Small Business-Family Farm and Investment Fairness Act of 1997

Summary: Small Business-Family Farm and Investment Fairness Act of 1997 - Amends the Internal Revenue Code to:  (1) phaseout the capital gains tax for individuals; (2) phasedown the capital gains rate for corporations; (3) increase the unified estate and gift tax credit; and (5) increase the maximum benefit under the special estate tax valuation rules for certain real and farm property.

SECTION 1. SHORT TITLE, ETC.

    (a) Short Title.--This Act may be cited as the ``Small Business/
Family Farm and Investment Fairness Act of 1997''.
    (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.

SEC. 2. PHASEOUT OF CAPITAL GAINS RATE FOR INDIVIDUALS.

    (a) In General.--Subsection (h) of section 1 (relating to maximum 
capital gains rate) is amended to read as follows:
    ``(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) a tax computed at the rates and in the same 
                manner as if this subsection had not been enacted on 
                taxable income reduced by the net capital gain, plus
                    ``(B) a tax equal to the applicable percentage of 
                the net capital gain.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the term `applicable percentage' means the percentage 
        determined in accordance with the following table:
                                                         The applicable
For taxable years beginning in:                          percentage is:
    1997..........................................               14    
    1998..........................................               13    
    1999..........................................               12    
    2000..........................................               11    
    2001..........................................               10    
    2002..........................................                9    
    2003..........................................                8    
    2004..........................................                7    
    2005..........................................                6    
    2006..........................................                5    
    2007..........................................                4    
    2008..........................................                3    
    2009..........................................                2    
    2010..........................................                1    
    2011 or thereafter............................               0.    
            ``(3) 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 elects to take into account as 
        investment income under section 163(d)(4)(B)(iii).''
    (b) Minimum Tax.--
            (1) In general.--Subparagraph (A) of section 55(b)(1) is 
        amended by redesignating clauses (ii) and (iii) as clauses 
        (iii) and (iv), respectively, and by inserting after clause (i) 
        the following new clause:
                            ``(ii) Maximum rate of tax on net capital 
                        gain.--The amount determined under the first 
                        sentence of clause (i) shall not exceed the sum 
                        of--
                                    ``(I) the amount determined under 
                                such first sentence computed at the 
                                rates and in the same manner as if this 
                                clause had not been enacted on the 
                                taxable excess reduced by the net 
                                capital gain, plus
                                    ``(II) a tax equal to the 
                                applicable percentage (as defined in 
                                section 1(h)) of the lesser of the net 
                                capital gain or the taxable excess.''
            (2) Conforming amendment.--Clause (iii) of section 
        55(a)(1)(A) (as redesignated by paragraph (1)) is amended by 
        striking ``clause (i)'' and inserting ``this subparagraph''.
    (c) Conforming Amendments.--
            (1) Section 1202 (relating to 50-percent exclusion for gain 
        from certain small business stock) is hereby repealed.
            (2)(A) Subsection (a) of section 57 is amended by striking 
        paragraph (7).
            (B) Subclause (II) of section 53(d)(1)(B)(ii) is amended by 
        striking ``, (5), and (7)'' and inserting ``and (5)''.
            (3) Paragraph (1) of section 170(e) of such Code is 
        amended--
                    (A) by striking ``the amount of gain'' in the 
                material following subparagraph (B)(ii) and inserting 
                ``the appropriate percentage of the amount of gain'', 
                and
                    (B) by adding at the end the following new 
                sentence: ``For purposes of subparagraph (B), the term 
                `appropriate percentage' means the percentage equal to 
                the fraction the numerator of which is the applicable 
                percentage under section 1(h) or 1201(b) (whichever is 
                appropriate) over 28 percent (35 percent in the case of 
                a corporation).''
            (4) Paragraph (2) of section 172(d) is amended to read as 
        follows:
            ``(2) Capital gains and losses of taxpayers other than 
        corporations.--In the case of a taxpayer other than a 
        corporation, the amount deductible on account of losses from 
        sales or exchanges of capital assets shall not exceed the 
        amount includible on account of gains from sales or exchanges 
        of capital assets.''
            (5) Paragraph (4) of section 642(c) is amended by striking 
        the first sentence.
            (6) Paragraph (3) of section 643(a) is amended by striking 
        the last sentence.
            (7) Paragraph (4) of section 691(c) is amended by striking 
        ``1202,''.
            (8) The second sentence of section 871(a)(2) is amended by 
        striking ``such gains and losses shall be determined without 
        regard to section 1202 and''.
            (9) Subsection (a) of section 1044 is amended by striking 
        the last sentence.
            (10) Paragraph (1) of section 1445(e) is amended by 
        striking ``28 percent'' and inserting ``the applicable 
        percentage under section 1(h)''.
            (11) Section 6652 is amended by striking subsection (k) and 
        by redesignating subsections (l) and (m) as subsections (k) and 
        (l), respectively.
            (12)(A) The second sentence of section 7518(g)(6)(A) is 
        amended by striking ``28 percent'' and all that follows and 
        inserting ``the applicable percentage under the appropriate 
        such section.''.
            (B) The second sentence of section 607(h)(6)(A) of the 
        Merchant Marine Act, 1936 is amended by striking ``28 percent'' 
        and all that follows and inserting ``the applicable percentage 
        under the appropriate such section.''.
            (13) The table of sections for part I of subchapter P of 
        chapter 1 is amended by striking the item relating to section 
        1202.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 1996.
            (2) Withholding.--The amendment made by subsection (c)(10) 
        shall apply to amounts paid after the date of the enactment of 
        this Act.

