief

                              PRESENT LAW

Marriage penalty

    A married couple generally is treated as one tax unit that 
must pay tax on the couple's total taxable income. Although 
married couples may elect to file separate returns, the rate 
schedules and other provisions are structured so that filing 
separate returns usually results in a higher tax than filing a 
joint return. Other rare schedules apply to single persons and 
to single heads of households.
    A ``marriage penalty'' exists when the combined tax 
liability of a married couple filing a joint return is greater 
than the sum of the tax liabilities of each individual computed 
as if they were not married. A ``marriage bonus'' exists when 
the combined tax liability of a married couple filing a joint 
return is less than the sum of the tax liabilities of each 
individual computed as if they were not married.

Basic standard deduction

    Taxpayers who do not itemize deductions may choose the 
basic standard deduction (and additional standard deductions, 
if applicable),\4\ which is subtracted from adjusted gross 
income (``AGI'') in arriving at taxable income. The size of the 
basic standard deduction varies according to filing status and 
is adjusted annually for inflation.\5\ For 2003, the basic 
standard deduction for married couples filing a joint return is 
167 percent of the basic standard deduction for single filers. 
(Alternatively, the basic standard deduction amount for single 
filers is 60 percent of the basic standard deduction amount for 
married couples filing joint returns.) Thus, two unmarried 
individuals have standard deductions whose sum exceeds the 
standard deduction for a married couple filing a joint return.
---------------------------------------------------------------------------
    \4\ Additional standard deductions are allowed with respect to any 
individual who is elderly (age 65 or over) or blind.
    \5\ For 2003 the basic standard deduction amounts are: (1) $4,750 
for unmarried individuals; (2) $7,950 for married individuals filing a 
joint return; (3) $7,000 for heads of households; and (4) $3,975 for 
married individuals filing separately.
---------------------------------------------------------------------------
    The Economic Growth and Tax Relief Reconciliation Act of 
2001 (``EGTRRA'') increased the basic standard deduction for a 
married couple filing a joint return to twice the basic 
standard deduction for an unmarried individual filing a single 
return.\6\ The increase in the standard deduction for married 
taxpayers filing a joint return is scheduled to be phased-in 
over five years beginning in 2005 and will be fully phased-in 
for 2009 and thereafter. Table 2, below, shows the standard 
deduction for married couples filing a joint return as a 
percentage of the standard deduction for single individuals 
during the phase-in period.
---------------------------------------------------------------------------
    \6\ The basic standard deduction for a married taxpayer filing 
separately will continue to equal one-half of the basic standard 
deduction for a married couple filing jointly; thus, the basic standard 
deduction for unmarried individuals filing a single return and for 
married couples filing separately will be the same after the phase-in 
period.

TABLE 2.--SCHEDULED PHASE-IN OF INCREASE OF THE BASIC STANDARD DEDUCTION
                FOR MARRIED COUPLES FILING JOINT RETURNS
------------------------------------------------------------------------
                                                 Standard deduction for
                                                 married couples filing
                                                    joint returns as
                 Taxable year                    percentage of standard
                                                 deduction for unmarried
                                                   individual returns
------------------------------------------------------------------------
2005..........................................                      174
2006..........................................                      184
2007..........................................                      187
2008..........................................                      190
2009 and 2010 \1\.............................                      200
------------------------------------------------------------------------
\1\ The basic standard deduction increases are repealed for taxable
  years beginning after December 31, 2010, under the sunset provision of
  EGTRRA.

                           REASONS FOR CHANGE

    The Committee remains concerned about the inequity that 
arises when two working single individuals marry and experience 
a tax increase solely be reason of their marriage. Any attempt 
to address the marriage tax penalty involves the balancing of 
several competing principles, including equal tax treatment of 
married couples with equal incomes, the determination of 
equitable relative tax burdens of single individuals and 
married couples with equal incomes, and the goal of simplicity 
in compliance and administration. The Committee believes that 
the acceleration of the increase in the standard deduction for 
married couples filing a joint return is a responsible 
reduction of the marriage tax penalty.

                        EXPLANATION OF PROVISION

    The bill accelerates the increase in the basic standard 
deduction amount for joint returns to twice the basic standard 
deduction amount for single returns effective for 2003, 2004, 
and 2005. For taxable years beginning after 2005, the 
applicable percentages will revert to those allowed under 
present law, as described above.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2002, and before January 1, 2006.

2. Accelerate the expansion of the 15-percent rate bracket for married 
        couples filing joint returns

                              PRESENT LAW

In general

    Under the Federal individual income tax system, an 
individual who is a citizen or resident of the United States 
generally is subject to tax on worldwide taxable income. 
Taxable income is total gross income less certain less certain 
exclusions, exemptions, and deductions. An individual may claim 
either a standard deduction or itemized deductions.
    An individual's income tax liability is determined by 
computing his or her regular income tax liability and, if 
applicable, alternative minimum tax liability.

Regular income tax liability

    Regular income tax liability is determined by applying the 
regular income tax rate schedules (or tax tables) to the 
individual's taxable income and then is reduced by any 
applicable tax credits. The regular income tax rate schedules 
are divided into several ranges of income, known as income 
brackets, and the marginal tax rate increases as the 
individual's income increases. The income bracket amounts are 
adjusted annually for inflation. Separate rate schedules apply 
based on filing status: single individuals (other than heads of 
households and surviving spouses), heads of households, married 
individuals filing joint returns (including surviving spouses), 
married individuals filing separate returns, and estates and 
trusts. Lower rates may apply to capital gains.
    In general, the bracket breakpoints for single individuals 
are approximately 60 percent of the rate bracket breakpoints 
for married couples filing joint returns.\7\ The rate bracket 
breakpoints for married individuals filing separate returns are 
exactly one-half of the rate brackets for married individuals 
filing joint returns. A separate, compressed rate schedule 
applies to estates and trusts.
---------------------------------------------------------------------------
    \7\ Under present law, the rate bracket breakpoint for the 38.6 
percent marginal tax rate is the same for single individuals and 
married couples filing joint returns. Present-law rate changes do not 
alter this breakpoint.
---------------------------------------------------------------------------

15-percent regular income tax rate bracket

    The Economic Growth and Tax Relief Reconciliation Act of 
2001 (``EGTRRA'') increased the size of the 15-percent regular 
income tax rate bracket for a married couple filing a joint 
return to twice the size of the corresponding rate bracket for 
a single individual filing a single return. The increase is 
phased-in over four years, beginning in 2005. Therefore, this 
provision is fully effective (i.e., the size of the 15-percent 
regular income tax rate bracket for a married couple filing a 
joint return is twice the size of the 15-percent regular income 
tax rate bracket for an unmarried individual filing a single 
return) for taxable years beginning after December 31, 2007, 
Table 3, below, shows the increase in the size of the 15-
percent bracket during the phase-in period.

 TABLE 3.--SCHEDULED INCREASE IN SIZE OF THE 15-PERCENT RATE BRACKET FOR
                  MARRIED COUPLES FILING JOINT RETURNS
------------------------------------------------------------------------
                                                 End point of 15-percent
                                                rate bracket for married
                                                  couples filing joint
                 Taxable year                   returns as percentage of
                                                 end point of 15-percent
                                                    rate bracket for
                                                  unmarried individuals
------------------------------------------------------------------------
2005..........................................                      180
2006..........................................                      187
2007..........................................                      193
2008 through 2010 \1\.........................                      200
------------------------------------------------------------------------
\1\ The increases in the 15-percent rate bracket for married couples
  filing a joint return are repealed for taxable years beginning after
  December 31, 2010, under the sunset of EGTRRA.

                           REASONS FOR CHANGE

    The Committee believes that accelerating the expansion of 
the 15-percent rate bracket for married couples filing joint 
returns, in conjunction with the expansion of the standard 
deduction amount for joint filers, will alleviate the effects 
of the present-law marriage tax penalty. These provisions 
significantly reduce the most widely applicable marriage 
penalties.

                        EXPLANATION OF PROVISION

    The bill accelerates the increase of the size of the 15-
percent regular income tax rate bracket for joint returns to 
twice the width of the 15-percent regular income tax rate 
bracket for single returns for taxable years beginning in 2003, 
2004, and 2005. For taxable years beginning after 2005, the 
applicable percentages will revert to those allowed under 
present law, as described above.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2002, and before January 1, 2006.

  C. Accelerate Reductions in Individual Income Tax Rates (Secs. 104, 
        105, and 106 of the bill and secs. 1 and 55 of the Code)


                              PRESENT LAW

In general

    Under the Federal individual incomes tax system, an 
individual who is a citizen or a resident of the United States 
generally is subject to tax on worldwide taxable income. 
Taxable income is total gross income less certain exclusions, 
exemptions, and deductions. An individual may claim either a 
standard deduction or itemized deductions.
    An individual's income tax liability is determined by 
computing his or her regular income tax liability and, if 
applicable, alternative minimum tax liability.

Regular income tax liability

    Regular income tax liability is determined by applying the 
regular income tax rate schedules (or tax tables) to the 
individual's taxable income. This tax liability is then reduced 
by any applicable tax credits. The regular income tax schedules 
are divided into several ranges of income, known as income 
brackets, and the marginal tax rate increases as the 
individual's income increases. The income bracket amounts are 
adjusted annually for inflation. Separate rate schedules apply 
based on filing status: single individuals (other than heads of 
households and surviving spouses), head of households, married 
individuals filing joint returns (including surviving spouses), 
married individuals filing separate returns, and estates and 
trusts. Lower rates may apply to capital gains.
    For 2003, the regular income tax rate schedules for 
individuals are shown in Table 4, below. The rate bracket 
breakpoints for married individuals filing separate returns are 
exactly one-half of the rate brackets for married individuals 
filing joint returns. A separate, compressed rate schedule 
applies to estates and trusts.

                             TABLE 4.--INDIVIDUAL REGULAR INCOME TAX RATES FOR 2003
----------------------------------------------------------------------------------------------------------------
     If taxable income is over       But not over                  Then regular income tax equals
----------------------------------------------------------------------------------------------------------------
                                               Single individuals
$0.................................        $6,000  10% of taxable income.
$6,000.............................       $28,400  $600 plus 15% of the amount over $6,000.
$28,400............................       $68,800  $3,960, plus 27% of the amount over $28,400.
$68,800............................      $143,500  $14,868, plus 30% of the amount over $68,800.
$143,500...........................      $311,950  $37,278, plus 35% of the amount over $143,500.
Over $311,950......................  ............  $96,235.50, plus 38.6% of the amount over $311,950.
                                               Head of households
$0.................................       $10,000  10% of taxable income.
$10,000............................       $38,050  $1,000, plus 15% of the amount over $10,000.
$38,050............................       $98.250  $5,207.50, plus 27% of the amount over $38,050.
$98,250............................      $159,100  $21,461.50, plus 30% of the amount over $98,250.
$159,100...........................      $311,950  $39,716.50 plus 35% of the amount over $159,100.
Over $311,950......................  ............  $93,214, plus 38.6% of the amount over $311,950.
                                    Married individuals filing joint returns
$0.................................       $12,000  10% of taxable income.
$12,000............................       $47,450  $1,200 plus 15% of the amount over $12,000.
$47,450............................      $114,650  $6,517.50, plus 27% of the amount over $47,450.
$114,650...........................      $174,700  $24,661.50, plus 30% of the amount over $114,650.
$174,700...........................      $311,950  $42,676.50, plus 35% of the amount over $174,700.
Over $311,950......................  ............  $90,714, plus 38.6% of the amount over $311,950.
----------------------------------------------------------------------------------------------------------------

Ten-percent regular income tax rate

    Under present law, the 10-percent rate applies to the first 
$6,000 of taxable income for single individuals, $10,000 of 
taxable income for heads of households, and $12,000 for married 
couples filing joint returns. Effective beginning in 2008, the 
$6,000 amount will increase to $7,000 and the $12,000 amount 
will increase to $14,000.
    The taxable income levels for the 10-percent rate bracket 
will be adjusted annually for inflation for taxable years 
beginning after December 31, 2008. The bracket for single 
individuals and married individuals filing separately is one-
half for joint returns (after adjustment of that bracket for 
inflation).
    The 10-percent rate bracket will expire for taxable years 
beginning after December 31, 2010, the sunset provision of 
EGTRRA.

Reduction of other regular income tax rates

    Prior to EGTRRA the regular income tax rates were 15 
percent, 28 percent, 31 percent, 36 percent, and 39.6 
percent.\8\ EGTRRA added the 10-percent regular income tax 
rate, described above, and retained the 15-percent regular 
income tax rate. Also, the 15-percent regular income tax 
bracket was modified to begin at the end of the 10-percent 
regular income tax bracket. EGTRRA also made other changes to 
the 15-percent regular income tax bracket.\9\
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    \8\ The regular income tax rates will revert to these percentages 
for taxable years beginning after December 31, 2010 under the sunset 
provision of EGTRRA.
    \9\ See the discussion of the provision regarding marriage penalty 
relief in the 15-percent regular income tax bracket, above.
---------------------------------------------------------------------------
    Also, under EGTRRA, the 28 percent, 31 percent, 36 percent, 
and 39.6 percent rates are phased down over six years to 25 
percent, 28 percent, 33 percent, and 35 percent, effective 
after June 30, 2001. The taxable income levels for the rates 
above the 15-percent rate in all taxable years are the same as 
the taxable income levels that apply under the prior-law rates.
    Table 5, below, shows the schedule of regular income tax 
rate reductions.

                             TABLE 5.--SCHEDULED REGULAR INCOME TAX RATE REDUCTIONS
----------------------------------------------------------------------------------------------------------------
                                                                28% rate     31% rate     36% rate    39.6% rate
                        Calendar year                          reduced to   reduced to   reduced to   reduced to
----------------------------------------------------------------------------------------------------------------
2001 \1\-2003...............................................          27%          30%          35%        38.6%
2004-2005...................................................          26%          29%          34%        37.6%
2006-2010 \2\...............................................           25          28%          35%        35.0%
----------------------------------------------------------------------------------------------------------------
\1\ Effective July 1, 2001.
\2\ The reductions in the regular income tax rates are repealed for taxable years beginning after December 31,
  2010, under the sunset of EGTRRA.

Alternative minimum tax

    The alternative minimum tax is the amount by which the 
tentative minimum tax exceeds the regular income tax. An 
individual's tentative minimum tax is an amount equal (1) 26 
percent of the first $175,000 ($87,500 in the case in the case 
of a married individual filing a separate return) of 
alternative minimum taxable income (``AMTI'') in excess of a 
phased-out exemption amount and (2) 28 percent of the remaining 
ATMI. The maximum tax rates on the net capital gain used in 
computing the tentative minimum tax are the same as under the 
regular tax. AMTI is the individual's taxable income adjusted 
to take account of specified preferences and adjustments. The 
exemption amounts are: (1) $49,000 ($45,000 in taxable years 
beginning after 2004) in the case of married individuals filing 
joint returns and surving spouses (2) $35,750 ($33,750 in 
taxable years, beginning after 2004) in the case of other 
unmarried individuals; (3) $24,500 ($22,500 in txable years 
beginning after 2004) in the case of married individuals filing 
a separate return; and (4) $22,500 in the case of an estate or 
trust. The exemption amounts are phased out by an amount equal 
to 25 percent of the amount by which the individual's AMTI 
exceeds (1) $150,000 in the case of married individuals filing 
joint returns and surviving spouses, (2) $112,500 in the case 
of other unmarried individuals, and (3) 75,0000 in the case of 
married individuals filing separate returns or an estate or a 
trust. These amounts are not indexed for inflation.

                           REASONS FOR CHANGE

    The Committee believes that high marginal individual income 
tax rates reduce incentives for taxpayers to work, to save, and 
to invest and, thereby, have a negative effect on the long-term 
health of the economy. The higher that marginal tax rates are, 
the greater is the disincentive for individuals to increase 
their work effort. Lower marginal tax rates provide greater 
incentives to taxpayers to be entrepreneurial risk takers; the 
Committee believes that the high marginal tax rates of prior-
law discourage success. The Committee believes that this tax 
cut will lead to increased investment by these businesses, 
promoting long-term growth and stability in the economy and 
rewarding the businessmen and women who provide a foundation 
for our country's success.
    In addition, lower marginal tax rates help remove the 
barriers that lower-income families face as they try to enter 
the middle class. The lower the marginal tax rates for lower-
income families, the greater is the incentive to work. The 
expanded 10-percent rate bracket provides an incentive for 
these taxpayers to increase their work effort.
    Finally, there are signs that the economy is not growing as 
fast as desirable. The Committee believes that immediate tax 
relief could encourage growth in the economy by providing 
individuals with additional tax relief.

                       EXPLANATION OF PROVISIONS

10-percent regular income tax rate

    The bill accelerates the increase in the taxable income 
levels for the 10-percent rate bracket now scheduled for 2008 
to be effective in 2003, 2004, and 2005. Specifically, for 
2003, 2004, and 2005, the proposal increases the taxable income 
level for the 10-percent regular income tax rate brackets for 
unmarried individuals from $6,000 to $7,000 and for married 
individuals filing jointly from $12,000 to $14,000. The taxable 
income levels for the 10-percent regular income tax rate 
bracket will be adjusted annually for inflation for taxable 
years beginning after December 31, 2003.
    For taxable years beginning after December 31, 2005, the 
taxable income levels for the 10-percent rate bracket will 
revert to the levels allowed under present law. Therefore, for 
2006 and 2007, the levels will revert to $6,000 for unmarried 
individuals and $12,000 for married individuals filing jointly. 
In 2008, the taxable income levels for the 10-percent regular 
income tax rate brackets will be $7,000 for unmarried 
individuals and $12,000 for married individuals filing jointly. 
The taxable income levels for the 10-percent rate bracket will 
be adjusted annually for inflation for taxable years beginning 
after December 31, 2008.

Reduction of other regular income tax rates

    The bill accelerates the reductions in the regular income 
tax rates in excess of the 15-percent regular income tax rate 
that are scheduled for 2004 and 2006. Therefore, for 2003 and 
thereafter, the regular income tax rates in excess of 15 
percent under the proposal are 25 percent, 28 percent, 33 
percent, and 35 percent.

Alternative minimum tax exemption amounts

    The bill increases the AMT exemption amount for married 
taxpayers filing joint returns and surviving spouses to 
$64,000, and for unmarried taxpayers to $43,250, for taxable 
years beginning in 2003, 2004, and 2005.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2002 and before January 1, 2006.

                TITLE II--GROWTH INCENTIVES FOR BUSINESS


         A. Special Depreciation Allowance for Certain Property


(Sec. 201 of the bill and sec. 168 of the Code)

                              PRESENT LAW

In general

    A taxpayer is allowed to recover, through annual 
depreciation deductions, the cost of certain property used in a 
trade or business or for the production of income. The amount 
of the depreciation deduction allowed with respect to tangible 
property for a taxable year is determined under the modified 
accelerated cost recovery system (``MACRS''). Under MACRS, 
different types of property generally are assigned applicable 
recovery periods and depreciation methods. The recovery periods 
applicable to most tangible personal property (generally 
tangible property other than residential rental property and 
nonresidential real property) range from 3 to 25 years. The 
depreciation methods generally applicable to tangible personal 
property are the 200-percent and 150-percent declining balance 
methods, switching to the straight-line method for the taxable 
year in which the depreciation deduction would be maximized.
    Section 280F limits the annual depreciation deductions with 
respect to passenger automobiles to specified dollar amounts, 
indexed for inflation.
    Section 167(f)(1) provides that capitalized computer 
software costs, other than computer software to which section 
197 applies, are recovered ratably over 36 months.
    In lieu of depreciation, a taxpayer with a sufficiently 
small amount of annual investment generally may elect to deduct 
up to $25,000 of the cost of qualifying property placed in 
service for the taxable year (sec. 179). In general, qualifying 
property is defined as depreciable tangible personal property 
that is purchased for use in the active conduct of a trade or 
business.

