I 

108TH CONGRESS 

1ST SESSION H. R. 1780

To amend the Internal Revenue Code of 1986 to eliminate the tax on 

the net capital gain of taxpayers other than corporations, to exclude 

interest and dividends from gross income, and to repeal the 1993 income 

tax increase on Social Security benefits. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 11, 2003

Mr. BEAUPREZ (for himself, Mr. BLUNT, Ms. GRANGER, Mrs. MUSGRAVE, and 

Mr. TOOMEY) introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to eliminate 

the tax on the net capital gain of taxpayers other than 

corporations, to exclude interest and dividends from 

gross income, and to repeal the 1993 income tax increase 

on Social Security benefits.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. EXCLUSION OF NET CAPITAL GAIN OF TAX4 PAYERS OTHER THAN CORPORATIONS. 

5 (a) IN GENERAL.—Part I of subchapter P of chapter 

6 1 of the Internal Revenue Code of 1986 (relating to treat-
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1 ment of capital gains) is amended by adding at the end 

2 the following new section: 

3 ‘‘SEC. 1203. EXCLUSION OF NET CAPITAL GAIN OF TAX4 PAYERS OTHER THAN CORPORATIONS. 

5 ‘‘In the case of a taxpayer other than a corporation, 

6 gross income shall not include an amount equal to the net 

7 capital gain of the taxpayer for the taxable year.’’

8 (b) CONFORMING AMENDMENTS.—

9 (1) Section 1 of such Code is amended by strik10 ing subsection (h). 

11 (2) Subsection (b) of section 55 of such Code 

12 is amended by striking paragraph (3). 

13 (3) Section 1222 of such Code is amended by 

14 adding at the end the following new sentence: 

15 ‘‘Determinations under this section shall be made before 

16 the application of section 1203.’’

17 (4) The table of sections for part I of sub18 chapter P of chapter 1 of such Code is amended by 

19 adding at the end the following new item:

‘‘Sec. 1203. Exclusion of net capital gain of taxpayers other than 

corporations.’’

20 (c) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to taxable years beginning after 

22 December 31, 2002. 
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1 SEC. 2. EXCLUSION INTEREST AND DIVIDEND INCOME 

2 FROM TAX. 

3 (a) IN GENERAL.—Part III of subchapter B of chap4 ter 1 of the Internal Revenue Code of 1986 (relating to 

5 amounts specifically excluded from gross income) is 

6 amended by inserting after section 115 the following new 

7 section: 

8 ‘‘SEC. 116. EXCLUSION OF DIVIDENDS AND INTEREST RE9 CEIVED BY INDIVIDUALS. 

10 ‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in11 come does not include dividends and interest otherwise in12 cludible in gross income which are received during the tax13 able year by an individual. 

14 ‘‘(b) CERTAIN DIVIDENDS EXCLUDED.—Subsection 

15 (a) shall not apply to any dividend from a corporation 

16 which for the taxable year of the corporation in which the 

17 distribution is made is a corporation exempt from tax 

18 under section 521 (relating to farmers’ cooperative asso19 ciations). 

20 ‘‘(c) SPECIAL RULES.—For purposes of this sec21 tion—

22 ‘‘(1) EXCLUSION NOT TO APPLY TO CAPITAL

23 GAIN DIVIDENDS FROM REGULATED INVESTMENT
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1 COMPANIES AND REAL ESTATE INVESTMENT

2 TRUSTS.—

‘‘For treatment of capital gain dividends, see sections 854(a) and 857(c).

3 ‘‘(2) CERTAIN NONRESIDENT ALIENS INELI4 GIBLE FOR EXCLUSION.—In the case of a non5 resident alien individual, subsection (a) shall apply 

6 only in determining the taxes imposed for the tax7 able year pursuant to sections 871(b)(1) and 877(b). 

8 ‘‘(3) DIVIDENDS FROM EMPLOYEE STOCK OWN9 ERSHIP PLANS.—Subsection (a) shall not apply to 

10 any dividend described in section 404(k).’’. 

