I

103D CONGRESS

1ST SESSION H. R. 3645

To provide a tax credit for families, to provide certain tax incentives to

encourage investment and increase savings, and to place limitations on

the growth of spending.

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 22, 1993

Mr. GRAMS (for himself, Mr. HUTCHINSON, Mr. HASTERT, Mr. GINGRICH,

Mr. ARMEY, Mr. MCCOLLUM, Mr. DELAY, Mr. HYDE, Mr. HUNTER, Mr.

PAXON, Mr. SOLOMON, Mr. KASICH, Mr. ISTOOK, Mr. KNOLLENBERG,

Mr. TALENT, Mr. CRAPO, Mr. MANZULLO, Ms. DUNN, Mr. BACHUS of

Alabama, Mr. BARTLETT of Maryland, Mr. DICKEY, Mr. KINGSTON, Mr.

KIM, Ms. PRYCE of Ohio, Mr. HOEKSTRA, Mr. LEVY, Mr. POMBO, Mr.

MCKEON, Mr. BAKER of California, Mr. COLLINS of Georgia, Mr. INGLIS

of South Carolina, Mr. QUINN, Mr. CANADY, Mr. HOKE, Mr.

TORKILDSEN, Mr. LINDER, Mr. BLUTE, Mr. MCINNIS, Mr. KING, Mr.

SMITH of Michigan, Mrs. FOWLER, Mr. MCHUGH, Mr. ROYCE, Mr. DOOLITTLE, Mr. BARTON of Texas, Mr. BURTON of Indiana, Mr. RAMSTAD,

Mr. COX, Mr. SMITH of Oregon, Mr. DORNAN, Mr. HERGER, Mr.

HEFLEY, Mr. GOSS, Mr. KYL, Mr. ZIMMER, Mr. STEARNS, Mr.

ROHRABACHER, Mr. BAKER of Louisiana, Mr. INHOFE, Mrs. VUCANOVICH, Mr. BOEHNER, Mr. EWING, Mr. STUMP, Mr. SAM JOHNSON of

Texas, Mr. MOORHEAD, Ms. MOLINARI, Mr. SANTORUM, Mr. PACKARD,

Mr. SHAYS, Mr. SPENCE, Mr. HANCOCK, Mr. EMERSON, Mr. SMITH of

Texas, Mr. SAXTON, Mr. RAVENEL, Mr. HOBSON, and Mr. GALLEGLY)

introduced the following bill; which was referred jointly to the Committees

on Ways and Means, Government Operations, and Rules

A BILL

To provide a tax credit for families, to provide certain tax

incentives to encourage investment and increase savings,

and to place limitations on the growth of spending.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE;

4 TABLE OF CONTENTS.

5 (a) SHORT TITLE.—This Act may be cited as the

6 ‘‘Family, Investment, Retirement, Savings, and Tax Fair7 ness Act of 1993’’.

8 (b) AMENDMENT OF 1986 CODE.—Except as other9 wise expressly provided, whenever in this Act an amend10 ment or repeal is expressed in terms of an amendment

11 to, or repeal of, a section or other provision, the reference

12 shall be considered to be made to a section or other provi13 sion of the Internal Revenue Code of 1986.

14 (c) TABLE OF CONTENTS.—

Sec. 1. Short title; amendment of 1986 Code; table of contents.

TITLE I—FAMILY TAX CREDIT

Sec. 101. Family tax credit.

TITLE II—REDUCING THE COST OF CAPITAL BY REDUCING CAPITAL GAINS TAX RATES AND INDEXING THE BASIS OF CERTAIN ASSETS

Sec. 201. Reduction in individual capital gains rate.

Sec. 202. Reduction in corporate capital gains rate.

Sec. 203. Reduction of minimum tax rate on capital gains.

Sec. 204. Indexing of certain assets for purposes of determining gain or loss.

Sec. 205. Indexing of limitation on capital losses of individuals.

Sec. 206. Effective dates.

TITLE III—NEUTRAL COST RECOVERY

Sec. 301. Depreciation adjustment for certain property placed in service in taxable years beginning after December 31, 1993.

Sec. 302. Special depreciation rules applicable under the adjusted current earnings provisions of the minimum tax.
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TITLE IV—INCREASING NATIONAL SAVINGS THROUGH INDIVIDUAL RETIREMENT PLUS ACCOUNTS, INDEXING FOR INFLATION

THE INCOME THRESHOLDS FOR TAXING SOCIAL SECURITY

BENEFITS, ETC.