Additional first year depreciation deduction

    The Job Creation and Worker Assistance Act of 2002 \10\ 
(``JCWAA'') allows an additional first-year depreciation 
deduction equal to 30 percent of the adjusted basis of 
qualified property.\11\ The amount of the additional first-year 
depreciation deduction is not affected by a short taxable year. 
The additional first-year depreciation deduction is allowed for 
both regular tax and alternative minimum tax purposes for the 
taxable year in which the property is placed in service.\12\ 
The basis for the property and the depreciation allowances in 
the year of purchase and later years are appropriately adjusted 
to reflect the additional first-year depreciation deduction. In 
addition, there are no adjustments to the allowable amount of 
depreciation for purposes of computing a taxpayer's alternative 
minimum taxable income with respect to property to which the 
provision applies. A taxpayer is allowed to elect out of the 
additional first-year depreciation for any class of property 
for any taxable year.
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    \10\ Pub. Law No. 107-147, sec. 101 (2002).
    \11\ The additional first-year depreciation deduction is subject to 
the general rules regarding whether an item is deductible under section 
162 or subject to capitalization under section 263 or section 263A.
    \12\ However, the additional first-year depreciation deduction is 
not allowed for purposes of computing earnings and profits.
---------------------------------------------------------------------------
    In order for property to qualify for the additional first-
year depreciation deduction it must meet all of the following 
requirements. First, the property must be property (1) to which 
MACRS applies with an applicable recovery period of 20 years or 
less, (2) water utility property (as defined in section 
168(e)(5)), (3) computer software other than computer software 
covered by section 197, or (4) qualified leasehold improvement 
property (as defined in section 168(k)(3)).\13\ Second, the 
original use \14\ of the property must commence with the 
taxpayer on or after September 11, 2001.\15\ Third, the 
taxpayer must purchase the property within the applicable time 
period. Finally, the property must be placed in service before 
January 1, 2005. An extension of the placed in service date of 
one year (i.e., January 1, 2006) is provided for certain 
property with a recovery period of ten years or longer and 
certain transportation property.\16\ Transportation property is 
defined as tangible personal property used in the trade or 
business of transporting persons or property.
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    \13\ A special rule precludes the additional first-year 
depreciation deduction for any property that is required to be 
depreciated under the alternative depreciation system of MACRS.
    \14\ The term ``original use'' means the first use to which the 
property is put, whether or not such use corresponds to the use of such 
property by the taxpayer.
    If in the normal course of its business a taxpayer sells fractional 
interests in property to unrelated third parties, then the original use 
of such property begins with the first user of each fractional interest 
(i.e., each fractional owner is considered the original user of its 
proportionate share of the property.
    \15\ A special rule applies in the case of certain leased property. 
In the case of any property that is originally placed in service by a 
person and that is sold to the taxpayer and leased back to such person 
by the taxpayer within three months after the date that the property 
was placed in service, the property would be treated as originally 
placed in service by the taxpayer not earlier than the date that the 
property misused under the lease back.
    If property is originally placed in service by a lessor (including 
by operation of section 168(k)(2)(D)(i), such property is sold within 
three months after the date that the property was placed service,and 
the user of such property does not change, then the property is treated 
as originally placed in service by the taxpayer not earlier than the 
date of such sale. A technical correction may be needed so the statute 
reflects this intent.
    \16\ In order for property to qualify for the extended placed in 
service data, the property is required to have a production period 
exceeding two years or an estimated production period exceeding one 
year and a cost exceeding $1 million.
---------------------------------------------------------------------------
    The applicable time period for acquired property is (1) 
after September 10, 2001 and before September 11, 2004, but 
only if no binding written contract for the acquisition is in 
effect before September 11, 2001, or (2) pursuant to a binding 
written contract which was entered into after September 10, 
2001, and before September 11, 2004.\17\ With respect to 
property that is manufactured, constructed, or produced by the 
taxpayer for use by the taxpayer, the taxpayer must begin the 
manufacture, construction, or production or the property after 
September 10, 2001, and before September 11, 2004. Property 
that is manufactured, constructed, or produced for the taxpayer 
by another person under a contract that is entered into prior 
to the manufacture, construction, or production of the property 
is considered to be manufactured, constructed, or produced by 
the taxpayer. For property eligible for the extended placed in 
service date, a special rule limits the amount of costs 
eligible for the additional first year depreciation. With 
respect to such property, only the portion of the basis that is 
properly attributable to the costs incurred before September 
11, 2004 (``progress expenditures'') is eligible for the 
additional first-year depreciation.\18\
---------------------------------------------------------------------------
    \17\ Property does not fail to qualify for the additional first-
year depreciation merely because a binding written contract to acquire 
a component of the property is in effect prior to September 11, 2001.
    \18\ For purposes of determining the amount of eligible progress 
expenditures, it is intended that rules similar to sec. 46(d)(3) as in 
effect prior to the Tax Reform Act of 1986 shall apply.
---------------------------------------------------------------------------
    Property does not qualify for the additional first-year 
depreciation deduction when the user of such property (or a 
related party) would not have been eligible for the additional 
first-year depreciation deduction if the user (or a related 
party) were treated as the owner.\19\ For example, if a 
taxpayer sells to a related party property that was under 
construction prior to September 11, 2001, the property does not 
qualify for the additional first-year depreciation deduction. 
Similarly, if a taxpayer sells to a related party property that 
was subject to a binding written contract prior to September 
11, 2001, the property does not qualify for the additional 
first-year depreciation deduction. As a further example, if a 
taxpayer (the lessee) sells property in a sale-leaseback 
arrangement, and the property otherwise would not have 
qualified for the additional first-year depreciation deduction 
if it were owned by the taxpayer-lessee, then the lessor is not 
entitled to the additional first-year depreciation deduction.
---------------------------------------------------------------------------
    \19\ A technical correction may be needed so that the statute 
reflects this intent.
---------------------------------------------------------------------------
    The limitation on the amount of depreciation deductions 
allowed with respect to certain passenger automobiles (sec. 
280F) is increased in the first year by $4,600 for automobiles 
that qualify (and do not elect out of the increased first year 
deduction). The $4,600 increase is not indexed for inflation.

                           REASONS FOR CHANGE

    The Committee believes that increasing and extending the 
additional first-year depreciation will accelerate purchases of 
equipment, promote capital investment, modernization, and 
growth, and will help to spur an economic recovery. As 
businesses accelerate their purchases of equipment current 
employment will increase to produce that equipment. Current 
business expansion also will increase employment opportunities 
in the years ahead.

                        EXPLANATION OF PROVISION

    The provision provides an additional first-year 
depreciation deduction equal to 50 percent of the adjusted 
basis of qualified property.\20\ Qualified property is defined 
in the same manner as for purposes of the 30-percent additional 
first-year depreciation deduction provided by the JCWAA except 
that the applicable time period for acquisition (or self 
construction) of the property is modified. In addition, 
property must be placed in service before January 1, 2006 to 
qualify.\21\ Property eligible for the 50-percent additional 
first year depreciation deduction is not eligible for the 30-
percent additional first year depreciation deduction.
---------------------------------------------------------------------------
    \20\ A taxpayer is permitted to elect out of the additional first-
year depreciation deduction for any class of property for any taxable 
year.
    \21\ An extension of the placed in service date of one year (i.e., 
January 1, 2007) is provided for certain property with a recovery 
period of ten years or longer and certain transportation property as 
defined for purposes of the JCWAA.
---------------------------------------------------------------------------
    Under the provision, in order to qualify the property must 
be acquired after May 5, 2003 and before January 1, 2006, and 
no binding written contract for the acquisition is in effect 
before May 6, 2003.\22\ With respect to property that is 
manufactured, constructed, or produced by the taxpayer for use 
by the taxpayer, the taxpayer must begin the manufacture, 
construction, or production of the property after May 5, 2003. 
For property eligible for the extended placed in service date 
(i.e., certain property with a recovery period of ten years or 
longer and certain transportation property), a special rule 
limits the amount of costs eligible for the additional first 
year depreciation. With respect to such property, only progress 
expenditures properly attributable to the costs incurred before 
January 1, 2006 shall be eligible for the additional first year 
depreciation.\23\
---------------------------------------------------------------------------
    \22\ Property does not fail to qualify for the additional first-
year depreciation merely because a binding written contract to acquire 
a component of the property is in effect prior to May 6, 2003. However, 
no additional first-year depreciation is permitted on any such 
component. No inference is intended as to the proper treatment of 
components placed in service under the 30% additional first-year 
depreciation provided by the JCWAA.
    \23\ For purposes of determining the amount of eligible progress 
expenditures, it is intended that rules similar to sec. 46(d)(3) as in 
effect prior to the Tax Reform Act of 1986 shall apply.
---------------------------------------------------------------------------
    The Committee wishes to clarify that the adjusted basis of 
qualified property acquired by a taxpayer in a like kind 
exchange or an involuntary conversion is eligible for the 
additional first year depreciation deduction.
    The provision also increases the limitation on the amount 
of depreciation deductions allowed with respect to certain 
passenger automobiles (sec. 280F of the Code) in the first year 
by $9,200 (in lieu of the $4,600 provided under the JCWAA) for 
automobiles that qualify (and do not elect out of the increased 
first year deduction). The $9,200 increase is not indexed for 
inflation.
    For property eligible for the present law 30-percent 
additional first year depreciation, the provision extends the 
date of the placed in service requirement to property placed in 
service prior to January 1, 2006 (from January 1, 2005). Thus, 
property otherwise qualifying for the 30-percent additional 
first year depreciation deduction will now qualify if placed in 
service prior to January 1, 2006. The provision also extends 
the placed in service date requirement for certain property 
with a recovery period of ten years or longer and certain 
transportation property to property placed in service prior to 
January 1, 2007 (instead of January 1, 2006). In addition, 
progress expenditures eligible for the 30-percent additional 
first year depreciation is extended to include costs incurred 
prior to January 1, 2006 (instead of September 11, 2004).

                             EFFECTIVE DATE

    The provision applies to property placed in service after 
May 5, 2003.

                   B. Increase Section 179 Expensing


(Sec. 202 of the bill and sec. 179 of the Code)

                              PRESENT LAW

    Present law provides that, in lieu of depreciation, a 
taxpayer with a sufficiently small amount of annual investment 
may elect to deduct up to $25,000 (for taxable years beginning 
in 2003 and thereafter) of the cost of qualifying property 
placed in service for the taxable year (sec. 179).\24\ In 
general, qualifying property is defined as depreciable tangible 
personal property that is purchased for use in the active 
conduct of a trade or business. The $25,000 amount is reduced 
(but not below zero) by the amount by which the cost of 
qualifying property placed in service during the taxable year 
exceeds $200,000. An election to expense these items generally 
is made on the taxpayer's original return for the taxable year 
to which the election relates, and may be revoked only with the 
consent of the Commissioner.\25\ In general, taxpayers may not 
elect to expense off-the-shelf computer software.\26\
---------------------------------------------------------------------------
    \24\ Additional section 179 incentives are provided with respect to 
a qualified property used by a business in the New York Liberty Zone 
(sec. 1400(f)) or an empowerment zone (sec. 1397A).
    \25\ Section 179(c)(2).
    \26\ Section 179(d)(1) requires that property be tangible to be 
eligible for expensing; in general, computer software is intangible 
property.
---------------------------------------------------------------------------
    The amount eligible to be expensed for a taxable year may 
not exceed the taxable income for a taxable year that is 
derived from the active conduct of a trade or business 
(determined without regard to this provision). Any amount that 
is not allowed as a deduction because of the taxable income 
limitation may be carried forward to succeeding taxable years 
(subject to similar limitations). No general business credit 
under section 38 is allowed with respect to any amount for 
which a deduction is allowed under section 179.

                           REASONS FOR CHANGE

    The Committee believes that section 179 expensing provides 
two important benefits for small businesses. First, it lowers 
the cost of capital for tangible property used in a trade or 
business. With a lower cost of capital, the Committee believes 
small business will invest in more equipment and employ more 
workers. Second, it eliminates depreciation recordkeeping 
requirements with respect to expensed property. In order to 
increase the value of these benefits and to increase the number 
of taxpayers eligible, the Committee bill increases the amount 
allowed to be expensed under section 179 and increases the 
amount of the phase-out threshold, as well as indexing these 
amounts.
    The Committee also believes that purchased computer 
software should be included in the section 179 expensing 
provision so that it is not disadvantaged relative to developed 
software. In addition, the Committee believes that the process 
of making and revoking section 179 elections should be made 
simpler and more efficient for taxpayers by eliminating the 
requirement for the consent of the Commissioner.

                        EXPLANATION OF PROVISION

    The provision provides that the maximum dollar amount that 
may be deducted under section 179 is increased to $100,000 for 
property placed in service in taxable years beginning in 2003, 
2004, 2005, 2006, and 2007. In addition, the $200,000 amount is 
increased to $400,000 for property placed in service in taxable 
years beginning in 2003, 2004, 2005, 2006, and 2007. The dollar 
limitations are indexed annually for inflation for taxable 
years beginning after 2003 and before 2008. The provision also 
includes off-the-shelf computer software placed in service in a 
taxable year beginning in 2003, 2004, 2005, 2006, or 2007, as 
qualifying property. With respect to a taxable year beginning 
after 2002 and before 2008, the provision permits taxpayers to 
make or revoke expensing elections on amended returns without 
the consent of the Commissioner.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2002.

             C. Five-Year Carryback of Net Operating Losses


(Sec. 203 of the bill and secs. 172 and 56 of the Code)

                              PRESENT LAW

    A net operating loss (``NOL'') is, generally, the amount by 
which a taxpayer's allowable deductions exceed the taxpayer's 
gross income. A carryback of an NOL generally results in the 
refund of Federal income tax for the carryback year. A 
carryforward of an NOL reduces Federal income tax for the 
carryforward year.
    In general, an NOL may be carried back two years and 
carried forward 20 years to offset taxable income in such 
years.\27\ Different rules apply with respect to NOLs arising 
in certain circumstances. For example, a three-year carryback 
applies with respect to NOLs (1) arising from casualty or theft 
losses of individuals, or (2) attributable to Presidentially 
declared disasters for taxpayers engaged in a farming business 
or a small business. A five-year carryback period applies to 
NOLs from a farming loss (regardless of whether the loss was 
incurred in a Presidentially declared disaster area). Special 
rules also apply to real estate investment trusts (no 
carryback), specified liability losses (10-year carryback), and 
excess interest losses (no carryback to any year preceding a 
corporate equity reduction transaction).
---------------------------------------------------------------------------
    \27\ Sec. 172.
---------------------------------------------------------------------------
    The alternative minimum tax rules provide that a taxpayer's 
NOL deduction cannot reduce the taxpayer's alternative minimum 
taxable income (``AMTI'') by more than 90 percent of the AMTI 
(determined without regard to the NOL deduction).
    Section 202 of the Job Creation and Worker Assistance Act 
of 2002 \28\ (``JCWAA'') provided a temporary extension of the 
general NOL carryback period to five years (from two years) for 
NOLs arising in taxable years ending in 2001 and 2002. In 
addition, the five-year carryback period applies to NOLs from 
these years that qualify under present law for a three-year 
carryback period (i.e., NOLs arising from casualty or theft 
losses of individuals or attributable to certain Presidentially 
declared disaster areas).
---------------------------------------------------------------------------
    \28\ Pub. Law No. 107-147.
---------------------------------------------------------------------------
    A taxpayer can elect to forgo the five-year carryback 
period. The election to forgo the five-year carryback period is 
made in the manner prescribed by the Secretary of the Treasury 
and must be made by the due date of the return (including 
extensions) for the year of the loss. The election is 
irrevocable. If a taxpayer elects to forgo the five-year 
carryback period, then the losses are subject to the rules that 
otherwise would apply under section 172 absent the 
provision.\29\
---------------------------------------------------------------------------
    \29\ Because JCWAA was enacted after some taxpayers had filed tax 
returns for years affected by the provision, as technical correction is 
needed to provide for a period of time in which prior decisions 
regarding the NOL carryback may be reviewed. Similarly, a technical 
correction is needed to modify the carryback adjustment procedures of 
sec. 6411 for NOLs arising in 2001 and 2002. These issues were 
addressed in a letter dated April 15, 2002, sent by the Chairmen and 
Ranking Members of the House Ways and Means Committee and Senate 
Finance Committee, as well as in guidance issued by the IRS pursuant to 
the Congressional letter (Rev. Proc. 2002-40, 2002-23 I.R.B. 1096, June 
10, 2002).
---------------------------------------------------------------------------
    JCWAA also provided that an NOL deduction attributable to 
NOL carrybacks arising in taxable years ending in 2001 and 
2002, as well as NOL carryforwards to these taxable years, may 
offset 100 percent of a taxpayer's AMTI.\30\
---------------------------------------------------------------------------
    \30\ Section 172(b)(2) should be appropriately applied in computing 
AMTI to take proper account of the order that the NOL carryovers and 
carrybacks are used as a result of this provision. See section 
56(d)(1)(B)(ii).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The NOL carryback and carryover rules are designed to allow 
taxpayers to smooth out swings in business income (and Federal 
income taxes thereon) that result from business cycle 
fluctuations and unexpected financial losses. The uncertain 
economic conditions that resulted in the enactment of the five-
year carryback of NOLs as part of the JCWAA have continued with 
many taxpayers continuing to incur unexpected financial losses. 
A temporary extension of the five-year NOL carryback period 
provides taxpayers in all sectors of the economy who are 
experiencing such losses the ability to increase their cash 
flow through the refund of income taxes paid in prior years. 
This increased cash flow can be used for employing workers and 
for capital investments that will provide stimulus to the 
economy.

                        EXPLANATION OF PROVISION

    The provision extends the provisions of the five-year 
carryback of NOLs enacted in JCWAA to NOLs arising in taxable 
years ending in 2003, 2004, and 2005.\31\
---------------------------------------------------------------------------
    \31\ Because certain taxpayers may have already filed tax returns 
(or be in the process of filing tax returns) for taxable years ending 
in 2003, the proposal contains special rules to provide until November 
1, 2003 in which prior decisions regarding the NOL carryback may be 
reviewed by taxpayers.
---------------------------------------------------------------------------
    The provision also allows an NOL deduction attributable to 
NOL carrybacks arising in taxable years ending in 2003, 2004, 
and 2005, as well as NOL carryforwards to these taxable years, 
to offset 100 percent of a taxpayer's AMTI.

                             EFFECTIVE DATE

    The five-year carryback provision is effective for net 
operating losses generated in taxable years ending in 2003, 
2004 and 2005.
    The provision relating to AMTI is effective for NOL 
carrybacks arising in, and NOL carryforwards to, taxable years 
ending in 2003, 2004 and 2005.

                 TITLE III--DIVIDENDS AND CAPITAL GAINS


                A. Reduce Individual Capital Gains Rates


(Sec. 301 of the bill and sec. 1(h) of the Code)

                              PRESENT LAW

    In general, gain or loss reflected in the value of an asset 
is not recognized for income tax purposes until a taxpayer 
disposes of the asset. On the sale or exchange of a capital 
asset, any gain generally is included in income. Any net 
capital gain of an individual is taxed at maximum rates lower 
than the rates applicable to ordinary income. Net capital gain 
is the excess of the net long-term capital gain for the taxable 
year over the net short-term capital loss for the year. Gain or 
loss is treated as long-term if the asset is held for more than 
one year.
    Capital losses generally are deductible in full against 
capital gains. In addition, individual taxpayers may deduct 
capital losses against up to $3,000 of ordinary income in each 
year. Any remaining unused capital losses may be carried 
forward indefinitely to another taxable year.
    A capital asset generally means any property except (1) 
inventory, stock in trade, or property held primarily for sale 
to customers in the ordinary course of the taxpayer's trade or 
business, (2) depreciable or real property used in the 
taxpayer's trade or business, (3) specified literary or 
artistic property, (4) business accounts or notes receivable, 
(5) certain U.S. publications, (6) certain commodity derivative 
financial instruments, (7) hedging transactions, and (8) 
business supplies. In addition, the net gain from the 
disposition of certain property used in the taxpayer's trade or 
business is treated as long-term capital gain. Gain from the 
disposition of depreciable personal property is not treated as 
capital gain to the extent of all previous depreciation 
allowances. Gain from the disposition of depreciable real 
property is generally not treated as capital gain to the extent 
of the depreciation allowances in excess of the allowances that 
would have been available under the straight-line method of 
depreciation.
    The maximum rate of tax on the adjusted net capital gain of 
an individual is 20 percent. In addition, any adjusted net 
capital gain which otherwise would be taxed at a 15-percent 
rate is taxed at a 10-percent rate. These rates apply for 
purposes of both the regular tax and the alternative minimum 
tax.
    The ``adjusted net capital gain'' of an individual is the 
net capital gain reduced (but not below zero) by the sum of the 
28-percent rate gain and the unrecaptured section 1250 gain. 
The net capital gain is reduced by the amount of gain that the 
individual treats as investment income for purposes of 
determining the investment interest limitation under section 
163(d).
    The term ``28-percent rate gain'' means the amount of net 
gain attributable to long-term capital gains and losses from 
the sale or exchange of collectibles (as defined in section 
408(m) without regard to paragraph (3) thereof), an amount of 
gain equal to the amount of gain excludedfrom gross income 
under section 1202 (relating to certain small business stock),\32\ the 
net short-term capital loss for the taxable year, and any long-term 
capital loss carryover to the taxable year.
---------------------------------------------------------------------------
    \32\ This results in a maximum effective regular tax rate on 
qualified gain from small business stock of 14 percent.
---------------------------------------------------------------------------
    ``Unrecaptured section 1250 gain'' means any long-term 
capital gain from the sale or exchange of section 1250 property 
(i.e., depreciable real estate) held more than one year to the 
extent of the gain that would have been treated as ordinary 
income if section 1250 applied to all depreciation, reduced by 
the net loss (if any) attributable to the items taken into 
account in computing 28=percent rate gain. The amount of 
unrecaptured section 1250 gain (before the reduction for the 
net loss) attributable to the disposition of property to which 
section 1231 applies shall not exceed the net section 1231 gain 
for the year.
    The unrecaptured section 1250 gain is taxed at a maximum 
rate of 25p percent, and the 28-percent rate gain is taxed at a 
maximum rate of 28 percent. Any amount of unrecaptured section 
1250 gain or 28=percent rate gain otherwise taxed at a 15-
percent rate is taxed at the 15-percent rate.
    Any gain from the sale or exchange of property held more 
than five years that would otherwise be taxed at the 10-percent 
rate is taxed at an 8-percent rate. Any gain from the sale or 
exchange of property held more than five years and the holding 
period for which begins after December 31, 2000, which would 
otherwise be taxed at a 20-percent rate is taxed at an 18-
percent rate.

