To amend the Internal Revenue Code of 1986 to make the 2003 reduction in the individual capital gains tax rates permanent and to further reduce and simplify such rates and to reduce the corporate capital gains rate.

Summary: Investment Tax Simplification Act of 2005 - Makes permanent the reduction in individual capital gains tax rates enacted by the Jobs and Growth Tax Relief Reconciliation Act of 2003.

Amends the Internal Revenue Code to reduce the maximum capital gains tax rates for individuals and corporations.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Investment Tax Simplification Act of 
2005''.

SEC. 2. PERMANENT REDUCTION IN CAPITAL GAINS RATES FOR INDIVIDUALS AND 
              CORPORATIONS.

    (a) Repeal of Sunset of Reduction in Capital Gains Rates for 
Individuals.--Section 303 of the Jobs and Growth Tax Relief 
Reconciliation Act of 2003 shall not apply to section 301 of such Act.
    (b) Further Reduction in and Simplification of Capital Gains Rates 
for Individuals.--
            (1) In general.--Paragraph (1) of section 1(h) of the 
        Internal Revenue Code of 1986 is amended to read as follows:
            ``(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, and
                    ``(B) 15 percent of the excess (if any) of--
                            ``(i) the net capital gain (or, if less, 
                        taxable income), over
                            ``(ii) the amount of taxable income which 
                        would (without regard to this paragraph) be 
                        taxed at a rate below 25 percent.''.
            (2) Alternative minimum tax.--Paragraph (3) of section 
        55(b) of such Code is amended to read as follows:
            ``(3) Maximum rate 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) the amount determined under such first 
                sentence computed at the rates and in the same manner 
                as if this paragraph had not been enacted on the 
                taxable excess reduced by the net capital gain, plus
                    ``(B) the amount determined under section 
                1(h)(1)(B).''.
            (3) Conforming amendments.--
                    (A)(i) Subsection (h) of section 1 of such Code is 
                amended by striking paragraphs (3) through (8) and by 
                redesignating paragraphs (9), (10), and (11) as 
                paragraphs (3), (4), and (5), respectively.
                    (ii) Sections 163(d)(4)(B), 854(b)(5), and 
                857(c)(2)(D) of such Code are each amended by striking 
                ``section 1(h)(11)(B)'' and inserting ``section 
                1(h)(5)(B)''.
                    (iii) Sections 301(f)(4), 306(a)(1)(D), 584(c), 
                702(a)(5), 854(a), and 854(b)(2) of such Code are each 
                amended by striking ``section 1(h)(11)'' and inserting 
                ``section 1(h)(5)''.
                    (iv) The heading of section 857(c)(2) of such Code 
                is amended by striking ``Section 1(h)(11)'' and 
                inserting ``Section 1(h)(5)''.
                    (B) Section 4985(a)(1) of such Code is amended by 
                striking ``section 1(h)(1)(C)'' and inserting ``section 
                1(h)(1)(B)''.
    (c) Reduced Capital Gains Rate for Corporations.--
            (1) In general.--Section 1201 of such Code is amended by 
        striking ``35 percent'' both places it appears and inserting 
        ``15 percent''.
            (2) Alternative minimum tax.--Section 55(b) of such Code is 
        amended by adding at the end the following new paragraph:
            ``(4) Maximum rate of tax on net capital gain of 
        corporations.--The amount determined under paragraph (1)(B)(i) 
        shall not exceed the sum of--
                    ``(A) the amount determined under such paragraph 
                computed at the rates and in the same manner as if this 
                paragraph had not been enacted on the taxable excess 
                reduced by the net capital gain, plus
                    ``(B) the amount determined under section 1201.''.
            (3) Technical amendments.--
                    (A) Section 1445(e)(1) of such Code is amended by 
                striking ``35 percent (or, to the extent provided in 
                regulations, 15 percent)'' and inserting ``15 
                percent''.
                    (B) Section 1445(e)(2) of such Code is amended by 
                striking ``35 percent'' and inserting ``15 percent''.
                    (C) Section 7518(g)(6)(A) of such Code is amended 
                by striking ``(34 percent in the case of a 
                corporation)''.
                    (D) Section 607(h)(6)(A) of the Merchant Marine 
                Act, 1936 is amended by striking ``(34 percent in the 
                case of a corporation)''.
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        ending after the date of the enactment of this Act.
            (2) Withholding.--The amendment made by subsection 
        (c)(3)(B) shall apply to amounts paid after the date of the 
        enactment of this Act.