Sec. 401. Establishment of individual retirement plus accounts.

Sec. 402. Inflation adjustment of income thresholds for taxation of social security benefits; income from individual retirement plans excluded.

Sec. 403. Inflation adjustment of maximum amount of IRA deduction.

TITLE V—CAP ON FEDERAL SPENDING AND ESTABLISHMENT OF

COMMISSION TO REDUCE FEDERAL SPENDING

Sec. 501. Establishment.

Sec. 502. Duties of Commission.

Sec. 503. Membership.

Sec. 504. Director and staff of Commission.

Sec. 505. Powers of Commission.

Sec. 506. Termination.

Sec. 507. Payment of expenses.

Sec. 508. Consideration of Commission’s proposal.

Sec. 509. Advisory council.

Sec. 510. Amendments to the Balanced Budget and Emergency Deficit Control

Act of 1985 to limit Federal spending.

TITLE VI—ELIMINATION OF SOCIAL SECURITY EARNINGS TEST

Sec. 601. Elimination of social security earnings test.

1 TITLE I—FAMILY TAX CREDIT

2 SEC. 101. FAMILY TAX CREDIT.

3 (a) IN GENERAL.—Subpart C of part IV of sub4 chapter A of chapter 1 is amended by redesignating sec5 tion 35 as section 36 and by inserting after section 34

6 the following new section:

7 ‘‘SEC. 35. FAMILY TAX CREDIT.

8 ‘‘(a) GENERAL RULE.—In the case of an eligible indi9 vidual, there shall be allowed as a credit against the tax

10 imposed by this subtitle for the taxable year an amount

11 equal to $500 multiplied by the number of qualifying chil12 dren of the taxpayer who have not attained the age of 18
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1 as of the close of the calendar year in which the taxable

2 year of the taxpayer begins.

3 ‘‘(b) LIMITATION BASED ON AMOUNT OF TAX.—The

4 credit allowed by subsection (a) for a taxable year shall

5 not exceed the excess (if any) of—

6 ‘‘(1) the sum of—

7 ‘‘(A) the tax imposed by this subtitle for

8 the taxable year (reduced by the credits allow9 able against such tax other than the credits al10 lowable under this subpart), and

11 ‘‘(B) the taxes imposed by sections 3101

12 and 3111 on wages received by the taxpayer

13 during such taxable year, over

14 ‘‘(2) the credit allowable for the taxable year

15 under section 32.

16 ‘‘(c) INFLATION ADJUSTMENTS.—

17 ‘‘(1) IN GENERAL.—In the case of a taxable

18 year beginning in a calendar year after 1993, the

19 $500 amount contained in subsection (a) shall be in20 creased by an amount equal to—

21 ‘‘(A) $500, multiplied by

22 ‘‘(B) the cost-of-living adjustment deter23 mined under section 1(f)(3) for the calendar

24 year in which the taxable year begins.
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1 ‘‘(2) ROUNDING.—If any increase determined

2 under paragraph (1) is not a multiple of $5, such

3 increase shall be rounded to the next higher multiple

4 of $5.

5 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur6 poses of this section—

7 ‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible

8 individual’ has the meaning given to such term by

9 section 32(c)(1) (determined without regard to sub10 paragraph (B) thereof).

11 ‘‘(2) QUALIFYING CHILD.—The term ‘qualifying

12 child’ has the meaning given to such term by section

13 32(c)(3) (determined without regard to subpara14 graphs (C) and (E) thereof).

15 ‘‘(3) CERTAIN OTHER RULES APPLY.—Sub16 sections (d) and (e) of section 32 shall apply.’’

17 (b) DENIAL OF DOUBLE BENEFIT.—Subparagraph

18 (A) of section 21(b)(1) (defining qualifying individual) is

19 amended by inserting ‘‘(other than an individual described

20 in section 35(a))’’ after ‘‘taxpayer’’.

21 (c) CONFORMING AMENDMENT.—The table of sec22 tions for such subpart C is amended by striking the item

23 relating to section 35 and inserting the following new

24 items:

‘‘Sec. 35. Family tax credit.

‘‘Sec. 36. Overpayments of tax.’’
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1993.