                           REASONS FOR CHANGE

    The Committee believes it is important that tax policy be 
conducive to economic growth. The Committee believes that 
reducing the capital gains tax lowers the cost of capital and 
will lead to economic growth and the creation of jobs. Economic 
growth cannot occur without savings, investment, and the 
willingness of individuals to take risks. The greater the pool 
of savings, the greater will be the monies available for 
business investment. It is through such investment that the 
United States' economy can increase output, productivity, and 
employment. It is through increases in productivity that 
workers earn higher real wages. Increases in investment create 
more employment opportunities. Hence, a greater saving rate is 
necessary for all Americans to benefit from a higher standard 
of living.
    The Committee believes that, by reducing the effective tax 
rates on capital gains, American households will respond by 
increasing savings. The Committee believes it is important to 
encourage risk-taking and believes a reduction in the taxation 
of capital gains will have that effect. The Committee also 
believes that a reduction in the taxation of capital gains will 
improve the efficiency of the markets, because the taxation of 
capital gains upon realization encourages investors who have 
accrued past gains to keep their monies ``locked in'' to such 
investments even when better investment opportunities present 
themselves. A reduction in the taxation of capital gains should 
reduce this ``look in'' effect.

                        EXPLANATION OF PROVISION

    The provision reduces the 10 and 20 percent rates on the 
adjusted net capital gain to five and 15 percent, respectively. 
These lower rates apply to both the regular tax and the 
alternative minimum tax. The lower rates apply to assets held 
more than one year.

                             EFFECTIVE DATE

    The provision applies to taxable years ending on or after 
May 6, 2003, and beginning before January 1, 2013.
    For taxable years that include May 6, 2003, the lower rates 
apply to amounts properly taken into account for the portion of 
the year on or after that date. This generally has the effect 
of applying the lower rates to capital assets sold or exchanged 
(and installment payments received) on or after May 6, 2003. In 
the case of gain and loss taken into account by a pass-through 
entity, the date taken into account by the entity is the 
appropriate date for applying this rule.

     B. Dividend Income of Individuals Taxed at Capital Gain Rates


(Sec. 302 of the bill and sec. 1(h) of the Code)

                              PRESENT LAW

    Under present law, dividends received by an individual are 
included in gross income and taxed as ordinary income at rates 
up to 38.6 percent.\33\
---------------------------------------------------------------------------
    \33\ Section 105 of the bill reduces the maximum rate to 35 
percent.
---------------------------------------------------------------------------
    The rate of tax on the net capital gain of an individual 
generally is 20 percent (10 percent \34\ with respect to income 
which would otherwise be taxed at the 10- or 15-percent 
rate).\35\ Net capital gain means net gain from the sale or 
exchange of capital assets held for more than one year in 
excess of net loss from the sale or exchange of capital assets 
held not more than one year.
---------------------------------------------------------------------------
    \34\ An eight percent rate applies to property held more than five 
years.
    \35\ Section 301 of the bill reduces the capital gain rates to five 
and 15 percent, respectively.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes it is important that tax policy be 
conducive to economic growth. The Committee believes that 
reducing the individual tax on dividends lowers the cost of 
capital and will lead to economic growth and the creation of 
jobs. Economic growth is impeded by tax-induced distortions in 
the capital markets. Mitigating these distortions will improve 
the efficiency of the capital markets. In addition, reducing 
the aggregate tax burden on investments made by corporations 
will lower the cost of capital needed to finance new 
investments and lead to increases in aggregate national 
investment and increases in private sector employment. It is 
through such investment that the United States' economy can 
increase output, employment, and productivity. It is through 
increases in productivity that workers earn higher real wages 
and all Americans benefit from a higher standard of living.
    The Committee observes that present law imposes different 
total tax burdens on income from different investments. The 
Committee believes that, by placing different tax burdens on 
different investments, the present system results in economic 
distortions. The Committee observes that present law distorts 
individual and corporate financial decisions. The Committee 
observes that because interest payments on the debt are 
deductible, present law encourages corporations to finance 
using debt rather than equity. The Committee believes that the 
increase in corporate leverage, while beneficial to each 
corporation from a tax perspective, may place the economy at 
risk of more bankruptcies during an economic downturn. In 
addition, the Committee finds that present law, by taxing 
dividend income at a higher rate than income from capital 
gains, encourages corporations to retain earnings rather than 
to distribute them as taxable dividends. If dividends are 
discouraged, shareholders may prefer that corporate management 
retain and reinvest earnings rather than pay out dividends, 
even if the shareholder might have an alternative use for the 
funds that could offer a higher rate of return than that earned 
on the retained earnings.This is another source of inefficiency 
as the opportunity to earn higher pre-tax returns is bypassed in favor 
of lower pre-tax returns.

                        EXPLANATION OF PROVISION

    Under the provision, dividends received by an individual 
shareholder from domestic corporations are taxed at the same 
rates that apply to net capital gain. This treatment applies 
for purposes of both the regular tax and the alternative 
minimum tax. Thus, under the provision, dividends will be taxed 
at rates of five and 15 percent.\36\
---------------------------------------------------------------------------
    \36\ Payments in lieu of dividends are not eligible for the lower 
rates. See section 6045(d) relating to statements required to be 
furnished by brokers regarding these payments.
---------------------------------------------------------------------------
    If a shareholder does not hold a share of stock for more 
than 45 days during the 90-day period beginning 45 days before 
the ex-dividend date (as measured under section 246(c)),\37\ 
dividends received on the stock are not eligible for the 
reduced rates. Also, the reduced rates are not available for 
dividends to the extent that the taxpayer is obligated to make 
related payments with respect to positions in substantially 
similar or related property.
---------------------------------------------------------------------------
    \37\ In the case of preferred stock, the periods are doubled.
---------------------------------------------------------------------------
    If an individual receives an extraordinary dividend (within 
the meaning of section 1059(c)) eligible for the reduced rates 
with respect to any share of stock, any loss on the sale of the 
stock is treated as a long-term capital loss to the extent of 
the dividend.
    A dividend is treated as investment income for purposes of 
determining the amount of deductible investment interest only 
if the taxpayer elects to treat the dividend as not eligible 
for the reduced rates.
    The amount of dividends qualifying for reduced rates that 
may be paid by a regulated investment company or real estate 
investment trust, for any taxable year that the aggregate 
qualifying dividends received by the company or trust are less 
than 95 percent of its gross income (as specially computed), 
may not exceed the amount of the aggregate qualifying dividends 
received by the company or trust.
    The reduced rates do not apply to dividends received from 
an organization that was exempt from tax under section 501 or 
was a tax-exempt farmers' cooperative in either the taxable 
year of the distribution or the preceding taxable year; 
dividends received from a mutual savings bank that received a 
deduction under section 591; or deductible dividends paid on 
employer securities.
    The tax rate for the accumulated earnings tax (sec. 531) 
and the personal holding company tax (sec. 541) is reduced to 
15 percent.
    Amounts treated as ordinary income on the disposition of 
certain preferred stock (sec. 306) are treated as dividends for 
purposes of applying the reduced rates.
    The collapsible corporation rules (sec. 341) are repealed.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2002, and beginning before January 1, 2013.

     TITLE IV--MODIFICATION TO CORPORATE ESTIMATED TAX REQUIREMENTS


(Sec. 401 of the bill)

                              PRESENT LAW

    In general, corporations are required to make quarterly 
estimated tax payments of their income tax liability (section 
6655). For a corporation whose taxable year is a calendar year, 
these estimated tax payments must be made by April 15, June 15, 
September 15, and December 15.

                           REASONS FOR CHANGE

    The Committee believes that it is appropriate to modify 
these corporate estimated tax requirements.

                        EXPLANATION OF PROVISION

    With respect to corporate estimated tax payments due on 
September 15, 2003, 52 percent is required to be paid by 
October 1, 2003.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                      III. VOTES ON THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 2.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 2, as amended, was ordered favorably 
reported by a rollcall vote of 24 yeas to 15 nays (with a 
quorum being present). The vote was a follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......  ........  ........  .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Sandlin......  ........        X   .........
Mr. Weller.....................        X   ........  .........  Ms. Tubbs Jones..  ........        X   .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendments 
to the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Stark to suspend the rate reductions on 
capital gains and dividend income until the director of OMB 
certifies that the federal budget is in surplus, was defeated 
by a rollcall vote of 14 yeas to 24 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......        X   ........  .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Cardin to have amendments in Title III 
of the bill take effect only if the Secretary of the Treasury 
certifies, in consultation with the Secretary of Labor, that 
the Temporary Extended Unemployment Compensation Act of 2002 
has been extended and modified in the manner proposed by the 
bill, H.R. 1652 (108th Congress), was defeated by a rollcall 
vote of 14 yeas to 23 nays.

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........  ........  .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......        X   ........  .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshop....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. McDermott, which would provide to 
individuals, a refundable tax credit equal to the amount of 
payroll taxes paid on the first $20,000 of wages, was defeated 
by a rollcall vote of 13 yeas to 24 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......  ........        X   .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......        X   ........  .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
Mr. McInnis....................  ........  ........  .........  .................  ........  ........  .........
Mr. Lewis (KY).................  ........        X   .........  .................  ........  ........  .........
Mr. Foley......................  ........        X   .........  .................  ........  ........  .........
Mr. Brady......................  ........        X   .........  .................  ........  ........  .........
Mr. Ryan.......................  ........        X   .........  .................  ........  ........  .........
Mr. Cantor.....................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Becerra, which would accelerate the 
earned income credit phase-out amount increase under current 
law for joint filers to $3,000, effective in taxable years 
beginning after December 31, 2002, and reduces the capital 
gains rate reductions in the bill by the appropriate amount to 
offset the revenue reduction caused by this acceleration, was 
defeated by a rollcall vote of 15 yeas to 22 nays. The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......        X   ........  .........
Mr. Weller.....................  ........  ........  .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
Mr. McInnis....................  ........  ........  .........  .................  ........  ........  .........
Mr. Lewis (KY).................  ........        X   .........  .................  ........  ........  .........
Mr. Foley......................  ........        X   .........  .................  ........  ........  .........
Mr. Brady......................  ........        X   .........  .................  ........  ........  .........
Mr. Ryan.......................  ........        X   .........  .................  ........  ........  .........
Mr. Cantor.....................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Neal to raise the AMT exclusion to 
$64,000 for married couples, and indexes it for inflation 
through the end of the decade, and strikes Title III, was 
defeated by a rollcall vote of 15 yeas to 23 nays. The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......        X   ........  .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........  ........  .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 2 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2003-2008:

                           ESTIMATED BUDGET EFFECTS OF H.R. 2, THE ``JOBS AND GROWTH RECONCILIATION TAX ACT OF 2003,'' AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS
                                                                        [Fiscal years 2003-2008, in millions of dollars]
                         Provision                                          Effective                      2003         2004         2005         2006         2007         2008       2003-08
I. Acceleration of Certain Previously Enacted Tax
 Reductions:
    1. Expand the child credit to $1,000 for 2003 through   tyba 12/31/02............................      -13,711       -5,820      -15,468      -10,046  ...........  ...........      -45,045
     2005; revert to present-law phase in for 2006 \1\.
    2. Accelerate the expansion of the 15% individual       tyba 12/31/02............................       -4,936      -24,904      -11,045       -2,491  ...........  ...........      -43,376
     income tax rate bracket and the increase in the
     standard deduction for married taxpayers filing joint
     returns; revert to present-law phase in for 2006.
    3. Accelerate the expansion of the 10% bracket; revert  tyba 12/31/02............................       -1,549       -8,445       -6,596       -2,007  ...........  ...........      -18,597
     to present-law phase in for 2006.
    4. Accelerate the 2006 rate schedule..................  tyba 12/31/02............................       -9,531      -38,809      -19,811       -5,864  ...........  ...........      -74,015
    5. Increase individual AMT exemption amount by $7,500   tyba 12/31/02............................       -1,540      -13,496      -20,045      -17,900  ...........  ...........      -52,981
     single and $15,000 joint for 2003 and 2004, maintain
     level for 2005.
                                                                                                      ------------------------------------------------------------------------------------------
      Total of Title I....................................  .........................................      -31,267      -91,474      -72,965      -38,308  ...........  ...........     -234,014
                                                                                                      ==========================================================================================
II. Depreciation and Expensing Provisions:
    1. Increase bonus depreciation to 50% and extend        ppisa 5/5/03 \2\.........................       -9,467      -23,733      -62,552      -21,729       19,121       19,847      -78,512
     through 12/31/05.
    2. Increase section 179 expensing--increase the amount  tyba 12/31/02............................       -1,602       -2,657       -1,983       -3,673       -4,930          392      -14,454
     that can be expensed from $25,000 to $100,000 and
     increase the phaseout threshold amount from $200,000
     to $400,000; include software in section 179
     property; and index both the deduction limit and the
     phaseout threshold after 2003 (sunset after 2007).
    3. Extend 5-year NOL carryback from 2002 bill for 2003  NOLs gi tyea 12/31/02....................         -711      -20,202      -10,915      -10,217        8,618        6,407      -27,021
     through 2005 and waive the AMT 90% limitation on the
     allowance of losses (including losses carried forward
     into tax years ending in 2003 through 2005 (sunset
     after 2005).
                                                                                                      ------------------------------------------------------------------------------------------
      Total of Title II...................................  .........................................      -11,780      -46,592      -75,450      -35,619       22,809       26,646     -119,987
                                                                                                      ==========================================================================================
III. Dividends and Capital Gains:
    1. Tax dividends with an 15%/5% rate structure; sunset  dri tyba 12/31/02........................       -4,315      -17,773      -19,507      -20,387      -21,587      -22,983     -106,552
     12/31/12 \3\.
    2. Tax capital gains with an 15%/5% rate structure;     so/a doi.................................          -62         -928       -1,335       -3,042       -4,454       -4,660      -14,481
     sunset 12/31/12.
                                                                                                      ------------------------------------------------------------------------------------------
      Total of Title III..................................  .........................................       -4,377      -18,701      -20,842      -23,429      -26,041      -27,643     -121,033
                                                                                                      ==========================================================================================
IV. Special Estimated Tax Rules for Certain 2003 Corporate  DOE......................................      -12,826       12,826  ...........  ...........  ...........  ...........  ...........
 Estimated Tax Payments
                                                                                                      ------------------------------------------------------------------------------------------
      Net Total 4,5.......................................  .........................................      -60,250     -143,941     -169,257      -97,356       -3,232         -997     -475,034
                                                                                                      ------------------------------------------------------------------------------------------
\1\ Advance payment of 2003 child credit paid by rebate with safe harbor.
\2\ Does not apply to any property with binding contract in place before May 6, 2003.
\3\ The estimate assumes that any dividend from a foreign corporation or any dividend described in Internal Revenue Code section 404(k) would be taxed at ordinary rates. RIC and REIT
  shareholders receive tax relief to the extent that dividends paid by the RIC or REIT are qualified dividends received by the RIC or REIT. Also, we have assumed that the proposal would
  exclude qualified dividends from investment income for the purpose of Internal Revenue Code Section 163(d). We have assumed that certain anti-abuse rules, including the imposition of a 45-
  day holding period, would be adopted.


                                                                                                              2003         2004         2005         2006         2007         2008      2003-08
                                                                                                      ------------------------------------------------------------------------------------------
  \4\ Includes the following outlay effects...............  .........................................        3,618        1,042        4,653        4,244           45           44       13,646
  \5\ Returns with AMT liability (millions):                                                                  2003         2004         2005         2006         2007         2008
                                                                                                      ------------------------------------------------------------------------------------------
      Present law.........................................  .........................................          2.2          3.7          9.7         14.9         19.2         23.8
      Change due to proposal..............................  .........................................         -0.7         -1.9         -7.3  ...........  ...........  ...........
Legend for ``Effective'' column: DOE = date of enactment; doi = date of introduction; dri = dividends received in; gi = generated in; NOLs = net operating losses; ppisa = property placed in
  service after.
Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue reducing income tax 
provisions involved increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 8, 2003.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2, the Jobs and 
Growth Tax Act of 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Annie 
Bartsch.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 2--Jobs and Growth Tax Act of 2003

    Summary: The Jobs and Growth Tax Act of 2003 would amend 
numerous provisions of existing tax law. The bill would 
accelerate to 2003 the income tax rate reductions scheduled for 
2004 and 2006. The bill would also accelerate previously 
enacted tax changes to increase the child tax credit and expand 
the 10- and 15-percent tax brackets. Those changes would revert 
to tax law currently scheduled for 2006. In addition, H.R. 2 
would increase the exemption amount for the individual 
alternative minimum tax (AMT), decrease the tax rates for 
income from dividends and capital gains, modify tax law 
relating to bonus depreciation and expensing, and allow certain 
2003 corporate estimated tax payments to be shifted into 2004.
    The Joint Committee on Taxation (JCT) estimates that 
enacting the bill would decrease governmental receipts by about 
$57 billion in 2003, by about $461 billion over the 2003-2008 
period, and by about $536 billion over the 2003-2013 period. 
JCT estimates enacting the bill also would increase outlays by 
about $3.6 billion in 2003, by about $13.6 billion over the 
2003-2008 period, and by about $13.8 billion over the 2003-2013 
period.
    JCT has determined that H.R. 2 contains no private-sector 
or intergovernmental mandates as defined by the Unfunded 
Mandates Reform Act (UMRA) and would impose no costs on state, 
local, or tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the H.R. 2 is shown in the following table. 
Most of the budgetary effects of the legislation are reduced in 
revenues. However, the bill also would increase outlays by 
making various changes to the income tax brackets and rates of 
taxation.By reducing the amount of taxes owed, those changes 
would result in a larger portion of tax credits being refundable--and 
thus recorded as outlays rather than reductions in revenues. The act 
also would increase the child credit, which is refundable under the tax 
code and counted as outlays in the budget to the extent that it results 
in ``refunds'' of income taxes not actually paid. The spending effects 
of this legislation would fall within budget function 600 (income 
security).

----------------------------------------------------------------------------------------------------------------
                                                           By fiscal year, in millions of dollars--
                                             -------------------------------------------------------------------
                                                 2003       2004        2005        2006       2007       2008
----------------------------------------------------------------------------------------------------------------
                         CHANGES IN REVENUES AND OUTLAYS FROM REFUNDABLE TAX PROVISIONS
Title I: Acceleration of Previously Enacted     -31,267     -91,474     -72,965    -38,308          0          0
 Tax Reductions \1\.........................
Title II: Growth Incentives for Businesses..    -11,780     -46,592     -75,450    -35,619     22,809     26,646
Title III: Reductions in Taxes on Dividends      -4,377     -18,701     -20,842    -23,429    -26,041    -27,643
 and Capital Gain \1\.......................
Title IV: Modification to Corporate             -12,826      12,826           0          0          0          0
 Estimated Tax Payments for 2003............
                                             -------------------------------------------------------------------
      Total effect on revenues and outlays..    -60,250    -143,941    -169,257    -97,356     -3,232       -997
Outlays for refundable tax credits \1\......      3,618       1,042       4,653      4,244         45         44
                                             -------------------------------------------------------------------
      Total changes in revenues \1\.........    -56,632    -142,899    -164,604    -93,112     -3,187       -953
                                           CHANGES IN DIRECT SPENDING
Outlays for refundable tax credits \1\......      3,618       1,042       4,653      4,244         45         44

                                                  TOTAL CHANGES

Net increase in budget deficits.............    -60,250    -143,941    -169,257    -97,356     -3,232       -997
----------------------------------------------------------------------------------------------------------------
\1\ The Joint Committee on Taxation has determined that certain revenue provisions in Titles I and III have
  direct spending effects from the refundable tax credits. Separate estimates of the effect of each proposal on
  revenues and outlays are not available.

Note.--Components may not sum to totals because of rounding.

 Source: The Joint Committee on Taxation.