11 (b) CONFORMING AMENDMENTS.—

12 (1) Subparagraph (C) of section 32(c)(5) of 

13 such Code is amended by striking ‘‘or’’ at the end 

14 of clause (i), by striking the period at the end of 

15 clause (ii) and inserting ‘‘; or’’, and by inserting 

16 after clause (ii) the following new clause: 

17 ‘‘(iii) interest and dividends received 

18 during the taxable year which are excluded 

19 from gross income under section 116.’’. 

20 (2) Subparagraph (A) of section 32(i)(2) of 

21 such Code is amended by inserting ‘‘(determined 

22 without regard to section 116)’’ before the comma. 

23 (3) Subparagraph (B) of section 86(b)(2) of 

24 such Code is amended to read as follows:
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1 ‘‘(B) increased by the sum of—

2 ‘‘(i) the amount of interest received or 

3 accrued by the taxpayer during the taxable 

4 year which is exempt from tax, and 

5 ‘‘(ii) the amount of interest and divi6 dends received during the taxable year 

7 which are excluded from gross income 

8 under section 116.’’. 

9 (4) Subsection (d) of section 135 of such Code 

10 is amended by redesignating paragraph (4) as para11 graph (5) and by inserting after paragraph (3) the 

12 following new paragraph: 

13 ‘‘(4) COORDINATION WITH SECTION 116.—This 

14 section shall be applied before section 116.’’. 

15 (5) Paragraph (2) of section 265(a) of such 

16 Code is amended by inserting before the period ‘‘, or 

17 to purchase or carry obligations or shares, or to 

18 make deposits, to the extent the interest thereon is 

19 excludable from gross income under section 116’’. 

20 (6) Subsection (c) of section 584 of such Code 

21 is amended by adding at the end the following new 

22 flush sentence:

23 ‘‘The proportionate share of each participant in the 

24 amount of dividends or interest received by the common 

25 trust fund and to which section 116 applies shall be con-
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1 sidered for purposes of such section as having been re2 ceived by such participant.’’. 

3 (7) Subsection (a) of section 643 of such Code 

4 is amended by redesignating paragraph (7) as para5 graph (8) and by inserting after paragraph (6) the 

6 following new paragraph: 

7 ‘‘(7) DIVIDENDS OR INTEREST.—There shall be 

8 included the amount of any dividends or interest ex9 cluded from gross income pursuant to section 116.’’. 

10 (8) Section 854(a) of such Code is amended by 

11 inserting ‘‘section 116 (relating to exclusion of divi12 dends and interest received by individuals) and’’ 

13 after ‘‘For purposes of’’. 

14 (9) Section 857(c) of such Code is amended to 

15 read as follows: 

16 ‘‘(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RE17 CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—

18 ‘‘(1) TREATMENT FOR SECTION 116.—For pur19 poses of section 116 (relating to exclusion of divi20 dends and interest received by individuals), a capital 

21 gain dividend (as defined in subsection (b)(3)(C)) re22 ceived from a real estate investment trust which 

23 meets the requirements of this part shall not be con24 sidered as a dividend. 
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1 ‘‘(2) TREATMENT FOR SECTION 243.—For pur2 poses of section 243 (relating to deductions for divi3 dends received by corporations), a dividend received 

4 from a real estate investment trust which meets the 

5 requirements of this part shall not be considered as 

6 a dividend.’’. 

7 (10) The table of sections for part III of sub8 chapter B of chapter 1 of such Code is amended by 

9 inserting after the item relating to section 115 the 

10 following new item:

‘‘Sec. 116. Exclusion of dividends and interest received by individuals.’’.