4 TITLE II—REDUCING THE COST

5 OF CAPITAL BY REDUCING

6 CAPITAL GAINS TAX RATES

7 AND INDEXING THE BASIS OF

8 CERTAIN ASSETS

9 SEC. 201. REDUCTION IN INDIVIDUAL CAPITAL GAINS

10 RATE.

11 (a) GENERAL RULE.—Subsection (h) of section 1 (re12 lating to maximum capital gains rate) is amended to read

13 as follows:

14 ‘‘(h) MAXIMUM CAPITAL GAINS RATE.—

15 ‘‘(1) IN GENERAL.—If a taxpayer has a net

16 capital gain for any taxable year, then the tax im17 posed by this section shall not exceed the sum of—

18 ‘‘(A) a tax computed at the rates and in

19 the same manner as if this subsection had not

20 been enacted on the taxable income reduced by

21 the net capital gain, plus

22 ‘‘(B) a tax equal to the sum of—

23 ‘‘(i) 7.5 percent of so much of the net

24 capital gain as does not exceed—
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1 ‘‘(I) the maximum amount of

2 taxable income to which the 15-per3 cent rate applies under the table ap4 plicable to the taxpayer, reduced by

5 ‘‘(II) the taxable income to which

6 subparagraph (A) applies, plus

7 ‘‘(ii) 15 percent of the net capital gain

8 in excess of the net capital gain to which

9 clause (i) applies.

10 For purposes of the preceding sentence, the net cap11 ital gain for any taxable year shall be reduced (but

12 not below zero) by the amount which the taxpayer

13 elects to take into account as investment income for

14 the taxable year under section 163(d)(4)(B)(iii).

15 ‘‘(2) TRANSITIONAL RULE.—In the case of a

16 taxable year which includes January 1, 1994, the

17 amount of the net capital gain for purposes of para18 graph (1) shall not exceed the net capital gain deter19 mined by only taking into account gains and losses

20 properly taken into account for the portion of the

21 taxable year on or after such date.’’

22 (b) PHASE-OUT OF PERSONAL EXEMPTIONS AND

23 LIMITATION ON DEDUCTION OF ITEMIZED DEDUCTIONS

24 NOT TO RESULT FROM NET CAPITAL GAIN.—
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1 (1)(A) Subparagraphs (A) and (B) of section

2 151(d)(3) (relating to phaseout of exemption

3 amount) are each amended by inserting ‘‘modified’’

4 before ‘‘adjusted gross income’’.

5 (B) Paragraph (3) of section 151(d) is amend6 ed by redesignating subparagraph (D) as subpara7 graph (E) and by inserting after subparagraph (C)

8 the following new subparagraph:

9 ‘‘(D) MODIFIED ADJUSTED GROSS IN10 COME.—For purposes of this paragraph—

11 ‘‘(i) IN GENERAL.—The term ‘modi12 fied adjusted gross income’ means adjusted

13 gross income reduced by net capital gain.

14 ‘‘(ii) TRANSITIONAL RULE.—In the

15 case of a taxable year which includes

16 January 1, 1994, the amount of the net

17 capital gain for purposes of clause (i) shall

18 not exceed the net capital gain determined

19 by only taking into account gains and

20 losses properly taken into account for the

21 portion of the taxable year on or after such

22 date.’’

23 (2) Subsection (a) of section 68 (relating to

24 overall limitation on itemized deductions) is amend25 ed by adding at the end the following new sentence:
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1 ‘‘For purposes of paragraph (1), adjusted gross income

2 shall be computed without regard to net capital gain (de3 termined after application of the rule of section

4 151(d)(3)(D)(ii)).’’

5 (c) TECHNICAL AMENDMENTS.—

6 (1) Paragraph (1) of section 170(e) is amended

7 by striking ‘‘the amount of gain’’ in the material

8 following subparagraph (B)(ii) and inserting

9 ‘‘24.6/39.6 (20/35 in the case of a corporation) of

10 the amount of gain’’.

11 (2)(A) The second sentence of section

12 7518(g)(6)(A) is amended by striking ‘‘28 percent

13 (34 percent in the case of a corporation)’’ and in14 serting ‘‘15 percent’’.

15 (B) The second sentence of section

16 607(h)(6)(A) of the Merchant Marine Act, 1936, is

17 amended by striking ‘‘28 percent (34 percent in the

18 case of a corporation)’’ and inserting ‘‘15 percent’’.