Basis of estimate

            Revenues
    All the estimates for the revenue provisions were provided 
by JCT. H.R. 2 contains numerous provisions altering existing 
individual and corporate tax law. JCT estimates that, together, 
the provisions contained in the bill would decrease federal 
revenues by about $57 billion in 2003, by about $461 billion 
over the 2003-2008 period, and by about $536 billion over the 
2003-2013 period.
    Title I: Acceleration of Certain Previously Enacted Tax 
Reductions. Provisions contained in this title would:
           Accelerate to 2003 the cuts in individual 
        income tax rates currently scheduled to take place in 
        2004 and 2006;
           Expand the child credit to $1,000 for 2003 
        through 2005 and include an advance payment mechanism 
        (rebate) for 2003;
           Accelerate the expansion of the 15 percent 
        tax bracket and increase in the standard deduction for 
        married taxpayers filing a joint return to 2003, and 
        revert to present law in 2006;
           Accelerate the expansion of the 10 percent 
        tax bracket for all taxpayers to 2003, and revert to 
        present law in 2006; and
           Increase the exemption amount for the 
        individual AMT for 2003 through 2005.
    JCT estimates that these provisions would decrease 
governmental receipts and increase refundable outlays by about 
$31 billion in 2003 and by about $234 billion over the 2003-
2006 period.
    The provision for a child credit rebate in 2003 is proposed 
in such a way that some of what is classified as reduced 
revenue in this estimate could have instead been classified as 
increased outlays. The bill would provide for 2003 taxpayers to 
receive a higher child credit of $1,000 per qualifying child 
instead of the $600 allowed under current law. Qualifying 
taxpayers who filed tax returns for tax year 2002 would receive 
an advance payment (rebate) of the increased credit during 
2003. For some taxpayers, the amounts they would receive as 
advance payments based on their 2002 tax returns would exceed 
allowable amounts basedon their 2003 circumstances because they 
had insufficient tax liabilities in 2002. Such taxpayers would not be 
required by law to repay the excess. That excess might properly be 
considered an outlay because the amount could not be considered as a 
refund of 2003 taxes (the taxpayer did not own this amount as 2003 
liability) and the provision does not stipulate that any advance 
payments exceeding the 2003 allowed credit for such a taxpayer are to 
be deemed as refunds of prior years' taxes. In this cost estimate, 
however, those excesses are considered reductions in revenues based on 
the final budget treatment for an analogous rebate provision enacted in 
2001.
    Title II: Growth Incentives for Businesses. The provisions 
contained in this title would:
           Increase bonus depreciation to 50 percent 
        and extend it through 2005;
           Extend the five-year period for carryback 
        refunds to losses incurred in 2003 through 2005, and 
        waive the limitation on losses for the alternative 
        minimum tax; and
           Increase the amounts and types of investment 
        that qualify for immediate deductibility 
        (``expensing'') under section 179 of the Internal 
        Revenue Code.
    JCT estimates that these provisions would decrease 
governmental receipts by about $12 billion in 2003, by about 
$120 billion over the 2003-2008 period, and by about $39 
billion over the 2003-2013 period.
    Title III: Reductions in Taxes on Dividends and Capital 
Gains. Title III would apply tax rates of 15 percent and 5 
percent for income from dividends and long-term capital gains 
through 2012. JCT estimates that these rate changes would 
decrease government receipts and increase refundable outlays by 
$4 billion in 2003, by almost $121 billion over the 2003-2008 
period, and by about $277 billion over the 2003-2013 period.
    Title IV: Modification to Corporate Estimated Tax Payments 
for 2003. Title IV would allow certain 2003 corporate estimated 
tax payments to be paid in 2004, which JCT estimates would 
decrease federal revenues by about $13 billion in 2003, but 
then increase revenues by the same amount in 2004.
            Direct spending
    JCT provided the outlay effects resulting from the 
refundable tax credits contained in titles I and III of the 
bill. JCT estimates that enacting those provisions would 
increase outlays by about $3.6 billion in 2003, by about $13.6 
billion over the 2003-2008 period, and by about $13.8 billion 
over the 2003-2013 period.
    Summary of the effect on revenues and direct spending: The 
overall effects of the bill on revenues and direct spending 
over the 2003-2013 period are shown in the following table.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         By fiscal year, in millions of dollars--
                                 -----------------------------------------------------------------------------------------------------------------------
                                     203         204         205        206        207       208       209       210        211        212        213
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts.............    -56,632    -142,899    -164,604    -93,112     -3187      -953    -2,245    -10,134    -18,757    -26,622    -16,572
Changes in outlays..............      3,618       1,042       4,653      4,244        45        44        45         52         65          9          8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: The Joint Committee on Taxation.

    Intergovernmental and private-sector impact: JCT has 
determined that H.R. 2 contains no private-sector or 
intergovernmental mandates as defined by UMRA and would impose 
no costs on state, local, or tribal governments.
    Estimate prepared by: Annie Bartsch.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the macroeconomic impact 
analysis required under such rule will be printed in the 
Congressional Record before consideration of the bill.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning the tax burden on American 
taxpayers that the Committee concluded that it is appropriate 
and timely to enact the revenue provision included in the bill 
as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises * * *''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    The following tax complexity analysis is provided pursuant 
to section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998, which requires the staff of the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service (``IRS'') and the Treasury Department) to 
provide a complexity analysis of tax legislation reported by 
the House Committee on Ways and Means, the Senate Committee on 
Finance, or a Conference Report containing tax provisions. The 
complexity analysis is required to report on the complexity and 
administrative issues raised by provisions that directly or 
indirectly amend the Internal Revenue Code and that have 
widespread applicability to individuals or small businesses. 
For each such provision identified by the staff of the Joint 
Committee on Taxation, a summary description of the provision 
is provided along with an estimate of the number and type of 
affected taxpayers, and a discussion regarding the relevant 
complexity and administrative issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and the Treasury 
Department regarding each of the provisions included in the 
complexity analysis, including a discussion of the likely 
effect on IRS forms and any expected impact on the IRS.

1. Increase the child tax credit (sec. 101 of the bill)

Summary description of provision

    The amount of the child credit is increased to $1,000 for 
2003 through 2005. For 2003, the increased amount of the child 
credit will be paid in advance beginning in July 2003 on the 
basis of information on each taxpayer's 2002 return filed in 
2003. Advance payments will be made in a similar manner to the 
advance payment checks issued by the Treasury in 2001 to 
reflect the creation of the 10-percent regular income tax rate 
bracket. After 2005 the child credit will revert to the levels 
provided in present law (e.g., $700 for 2006).

Number of affected taxpayers

    It is estimated that the provisions will affect 
approximately 27 million individual tax returns.

Discussion

    Individuals should not have to keep additional records due 
to this provision, nor will additionally regulatory guidance be 
necessary to implement this provision.
    The IRS will need to add to the individual income tax forms 
package a new worksheet so that taxpayers can reconcile the 
amount of the check they receive from the Department of the 
Treasury with the credit they are allowed as an acceleration of 
the child tax credit for 2003. This worksheet should be 
relatively simple and many taxpayers will not need to fill it 
out completely because they will have received the full amount 
by check.

2. Expansion of the 15-percent rate bracket (sec. 102 of the bill)

Summary description of provision

    The bill accelerates the increase of the size of the 15-
percent regular income tax rate bracket for joint returns to 
twice the width of the 15-percent regular income tax rate 
bracket for unmarried individual returns effective for 2003, 
2004, and 2005. For taxable years beginning after 2005, the end 
point of the 15-percent rate bracket for married couples filing 
joint returns as a percentage of the end point of the 15-
percent rate bracket for unmarried individuals will revert to 
present-law levels (e.g., 187 percent of the end point of the 
15-percent rate bracket for unmarried individuals for 2006).

Number of affected taxpayers

    It is estimated that the provision will affect 
approximately 19 million individual tax returns.

Discussion

    It is not anticipated that individuals will need to keep 
additional records due to this provision. The increased size of 
the 15-percent regular income tax rate bracket for married 
individuals filing joint returns should not result in an 
increase in disputes with the IRS, nor will regulatory guidance 
be necessary to implement this provision.

3. Standard deduction tax relief (sec. 103 of the bill)

Summary description of provision

    The bill accelerates the increase in the basic standard 
deduction amount for joint returns to twice the basic standard 
deduction amount of unmarried individual returns effective for 
2003, 2004, and 2005. For taxable years beginning after 2005, 
the applicable percentages will prevent to present-law levels 
(e.g., 184 percent of the basic standard deduction for 
unmarried individuals for 2006).

Number of affected taxpayers

    It is estimate that the provision will affect approximately 
22 million individual returns.

Discussion

    It is not anticipated that individual will need to keep 
additional records due to this provision. The higher basic 
standard deduction should not result in an increase in disputes 
with the IRS, nor will regulatory guidance be necessary to 
implement this provision. In addition, the provision should not 
increase individuals' tax preparation costs.
    Some taxpayers who currently itemize deductions may respond 
to the provision by claiming the increased standard deduction 
in lieu of itemizing. According to estimates by the staff of 
the Joint Committee on Taxation, approximately three million 
individual tax returns will realize greater tax savings from 
the increased standard deduction than form itemizing their 
deductions. In addition to the tax savings, such taxpayers will 
no longer have to file schedule A to Form 1040 and a 
significant number of which will no longer need to engage in 
the record keeping inherent in itemizing below-the-line 
deductions. Moreover, by claiming the standard deduction, such 
taxpayers may qualify to use simpler versions of the Form 1040 
(i.e., Form 1040EZ or Form 1040A) that are not available to 
individual who itemize their deductions. These forms simplify 
the return preparation process by eliminating from the Form 
1040 those items that do not apply to particular taxpayers.
    This reduction in complexity and record keeping also may 
result in a decline in the number of individual using a tax 
preparation service or a decline in the cost of using such a 
service. Furthermore, if the provision results in a taxpayer 
qualifying go us one of the simpler version of the Form 1040, 
the taxpayer may be eligible to file a paperless Federal tax 
return by telephone. The provision also should reduce the 
number of disputes between taxpayers and the IRS regarding 
substantiation of itemized deductions.

4. Reduction in income tax rates for individuals (secs. 104 and 105 of 
        the bill)

Summary description of provision

    The bill accelerates the scheduled increase in the taxable 
income levels for the 10-percent rate bracket from 2008 to 
2003, 2004, and 2005. Specifically, the bill increases the 
taxable income level for the 10-percent regular income tax rate 
brackets for unmarried individuals from $6,000 to $7,000 and 
for married individuals filing jointly from $12,000 to $14,000, 
respectively. The taxable income levels for the 10-percent 
regular income tax rate bracket will be adjusted annually for 
inflation for taxable years beginning after December 31, 2003. 
For taxable years beginning after 2005, the amounts will revert 
to the levels provided in present-law (e.g., $7,000 for 
unmarried individuals and $12,000 for married couples filing 
jointly for 2006).
    Also, the bill accelerates the reductions in the regular 
income tax rates excess of the 15-percent regular income tax 
rate that are scheduled for 2004 and 2006. Therefore, the 
regular income tax rates in excess of 15 percent under the bill 
are 25 percent, 28 percent, 33 percent, and 35 percent for 2003 
and thereafter.

Number of affected taxpayers

    It is estimated that the provision will affect 
approximately 76 million individual tax returns.

Discussion

    It is not anticipated that individuals will need to keep 
additional records due to this provision. It should not result 
in an increase in disputes with the IRS, nor will regulatory 
guidance be necessary to implement this provision. In addition, 
the provision should not increase the tax preparation costs for 
most individuals. Reductions in the regular income tax as a 
result of these rate reductions as well as the expansion of the 
child credit, standard deduction, and 10-percent bracket, will 
cause some taxpayers to become subject to the alternative 
minimum tax.
    The Secretary of the Treasury is expected to make 
appropriate revisions to the wage withholding tables to reflect 
the proposed rate reduction for calendar year 2003 as 
expeditiously as possible. To implement the effects of the 
additional amount of child tax credit for 2003, employers would 
be required to use a new (second) set of withholding rate 
tables to determine the correct withholding amounts for each 
employee. Switching to the new withholding rate tables during 
the year can be expected to result in a one-time additional 
burden for employers (or additional costs for employers that 
rely on a bookkeeping or payroll service).

5. Bonus depreciation (sec. 201 of the bill)

Summary description of provision

    The bill provides an additional first-year depreciation 
deduction equal to 50 percent of the adjusted basis of 
qualified property. Qualified property is defined in the same 
manner as for purposes of the 30-percent additional first-year 
depreciation deduction provided by the JobCreation and Workers 
Assistance Act of 2002, except that the applicable time period for 
acquisition (or self construction) of the property is modified. In 
general, in order to qualify the property must be acquired after May 5, 
2003, and before January 1, 2006, and no binding written contract for 
the acquisition is in effect before May 6, 2003. Property eligible for 
the 50-percent additional first year depreciation deduction is not 
eligible for the 30-percent additional first year depreciation 
deduction.

Number of affected taxpayers

    It is estimated that more than 10 percent of small 
businesses will be affected by the provision.

Discussion

    It is not anticipated that small businesses will have to 
keep additional records due to this provision, nor will 
additional regulatory guidance be necessary to implement this 
provision. It is not anticipated that the provision will result 
in an increase in disputes between small businesses and the 
IRS. However, small businesses will have to perform additional 
analysis to determine whether property qualifies for the 
provision. In addition, for qualified property, small 
businesses will be required to perform additional calculations 
to determine the proper amount of allowable depreciation. 
Complexity may also be increased because the provision is 
temporary. For example, different tax treatment will apply for 
identical equipment based on the acquisition and placed in 
service date. Further, the Secretary of the Treasury is 
expected to have to make appropriate revisions to the 
applicable depreciation tax forms.

6. Capital gain rate reduction (sec. 301 of the bill)

Summary description of provision

    The bill reduces the 10- and 20-percent rates on the 
adjusted net capital gain to five and 15 percent, respectively. 
These lower rates apply to both the regular tax and the 
alternative minimum tax. The lower rates apply to assets held 
more than one year. The bill applies to taxable years ending on 
or after May 6, 2003, and beginning before January 1, 2013.
    For taxable years that include May 6, 2003, the lower rates 
apply to amounts properly taken into account for the portion of 
the year on or after that date. This generally has the effect 
of applying the lower rates to capital assets sold or exchanged 
(and installment payments received) on or after May 6, 2003. In 
the case of gain and loss taken into account by a pass-through 
entity, the date taken into account by the entity is the 
appropriate date for applying this rule.

Number of affected taxpayers

    It is estimated that the provisions will affect over 15 
million individual tax returns.

Discussion

    The elimination of the five-year holding period means that 
taxpayers with gains on assets held for more than 5 years will 
no longer need to separately compute tax for such gain on 
schedule D of form 1040. Additionally, the form will not need 
to be expanded beginning in 2006 to separate out gain of 
capital assets held more than five years that were purchased 
after 2000. This may reduce tax preparation costs. Mutual fund 
reporting on the Form 1099 will be made easier by the 
elimination of the five-year holding period.
    For 2003, multiple rates will be in effect depending on 
whether gain was realized before or after May 6, 2003. This 
will make the schedule D more complicated for tax year 2003, 
and may increase tax preparation costs.

7. Dividend tax relief (sec. 302 of the bill)

Summary description of provision

    Under the bill, qualified dividends received by an 
individual shareholder from domestic corporations are taxed at 
the rates that apply to net capital gain. This treatment 
applies for purposes of both the regular tax and the 
alternative minimum tax. Thus, under the bill, dividends will 
be taxed at rates of five and 15 percent, the same rates 
applicable to net capital gain.
    If a shareholder does not hold a share of stock for more 
than 45 days during the 90-day period beginning 45 days before 
the ex-dividend date, dividends, received on the stock are not 
eligible for the capital gain rates. Also, the capital gain 
rates are not available for dividends to the extent that the 
taxpayer is obligated to make related payments with respect to 
positions in substantially similar or related property.

Number of affected taxpayers

    It is estimated that the provisions will affect over 20 
million individual tax returns.

Discussion

    Individuals computing their tax will need to add qualified 
dividends to net capital gain in computing their income tax 
using the tax computation portion of Schedule D of Form 1040 
(or other tax computation forms or schedules as the Internal 
Revenue Service may prescribe). Additional individuals will 
need to use the tax computation schedule, which may increase 
tax preparation costs.
    New Form 1099s will need to differentiate qualified from 
nonqualified dividends. Additional record keeping will be 
necessary with respect to compliance with the 45-day holding 
period rules. It is likely that there will be increased 
taxpayer errors with respect to the proper reporting of 
dividends as a result.

                        Department of the Treasury,
                                  Internal Revenue Service,
                                       Washington, DC, May 7, 2003.
Ms. Mary Schmitt,
Acting Chief of Staff, Joint Committee on Taxation,
Washington, DC.
    Dear Ms. Schmitt: Enclosed are the combined comments of the 
Internal Revenue Service and the Treasury Department on the 
seven provisions from the House Committee on Ways and Means 
markup of H.R. 2, the ``Jobs and Growth Tax Act of 2003,'' that 
you identified for complexity analysis in your letter of May 7, 
2003.
    Our comments are based on the description of those 
provisions in your letter and JCX-40-03, the Joint Committee on 
Taxation's Description of the Chairman's Amendment in the 
Nature of a Substitute to Jobs and Growth Tax Act of 2003; and 
the statutory language for the Chairman's amendment published 
by the Daily Tax Report on May 7, 2003.
    Due to the short turnaround time, our comments are 
provisional and subject to change upon a more complete and in-
depth analysis of the provisions. Our ability to implement any 
tax changes this year will, of course, depend upon timely 
enactment.
            Sincerely,
                                           Mark W. Everson,
                                                      Commissioner.
    Enclosure.

       Complexity Analysis of the Jobs and Growth Tax Act of 2003


          ACCELERATION OF THE INCREASE IN THE CHILD TAX CREDIT

Provision

    The amount of the child tax credit is increased to $1,000 
for 2003, 2004, and 2005. For 2003, the increased amount ($400) 
will be paid in advance beginning in July 2003 on the basis of 
information on each taxpayer's 2002 return. Advance payments 
are to be made in a similar manner to the advance payment 
checks issued by the Treasury in 2001 to reflect the creation 
of the 10-percent regular income tax rate bracket. After 2005 
the child tax credit will revert to the levels provided in 
present law (e.g., $700 for 2006).

IRS and Treasury comments

     No new forms would be required as a result of the 
child tax credit provisions mentioned above.
     The increased amount of the child tax credit would 
be incorporated in the instructions for Forms 1040, 1040A, 
1040NR, 1040-PR, and 1040-SS for 2003, 2004, and 2005.
     The applicable amount of the child tax credit for 
2006 and later years would be incorporated in the instructions 
for Forms 1040, 1040A, 1040NR, 1040-PR, and 1040-SS and on Form 
1040-ES for 2006 and later years.
     Subsequent to enactment, the IRS would have to 
advise taxpayers who make estimated tax payments for 2003 how 
they can adjust their estimated tax payments for 2003 to 
reflect the increased child tax credit and required reduction 
for those who receive advance payments.
     Supplemental programming changes would be required 
to reflect the increased child tax credit for 2003 and the 
required reduction for those who receive advance payments.
     Programming changes would be required to reflect 
the applicable amount of the child tax credit for 2006 and 
later years. Currently, the IRS computation programs are 
updated annually to incorporate mandated inflation adjustments. 
Programming changes necessitated by the provision would be 
included during that process.
            Advance payment feature
     An estimated 26 million checks will be mailed 
beginning in July 2003.
     It will take three weeks to mail checks to those 
taxpayers whose 2002 tax returns have already been filed and 
processed. Checks for taxpayers whose returns are filed and 
processed later in the year will be mailed weekly, through the 
end of December 2003.
     Some taxpayers may be entitled to more than their 
advance payment checks due to changes in financial or family 
status between 2002 and 2003. For example, IRS will not know if 
a taxpayer gives birth to a child or adopts a child in 2003 
until the taxpayer files the 2003 tax return. If they are 
entitled to a larger increase in the child tax credit than they 
received in their advance payment checks, they will get the 
additional amounts as a credit on their 2003 tax returns.
     Notices will be sent to taxpayers informing them 
of the amount of their advance payment, the number of children 
used to compute the amount, if the amount was limited due to 
the phase-out range, tax liability, or earned income. The 
notices will also advise taxpayers that this amount will have 
to be taken into account in determining the amount of their 
child tax credit on the 2003 tax return.
     Two lines would be added to the Child Tax Credit 
Worksheet for 2003. One line would be added for the taxpayer to 
reduce the amount of child tax credit computed by the advance 
payment received. Based on experience with the 2001 rate 
reduction credit and advance payment, it is anticipated that a 
number of taxpayers will make errors in this computation on 
their 2003 tax returns.
    The advance payment will require programming changes to 
compute the amount and resources to answer taxpayer questions, 
print and mail notices, and correct errors made on 2003 returns 
as a result of the advance payment.

           ACCELERATION OF THE STANDARD DEDUCTION TAX RELIEF

Provision

    The basic standard deduction amount for joint returns is 
increased to twice the basic standard deduction amount for 
unmarried individual returns, effective for 2003, 2004, and 
2005. After 2005, the applicable percentages will revert to 
present-law levels (e.g., 184 percent of the basic standard 
deduction for unmarried individuals for 2006).

IRS and Treasury comments

     The increased basic standards deduction for 
married taxpayers would be incorporated in the instructions for 
Forms 1040, 1040A, 1040EZ, and on Forms 1040, 1040A, and 1040EZ 
for 2003, 2004, and 2005. No new forms would be required.
     The amount of the basic standard deduction for 
married taxpayers after 2005 would be incorporated in the 
instructions for Forms 1040, 1040A, 1040EZ, and on Forms W-4, 
1040, 1040A, 1040EZ, and 1040-ES for 2006 and later years.
     Subsequent to enactment, the IRS would have to 
advise taxpayers how they can adjust their estimated tax 
payment or Federal income tax withholding for 2003 to reflect 
the increased basic standard deduction.
     Supplemental programming changes would be required 
to reflect the increased basic standard deduction for 2003.
     Programming changes would be required to reflect 
the applicable amount of the standard deduction applicable for 
2006 and later years. Currently, the IRS computation programs 
are updated annually to incorporate mandated inflation 
adjustments. Programming changes necessitated by the provision 
would be included during that process.
     The larger basic standard deduction would reduce 
the number of taxpayers who itemize their deductions.
     The larger standard deduction would reduce the 
number of taxpayers required to file tax returns.
     The provision would increase the number of AMT 
filers and would also cause additional taxpayers to perform AMT 
calculations to determine whether their liability is affected 
by the AMT.
     The provision would require new withholding rate 
tables and schedules to update the current Circular E for use 
by employers during the remainder of calendar year 2003.

      ACCELERATION OF THE EXPANSION OF THE 15-PERCENT RATE BRACKET

Provision

    The width of the 15-percent regular income tax rate bracket 
for joint returns is increased to twice the width of the 15-
percent regular income tax rate bracket for unmarried 
individual returns, effective for 2003, 2004, and 2005. After 
2005, the end point of the 15-percent rate bracket for married 
couples filing joint returns as a percentage of the end point 
of the 15-percent rate bracket for unmarried individuals will 
revert to present-law levels (e.g., 187 percent of the end 
point of the 15-percent rate bracket for unmarried individuals 
for 2006).