11 (c) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to taxable years beginning after 

13 December 31, 2002. 

14 SEC. 3. REPEAL OF 1993 INCOME TAX INCREASE ON SOCIAL 

15 SECURITY BENEFITS. 

16 (a) RESTORATION OF PRIOR LAW FORMULA.—Sub17 section (a) of section 86 of the Internal Revenue Code of 

18 1986 is amended to read as follows: 

19 ‘‘(a) IN GENERAL.—Gross income for the taxable 

20 year of any taxpayer described in subsection (b) (notwith21 standing section 207 of the Social Security Act) includes 

22 Social Security benefits in an amount equal to the lesser 

23 of—
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1 ‘‘(1) one-half of the Social Security benefits re2 ceived during the taxable year, or 

3 ‘‘(2) one-half of the excess described in sub4 section (b)(1).’’

5 (b) REPEAL OF ADJUSTED BASE AMOUNT.—Sub6 section (c) of section 86 of such Code is amended to read 

7 as follows: 

8 ‘‘(c) BASE AMOUNT.—For purposes of this section, 

9 the term ‘base amount’ means—

10 ‘‘(1) except as otherwise provided in this sub11 section, $25,000, 

12 ‘‘(2) $32,000 in the case of a joint return, and 

13 ‘‘(3) zero in the case of a taxpayer who—

14 ‘‘(A) is married as of the close of the tax15 able year (within the meaning of section 7703) 

16 but does not file a joint return for such year, 

17 and 

18 ‘‘(B) does not live apart from his spouse at 

19 all times during the taxable year.’’

20 (c) CONFORMING AMENDMENTS.—

21 (1) Subparagraph (A) of section 871(a)(3) of 

22 such Code is amended by striking ‘‘85 percent’’ and 

23 inserting ‘‘50 percent’’. 
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1 (2)(A) Subparagraph (A) of section 121(e)(1) 

2 of the Social Security Amendments of 1983 (Public 

3 Law 98–21) is amended—

4 (i) by striking ‘‘(A) There’’ and inserting 

5 ‘‘There’’; 

6 (ii) by striking ‘‘(i)’’ immediately following 

7 ‘‘amounts equivalent to’’; and 

8 (iii) by striking ‘‘, less (ii)’’ and all that 

9 follows and inserting a period. 

10 (B) Paragraph (1) of section 121(e) of such Act 

11 is amended by striking subparagraph (B). 

12 (C) Paragraph (3) of section 121(e) of such Act 

13 is amended by striking subparagraph (B) and by re14 designating subparagraph (C) as subparagraph (B). 

15 (D) Paragraph (2) of section 121(e) of such 

16 Act is amended in the first sentence by striking 

17 ‘‘paragraph (1)(A)’’ and inserting ‘‘paragraph (1)’’. 

18 (d) EFFECTIVE DATES.—

19 (1) IN GENERAL.—Except as otherwise pro20 vided in this subsection, the amendments made by 

21 this section shall apply to taxable years beginning 

22 after December 31, 2002. 

23 (2) SUBSECTION (c)(1).—The amendment made 

24 by subsection (c)(1) shall apply to benefits paid after 

25 December 31, 2002. 
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1 (3) SUBSECTION (c)(2).—The amendments 

2 made by subsection (c)(2) shall apply to tax liabil3 ities for taxable years beginning after December 31, 

4 2002. 

5 (e) MAINTENANCE OF TRANSFERS TO HOSPITAL IN6 SURANCE TRUST FUND.—

7 (1) IN GENERAL.—There are hereby appro8 priated to the Hospital Insurance Trust Fund estab9 lished under section 1817 of the Social Security Act 

10 amounts equal to the reduction in revenues to the 

11 Treasury by reason of the enactment of this section. 

12 Amounts appropriated by the preceding sentence 

13 shall be transferred from the general fund at such 

14 times and in such manner as to replicate to the ex15 tent possible the transfers which would have oc16 curred to such Trust Fund had this Act not been 

17 enacted. 

18 (2) REPORTS.—The Secretary of the Treasury 

19 or the Secretary’s delegate shall annually report to 

20 the Committee on Ways and Means of the House of 

21 Representatives and the Committee on Finance of 

22 the Senate the amounts and timing of the transfers 

23 under this section.

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