19 SEC. 202. REDUCTION IN CORPORATE CAPITAL GAINS

20 RATE.

21 (a) GENERAL RULE.—Section 1201 (relating to al22 ternative tax for corporations) is amended by redesignat23 ing subsection (b) as subsection (c), and by striking sub24 section (a) and inserting the following:
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1 ‘‘(a) GENERAL RULE.—If for any taxable year a cor2 poration has a net capital gain, then, in lieu of the tax

3 imposed by section 11, 511, or 831(a) (whichever applies),

4 there is hereby imposed a tax (if such tax is less than

5 the tax imposed by such section) which shall consist of

6 the sum of—

7 ‘‘(1) a tax computed on the taxable income re8 duced by the net capital gain, at the same rates and

9 in the same manner as if this subsection had not

10 been enacted, plus

11 ‘‘(2) a tax of 15 percent of the net capital gain.

12 ‘‘(b) TRANSITIONAL RULE.—In the case of a taxable

13 year which includes January 1, 1994, the amount of the

14 net capital gain for purposes of subsection (a) shall not

15 exceed the net capital gain determined by only taking into

16 account gains and losses properly taken into account for

17 the portion of the taxable year on or after such date.’’

18 (b) TECHNICAL AMENDMENTS.—

19 (1) Clause (iii) of section 852(b)(3)(D) is

20 amended by striking ‘‘65 percent’’ and inserting ‘‘85

21 percent’’.

22 (2) Paragraphs (1) and (2) of section 1445(e)

23 are each amended by striking ‘‘35 percent’’ and in24 serting ‘‘15 percent’’.
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1 (3) Paragraph (1) of section 1445(e) is amend2 ed by striking ‘‘(or, to the extent provided in regula3 tions, 28 percent)’’.

4 SEC. 203. REDUCTION OF MINIMUM TAX RATE ON CAPITAL

5 GAINS.

6 Section 55(b)(1) (relating to tentative minimum tax)

7 is amended by adding at the end the following new sub8 paragraph:

9 ‘‘(C) SPECIAL RULE FOR CAPITAL

10 GAINS.—If a taxpayer has a net capital gain for

11 any taxable year, the tentative minimum tax for

12 the taxable year is the sum of—

13 ‘‘(i) 15 percent of the lesser of—

14 ‘‘(I) the net capital gain (deter15 mined with the adjustments provided

16 in this part and (to the extent appli17 cable) the limitations of sections

18 1(h)(2) and 1201(b)), or

19 ‘‘(II) so much of the alternative

20 minimum taxable income for the tax21 able year as exceeds the exemption

22 amount, plus

23 ‘‘(ii) a tax computed on the amount

24 (if any) by which the excess referred to in

25 clause (i)(II) exceeds the net capital gain
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1 (as so determined), at the same rates and

2 in the same manner as if this subpara3 graph had not been enacted.’’

4 SEC. 204. INDEXING OF CERTAIN ASSETS FOR PURPOSES

5 OF DETERMINING GAIN OR LOSS.

6 (a) IN GENERAL.—Part II of subchapter O of chap7 ter 1 (relating to basis rules of general application) is

8 amended by inserting after section 1021 the following new

9 section:

10 ‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES

11 OF DETERMINING GAIN OR LOSS.

12 ‘‘(a) GENERAL RULE.—

13 ‘‘(1) INDEXED BASIS SUBSTITUTED FOR AD14 JUSTED BASIS.—Except as provided in paragraph

15 (2), if an indexed asset which has been held for

16 more than 1 year is sold or otherwise disposed of,

17 then, for purposes of this title, the indexed basis of

18 the asset shall be substituted for its adjusted basis.

19 ‘‘(2) EXCEPTION FOR DEPRECIATION, ETC.—

20 The deduction for depreciation, depletion, and amor21 tization shall be determined without regard to the

22 application of paragraph (1) to the taxpayer or any

23 other person.

24 ‘‘(b) INDEXED ASSET.—
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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, the term ‘indexed asset’ means—

3 ‘‘(A) stock in a corporation, and

4 ‘‘(B) tangible property (or any interest

5 therein), which is a capital asset or property

6 used in the trade or business (as defined in sec7 tion 1231(b)).

8 ‘‘(2) CERTAIN PROPERTY EXCLUDED.—For

9 purposes of this section, the term ‘indexed asset’

10 does not include—

11 ‘‘(A) CREDITOR’S INTEREST.—Any interest

12 in property which is in the nature of a credi13 tor’s interest.

14 ‘‘(B) OPTIONS.—Any option or other right

15 to acquire an interest in property.