IRS and Treasury comments

     The expanded 15-percent rate bracket for married 
taxpayers would be incorporated in the tax tables and the tax 
rate schedules shown in the instructions for Forms 1040, 1040A, 
1040EZ, and 1040NR for 2003, 2004, and 2005. No new forms would 
be required.
     The applicable width of the 15-percent rate 
bracket for married taxpayers after 2005 would be incorporated 
in the tax tables and tax rate schedules shown in the 
instructions for Forms 1040, 1040A, 1040EZ, and 1040NR and on 
Form 1040-ES for 2006 and later years.
     The expanded 15-percent rate bracket would also be 
incorporated in the tax rate schedules shown on Form 1040-ES 
for 2004. Subsequent to enactment, the IRS would have to advise 
taxpayers who make estimated tax payments for 2003 how they can 
adjust their estimated tax payments for 2003 to reflect the 
expanded 15-percent rate bracket.
     Supplemental programming changes would be required 
to reflect the expanded 15-percent rate bracket for 2003.
     Programming changes would be required to reflect 
the applicable width of the 15-percent rate bracket for 2006 
and later years. Currently, the IRS computation programs are 
updated annually to incorporate mandated inflation adjustments. 
Programming changes necessitated by the provision would be 
included during that process.
     New withholding rate tables and schedules to 
update the current Circular E for use by employers during the 
remainder of calendar year 2003 would be required.
     The provision would increase the number of AMT 
filers and would also cause additional taxpayers to perform AMT 
calculations to determine whether their liability is affected 
by the AMT.

  ACCELERATION OF THE REDUCTION OF REGULAR INDIVIDUAL INCOME TAX RATES

Provision

    Increases in the taxable income levels for the 10-percent 
rate bracket now scheduled for 2008 are accelerated to 2003, 
2004, and 2005. Specifically, for 2003 the taxable income level 
for the 10-percent regular income tax rate brackets will 
increase for unmarried individuals from $6,000 to $7,000 and 
for married individuals filing jointly from $12,000 to $14,000, 
respectively. For taxable years beginning after 2003 the 10-
percent regular income tax rate bracket will be adjusted 
annually for inflation. For taxable years beginning after 2005, 
the bracket will revert to the levels provided in present law 
(e.g., $7,000 for unmarried individuals and $12,000 for married 
couples filing jointly for 2006).
    The reductions in the regular income tax rates in excess of 
the 15-percent regular income tax rate now scheduled for 2004 
and 2006 are accelerated to 2003. Therefore, the regular income 
tax rates in excess of 15 percent under the bill will be 25 
percent, 28 percent, 33 percent, and 35 percent for 2003 and 
thereafter.

IRS and Treasury comments

     No new forms would be required as a result of the 
above-mentioned provisions.
     The increased taxable income levels for the 10-
percent rate bracket would be incorporated in the tax tables 
and tax rate schedules shown in the instructions for Forms 
1040, 1040A, 1040EZ, 1040NR, and 1040NR-EZ for 2003, 2004, and 
2005.
     The reduced tax rates would be incorporated in the 
tax tables and tax rate schedules shown in the instructions for 
Forms 1040, 1040A, 1040EZ, 1040NR, 1040NR-EZ, and 1041 for 2003 
and later years.
     The increased taxable income levels for the 10-
percent rate bracket and the reduced tax rates would also be 
incorporated in the tax rate schedules shown on Form 1040-ES 
for 2004. Subsequent to enactment, the IRS would have to advise 
taxpayers who make estimated tax payments for 2003 how then can 
adjust their estimated tax payments for 2003 to reflect the 
increased taxable income levels for the 10-percent rate bracket 
and the reduced rates.
     The provision would require new withholding rate 
tables and schedules to update the current Circular E for use 
by employers during the remainder of calendar year 2003.

          SPECIAL DEPRECIATION ALLOWANCE FOR CERTAIN PROPERTY

Provision

    The bill provides an additional first-year depreciation 
deduction equal to 50 percent of the adjusted basis of 
qualified property. Qualified property is defined in the same 
manner as for purposes of the 30-percent additional first-year 
depreciation deduction provided by the Job Creation and Workers 
Assistance Act of 2002, except that the applicable time period 
for acquisition (or self construction) of the property is 
modified. In general, in order to qualify, the property must be 
acquired after May 5, 2003 and before January 1, 2006, and no 
binding written contract for the acquisition is in effect 
beforeMay 6, 2003. Property eligible for the 50-percent 
additional first-year depreciation deduction is not eligible for the 
30-percent additional first-year depreciation deduction.

IRS and Treasury comments

     The increase and extension of additional first-
year depreciation would have no significant impact on Form 4562 
or any other tax forms. The instructions for Form 4562 and 
other instructions and publications would be expanded to 
explain and implement the new rules. No new forms would be 
required.
     No programming changes would be required by this 
provision.

                 REDUCED INDIVIDUAL CAPITAL GAINS RATES

Provision

    The 10 and 20 percent rates on the adjusted net capital 
gain are reduced to 5 and 15 percent, respectively, effective 
in taxable years ending on or after May 6, 2003 and beginning 
before January 1, 2013.
    For taxable years that include May 6, 2003, the lower rates 
apply to amounts properly taken into account for the portion of 
the year on or after that date. This generally has the effect 
of applying the lower rates to capital assets sold or exchanged 
(and installments payments received) on or after May 6, 2003.

IRS and Treasury comments

     The mid-year effective date of May 6, 2003, 
creates complexity and burden for taxpayers, and will likely 
result in a large number of errors (as occurred in 1997 when 
similar mid-year changes were made to the capital gains tax 
rate). A January 1, 2003 would greatly simplify matters in 
2003.
     To figure the amount of gain taxed at 5% and 15% 
for 2003, 8 lines would be added to: Schedule D (Form 1040); 
the Schedule D Tax Worksheet; Form 6251 (alternative minimum 
tax); and Form 8801 (credit for prior year minimum tax).
     Column (g) of Schedule D would be revised to 
request information for amounts applicable to the portion of 
the tax year after May 5, 2003. Additional instructions and a 
6-line worksheet would be added to figure 28% rate gain or 
loss, as that amount is currently figured in column (g).
     Rules would have to be developed and applied for 
2003 to account for the limit on net section 1231 losses, 
capital loss carryforwards, carryforwards not allowed due to 
passive activity rules or at-risk rules, etc.
     The amount of net capital gain for the portion of 
the tax year after May 5, 2003, would have to be transcribed 
from the tax return and programming changes would be required 
to figure the amount of gain taxed at 5% and 15%.
     For 2003, Form 1099-DIV filers would be required 
to figure and report to recipients the amount of gain after May 
5, 2003.
     Taxpayers whose only capital gains are capital 
gain distributions would not be able to use the shorter Capital 
Gain Tax Worksheet in the instructions for Form 1040 and Form 
1040A, but instead would be required to file Form 1040 and 
attach Schedule D, to report the amount of their capital gain 
distributions properly taken into account after May 5, 2003, 
and figure their tax using the 5%, 10%, 15%, and 20% capital 
gains tax rates. This provision would therefore increase the 
number of taxpayers filing Schedule D by up to 6 million.
     For 2004, the 8 lines added for 2003 and 4 current 
lines (used to figure the 8% rate) would be removed from: 
Schedule D; the Schedule D Tax Worksheet; Form 6251; and Form 
8801.
     The 8-line Qualified 5-Year Gain Worksheet in the 
Instructions for Schedule D would not be necessary after 2003.
     For 2006, when the 18% capital gains tax rate 
becomes effective for individuals, this provision would also 
prevent us from having to add 4 lines to Schedule D, the 
Schedule D Tax Worksheet, Form 6251, Form 8801, and the 
Qualified 5-Year Gain Worksheet.
     Form 1099-DIV filers would not be required to 
report qualified 5-year gain after 2003, and would not be 
required in 2005 to begin reporting qualified 5-year gain 
eligible for the 18% rate.

                     DIVIDEND INCOME OF INDIVIDUALS

Provision

    Dividends received by an individual shareholder from 
domestic corporations are taxed at the rates for net capital 
gain (5 or 15 percent per the above reduction in the capital 
gains rate), effective for taxable years beginning after 2002 
and before 2013.
    If a shareholder does not hold a share of stock for more 
than 45 days during the 90-day period beginning 45 days before 
the ex-dividend date, dividends received on the stock are not 
eligible for the capital gain rates. Also, the capital gain 
rates are not available for dividends to the extent that the 
taxpayer is obligated to make related payments with respect to 
positions in substantially similar or related property. Other 
rules apply.

IRS and Treasury comments

     No new forms would be required as a result of the 
above-mentioned provision.
     A box to report qualified dividends would be added 
to Form 1099-DIV for 2004 through 2012.
     Subsequent to enactment, the IRS would have to 
issue a revised Form 1099-DIV for 2003 and advise taxpayers who 
make estimated tax payments for 2003 how they can adjust their 
estimated tax payments to reflect the new tax rates applicable 
to qualified dividends.
     Two lines would be added to Part IV of Schedule D 
(and the Schedule D Tax Worksheet) for 2003 through 2012 to 
increase net capital gain by the amount of qualified dividends.
     The new tax rates applicable to qualified 
dividends would be reflected in the instructions for Forms 1040 
and 1040A for 2003 through 2012.
     Taxpayers who have qualified dividends would be 
required to report them on Schedule D and complete up to 19 
lines (23 lines for 2003) in Part IV of Schedule D to figure 
their tax using the 15% and 5% capital gains tax rates, even if 
they did not otherwise have a net capital gain. For example, 
taxpayers whose only income was wages, interest, and dividends 
reported on Form 1040A would now be required to file Form 1040 
and attach Schedule D to report the amount of qualified 
dividends and figure their tax.
     Supplemental programming changes would be required 
to reflect the new tax rates applicable to qualified dividends 
for 2003.
     Programming changes would be required to reflect 
the tax rates applicable to qualified dividends after 2012. 
Currently, the IRS tax computation programs are updated 
annually to incorporate mandated inflation adjustments. 
Programming changes necessitated by the provision would be 
included during that process.
     Technical guidance (regulations, revenue rulings, 
etc.) will probably be needed to implement the anti-abuse 
rules.

                  EFFECT OF ALL BILL PROVISIONS ON AMT

    Despite specific changes which tend to increase the number 
of AMT taxpayers, the bill's increases in the AMT exemption 
amounts for 2003-2005 would significantly reduce the number of 
AMT taxpayers in those years relative to current law.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE ACT OF 1986

           *       *       *       *       *       *       *



Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART I--TAX ON INDIVIDUALS

           *       *       *       *       *       *       *



SEC. 1. TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Phaseout of Marriage Penalty in 15-Percent Bracket; 
Adjustments in Tax Tables So That Inflation Will Not Result in 
Tax Increases.--
          (1) * * *

           *       *       *       *       *       *       *

          (8) Phaseout of marriage penalty in 15-percent 
        bracket.--
                  (A) In general.--With respect to taxable 
                years beginning after December 31, [2004] 2002, 
                in prescribing the tables under paragraph (1)--
                          (i) * * *

           *       *       *       *       *       *       *

                  (B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage 
                shall be determined in accordance with the 
                following table:

For taxable years beginning                            The applicable in
calendar year                                              percentage is
    [2005.....................................................     180] 
    2003, 2004, and 2005......................................       200
    2006......................................................      187 
    2007......................................................      193 
200.08 and thereafter.......................................

           *       *       *       *       *       *       *

  (h) Maximum Capital Gains Rate.--
          (1) In general.--If a taxpayer has a net capital gain 
        for any taxable year, the tax imposed by this section 
        for such taxable year shall not exceed the sum of--
                  (A) * * *
                  (B) [10] 5 percent of so much of the adjusted 
                net capital gain (or, if less, taxable income) 
                as does not exceed the excess (if any) of--
                          (i) * * *

           *       *       *       *       *       *       *

                  (C) [20] 15 percent of the adjusted net 
                capital gain (or, if less, taxable income) in 
                excess of the amount on which a tax is 
                determined under subparagraph (B);

           *       *       *       *       *       *       *

          [(2) Reduced capital gain rates for qualified 5-year 
        gain.--
                  [(A) Reduction in 10-percent rate.--In the 
                case of any taxable year beginning after 
                December 31, 2000, the rate under paragraph 
                (1)(B) shall be 8 percent with respect to so 
                much of the amount to which the 10-percent rate 
                would otherwise apply as does not exceed 
                qualified 5-year gain, and 10 percent with 
                respect to the remainder of such amount.
                  [(B) Reduction in 20-percent rate.--The rate 
                under paragraph (1)(C) shall be 18 percent with 
                respect to so much of the amount to which the 
                20-percent rate would otherwise apply as does 
                not exceed the lesser of--
                          [(i) the excess of qualified 5-year 
                        gain over the amount of such gain taken 
                        into account under subparagraph (A) of 
                        this paragraph; or
                          [(ii) the amount of qualified 5-year 
                        gain (determined by taking into account 
                        only property the holding period for 
                        which begins after December 31, 2000), 
                        and 20 percent with respect to the 
                        remainder of such amount. For purposes 
                        of determining under the preceding 
                        sentence whether the holding period of 
                        property begins after December 31, 
                        2000, the holding period of property 
                        acquired pursuant to the exercise of an 
                        option (or other right or obligation to 
                        acquire property) shall include the 
                        period such option (or other right or 
                        obligation) was held.]
          [(3)] (2) Net capital gain taken into account as 
        investment income.--For purposes of this subsection, 
        the net capital gain for any taxable year shall be 
        reduced (but not below zero) by the amount which the 
        taxpayer takes into account as investment income under 
        section 163(d)(4)(B)(iii).
          [(4) Adjusted net capital gain.--For purposes of this 
        subsection, the term ``adjusted net capital gain'' 
        means net capital gain reduced (but not below zero) by 
        the sum of--
                  [(A) unrecaptured section 1250 gain; and
                  [(B) 28-percent rate gain.]
          (3) Adjusted net capital gain.--For purposes of this 
        subsection, the term ``adjusted net capital gain'' 
        means the sum of--
                  (A) net capital gain (determined without 
                regard to paragraph (11)) reduced (but not 
                below zero) by the sum of--
                          (i) unrecaptured section 1250 gain, 
                        and
                          (ii) 28-percent rate gain, plus
                  (B) qualified dividend income (as defined in 
                paragraph (11)).
          [(5)] (4) 28-Percent rate gain.--For purposes of this 
        subsection, the term ``28-percent rate gain'' means the 
        excess (if any) of--
                  (A) * * *

           *       *       *       *       *       *       *

          [(6)] (5) Collectibles gain and loss.--For purposes 
        of this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

          [(7)] (6) Unrecaptured section 1250 gain.--For 
        purposes of this subsection--
                  (A) In general.--The term ``unrecaptured 
                section 1250 gain'' means the excess (if any) 
                of--
                          (i) the amount of long-term capital 
                        gain (not otherwise treated as ordinary 
                        income) which would be treated as 
                        ordinary income if section 1250(b)(1) 
                        included all depreciation and the 
                        applicable percentage under section 
                        1250(a) were 100 percent, over

           *       *       *       *       *       *       *

          [(8)] (7) Section 1202 gain.--For purposes of this 
        subsection, the term ``section 1202 gain'' means the 
        excess of--
                  (A) the gain which would be excluded from 
                gross income under section 1202 but for the 
                percentage limitation in section 1202(a), over
                  (B) the gain excluded from gross income under 
                section 1202.
          [(9) Qualified 5-year gain.--For purposes of this 
        subsection, the term ``qualified 5-year gain'' means 
        the aggregate long-term capital gain from property held 
        for more than 5 years. The determination under the 
        preceding sentence shall be made without regard to 
        collectibles gain, gain described in paragraph 
        (7)(A)(i), and section 1202 gain.]
          [(10)] (8) Coordination with recapture of net 
        ordinary losses under section 1231.--If any amount is 
        treated as ordinary income under section 1231(c), such 
        amount shall be allocated among the separate categories 
        of net section 1231 gain (as defined in section 
        1231(c)(3)) in such manner as the Secretary may by 
        forms or regulations prescribe.
          [(11)] (9) Regulations.--The Secretary may prescribe 
        such regulations as are appropriate (including 
        regulations requiring reporting) to apply this 
        subsection in the case of sales and exchanges by pass-
        thru entities and of interests in such entities.
          [(12)] (10) Pass-thru entity defined.--
  For purposes of this subsection, the term ``pass-thru 
entity'' means--
                  (A) a regulated investment company;

           *       *       *       *       *       *       *

          (11) Dividends taxed as net capital gain.--
                  (A) In general.--For purposes of this 
                subsection, the term ``net capital gain' means 
                net capital gain (determined without regard to 
                this paragraph), increased by qualified 
                dividend income.
                  (B) Qualified dividend income.--For purposes 
                of this paragraph--
                          (i) In general.--The term ``qualified 
                        dividend income' means dividends 
                        received during the taxable year from 
                        domestic corporations.
                          (ii) Certain dividends excluded.--
                        Such term shall not include--
                                  (I) any dividend from a 
                                corporation which for the 
                                taxable year of the corporation 
                                in which the distribution is 
                                made, or the preceding taxable 
                                year, is a corporation exempt 
                                from tax under section 501 or 
                                521,
                                  (II) any amount allowed as a 
                                deduction under section 591 
                                (relating to deduction for 
                                dividends paid by mutual 
                                savings banks, etc.), and
                                  (III) any dividend described 
                                in section 404(k).
                          (iii) Exclusion of certain 
                        dividends.--Such term shall not include 
                        any dividend on any share of stock--
                                  (I) with respect to which the 
                                holding period requirements of 
                                section 246(c) are not met, or
                                  (II) to the extent that the 
                                taxpayer is under an obligation 
                                (whether pursuant to a short 
                                sale or otherwise) to make 
                                related payments with respect 
                                to positions in substantially 
                                similar or related property.
                  (C) Special rules.--
                          (i) Amounts taken into account as 
                        investment income.--Qualified dividend 
                        income shall not include any amount 
                        which the taxpayer takes into account 
                        as investment income under section 
                        163(d)(4)(B).
                          (ii) Extraordinary dividends.--If an 
                        individual receives, with respect to 
                        any share of stock, qualified dividend 
                        income from 1 or more dividends which 
                        are extraordinary dividends (within the 
                        meaning of section 1059(c)), any loss 
                        on the sale or exchange of such share 
                        shall, to the extent of such dividends, 
                        be treated as long-term capital loss.
                          (iii) Treatment of dividends from 
                        regulated investment companies and real 
                        estate investment trusts.--A dividend 
                        received from a regulated investment 
                        company or a real estate investment 
                        trust shall be subject to the 
                        limitations prescribed in sections 854 
                        and 857.
  (i) Rate Reductions After 2000.--
          (1) 10-Percent rate bracket.--
                  (A) * * *
                  (B) Initial bracket amount.--For purposes of 
                this paragraph, the initial bracket amount is--
                          (i) $14,000 [($12,000 in the case of 
                        taxable years beginning before January 
                        1, 2008)] ($12,000 in the case of 
                        taxable years beginning after December 
                        31, 2005, and before January 1, 2008) 
                        in the case of subsection (a),

           *       *       *       *       *       *       *

                  [(C) Inflation adjustment.--In prescribing 
                the tables under subsection (f) which apply 
                with respect to taxable years beginning in 
                calendar years after 2000--
                          [(i) the Secretary shall make no 
                        adjustment to the initial bracket 
                        amount for any taxable year beginning 
                        before January 1, 2009,
                          [(ii) the cost-of-living adjustment 
                        used in making adjustments to the 
                        initial bracket amount for any taxable 
                        year beginning after December 31, 2008, 
                        shall be determined under subsection 
                        (f)(3) by substituting `2007' for 
                        `1992' in subparagraph (B) thereof, and
                          [(iii) such adjustment shall not 
                        apply to the amount referred to in 
                        subparagraph (B)(iii). If any amount 
                        after adjustment under the preceding 
                        sentence is not a multiple of $50, such 
                        amount shall be rounded to the next 
                        lowest multiple of $50.]
                  (C) Inflation adjustment.--In prescribing the 
                tables under subsection (f) which apply with 
                respect to taxable years beginning in calendar 
                years after 2000--
                          (i) the Secretary shall make no 
                        adjustment to the $12,000 initial 
                        bracket amount for any taxable year,
                          (ii)(I) the Secretary shall make no 
                        adjustment to the $14,000 initial 
                        bracket amount for any taxable year 
                        beginning before January 1, 2004,
                          (II) the cost-of-living adjustment 
                        used in making adjustments to the 
                        $14,000 initial bracket amount for any 
                        taxable year beginning during 2004 or 
                        2005 shall be determined under 
                        subsection (f)(3) by substituting 
                        ``2002'' for ``1992'' in subparagraph 
                        (B) thereof, and
                          (III) the cost-of-living adjustment 
                        used in making adjustments to the 
                        $14,000 initial bracket amount for any 
                        taxable year beginning after December 
                        31, 2008, shall be determined under 
                        subsection (f)(3) by substituting 
                        ``2007'' for ``1992'' in subparagraph 
                        (B) thereof, and
                          (iii) the adjustments under clause 
                        (ii) shall not apply to the amount 
                        referred to in subparagraph (B)(iii).
                If any amount after adjustment under the 
                preceding sentence is not a multiple of $50, 
                such amount shall be rounded to the next lowest 
                multiple of $50.
          (2) Reductions in rates after june 30, 2001.--In the 
        case of taxable years beginning in a calendar year 
        after 2000, the corresponding percentage specified for 
        such calendar year in the following table shall be 
        substituted for the otherwise applicable tax rate in 
        the tables under subsections (a), (b), (c), (d), and 
        (e).