SEC. 3. PHASEDOWN OF CAPITAL GAINS RATE FOR CORPORATIONS.

    (a) In General.--Section 1201 is amended to read as follows:

``SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.

    ``(a) General Rule.--If for any taxable year a corporation has a 
net capital gain, then, in lieu of the tax imposed by sections 11, 511, 
and 831 (a) and (b) (whichever is applicable), there is hereby imposed 
a tax (if such tax is less than the tax imposed by such sections) which 
shall consist of the sum of--
            ``(1) a tax computed on the taxable income reduced by the 
        amount of the net capital gain, at the rates and in the manner 
        as if this subsection had not been enacted, plus
            ``(2) a tax equal to the applicable percentage of the net 
        capital gain.
    ``(b) Applicable Percentage.--For purposes of paragraph (1), the 
term `applicable percentage' means the percentage determined in 
accordance with the following table:
                                                         The applicable
For taxable years beginning in:                          percentage is:
    1997..........................................               28    
    1998..........................................               27    
    1999..........................................               26    
    2000..........................................               25    
    2001..........................................               24    
    2002..........................................               23    
    2003..........................................               22    
    2004..........................................               21    
    2005..........................................               20    
    2006..........................................               19    
    2007..........................................               18    
    2008..........................................               17    
    2009..........................................               16    
    2010..........................................               15    
    2011 or thereafter............................              14.    
    ``(c) Cross References.--

                                ``For computation of the alternative 
tax--
                                  ``(1) in the case of life insurance 
companies, see section 801(a)(2),
                                  ``(2) in the case of regulated 
investment companies and their shareholders, see section 852(b)(3) (A) 
and (D), and
                                  ``(3) in the case of real estate 
investment trusts, see section 857(b)(3)(A).''