16 ‘‘(C) NET LEASE PROPERTY.—In the case

17 of a lessor, net lease property (within the mean18 ing of subsection (h)(1)).

19 ‘‘(D) CERTAIN PREFERRED STOCK.—Stock

20 which is preferred as to dividends and does not

21 participate in corporate growth to any signifi22 cant extent.

23 ‘‘(E) STOCK IN CERTAIN CORPORATIONS.—

24 Stock in—
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1 ‘‘(i) an S corporation (within the

2 meaning of section 1361),

3 ‘‘(ii) a personal holding company (as

4 defined in section 542), and

5 ‘‘(iii) a foreign corporation.

6 ‘‘(3) EXCEPTION FOR STOCK IN FOREIGN COR7 PORATION WHICH IS REGULARLY TRADED ON NA8 TIONAL OR REGIONAL EXCHANGE.—Clause (iii) of

9 paragraph (2)(E) shall not apply to stock in a for10 eign corporation the stock of which is listed on the

11 New York Stock Exchange, the American Stock Ex12 change, or any domestic regional exchange for which

13 quotations are published on a regular basis other

14 than—

15 ‘‘(A) stock of a foreign investment com16 pany (within the meaning of section 1246(b)),

17 and

18 ‘‘(B) stock in a foreign corporation held by

19 a United States person who meets the require20 ments of section 1248(a)(2).

21 ‘‘(c) INDEXED BASIS.—For purposes of this sec22 tion—

23 ‘‘(1) INDEXED BASIS.—The indexed basis for

24 any asset is—
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1 ‘‘(A) the adjusted basis of the asset, multi2 plied by

3 ‘‘(B) the applicable inflation ratio.

4 ‘‘(2) APPLICABLE INFLATION RATIO.—The ap5 plicable inflation ratio for any asset is the percent6 age arrived at by dividing—

7 ‘‘(A) the gross national product deflator

8 for the calendar quarter in which the disposi9 tion takes place, by

10 ‘‘(B) the gross national product deflator

11 for the calendar quarter in which the asset was

12 acquired by the taxpayer (or, if later, the cal13 endar quarter ending December 31, 1993).

14 The applicable inflation ratio shall not be taken into

15 account unless it is greater than 1. The applicable

16 inflation ratio for any asset shall be rounded to the

17 nearest one-tenth of 1 percent.

18 ‘‘(3) GROSS NATIONAL PRODUCT DEFLATOR.—

19 The gross national product deflator for any calendar

20 quarter is the implicit price deflator for the gross

21 national product for such quarter (as shown in the

22 first revision thereof).

23 ‘‘(4) SECRETARY TO PUBLISH TABLES.—The

24 Secretary shall publish tables specifying the applica25 ble inflation ratios for each calendar quarter.
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1 ‘‘(d) SPECIAL RULES.—For purposes of this sec2 tion—

3 ‘‘(1) TREATMENT AS SEPARATE ASSET.—In the

4 case of any asset, the following shall be treated as

5 a separate asset:

6 ‘‘(A) a substantial improvement to prop7 erty,

8 ‘‘(B) in the case of stock of a corporation,

9 a substantial contribution to capital, and

10 ‘‘(C) any other portion of an asset to the

11 extent that separate treatment of such portion

12 is appropriate to carry out the purposes of this

13 section.

14 ‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS

15 THROUGHOUT HOLDING PERIOD.—

16 ‘‘(A) IN GENERAL.—The applicable infla17 tion ratio shall be appropriately reduced for cal18 endar months at any time during which the

19 asset was not an indexed asset.

20 ‘‘(B) CERTAIN SHORT SALES.—For pur21 poses of applying subparagraph (A), an asset

22 shall be treated as not an indexed asset for any

23 short sale period during which the taxpayer or

24 the taxpayer’s spouse sells short property sub25 stantially identical to the asset. For purposes of
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1 the preceding sentence, the short sale period be2 gins on the day after the substantially identical

3 property is sold and ends on the closing date

4 for the sale.

5 ‘‘(3) TREATMENT OF CERTAIN DISTRIBU6 TIONS.—A distribution with respect to stock in a

7 corporation which is not a dividend shall be treated

8 as a disposition.

9 ‘‘(4) SECTION CANNOT INCREASE ORDINARY

10 LOSS.—To the extent that (but for this paragraph)

11 this section would create or increase a net ordinary

12 loss to which section 1231(a)(2) applies or an ordi13 nary loss to which any other provision of this title

14 applies, such provision shall not apply. The taxpayer

15 shall be treated as having a long-term capital loss in

16 an amount equal to the amount of the ordinary loss

17 to which the preceding sentence applies.