------------------------------------------------------------------------
                                         The corresponding percentages
                   [In the case of       shall be substituted for  the
                    taxable years           following percentages:
                   beginning during  -----------------------------------
                    calendar year:      28%      31%      36%     39.6%
------------------------------------------------------------------------
                 2001...............   27.5%    30.5%    35.5%    39.1%
                 2002 and 2003......   27.0%    30.0%    35.0%    38.6%
                 2004 and 2005......   26.0%    29.0%    34.0%    37.6%
                 2006 and thereafter   25.0%    28.0%    33.0%    35.0%]
------------------------------------------------------------------------


------------------------------------------------------------------------
                                     The corresponding percentages shall
                   In the case of     be substituted for  the following
                    taxable years                percentages:
                  beginning during  ------------------------------------
                   calendar year:      28%      31%      36%      39.6%
------------------------------------------------------------------------
                 2001..............   27.5%    30.5%    35.5%     39.1%
                 2002..............   27.0%    30.0%    35.0%     38.6%
                 2003 and             25.0%    28.0%    33.0%     35.0%
                  thereafter.
------------------------------------------------------------------------

                                                                

           *       *       *       *       *       *       *
PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *


Subpart A--Nonrefundable Personal Credits

           *       *       *       *       *       *       *


SEC. 24. CHILD TAX CREDIT.

  (a) Allowance of Credit.--
          (1) In general.--There shall be allowed as a credit 
        against the tax imposed by this chapter for the taxable 
        year with respect to each qualifying child of the 
        taxpayer an amount equal to the per child amount.
          (2) Per child amount.--For purposes of paragraph (1), 
        the per child amount shall be determined as follows:

                                                           The per child
  
In the case of any taxable year beginning in                   amount is
        [2001, 2002, 2003, or 2004                                  $600
        [2005, 2006, 2007, or 2008                                  700]
        2003, 2004, 2005                                          $1,000
        2006, 2007, or 2008                                          700
        2009                                                         800
1,000 2010 or thereafter

           *       *       *       *       *       *       *


PART VI--MINIMUM TAX FOR TAX PREFERENCES

           *       *       *       *       *       *       *


SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

  (a) * * *
  (b) Tentative Minimum Tax.--For purposes of this part--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Maximum of tax on net capital gain of 
        noncorporate taxpayers.--The amount determined under 
        the first sentence of paragraph (1)(A)(i) shall not 
        exceed the sum of--
                  (A) * * *
                  (B) [10] 5 percent of so much of the adjusted 
                net capital gain (or, if less, taxable excess) 
                as does not exceed the amount on which a tax is 
                determined under section 1(h)(1)(B), plus
                  (C) [20] 15 percent of the adjusted net 
                capital gain (or, if less, taxable excess) in 
                excess of the amount on which tax is determined 
                under subparagraph (B), plus
                  (D) 25 percent of the amount of taxable 
                excess in excess of the sum of the amounts on 
                which tax is determined under the preceding 
                subparagraphs of this paragraph.
[In the case of taxable years beginning after December 31, 
2000, rules similar to the rules of section 1(h)(2) shall apply 
for purposes of subparagraphs (B) and (C).] Terms used in this 
paragraph which are also used in section 1(h) shall have the 
respective meanings given such terms by section 1(h) but 
computed with the adjustments under this part.

           *       *       *       *       *       *       *

  (d) Exemption Amount.--For purposes of this section--
          (1) Exemption amount for taxpayers other than 
        corporations.--In the case of a taxpayer other than a 
        corporation, the term ``exemption amount'' means--
                  (A) $45,000 ([$49,000 in the case of taxable 
                years beginning in 2001, 2002, 2003, and 2004] 
                $64,000 in the case of taxable years beginning 
                in 2003, 2004, and 2005) in the case of--
                          (i) * * *

           *       *       *       *       *       *       *

                  (B) $33,750 ([$35,750 in the case of taxable 
                years beginning in 2001, 2002, 2003, and 2004] 
                $43,250 in the case of taxable years beginning 
                in 2003, 2004, and 2005) in the case of an 
                individual who--
                          (i) * * *

           *       *       *       *       *       *       *


SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Alternative Tax Net Operating Loss Deduction Defined.--
          (1) In general.--For purposes of subsection (a)(4), 
        the term ``alternative tax net operating loss 
        deduction'' means the net operating loss deduction 
        allowable for the taxable year under section 172, 
        except that--
                  (A) the amount of such deduction shall not 
                exceed the sum of--
                          (i) the lesser of--
                                  (I) the amount of such 
                                deduction attributable to net 
                                operating losses (other than 
                                the deduction [attributable to 
                                carryovers] described in clause 
                                (ii)(I)), or

           *       *       *       *       *       *       *

                          (ii) the lesser of--
                                  (I) the amount of such 
                                deduction attributable to the 
                                sum of carrybacks of net 
                                operating losses [for] from 
                                taxable years ending during 
                                2001 [or 2002], 2002, 2003, 
                                2004, or 2005 and 
                                [carryforwards] carryovers of 
                                net operating losses to taxable 
                                years ending during 2001 [and 
                                2002], 2002, 2003, 2004, or 
                                2005, or

           *       *       *       *       *       *       *


SEC. 57. ITEMS OF TAX PREFERENCE.

  (a) General Rule.--For purposes of this part, the items of 
tax preference determined under this section are--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Exclusion for gains on sale of certain small 
        business stock.--An amount equal to [42] 7 percent of 
        the amount excluded from gross income for the taxable 
        year under section 1202. [In the case of stock the 
        holding period of which begins after December 31, 2000 
        (determined with the application of the last sentence 
        of section 1(h)(2)(B)), the preceding sentence shall be 
        applied by substituting ``28 percent'' for ``42 
        percent''.]

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


  PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE 
INCOME, ETC.

           *       *       *       *       *       *       *


SEC. 63. TAXABLE INCOME DEFINED.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Standard Deduction.--For purposes of this subtitle--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Applicable percentage.--For purposes of paragraph 
        (2), the applicable percentage shall be determined in 
        accordance with the following table:

                                                          The applicable
For taxable years beginning                                percentage is
in calendar year--
    [2005.....................................................      174]
    2003, 2004, and 2005......................................       200
    2006......................................................       184
    2007......................................................       187
    2008......................................................       190
200009 and thereafter.......................................

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *


SEC. 163. INTEREST.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Limitation on Investment Interest.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Net investment income.--For purposes of this 
        subsection--
                  (A) * * *
                  (B) Investment income.--The term ``investment 
                income'' means the sum of--
                          (i) * * *

           *       *       *       *       *       *       *

                Such term shall include qualified dividend 
                income (as defined in section 1(h)(11)(B)) only 
                to the extent the taxpayer elects to treat such 
                income as investment income for purposes of 
                this subsection.

           *       *       *       *       *       *       *


SEC. 168. ACCELERATED COST RECOVERY SYSTEM.

  (a) * * *

           *       *       *       *       *       *       *

  (k) Special Allowance for Certain Property Acquired After 
September 10, 2001, and Before [September 11, 2004] January 1, 
2006.--
          (1) * * *
          (2) Qualified property.--For purposes of this 
        subsection--
                  (A) In general.--The term ``qualified 
                property'' means property--
                          (i)(I) * * *

           *       *       *       *       *       *       *

                          (iii) which is--
                                  (I) acquired by the taxpayer 
                                after September 10, 2001, and 
                                before [September 11, 2004] 
                                January 1, 2006, but only if no 
                                written binding contract for 
                                the acquisition was in effect 
                                before September 11, 2001, or
                                  (II) acquired by the taxpayer 
                                pursuant to a written binding 
                                contract which was entered into 
                                after September 10, 2001, and 
                                before [September 11, 2004] 
                                January 1, 2006, and
                          (iv) which is placed in service by 
                        the taxpayer before [January 1, 2005] 
                        January 1, 2006, or, in the case of 
                        property described in subparagraph (B), 
                        before [January 1, 2006] January 1, 
                        2007.
                  (B) Certain property having longer production 
                periods treated as qualified property.--
                          (i) * * *
                          (ii) Only [pre-september 11, 2004] 
                        pre-january 1, 2006, basis eligible for 
                        additional allowance.--In the case of 
                        property which is qualified property 
                        solely by reason of clause (i), 
                        paragraph (1) shall apply only to the 
                        extent of the adjusted basis thereof 
                        attributable to manufacture, 
                        construction, or production before 
                        [September 11, 2004] January 1, 2006.
                  (C) Exceptions.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) Election out.--If a taxpayer 
                        makes an election under this clause 
                        with respect to any class of property 
                        for any taxable year, this subsection 
                        shall not apply to all property in such 
                        class placed in service during such 
                        taxable year. The preceding sentence 
                        shall be applied separately with 
                        respect to property treated as 
                        qualified property by paragraph (4) and 
                        other qualified property.
                  (D) Special rules.--
                          (i) Self-constructed property.--In 
                        the case of a taxpayer manufacturing, 
                        constructing, or producing property for 
                        the taxpayer's own use, the 
                        requirements of clause (iii) of 
                        subparagraph (A) shall be treated as 
                        met if the taxpayer begins 
                        manufacturing, constructing, or 
                        producing the property after September 
                        10, 2001, and before [September 11, 
                        2004] January 1, 2006.

           *       *       *       *       *       *       *

          (4) 50-percent bonus depreciation for certain 
        property.--
                  (A) In general.--In the case of 50-percent 
                bonus depreciation property--
                          (i) paragraph (1)(A) shall be applied 
                        by substituting ``50 percent'' for ``30 
                        percent'', and
                          (ii) except as provided in paragraph 
                        (2)(C), such property shall be treated 
                        as qualified property for purposes of 
                        this subsection.
                  (B) 50-percent bonus depreciation property.--
                For purposes of this subsection, the term ``50-
                percent bonus depreciation property'' means 
                property described in paragraph (2)(A)(i)--
                          (i) the original use of which 
                        commences with the taxpayer after May 
                        5, 2003,
                          (ii) which is acquired by the 
                        taxpayer after May 5, 2003, and before 
                        January 1, 2006, but only if no written 
                        binding contract for the acquisition 
                        was in effect before May 6, 2003, and
                          (iii) which is placed in service by 
                        the taxpayer before January 1, 2006, 
                        or, in the case of property described 
                        in paragraph (2)(B) (as modified by 
                        subparagraph (C) of this paragraph), 
                        before January 1, 2007.
                  (C) Special rules.--Rules similar to the 
                rules of subparagraphs (B) and (D) of paragraph 
                (2) shall apply for purposes of this paragraph; 
                except that--
                          (i) references to September 10, 2001, 
                        shall be treated as references to May 
                        5, 2003, and
                          (ii) references to September 11, 
                        2001, shall be treated as references to 
                        May 6, 2003.
                  (D) Automobiles.--Paragraph (2)(E) shall be 
                applied by substituting ``$9,200'' for 
                ``$4,600'' in the case of 50-percent bonus 
                depreciation property.
                  (E) Election of 30 percent bonus.--If a 
                taxpayer makes an election under this 
                subparagraph with respect to any class of 
                property for any taxable year, subparagraph 
                (A)(i) shall not apply to all property in such 
                class placed in service during such taxable 
                year.

           *       *       *       *       *       *       *


SEC. 172. NET OPERATING LOSS DEDUCTION.

  (a) * * *
  (b) Net Operating Carrybacks and Carryovers.--
          (1) Years to which loss may be carried.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) 5-year carryback of certain losses.--In 
                the case of [a taxpayer which has] a net 
                operating loss for any taxable year ending 
                during 2001 [or 2002], 2002, 2003, 2004 or 
                2005, subparagraph (A)(i) shall be applied by 
                substituting ``5'' for ``2'' and subparagraph 
                (F) shall not apply.

           *       *       *       *       *       *       *


SEC. 179. ELECTION TO EXPENSE CERTAIN DEPRECIABLE BUSINESS ASSETS.

  (a) * * *
  (b) Limitations.--
          [(1) Dollar limitation.--The aggregate cost which may 
        be taken into account under subsection (a) for any 
        taxable year shall not exceed the following applicable 
        amount:

[If the taxable year                                      The applicable
begins in:                                                    amount is:
        1997                                                      18,000
        1998                                                      18,500
        1999                                                      19,000
        2000                                                      20,000
        2001 or 2002                                              24,000
        2003 or thereafter                                       25,000]

          (1) Dollar limitation.--The aggregate cost which may 
        be taken into account under subsection (a) for any 
        taxable year shall not exceed $25,000 ($100,000 in the 
        case of taxable years beginning after 2002 and before 
        2008).
          (2) Reduction in limitation.--The limitation under 
        paragraph (1) for any taxable year shall be reduced 
        (but not below zero) by the amount by which the cost of 
        section 179 property placed in service during such 
        taxable year exceeds $200,000 ($400,000 in the case of 
        taxable years beginning after 2002 and before 2008).

           *       *       *       *       *       *       *

          (5) Inflation adjustments.--
                  (A) In general.--In the case of any taxable 
                year beginning in a calendar year after 2003 
                and before 2008, the $100,000 and $400,000 
                amounts in paragraphs (1) and (2) shall each 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, by substituting ``calendar 
                        year 2002'' for ``calendar year 1992'' 
                        in subparagraph (B) thereof.
                  (B) Rounding.--
                          (i) Dollar limitation.--If the amount 
                        in paragraph (1) as increased under 
                        subparagraph (A) is not a multiple of 
                        $1,000, such amount shall be rounded to 
                        the nearest multiple of $1,000.
                          (ii) Phaseout amount.--If the amount 
                        in paragraph (2) as increased under 
                        subparagraph (A) is not a multiple of 
                        $10,000, such amount shall be rounded 
                        to the nearest multiple of $10,000.
  (c) Election.--
          (1) * * *
          [(2) Election irrevocable.--Any election made under 
        this section, and any specification contained in any 
        such election, may not be revoked except with the 
        consent of the Secretary.]
          (2) Revocation of election.--An election under 
        paragraph (1) with respect to any taxable year 
        beginning after 2002 and before 2008, and any 
        specification contained in any such election, may be 
        revoked by the taxpayer with respect to any property. 
        Such revocation, once made, shall be irrevocable.
  (d) Definitions and Special Rules.--
          [(1) Section 179 property.--For purposes of this 
        section, the term ``section 179 property'' means any 
        tangible property (to which section 168 applies) which 
        is section 1245 property (as defined in section 
        1245(a)(3)) and which is acquired by purchase for use 
        in the active conduct of a trade or business. Such term 
        shall not include any property described in section 
        50(b) and shall not include air conditioning or heating 
        units.]
          (1) Section 179 property.--For purposes of this 
        section, the term ``section 179 property'' means 
        property--
                  (A) which is--
                          (i) tangible property (to which 
                        section 168 applies), or
                          (ii) computer software (as defined in 
                        section 197(e)(3)(B)) which is 
                        described in section 197(e)(3)(A)(i), 
                        to which section 167 applies, and which 
                        is placed in service in a taxable year 
                        beginning after 2002 and before 2008,
                  (B) which is section 1245 property (as 
                defined in section 1245(a)(3)), and
                  (C) which is acquired by purchase for use in 
                the active conduct of a trade or business.
        Such term shall not include any property described in 
        section 50(b) and shall not include air conditioning or 
        heating units.

           *       *       *       *       *       *       *


Subchapter C--Corporate Distributions and Adjustments

           *       *       *       *       *       *       *


                 PART I--DISTRIBUTIONS BY CORPORATIONS

        Subpart A. Effects on recipients.
     * * * * * * *
        [Subpart C. Definitions; constructive ownership of stock.]

           *       *       *       *       *       *       *


Subpart A--Effects on Recipients

           *       *       *       *       *       *       *


SEC. 301. DISTRIBUTIONS OF PROPERTY.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Special Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) For taxation of dividends received by individuals 
        at capital gain rates, see section 1(h)(11).

           *       *       *       *       *       *       *


SEC. 306. DISPOSITIONS OF CERTAIN STOCK.

  (a) General Rule.--If a shareholder sells or otherwise 
disposes of section 306 stock (as defined in subsection (c))--
          (1) Dispositions other than redemptionsIf such 
        disposition is not a redemption (within the meaning of 
        section 317(b))--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Treatment as dividend.--For purposes of 
                section l(h)(11), any amount treated as 
                ordinary income under this paragraph shall be 
                treated as a dividend received from the 
                corporation.

           *       *       *       *       *       *       *


PART II--CORPORATE LIQUIDATIONS

           *       *       *       *       *       *       *


Subpart B--Effects on Corporation

           *       *       *       *       *       *       *


SEC. 338. CERTAIN STOCK PURCHASES TREATED AS ASSET ACQUISITIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Definitions and Special Rules.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          [(14) Coordination with section 341.--For purposes of 
        determining whether section 341 applies to a 
        disposition within 1 year after the acquisition date of 
        stock by a shareholder (other than the acquiring 
        corporation) who held stock in the target corporation 
        on the acquisition date, section 341 shall be applied 
        without regard to this section.]

           *       *       *       *       *       *       *


                  [Subpart C--Collapsible Corporations

        [Sec. 341. Collapsible corporations.

[SEC. 341. COLLAPSIBLE CORPORATIONS.