    (b) Minimum Tax.--Subparagraph (B) of section 55(b)(1) is amended 
to read as follows:
                    ``(B) Corporations.--
                            ``(i) In general.--In the case of a 
                        corporation, the tentative minimum tax for the 
                        taxable year is--
                                    ``(I) 20 percent of so much of the 
                                alternative minimum taxable income for 
                                the taxable year as exceeds the 
                                exemption amount, reduced by
                                    ``(II) the alternative minimum tax 
                                foreign tax credit for the taxable 
                                year.
                            ``(ii) Maximum rate of tax on net capital 
                        gain.--If for any taxable year the applicable 
                        percentage under section 1201(b) is less than 
                        20 percent, the amount determined under 
                        subclause (I) of clause (i) for such taxable 
                        year shall not exceed the sum of--
                                    ``(I) the amount determined under 
                                such subclause computed at the rates 
                                and in the same manner as if this 
                                clause had not been enacted on the 
                                excess described in such subclause 
                                reduced by the net capital gain, plus
                                    ``(II) a tax equal to the 
                                applicable percentage (as defined in 
                                section 1201(b)) of the lesser of the 
                                net capital gain or such excess.''
    (c) Technical Amendments.--
            (1) Clause (iii) of section 852(b)(3)(D) is amended--
                    (A) by striking ``65 percent'' and inserting ``the 
                appropriate percentage'', and
                    (B) by adding at the end the following new 
                sentence: ``For purposes of this clause, the term 
                `appropriate percentage' means the percentage equal to 
                the excess of 100 percent over the applicable 
                percentage under section 1201(b).''
            (2) Subsection (e) of section 1445 is amended by striking 
        ``35 percent'' each place it appears and inserting ``the 
        applicable percentage under section 1201(b)''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        ending after December 31, 1996.
            (2) Withholding.--The amendment made by subsection (c)(2) 
        shall apply to amounts paid after the date of the enactment of 
        this Act.
    (e) Transitional Rule.--
            (1) In general.--In the case of any taxable year ending 
        after December 31, 1996, and beginning on or before such date, 
        paragraph (2) of section 1201(a) of the Internal Revenue Code 
        of 1986 (as amended by this section) shall be applied as if it 
        read as follows:
            ``(2) the sum of--
                    ``(A) a tax of 28 percent of the lesser of--
                            ``(i) the net capital gain for the taxable 
                        year, or
                            ``(ii) the net capital gain taking into 
                        account only gain or loss properly taken into 
                        account for the portion of the taxable year 
                        after December 31, 1996, plus
                    ``(B) a tax of 35 percent of the excess of--
                            ``(i) the net capital gain for the taxable 
                        year, over
                            ``(ii) the amount of net capital gain taken 
                        into account under subparagraph (A).''
            (2) Special rule for pass-thru entities.--
                    (A) In general.--In applying paragraph (1) with 
                respect to any pass-thru entity, the determination of 
                when gains and losses are properly taken into account 
                shall be made at the entity level.
                    (B) Pass-thru entity defined.--For purposes of 
                subparagraph (A), the term ``pass-thru entity'' means--
                            (i) a regulated investment company,
                            (ii) a real estate investment trust,
                            (iii) an S corporation,
                            (iv) a partnership,
                            (v) an estate or trust, and
                            (vi) a common trust fund.

SEC. 4. INCREASE IN UNIFIED ESTATE AND GIFT TAX CREDIT.

    (a) In General.--
            (1) Subsection (a) of section 2010 (relating to unified 
        credit against estate tax) is amended by striking ``$192,800'' 
        and inserting ``the applicable credit amount''.
            (2) Section 2010 is amended by redesignating subsection (c) 
        as subsection (d) and by inserting after subsection (b) the 
        following new subsection:
    ``(c) Applicable Credit Amount.--For purposes of this section, the 
applicable credit amount is the amount of the tentative tax which would 
be determined under the rate schedule set forth in section 2001(c) if 
the amount with respect to which such tentative tax is to be computed 
were $1,000,000.''
            (3) Paragraph (1) of section 6018(a) is amended by striking 
        ``$600,000'' and inserting ``$1,000,000''.
            (4) Paragraph (2) of section 2001(c) is amended by striking 
        ``$21,040,000'' and inserting ``the amount at which the average 
        tax rate under this section is 55 percent''.
            (5) Subparagraph (A) of section 2102(c)(3) is amended by 
        striking ``$192,800'' and inserting ``the applicable credit 
        amount under section 2010(c)''.
    (b) Unified Gift Tax Credit.--Paragraph (1) of section 2505(a) is 
amended by striking ``$192,800'' and inserting ``the applicable credit 
amount under section 2010(c)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to the estates of decedents dying, and gifts made, after the date 
of the enactment of this Act.

SEC. 5. INCREASE IN MAXIMUM BENEFIT UNDER SPECIAL ESTATE TAX VALUATION 
              RULES FOR CERTAIN FARM, ETC., REAL PROPERTY.

    (a) In General.--Paragraph (2) of section 2032A(a) (relating to 
limitation on aggregate reduction in fair market value) is amended by 
striking ``$750,000'' and inserting ``$1,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to decedents dying after the date of the enactment of this Act.