18 ‘‘(5) ACQUISITION DATE WHERE THERE HAS

19 BEEN PRIOR APPLICATION OF SUBSECTION (a)(1)

20 WITH RESPECT TO THE TAXPAYER.—If there has

21 been a prior application of subsection (a)(1) to an

22 asset while such asset was held by the taxpayer, the

23 date of acquisition of such asset by the taxpayer

24 shall be treated as not earlier than the date of the

25 most recent such prior application.
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1 ‘‘(6) COLLAPSIBLE CORPORATIONS.—The appli2 cation of section 341(a) (relating to collapsible

3 corporations) shall be determined without regard to

4 this section.

5 ‘‘(e) CERTAIN CONDUIT ENTITIES.—

6 ‘‘(1) REGULATED INVESTMENT COMPANIES;

7 REAL ESTATE INVESTMENT TRUSTS; COMMON TRUST

8 FUNDS.—

9 ‘‘(A) IN GENERAL.—Stock in a qualified

10 investment entity shall be an indexed asset for

11 any calendar month in the same ratio as the

12 fair market value of the assets held by such en13 tity at the close of such month which are in14 dexed assets bears to the fair market value of

15 all assets of such entity at the close of such

16 month.

17 ‘‘(B) RATIO OF 90 PERCENT OR MORE.—If

18 the ratio for any calendar month determined

19 under subparagraph (A) would (but for this

20 subparagraph) be 90 percent or more, such

21 ratio for such month shall be 100 percent.

22 ‘‘(C) RATIO OF 10 PERCENT OR LESS.—If

23 the ratio for any calendar month determined

24 under subparagraph (A) would (but for this
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1 subparagraph) be 10 percent or less, such ratio

2 for such month shall be zero.

3 ‘‘(D) VALUATION OF ASSETS IN CASE OF

4 REAL ESTATE INVESTMENT TRUSTS.—Nothing

5 in this paragraph shall require a real estate in6 vestment trust to value its assets more fre7 quently than once each 36 months (except

8 where such trust ceases to exist). The ratio

9 under subparagraph (A) for any calendar

10 month for which there is no valuation shall be

11 the trustee’s good faith judgment as to such

12 valuation.

13 ‘‘(E) QUALIFIED INVESTMENT ENTITY.—

14 For purposes of this paragraph, the term

15 ‘qualified investment entity’ means—

16 ‘‘(i) a regulated investment company

17 (within the meaning of section 851),

18 ‘‘(ii) a real estate investment trust

19 (within the meaning of section 856), and

20 ‘‘(iii) a common trust fund (within the

21 meaning of section 584).

22 ‘‘(2) PARTNERSHIPS.—In the case of a partner23 ship, the adjustment made under subsection (a) at

24 the partnership level shall be passed through to the

25 partners.
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1 ‘‘(3) SUBCHAPTER S CORPORATIONS.—In the

2 case of an electing small business corporation, the

3 adjustment under subsection (a) at the corporate

4 level shall be passed through to the shareholders.

5 ‘‘(f) DISPOSITIONS BETWEEN RELATED PERSONS.—

6 ‘‘(1) IN GENERAL.—This section shall not apply

7 to any sale or other disposition of property between

8 related persons except to the extent that the basis

9 of such property in the hands of the transferee is a

10 substituted basis.

11 ‘‘(2) RELATED PERSONS DEFINED.—For pur12 poses of this section, the term ‘related persons’

13 means—

14 ‘‘(A) persons bearing a relationship set

15 forth in section 267(b), and

16 ‘‘(B) persons treated as single employer

17 under subsection (b) or (c) of section 414.

18 ‘‘(g) TRANSFERS TO INCREASE INDEXING ADJUST19 MENT OR DEPRECIATION ALLOWANCE.—If any person

20 transfers cash, debt, or any other property to another per21 son and the principal purpose of such transfer is—

22 ‘‘(1) to secure or increase an adjustment under

23 subsection (a), or
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1 ‘‘(2) to increase (by reason of an adjustment

2 under subsection (a)) a deduction for depreciation,

3 depletion, or amortization,

4 the Secretary may disallow part or all of such adjustment

5 or increase.