  [(a) Treatment of Gain to Shareholders.--Gain from--
          [(1) the sale or exchange of stock of a collapsible 
        corporation,
          [(2) a distribution--
                  [(A) in complete liquidation of a collapsible 
                corporation if such distribution is treated 
                under this part as in part or full payment in 
                exchange for stock, or
                  [(B) in partial liquidation (within the 
                meaning of section 302(e)) of a collapsible 
                corporation if such distribution is treated 
                under section 302(b)(4) as in part or full 
                payment in exchange for the stock, and
          [(3) a distribution made by a collapsible corporation 
        which, under section 301(c)(3)(A), is treated, to the 
        extent it exceeds the basis of the stock, in the same 
        manner as a gain from the sale or exchange of 
        property,to the extent that it would be considered (but 
        for the provisions of this section) as gain from the 
        sale or exchange of a capital asset shall, except as 
        otherwise provided in this section, be considered as 
        ordinary income.
  [(b) Definitions.--
          [(1) Collapsible corporation.--For purposes of this 
        section, the term ``collapsible corporation'' means a 
        corporation formed or availed of principally for the 
        manufacture, construction, or production of property, 
        for the purchase of property which (in the hands of the 
        corporation) is property described in paragraph (3), or 
        for the holding of stock in a corporation so formed or 
        availed of, with a view to--
                  [(A) the sale or exchange of stock by its 
                shareholders (whether in liquidation or 
                otherwise), or a distribution to its 
                shareholders, before the realization by the 
                corporation manufacturing, constructing, 
                producing, or purchasing the property of 2/3 of 
                the taxable income to be derived from such 
                property, and
                  [(B) the realization by such shareholders of 
                gain attributable to such property.
          [(2) Production or purchase of property.--For 
        purposes of paragraph (1), a corporation shall be 
        deemed to have manufactured, constructed, produced, or 
        purchased property, if--
                  [(A) it engaged in the manufacture, 
                construction, or production of such property to 
                any extent,
                  [(B) it holds property having a basis 
                determined, in whole or in part, by reference 
                to the cost of such property in the hands of a 
                person who manufactured, constructed, produced, 
                or purchased the property, or
                  [(C) it holds property having a basis 
                determined, in whole or in part, by reference 
                to the cost of property manufactured, 
                constructed, produced, or purchased by the 
                corporation.
          [(3) Section 341 assets.--For purposes of this 
        section, the term ``section 341 assets'' means property 
        held for a period of less than 3 years which is--
                  [(A) stock in trade of the corporation, or 
                other property of a kind which would properly 
                be included in the inventory of the corporation 
                if on hand at the close of the taxable year;
                  [(B) property held by the corporation 
                primarily for sale to customers in the ordinary 
                course of its trade or business;
                  [(C) unrealized receivables or fees, except 
                receivables from sales of property other than 
                property described in this paragraph; or
                  [(D) property described in section 1231(b) 
                (without regard to any holding period therein 
                provided), except such property which is or has 
                been used in connection with the manufacture, 
                construction, production, or sale of property 
                described in subparagraph (A) or (B).
        In determining whether the 3-year holding period 
        specified in this paragraph has been satisfied, section 
        1223 shall apply, but no such period shall be deemed to 
        begin before the completion of the manufacture, 
        construction, production, or purchase.
          [(4) Unrealized receivables.--For purposes of 
        paragraph (3)(C), the term ``unrealized receivables or 
        fees'' means, to the extent not previously includible 
        in income under the method of accounting used by the 
        corporation, any rights (contractual or otherwise) to 
        payment for--
                  [(A) goods delivered, or to be delivered, to 
                the extent the proceeds therefrom would be 
                treated as amounts received from the sale or 
                exchange of property other than a capital 
                asset, or
                  [(B) services rendered or to be rendered.
  [(c) Presumption in Certain Cases.--
          [(1) In general.--For purposes of this section, a 
        corporation shall, unless shown to the contrary, be 
        deemed to be a collapsible corporation if (at the time 
        of the sale or exchange, or the distribution, described 
        in subsection (a)) the fair market value of its section 
        341 assets (as defined in subsection (b)(3)) is--
                  [(A) 50 percent or more of the fair market 
                value of its total assets, and
                  [(B) 120 percent or more of the adjusted 
                basis of such section 341 assets.
        Absence of the conditions described in subparagraphs 
        (A) and (B) shall not give rise to a presumption that 
        the corporation was not a collapsible corporation.
          [(2) Determination of total assets.--In determining 
        the fair market value of the total assets of a 
        corporation for purposes of paragraph (1)(A), there 
        shall not be taken into account--
                  [(A) cash,
                  [(B) obligations which are capital assets in 
                the hands of the corporation, and
                  [(C) stock in any other corporation.
  [(d) Limitations on Application of Section.--In the case of 
gain realized by a shareholder with respect to his stock in a 
collapsible corporation, this section shall not apply--
          [(1) unless, at any time after the commencement of 
        the manufacture, construction, or production of the 
        property, or at the time of the purchase of the 
        property described in subsection (b)(3) or at any time 
        thereafter, such shareholder (A) owned (or was 
        considered as owning) more than 5 percent in value of 
        the outstanding stock of the corporation, or (B) owned 
        stock which was considered as owned at such time by 
        another shareholder who then owned (or was considered 
        as owning) more than 5 percent in value of the 
        outstanding stock of the corporation;
          [(2) to the gain recognized during a taxable year, 
        unless more than 70 percent of such gain is 
        attributable to the property described in subsection 
        (b)(1); and
          [(3) to gain realized after the expiration of 3 years 
        following the completion of such manufacture, 
        construction, production, or purchase.
For purposes of paragraph (1), the ownership of stock shall be 
determined in accordance with the rules prescribed in 
paragraphs (1), (2), (3), (5), and (6) of section 544(a) 
(relating to personal holding companies); except that, in 
addition to the persons prescribed by paragraph (2) of that 
section, the family of an individual shall include the spouses 
of that individual's brothers and sisters (whether by the whole 
or half blood) and the spouses of that individual's lineal 
descendants. In determining whether property is described in 
subsection (b)(1) for purposes of applying paragraph (2), all 
property described in section 1221(a)(1) shall, to the extent 
provided in regulations prescribed by the Secretary, be treated 
as one item of property.
  [(e) Exceptions to Application of Section.--
          [(1) Sales or exchanges of stock.--For purposes of 
        subsection (a)(1), a corporation shall not be 
        considered to be a collapsible corporation with respect 
        to any sale or exchange of stock of the corporation by 
        a shareholder, if, at the time of such sale or 
        exchange, the sum of--
                  [(A) the net unrealized appreciation in 
                subsection (e) assets of the corporation (as 
                defined in paragraph (5)(A)), plus
                  [(B) if the shareholder owns more than 5 
                percent in value of the outstanding stock of 
                the corporation the net unrealized appreciation 
                in assets of the corporation (other than assets 
                described in subparagraph (A)) which would be 
                subsection (e) assets under clauses (i) and 
                (iii) of paragraph (5)(A) if the shareholder 
                owned more than 20 percent in value of such 
                stock, plus
                  [(C) if the shareholder owns more than 20 
                percent in value of the outstanding stock of 
                the corporation and owns, or at any time during 
                the preceding 3-year period owned, more than 20 
                percent in value of the outstanding stock of 
                any other corporation more than 70 percent in 
                value of the assets of which are, or were at 
                any time during which such shareholder owned 
                during such 3-year period more than 20 percent 
                in value of the outstanding stock, assets 
                similar or related in service or use to assets 
                comprising more than 70 percent in value of the 
                assets of the corporation, the net unrealized 
                appreciation in assets of the corporation 
                (other than assets described in subparagraph 
                (A)) which would be subsection (e) assets under 
                clauses (i) and (iii) of paragraph (5)(A) if 
                the determination whether the property, in the 
                hands of such shareholder, would be property 
                gain from the sale or exchange of which would 
                under any provision of this chapter be 
                considered in whole or in part as ordinary 
                income, were made--
                          [(i) by treating any sale or exchange 
                        by such shareholder of stock in such 
                        other corporation within the preceding 
                        3-year period (but only if at the time 
                        of such sale or exchange the 
                        shareholder owned more than 20 percent 
                        in value of the outstanding stock in 
                        such other corporation) as a sale or 
                        exchange by such shareholder of his 
                        proportionate share of the assets of 
                        such other corporation, and
                          [(ii) by treating any liquidating 
                        sale or exchange of property by such 
                        other corporation within such 3-year 
                        period (but only if at the time of such 
                        sale or exchange the shareholder owned 
                        more than 20 percent in value of the 
                        outstanding stock in such other 
                        corporation) as a sale or exchange by 
                        such shareholder of his proportionate 
                        share of the property sold or 
                        exchanged,does not exceed an amount 
                        equal to 15 percent of the net worth of 
                        the corporation. This paragraph shall 
                        not apply to any sale or exchange of 
                        stock to the issuing corporation or, in 
                        the case of a shareholder who owns more 
                        than 20 percent in value of the 
                        outstanding stock of the corporation, 
                        to any sale or exchange of stock by 
                        such shareholder to any person related 
                        to him (within the meaning of paragraph 
                        (8)).
          [(5) Subsection (e) asset defined.--
                  [(A) For purposes of paragraph (1), the term 
                ``subsection (e) asset'' means, with respect to 
                property held by any corporation--
                          [(i) property (except property used 
                        in the trade or business, as defined in 
                        paragraph (9)) which in the hands of 
                        the corporation is, or, in the hands of 
                        a shareholder who owns more than 20 
                        percent in value of the outstanding 
                        stock of the corporation, would be 
                        property gain from the sale or exchange 
                        of which would under any provision of 
                        this chapter be considered in whole or 
                        in part as ordinary income;
                          [(ii) property used in the trade or 
                        business (as defined in paragraph (9)), 
                        but only if the unrealized depreciation 
                        on all such property on which there is 
                        unrealized depreciation exceeds the 
                        unrealized appreciation on all such 
                        property on which there is unrealized 
                        appreciation;
                          [(iii) if there is net unrealized 
                        appreciation on all property used in 
                        the trade or business (as defined in 
                        paragraph (9)), property used in the 
                        trade or business (as defined in 
                        paragraph (9)) which, in the hands of a 
                        shareholder who owns more than 20 
                        percent in value of the outstanding 
                        stock of the corporation, would be 
                        property gain from the sale or exchange 
                        of which would under any provision of 
                        this chapter be considered in whole or 
                        in part as ordinary income; and
                          [(iv) property (unless included under 
                        clause (i), (ii), or (iii)) which 
                        consists of a copyright, a literary, 
                        musical, or artistic composition, a 
                        letter or memorandum, or similar 
                        property, or any interest in any such 
                        property, if the property was created 
                        in whole or in part by the personal 
                        efforts of, or (in the case of a 
                        letter, memorandum, or similar 
                        property) was prepared, or produced in 
                        whole or in part for, any individual 
                        who owns more than 5 percent in value 
                        of the stock of the corporation.
        The determination as to whether property of the 
        corporation in the hands of the corporation is, or in 
        the hands of a shareholder would be, property gain from 
        the sale or exchange of which would under any provision 
        of this chapter be considered in whole or in part as 
        ordinary income; shall be made as if all property of 
        the corporation had been sold or exchanged to one 
        person in one transaction.
          [(6) Net unrealized appreciation defined.--
                  [(A) For purposes of this subsection, the 
                term ``net unrealized appreciation'' means, 
                with respect to the assets of a corporation, 
                the amount by which--
                          [(i) the unrealized appreciation in 
                        such assets on which there is 
                        unrealized appreciation, exceeds
                          [(ii) the unrealized depreciation in 
                        such assets on which there is 
                        unrealized depreciation.
                  [(B) For purposes of subparagraph (A) and 
                paragraph (5)(A), the term ``unrealized 
                appreciation'' means, with respect to any 
                asset, the amount by which--
                          [(i) the fair market value of such 
                        asset, exceeds
                          [(ii) the adjusted basis for 
                        determining gain from the sale or other 
                        disposition of such asset.
                  [(C) For purposes of subparagraph (A) and 
                paragraph (5)(A), the term ``unrealized 
                depreciation'' means, with respect to any 
                asset, the amount by which--
                          [(i) the adjusted basis for 
                        determining gain from the sale or other 
                        disposition of such asset, exceeds
                          [(ii) the fair market value of such 
                        asset.
                  [(D) For purposes of this paragraph (but not 
                paragraph (5)(A)), in the case of any asset on 
                the sale or exchange of which only a portion of 
                the gain would under any provision of this 
                chapter be considered as ordinary income, there 
                shall be taken into account only an amount of 
                the unrealized appreciation in such asset which 
                is equal to such portion of the gain.
          [(7) Net worth defined.--For purposes of this 
        subsection, the net worth of a corporation, as of any 
        day, is the amount by which--
                  [(A)(i) the fair market value of all its 
                assets at the close of such day, plus
                          [(ii) the amount of any distribution 
                        in complete liquidation made by it on 
                        or before such day, exceeds
                  [(B) all its liabilities at the close of such 
                day.
        For purposes of this paragraph, the net worth of a 
        corporation as of any day shall not take into account 
        any increase in net worth during the one-year period 
        ending on such day to the extent attributable to any 
        amount received by it for stock, or as a contribution 
        to capital or as paid-in surplus, if it appears that 
        there was not a bona fide business purpose for the 
        transaction in respect of which such amount was 
        received.
          [(8) Related person defined.--For purposes of 
        paragraphs (1) and (4), the following persons shall be 
        considered to be related to a shareholder:
                  [(A) If the shareholder is an individual--
                          [(i) his spouse, ancestors, and 
                        lineal descendants, and
                          [(ii) a corporation which is 
                        controlled by such shareholder.
                  [(B) If the shareholder is a corporation--
                          [(i) a corporation which controls, or 
                        is controlled by, the shareholder, and
                          [(ii) if more than 50 percent in 
                        value of the outstanding stock of the 
                        shareholder is owned by any person, a 
                        corporation more than 50 percent in 
                        value of the outstanding stock of which 
                        is owned by the same person.
        For purposes of determining the ownership of stock in 
        applying subparagraphs (A) and (B), the rules of 
        section 267(c) shall apply, except that the family of 
        an individual shall include only his spouse, ancestors, 
        and lineal descendants. For purposes of this paragraph, 
        control means the ownership of stock possessing at 
        least 50 percent of the total combined voting power of 
        all classes of stock entitled to vote or at least 50 
        percent of the total value of shares of all classes of 
        stock of the corporation.
          [(9) Property used in the trade or business.--For 
        purposes of this subsection, the term ``property used 
        in the trade or business'' means property described in 
        section 1231(b), without regard to any holding period 
        therein provided.
          [(10) Ownership of stock.--For purposes of this 
        subsection (other than paragraph (8)), the ownership of 
        stock shall be determined in the manner prescribed in 
        subsection (d).
          [(11) Corporations and shareholders not meeting 
        requirements.--In determining whether or not any 
        corporation is a collapsible corporation within the 
        meaning of subsection (b), the fact that such 
        corporation, or such corporation with respect to any of 
        its shareholders, does not meet the requirements of 
        paragraph (1), (2), (3), or (4) of this subsection 
        shall not be taken into account, and such 
        determination, in the case of a corporation which does 
        not meet such requirements, shall be made as if this 
        subsection had not been enacted.
          [(12) Nonapplication of section 1245(a), etc.--For 
        purposes of this subsection, the determination of 
        whether gain from the sale or exchange of property 
        would under any provision of this chapter be considered 
        as ordinary income, shall be made without regard to the 
        application of sections 617(d)(1), 1245(a), 1250(a), 
        1252(a), 1254(a), and 1276(a).
  [(f) Certain Sales of Stock of Consenting Corporations.--
          [(1) In general.--  Subsection (a)(1) shall not apply 
        to a sale of stock of a corporation (other than a sale 
        to the issuing corporation) if such corporation 
        (hereinafter in this subsection referred to as 
        ``consenting corporation'') consents (at such time and 
        in such manner as the Secretary may by regulations 
        prescribe) to have the provisions of paragraph (2) 
        apply. Such consent shall apply with respect to each 
        sale of stock of such corporation made within the 6-
        month period beginning with the date on which such 
        consent is filed.
          [(2) Recognition of gain.--Except as provided in 
        paragraph (3), if a subsection (f) asset (as defined in 
        paragraph (4)) is disposed of at any time by a 
        consenting corporation (or, if paragraph (3) applies, 
        by a transferee corporation), then the amount by 
        which--
                  [(A) in the case of a sale, exchange, or 
                involuntary conversion, the amount realized, or
                  [(B) in the case of any other disposition, 
                the fair market value of such asset,exceeds the 
                adjusted basis of such asset shall be treated 
                as gain from the sale or exchange of such 
                asset. Such gain shall be recognized 
                notwithstanding any other provision of this 
                subtitle, but only to the extent such gain is 
                not recognized under any other provision of 
                this subtitle.
          [(3) Exception for certain tax-free transactions.--If 
        the basis of a subsection (f) asset in the hands of a 
        transferee is determined by reference to its basis in 
        the hands of the transferor by reason of the 
        application of section 332, 351, or 361, then the 
        amount of gain taken into account by the transferor 
        under paragraph (2) shall not exceed the amount of gain 
        recognized to the transferor on the transfer of such 
        asset (determined without regard to this subsection). 
        This paragraph shall apply only if the transferee--
                  [(A) is not an organization which is exempt 
                from tax imposed by this chapter, and
                  [(B) agrees (at such time and in such manner 
                as the Secretary may by regulations prescribe) 
                to have the provisions of paragraph (2) apply 
                to any disposition by it of such subsection (f) 
                asset.
          [(4) Subsection (f) asset defined.--For purposes of 
        this subsection--
                  [(A) In general.--The term ``subsection (f) 
                asset'' means any property which, as of the 
                date of any sale of stock referred to in 
                paragraph (1), is not a capital asset and is 
                property owned by, or subject to an option to 
                acquire held by, the consenting corporation. 
                For purposes of this subparagraph, land or any 
                interest in real property (other than a 
                security interest), and unrealized receivables 
                or fees (as defined in subsection (b)(4)), 
                shall be treated as property which is not a 
                capital asset.
                  [(B) Property under construction.--If 
                manufacture, construction, or production with 
                respect to any property described in 
                subparagraph (A) has commenced before any date 
                of sale described therein, the term 
                ``subsection (f) asset'' includes the property 
                resulting from such manufacture, construction, 
                or production.
                  [(C) Special rule for land.--In the case of 
                land or any interest in real property (other 
                than a security interest) described in 
                subparagraph (A), the term ``subsection (f) 
                asset'' includes any improvements resulting 
                from construction with respect to such property 
                if such construction is commenced (by the 
                consenting corporation or by a transferee 
                corporation which has agreed to the application 
                of paragraph (2)) within 2 years after the date 
                of any sale described in subparagraph (A).
          [(5) 5-year limitation as to shareholder.--Paragraph 
        (1) shall not apply to the sale of stock of a 
        corporation by a shareholder if, during the 5-year 
        period ending on the date of such sale, such 
        shareholder (or any related person within the meaning 
        of subsection (e)(8)(A)) sold any stock of another 
        consenting corporation within any 6-month period 
        beginning on a date on which a consent was filed under 
        paragraph (1) by such other corporation.
          [(6) Special rule for stock ownership in other 
        corporations.--If a corporation (hereinafter in this 
        paragraph referred to as ``owning corporation'') owns 5 
        percent or more in value of the outstanding stock of 
        another corporation on the date of any sale of stock of 
        the owning corporation during a 6-month period with 
        respect to which a consent under paragraph (1) was 
        filed by the owning corporation, such consent shall not 
        be valid with respect to such sale unless such other 
        corporation has (within the 6-month period ending on 
        the date of such sale) filed a valid consent under 
        paragraph (1) with respect to sales of its stock. For 
        purposes of applying paragraph (4) to such other 
        corporation, a sale of stock of the owning corporation 
        to which paragraph (1) applies shall be treated as a 
        sale of stock of such other corporation. In the case of 
        a chain of corporations connected by the 5-percent 
        ownership requirements of this paragraph, rules similar 
        to the rules of the two preceding sentences shall be 
        applied.
          [(7) Adjustments to basis.--The Secretary shall 
        prescribe such regulations as he may deem necessary to 
        provide for adjustments to the basis of property to 
        reflect gain recognized under paragraph (2).
          [(8) Special rule for foreign corporations.--Except 
        to the extent provided in regulations prescribed by the 
        Secretary--
                  [(A) any consent given by a foreign 
                corporation under paragraph (1) shall not be 
                effective, and
                  [(B) paragraph (3) shall not apply if the 
                transferee is a foreign corporation.]

           *       *       *       *       *       *       *


Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


Subpart C--Taxable Year for Which Deductions Taken

           *       *       *       *       *       *       *


SEC. 467. CERTAIN PAYMENTS FOR THE USE OF PROPERTY OR SERVICES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Recapture of Prior Understated Inclusions Under Leaseback 
or Long-Term Agreements.--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Special rules.--Under regulations prescribed by 
        the Secretary--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) for purposes of sections 170(e)[, 
                341(e)(12),] and 751(c), amounts treated as 
                ordinary income under this section shall be 
                treated in the same manner as amounts treated 
                as ordinary income under section 1245 or 1250.

           *       *       *       *       *       *       *


Subchapter G--Corporations Used To Avoid Income Tax on Shareholders

           *       *       *       *       *       *       *


PART I--CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS

           *       *       *       *       *       *       *


SEC. 531. IMPOSITION OF ACCUMULATED EARNINGS TAX.

  In addition to other taxes imposed by this chapter, there is 
hereby imposed for each taxable year on the accumulated taxable 
income (as defined in section 535) of each corporation 
described in section 532, an accumulated earnings tax [equal to 
the product of the highest rate of tax under section 1(c) and 
the accumulated taxable income.] equal to 15 percent of the 
accumulated taxable income.

           *       *       *       *       *       *       *


PART II--PERSONAL HOLDING COMPANIES

           *       *       *       *       *       *       *


SEC. 541. IMPOSITION OF PERSONAL HOLDING COMPANY TAX.

  In addition to other taxes imposed by this chapter, there is 
hereby imposed for each taxable year on the undistributed 
personal holding company income (as defined in section 545) of 
every personal holding company (as defined in section 542) a 
personal holding company tax [equal to the product of the 
highest rate of tax under section 1(c) and the undistributed 
personal holding company income.] equal to 15 percent of the 
undistributed personal holding company income.

           *       *       *       *       *       *       *


Subchapter H--Banking Institutions

           *       *       *       *       *       *       *


PART I--RULES OF GENERAL APPLICATION TO BANKING INSTITUTIONS

           *       *       *       *       *       *       *


SEC. 584. COMMON TRUST FUNDS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Income of Participants in Fund.--Each participant in the 
common trust fund in computing its taxable income shall 
include, whether or not distributed and whether or not 
distributable--
          (1) * * *

           *       *       *       *       *       *       *

The proportionate share of each participant in the amount of 
dividends received by the common trust fund and to which 
section 1(h)(11) applies shall be considered for purposes of 
such paragraph as having been received by such participant.

           *       *       *       *       *       *       *


Subchapter K--Partners and Partnerships

           *       *       *       *       *       *       *


PART I--DETERMINATION OF TAX LIABILITY

           *       *       *       *       *       *       *


SEC. 702. INCOME AND CREDITS OF PARTNER.

  (a) General Rule.--In determining his income tax, each 
partner shall take into account separately his distributive 
share of the partnership's--
          (1) * * *

           *       *       *       *       *       *       *

          [(5) dividends with respect to which there is a 
        deduction under part VIII of subchapter B,]
          (5) dividends with respect to which section 1(h)(11) 
        or part VII of subchapter B applies,

           *       *       *       *       *       *       *


Subchapter M--Regulated Investment Companies and Real Estate Investment 
Trusts

           *       *       *       *       *       *       *


PART I--REGULATED INVESTMENT COMPANIES

           *       *       *       *       *       *       *


SEC. 854. LIMITATIONS APPLICABLE TO DIVIDENDS RECEIVED FROM REGULATED 
                    INVESTMENT COMPANY.

  (a) Capital Gain Dividend.--For purposes of section 1(h)(11) 
(relating to maximum rate of tax on dividends and interest) and 
section 243 (relating to deductions for dividends received by 
corporations), a capital gain dividend (as defined in section 
852(b)(3)) received from a regulated investment company shall 
not be considered as a dividend.
  (b) Other Dividends.--
          (1) Amount treated as dividend.--
                  (A) * * *
                  (B) Maximum rate under section 1(h).--
                          (i) In general.--If the aggregate 
                        dividends received by a regulated 
                        investment company during any taxable 
                        year are less than 95 percent of its 
                        gross income, then, in computing the 
                        maximum rate under section 1(h)(11), 
                        rules similar to the rules of 
                        subparagraph (A) shall apply.
                          (ii) Gross income.--For purposes of 
                        clause (i), in the case of 1 or more 
                        sales or other dispositions of stock or 
                        securities, the term ``gross income'' 
                        includes only the excess of--
                                  (I) the net short-term 
                                capital gain from such sales or 
                                dispositions, over
                                  (II) the net long-term 
                                capital loss from such sales or 
                                dispositions.
                  [(B)] (C) Limitation.--The aggregate amount 
                which may be designated as dividends under 
                subparagraph (A) or (B) shall not exceed the 
                aggregate dividends received by the company for 
                the taxable year.
          (2) Notice to shareholders.--The amount of any 
        distribution by a regulated investment company which 
        may be taken into account as a dividend for purposes of 
        the maximum rate under section 1(h)(11) and the 
        deduction under section 243 shall not exceed the amount 
        so designated by the company in a written notice to its 
        shareholders mailed not later than 60 days after the 
        close of its taxable year.