6 ‘‘(h) DEFINITIONS.—For purposes of this section—

7 ‘‘(1) NET LEASE PROPERTY DEFINED.—The

8 term ‘net lease property’ means leased real property

9 where—

10 ‘‘(A) the term of the lease (taking into ac11 count options to renew) was 50 percent or more

12 of the useful life of the property, and

13 ‘‘(B) for the period of the lease, the sum

14 of the deductions with respect to such property

15 which are allowable to the lessor solely by rea16 son of section 162 (other than rents and reim17 bursed amounts with respect to such property)

18 is 15 percent or less of the rental income pro19 duced by such property.

20 ‘‘(2) STOCK INCLUDES INTEREST IN COMMON

21 TRUST FUND.—The term ‘stock in a corporation’ in22 cludes any interest in a common trust fund (as de23 fined in section 584(a)).
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1 ‘‘(i) REGULATIONS.—The Secretary shall prescribe

2 such regulations as may be necessary or appropriate to

3 carry out the purposes of this section.’’

4 (b) CLERICAL AMENDMENT.—The table of sections

5 for part II of subchapter O of such chapter 1 is amended

6 by inserting after the item relating to section 1021 the

7 following new item:

‘‘Sec. 1022. Indexing of certain assets for purposes of determining gain or loss.’’

8 (c) ADJUSTMENT TO APPLY FOR PURPOSES OF DE9 TERMINING EARNINGS AND PROFITS.—Subsection (f) of

10 section 312 (relating to effect on earnings and profits of

11 gain or loss and of receipt of tax-free distributions) is

12 amended by adding at the end thereof the following new

13 paragraph:

14 ‘‘(3) EFFECT ON EARNINGS AND PROFITS OF

15 INDEXED BASIS.—

For substitution of indexed basis for adjusted

basis in the case of the disposition of certain assets

after December 31, 1993, see section 1022(a)(1).’’

16 SEC. 205. INDEXING OF LIMITATION ON CAPITAL LOSSES

17 OF INDIVIDUALS.

18 Section 1211 (relating to limitation on capital losses)

19 is amended by adding at the end thereof the following new

20 subsection:

21 ‘‘(c) INDEXATION OF LIMITATION ON

22 NONCORPORATE TAXPAYERS.—
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1 ‘‘(1) IN GENERAL.—In the case of any taxable

2 year beginning in a calendar year after 1993, the

3 $3,000 and $1,500 amounts under subsection (b)(1)

4 shall be increased by an amount equal to—

5 ‘‘(A) such dollar amount, multiplied by

6 ‘‘(B) the applicable inflation adjustment

7 for the calendar year in which the taxable year

8 begins.

9 ‘‘(2) APPLICABLE INFLATION ADJUSTMENT.—

10 For purposes of paragraph (1), the applicable infla11 tion adjustment for any calendar year is the percent12 age (if any) by which—

13 ‘‘(A) the gross national product deflator

14 for the last calendar quarter of the preceding

15 calendar year, exceeds

16 ‘‘(B) the gross national product deflator

17 for the last calendar quarter of 1992.

18 For purposes of this paragraph, the term ‘gross na19 tional product deflator’ has the meaning given such

20 term by section 1022(c)(3).’’

21 SEC. 206. EFFECTIVE DATES.

22 (a) IN GENERAL.—Except as provided in subsection

23 (b), the amendments made by this title shall apply to sales

24 or exchanges occurring after December 31, 1993, in tax25 able years ending after such date.
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1 (b) INDEXING OF LOSS LIMITATION.—The amend2 ments made by section 205 shall apply to taxable years

3 beginning after December 31, 1993.

4 TITLE III—NEUTRAL COST

5 RECOVERY

6 SEC. 301. DEPRECIATION ADJUSTMENT FOR CERTAIN

7 PROPERTY PLACED IN SERVICE IN TAXABLE

8 YEARS BEGINNING AFTER DECEMBER 31,

9 1993.

10 (a) IN GENERAL.—Section 168 (relating to acceler11 ated cost recovery system) is amended by adding at the

12 end the following new subsection:

13 ‘‘(k) DEDUCTION ADJUSTMENT TO ALLOW EQUIVA14 LENT OF EXPENSING FOR CERTAIN PROPERTY PLACED

15 IN SERVICE IN TAXABLE YEARS BEGINNING AFTER

16 DECEMBER 31, 1993.—

17 ‘‘(1) IN GENERAL.—In the case of tangible

18 property placed in service in a taxable year begin19 ning after December 31, 1993, the deduction allow20 able under this section with respect to such property

21 for any taxable year (after the taxable year during

22 which the property is placed in service) shall be—

23 ‘‘(A) the amount so allowable for such tax24 able year without regard to this subsection,

25 multiplied by
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1 ‘‘(B) the applicable neutral cost recovery

2 ratio for such taxable year.