           *       *       *       *       *       *       *

          (5) Coordination with section 1(h)(11).--For purposes 
        of paragraph (1)(B), an amount shall be treated as a 
        dividend only if the amount is qualified dividend 
        income (within the meaning of section 1(h)(11)(B)).

           *       *       *       *       *       *       *


PART II--REAL ESTATE INVESTMENT TRUSTS

           *       *       *       *       *       *       *


SEC. 857. TAXATION OF REAL ESTATE INVESTMENT TRUSTS AND THEIR 
                    BENEFICIARIES.

  (a) * * *

           *       *       *       *       *       *       *

  [(c) Restrictions Applicable to Dividends Received from Real 
Estate Investment Trusts.--For purposes of 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.]
  (c) Restrictions Applicable to Dividends Received From Real 
Estate Investment Trusts.--
          (1) Section 243.--For purposes of 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 a dividend.
          (2) Section 1(h)(11).--For purposes of section 
        1(h)(11) (relating to maximum rate of tax on 
        dividends), rules similar to the rules of section 
        854(b)(1)(B) shall apply to dividends received from a 
        real estate trust which meets the requirements of this 
        part.

           *       *       *       *       *       *       *


Subchapter P--Capital Gains and Losses

           *       *       *       *       *       *       *


PART IV--SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES

           *       *       *       *       *       *       *


SEC. 1255. GAIN FROM DISPOSITION OF SECTION 126 PROPERTY.

  (a) * * *
  (b) Special Rules.--Under regulations prescribed by the 
Secretary--
          (1) * * *
          (2) for purposes of sections 170(e)[, 341(e)(12),] 
        and 751(c), amounts treated as ordinary income under 
        this section shall be treated in the same manner as 
        amounts treated as ordinary income under section 1245.

           *       *       *       *       *       *       *


SEC. 1257. DISPOSITION OF CONVERTED WETLANDS OR HIGHLY ERODIBLE 
                    CROPLANDS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Special Rules.--Under regulations prescribed by the 
Secretary, rules similar to the rules applicable under section 
1245 shall apply for purposes of subsection (a). For purposes 
of sections 170(e)[, 341(e)(12),] and 751(c), amounts treated 
as ordinary income under subsection (a) shall be treated in the 
same manner as amounts treated as ordinary income under section 
1245.

           *       *       *       *       *       *       *


Subchapter Y--New York Liberty Zone Benefits

           *       *       *       *       *       *       *


SEC. 1400L. TAX BENEFITS FOR NEW YORK LIBERTY ZONE.

  (a) * * *
  (b) Special Allowance for Certain Property Acquired After 
September 10, 2001.--
          (1) * * *
          (2) Qualified new york liberty zone property.--For 
        purposes of this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Exceptions.--
                          (i) [30 percent additional allowance 
                        property] Bonus depreciation property 
                        under section 168(k).--Such term shall 
                        not include property to which section 
                        168(k) applies.

           *       *       *       *       *       *       *


    CHAPTER 3--WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN 
CORPORATIONS

           *       *       *       *       *       *       *


Subchapter A--Nonresident Aliens and Foreign Corporations

           *       *       *       *       *       *       *


SEC. 1445. WITHHOLDING OF TAX ON DISPOSITIONS OF UNITED STATES REAL 
                    PROPERTY INTERESTS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Special Rules Relating to Distributions, etc., by 
Corporations, Partnerships, Trusts, or Estates.--
          (1) Certain domestic partnerships, trusts, and 
        estates.--In the case of any disposition of a United 
        States real property interest as defined in section 
        897(c) (other than a disposition described in paragraph 
        (4) or (5)) by a domestic partnership, domestic trust, 
        or domestic estate, such partnership, the trustee of 
        such trust, or the executor of such estate (as the case 
        may be) shall be required to deduct and withhold under 
        subsection (a) a tax equal to 35 percent (or, to the 
        extent provided in regulations, [20] 15 percent) of the 
        gain realized to the extent such gain--
                  (A) * * *

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


               Subchapter B--Rules of Special Application

        Sec. 6411. Tentative carryback and refund adjustments.
     * * * * * * *
        Sec. 6429. Advance payment of portion of increased child credit 
                  for 2003.
     * * * * * * *

SEC. 6429. ADVANCE PAYMENT OF PORTION OF INCREASED CHILD CREDIT FOR 
                    2003.

  (a) In General.--Each taxpayer who claimed a credit under 
section 24 on the return for the taxpayer's first taxable year 
beginning in 2002 shall be treated as having made a payment 
against the tax imposed by chapter 1 for such taxable year in 
an amount equal to the child tax credit refund amount (if any) 
for such taxable year.
  (b) Child Tax Credit Refund Amount.--For purposes of this 
section, the child tax credit refund amount is the amount by 
which the aggregate credits allowed under part IV of subchapter 
A of chapter 1 for such first taxable year would have been 
increased if--
          (1) the per child amount under section 24(a)(2) for 
        such year were $1,000,
          (2) only qualifying children (as defined in section 
        24(c)) of the taxpayer for such year who had not 
        attained age 17 as of December 31, 2003, were taken 
        into account, and
          (3) section 24(d)(1)(B)(ii) did not apply.
  (c) Timing of Payments.--In the case of any overpayment 
attributable to this section, the Secretary shall, subject to 
the provisions of this title, refund or credit such overpayment 
as rapidly as possible and, to the extent practicable, before 
October 1, 2003. No refund or credit shall be made or allowed 
under this section after December 31, 2003.
  (d) Coordination With Child Tax Credit.--
          (1) In general.--The amount of credit which would 
        (but for this subsection and section 26) be allowed 
        under section 24 for the taxpayer's first taxable year 
        beginning in 2003 shall be reduced (but not below zero) 
        by the payments made to the taxpayer under this 
        section. Any failure to so reduce the credit shall be 
        treated as arising out of a mathematical or clerical 
        error and assessed according to section 6213(b)(1).
          (2) Joint returns.--In the case of a payment under 
        this section with respect to a joint return, half of 
        such payment shall be treated as having been made to 
        each individual filing such return.
  (e) No Interest.--No interest shall be allowed on any 
overpayment attributable to this section.

           *       *       *       *       *       *       *


CHAPTER 77--MISCELLANEOUS PROVISIONS

           *       *       *       *       *       *       *


SEC. 7518. TAX INCENTIVES RELATING TO MERCHANT MARINE CAPITAL 
                    CONSTRUCTION FUNDS.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Tax Treatment of Nonqualified Withdrawals.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Nonqualified withdrawals taxed at highest 
        marginal rate.--
                  (A) In general.--In the case of any taxable 
                year for which there is a nonqualified 
                withdrawal (including any amount so treated 
                under paragraph (5)), the tax imposed by 
                chapter 1 shall be determined--
                          (i) * * *

           *       *       *       *       *       *       *

                With respect to the portion of any nonqualified 
                withdrawal made out of the capital gain account 
                during a taxable year to which section 1(h) or 
                1201(a) applies, the rate of tax taken into 
                account under the preceding sentence shall not 
                exceed [20] 15 percent (34 percent in the case 
                of a corporation).

           *       *       *       *       *       *       *

                              ----------                              


ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001

           *       *       *       *       *       *       *


                   TITLE III--MARRIAGE PENALTY RELIEF

SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 
[2004] 2002.

SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 
[2004] 2002.

           *       *       *       *       *       *       *

                              ----------                              


   SECTION 102 OF THE JOB CREATION AND WORKER ASSISTANCE ACT OF 2002

SEC. 102. CARRYBACK OF CERTAIN NET OPERATING LOSSES ALLOWED FOR 5 
                    YEARS; TEMPORARY SUSPENSION OF 90 PERCENT AMT 
                    LIMIT.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Temporary Suspension of 90 Percent Limit on Certain NOL 
Carryovers.--
          (1) * * *
          (2) Effective date.--The amendment made by this 
        subsection shall apply to taxable years ending [before 
        January 1, 2003] after December 31, 1990.

           *       *       *       *       *       *       *

                              ----------                              


              SECTION 607 OF THE MERCHANT MARINE ACT, 1936

Sec. 607. (a) * * *

           *       *       *       *       *       *       *

    (h) Tax Treatment of Nonqualified Withdrawals.--
  (1) * * *

           *       *       *       *       *       *       *

          (6) Nonqualified withdrawals taxed at highest 
        marginal rate.--
                  (A) In general.--In the case of any taxable 
                year for which there is a nonqualified 
                withdrawal (including any amount so treated 
                under paragraph (5)), the tax imposed by 
                chapter 1 of the Internal Revenue Code of 1986 
                shall be determined--
                          (i) * * *

           *       *       *       *       *       *       *

                With respect to the portion of any nonqualified 
                withdrawal made out of the capital gain account 
                during a taxable year to which section l(h) or 
                1201(a) of such Code applies, the rate of tax 
                taken into account under the preceding sentence 
                shall not exceed [20] 15 percent (34 percent in 
                the case of a corporation).

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    We are united in our opposition to the committee bill. It 
is difficult to imagine a bill that could be more unfair and 
fiscally irresponsible than the one reported by the Committee. 
The Committee bill is as reckless as the President's proposal, 
it uses gimmicks to pretend to cut its cost. The Committee bill 
is even more unfair than the President's proposal.
    The unfairness of the Committee bill is apparent on its 
face, no sophisticated distributional analysis is necessary. 
All of the benefits in the Committee bill that are targeted for 
low- and moderate-income individuals, such as expansion of the 
lowest income tax rate bracket, marriage penalty relief and 
child credit increase last only three years. In contrast, the 
new tax reduction for capital gains and dividends (totaling 
$276 billion), is sunsetted at the end of the budget window. 
Seventy percent of all capital gain and dividend income is 
enjoyed by the fortunate 2.5 percent of taxpayers with annual 
incomes over $200,000. Those fortunate taxpayers will find that 
their Federal tax rate on that income will be one-half of the 
combined Federal income and payroll tax rate on wages earned by 
moderate income working families.
    The Committee bill will result in persistent long-term 
deficits that could reduce economic growth in the future. Even 
Federal Reserve Chairman Alan Greenspan has cautioned against 
costly new tax reductions at a time when the Government is 
facing exploding deficits. The Committee bill is particularly 
irresponsible now that we are faced with the uncertain cost of 
continued occupation of Iraq and its reconstruction.
    Normally in time of war, this country has a sense of shared 
sacrifice. Now the Administration and its congressional 
Republican allies are pursuing a course that calls for 
sacrifices from some, but rewards for others. Individuals in 
the military are being asked to risk their lives in Iraq. The 
elderly, poor and unemployed will see reductions in Medicare, 
Medicaid and other programs. The ability to meet our commitment 
to Social Security beneficiaries will be reduced by the 
irresponsible nature of the Committee bill. In contrast, upper 
income individuals will receive large tax reductions from the 
Committee bill. Households with annual income over $1 million 
will receive a $93,500 increase in their ``take-home'' income 
in 2003 and more in later years.
    The individuals in the military who risked their lives in 
Iraq deserve more than a welcoming speech and a parade when 
they come back. They should receive educational and other 
benefits commensurate with those that we have provided to the 
veterans of prior conflicts. Their children should not face 
diminished opportunities for an education because the Congress 
and the President have failed to meet the bold promises they 
made in enacting the No Child Left Behind Act. Above all, the 
military returning from Iraq should not be presented with a 
bill for the party that was held in their absence and that 
provided little assistance to them or their families.
    The President in his State of the Union Address earlier 
this year said that ``* * * we will not pass along our problems 
to other Congresses, other Presidents, and other generations.'' 
The President's program and the Committee bill are totally 
inconsistent with that pledge. The Wall Street firm, Goldman 
Sachs, estimates that annual deficits over the next ten years 
could total $4 trillion. Notwithstanding the President's 
rhetoric, the problem of paying a very large bill will be 
passed on to our children.
    The Committee bill arguably will be the third ``economic 
stimulus'' package recommended by the Bush Administration. Part 
of the sales pitch for the 2001, $1.35 trillion tax cut was its 
stimulative effect on the economy. When the economy continued 
to experience sluggish growth, another economic stimulus plan 
was enacted in March, 2002.
    Now we are continuing to see slow economic growth. The 
Committee Republicans and the Bush Administration are using 
those economic conditions to justify proposals that will 
provide little short-term help to our economy, but advance 
their long-term agenda of reducing taxes on upper income 
individuals and eliminating all income taxes on investment 
income. Their ultimate goal is a tax system that only taxes 
wages and does so without progressive rates. The Committee bill 
is a step in a plan to reach that goal, a goal that we do not 
share.
    The recent analysis by the Congressional Budget Office 
demonstrates that these proposals will do little to improve the 
economy and add jobs. CBO found that the President's proposals 
would probably reduce, not increase, investment. Even the 
Republican-appointed head of CBO concluded that the President's 
proposals would have little impact on the economy.
    Following is an elaboration of some of the reasons why we 
oppose this bill.

Persistent long-term deficits

    All of the $5.6 trillion projected surpluses used in 2001 
to defend the Bush position that we could afford a large tax 
cut and other priorities, such as a prescription drug benefit, 
now are all gone. Instead, we will have large budget deficits 
for the foreseeable future even without taking into account the 
cost of indefinite occupation of Iraq. The bipartisan 
commitment to preserve the Social Security and Medicare 
surpluses has been totally abandoned by the Bush Administration 
and its Congressional Republican allies.
    Each new budget projection from the Congressional Budget 
Office brings increasingly bad news. The most recent report 
indicates that the deficit for the current fiscal year will be 
$47 billion greater than what CBO estimated only two months 
earlier. The 10-year budget picture has worsened by $446 
billion, again compared to estimates made only two months 
earlier. Since that time, Congress appropriated approximately 
$80 billion for the short-term cost of the war in Iraq. In 
addition, income tax receipts from the April 15 filing season 
are substantially smaller than earlier estimated. The deficit 
for this fiscal year could easily set a record. Analysts at 
Citibank are now suggesting that this year's deficit could 
approach $500 billion. Already we have seen record levels of 
Federal borrowing in the first quarter of this year.
    The current projections dramatically understate the long-
term fiscal problems. They do not take into account any of the 
costs of indefinite occupation of Iraq or of its 
reconstruction. The projections do not take into account the 
costs of fixing the individual alternative minimum tax nor the 
cost of extending widely popular tax benefits. They also assume 
that the Congressional Republicans will not provide a 
significant Medicare prescription drug benefit.
    The Administration has argued that deficits don't matter. 
Federal Reserve Chairman Alan Greenspan clearly does not agree. 
``There is no question that as deficits go up, contrary to what 
some have said, it does affect long-term interest rates. It 
does have a negative impact on the economy.''
    The Committee has attempted to hide the true cost of its 
bill through gimmicks, following the example of the 2001 tax 
cut legislation. In 2001, Congress used temporary provisions 
and the overall sunset to hide the cost of the bill. Now, we 
have legislation that temporarily accelerates the temporary 
provisions of the 2001 Act, gimmicks piled on top of gimmicks. 
The true cost of the Committee bill is far greater than the 
promised total of $550 billion because of the implicit promise 
to extend its tax benefits in the future. If all of its 
provisions were extended indefinitely, the cost would exceed $1 
trillion over the next 10 years.
    We can finance the cost of the irresponsible Committee bill 
only if foreign investors continue to be willing to lend us 
money. The value of our currency is a barometer of confidence 
in our fiscal policies and a strong dollar is necessary for 
continued foreign investment in this country. There has been a 
steady decline in the value of the dollar. The European 
currency has risen twenty-six percent against the dollar since 
the beginning 2002. If the recent declines in the value of the 
dollar continue, we could face dramatic interest rate increases 
in order to borrow the $1.5 billion a day that we need from 
foreign investors to fund our trade and budget deficits. Even 
officials at the International Monetary Fund have raised 
concerns over our fiscal policies.

State and local fiscal crisis

    State and local governments are grappling with 
unprecedented budget crises. Unlike the Federal government, 
those governments do not have the luxury of borrowing money to 
cover their deficits. The tax increases and spending cuts at 
the State and local level could offset totally any beneficial 
effect from Federal action. The Republicans refused to provide 
any significant assistance to assist States in meeting that 
crisis, even though previous excessive Republican tax cuts for 
the wealthy have contributed to those growing State deficits.

The tax cuts are tremendously skewed to the affluent

    The Committee bill is tremendously skewed to the affluent. 
Its capital-gains/dividend tax cut is even more skewed than the 
President's dividend tax cut. Capital gains are even more 
concentrated at the top than are dividends.
    The middle-class oriented tax breaks (e.g., greater child 
credit, wider 10% tax-rate bracket, and marriage relief) expire 
after only three years, but not the tax breaks for dividends 
and capital gains, nor the cut in the top tax rate from 38.6% 
to 35%.
    While the income and payroll tax rates on an extra dollar 
of ordinary wages earned by families with median income 
typically add to 30% (15% each), and stay that way under the 
Committee bill plan, the maximum tax rates on capital gains and 
dividends go down to only 15%--half as much. This is another 
big step on the road to changing the income tax into a tax on 
only wages, while continuing to ``double tax'' wages under both 
the income and the payroll taxes.
    Famous investor Warren Buffett recently told Senators that 
getting rid of the tax on dividends, as the President proposed, 
would reduce his federal tax bill by $300 million a year. Mr. 
Buffett said that would mean he would pay proportionately less 
in taxes than his secretary. Mr. Buffet would get this tax 
break for doing nothing differently than he does already. House 
Republicans are forging ahead to give Mr. Buffett much of that 
dividends tax cut and a bigger capital gains tax cut.
    A study by the Brookings/Urban Institutes' Tax Policy 
Center quantifies the skewed benefits of the Committee bill. 
According to that study--
     For tax-year 2003, $93,500 is the average tax cut 
for those with incomes of one million or more. $452 is the tax 
cut for households with incomes between $40,000 and $50,000. 
For the millionaires, this is like a ``bonus'' equal to 4.4% of 
their take-home income, almost four times as much as for the 
middle-class group that gets a 1.1% increase.
     A clear indication of what will happen later, 
after the middle-class relief expires, comes from looking at 
the capital-gains/dividends tax cut which persists.
     In tax year 2003, the capital-gains tax cut which 
only covers eight months of the year is worth $30,700 to 
millionaires, but only $42 to households with incomes between 
$40,000 and $50,000.
     61% of the benefits from the capital-gains 
dividend tax cut go to the only 2% of households with incomes 
over $200,000.
     Only 21% of households within the $40,000-$50,000 
income group get any thing at all, because so few even have 
capital-gains or dividend income.
    The affluent benefit so much because they get most of the 
capital gains and dividend income in society, and because such 
a large share of their total income is from capital gains and 
dividends, which the Committee bill favors.
    Households with incomes over $500,000 get 41% of their 
income from capital gains and dividends, which are favored by 
the Committee bill. Households with incomes between $40,000 and 
$75,000 get only 4% of their income from the sources favored by 
the Committee bill. (See graph.)

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The very affluent have a large share of total capital gains 
and dividend income even though they are a small share of 
households. IRS data for 2000 show that those with incomes over 
$500,000 accounted for 57% of all capital gains and dividends, 
but comprised only 0.5% of taxpayers and accounted for only 17% 
of income from all sources. The opposite is true for taxpayers 
with incomes between $40,000 and $75,000. They comprised 21% of 
all taxpayers and accounted for 24% of all income, but only 7% 
of capital gains and dividends.

                                (Percent]
------------------------------------------------------------------------
                                                               Share of
                                    Share of                    total
                                    capital      Share of       income
     Income group year 2000        gains and       total      (adjusted
                                   dividends     taxpayers      gross
                                                               income)
------------------------------------------------------------------------
Over $500,000...................           57           0.5           17
$200,000-500,000................           13           2             10
$100,000-200,000................           12           6             17
$75,000-100,000.................            5           7             11
$40,000-75,000..................            7          21             24
$20,000-40,000..................            3          25             14
$1 to $20,000...................            3          39              8
------------------------------------------------------------------------

    A very high percentage of affluent households have either 
capital gains or dividend income that is favored under the 
Committee plan. This is not true of middle-income households. 
For example, 94% of households with incomes over $500,000 have 
dividends or capital gains. Only 33% of households with incomes 
between $40,000 and $75,000 have dividends or capital gains. 
(See graph.)


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                               Conclusion

    Earlier this year, Mr. Rangel sent a ``Dear Colleague'' 
letter describing the President's tax cuts as being reckless 
and unfair. The Committee has produced a bill equally reckless, 
and even more unfair. It is easy to vote no.

                                   Charles B. Rangel.
                                   Robert Matsui.
                                   Jim McDermott.
                                   Gerald Kleczka.
                                   Richard E. Neal.
                                   Max Sandlin.
                                   Stephanie Tubbs Jones.
                                   Lloyd Doggett.
                                   Pete Stark.
                                   Ben Cardin.
                                   Sander M. Levin.
                                   John Lewis.
                                   William J. Jefferson.
                                   Earl Pomeroy
                                   Xavier Becerra.
                                   Michael R. McNulty.
                                   John Tanner.

                                