3 For purposes of subparagraph (A), paragraphs (1)

4 and (2) of subsection (b) shall be applied by sub5 stituting ‘150 percent’ for ‘200 percent’.

6 ‘‘(2) APPLICABLE NEUTRAL COST RECOVERY

7 RATIO.—For purposes of paragraph (1), the applica8 ble neutral cost recovery ratio for any taxable year

9 is the number determined by—

10 ‘‘(A) dividing—

11 ‘‘(i) the gross national product

12 deflator for the calendar quarter ending in

13 such taxable year which corresponds to the

14 calendar quarter during which the property

15 was placed in service by the taxpayer, by

16 ‘‘(ii) the gross national product

17 deflator for the calendar quarter during

18 which the property was placed in service by

19 the taxpayer, and

20 ‘‘(B) then multiplying the number deter21 mined under subparagraph (A) by the number

22 equal to 1.035 to the nth power where ‘n’ is the

23 number of full years in the period beginning on

24 the 1st day of the calendar quarter during

25 which the property was placed in service by the
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1 taxpayer and ending on the day before the be2 ginning of the corresponding calendar quarter

3 ending during such taxable year.

4 The applicable neutral cost recovery ratio shall not

5 be taken into account unless it is greater than 1.

6 The applicable neutral cost recovery ratio shall be

7 rounded to the nearest one-tenth of 1 percent.

8 ‘‘(3) GROSS NATIONAL PRODUCT DEFLATOR.—

9 For purposes of paragraph (2), the gross national

10 product deflator for any calendar quarter is the im11 plicit price deflator for the gross national product

12 for such quarter (as shown in the first revision

13 thereof).

14 ‘‘(4) ELECTION NOT TO HAVE SUBSECTION

15 APPLY.—This subsection shall not apply to any

16 property if the taxpayer elects not to have this sub17 section apply to such property. Such an election,

18 once made, shall be irrevocable.’’

19 (b) MINIMUM TAX TREATMENT.—Paragraph (1) of

20 section 56(a) is amended by adding at the end the follow21 ing new subparagraph:

22 ‘‘(E) USE OF NEUTRAL COST RECOVERY

23 RATIO.—In the case of tangible property placed

24 in service in a taxable year beginning after De25 cember 31, 1993, the deduction allowable under
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1 this paragraph with respect to such property

2 for any taxable year (after the taxable year dur3 ing which the property is placed in service)

4 shall be—

5 ‘‘(i) the amount so allowable for such

6 taxable year without regard to this sub7 paragraph, multiplied by

8 ‘‘(ii) the applicable neutral cost recov9 ery ratio for such taxable year (as deter10 mined under section 168(k)).

11 This subparagraph shall not apply to any prop12 erty with respect to which there is an election

13 in effect not to have section 168(k) apply.’’

14 (c) DISALLOWANCE OF INTEREST DEDUCTION TO

15 ENSURE EQUITY FINANCING RECEIVES SAME TREAT16 MENT AS DEBT FINANCING.—Section 163 (relating to de17 duction for interest) is amended by redesignating sub18 section (k) as subsection (l) and by inserting after sub19 section (j) the following new subsection:

20 ‘‘(k) DISALLOWANCE OF DEDUCTION FOR PROPERTY

21 SUBJECT TO NEUTRAL COST RECOVERY.—No deduction

22 shall be allowed for any amount otherwise allowable as a

23 deduction for interest on indebtedness incurred or contin24 ued to purchase or carry tangible property with respect
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1 to which an election is made under section 168(k) (relat2 ing to neutral cost recovery).’’

3 (d) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to taxable years beginning after

5 December 31, 1993.

6 SEC. 302. SPECIAL DEPRECIATION RULES APPLICABLE

7 UNDER THE ADJUSTED CURRENT EARNINGS

8 PROVISIONS OF THE MINIMUM TAX.

9 (a) IN GENERAL.—Subparagraph (A) of section

10 56(g)(4) (relating to adjustments) is amended by adding

11 at the end the following new clauses:

12 ‘‘(vi) SPECIAL BASIS RULES FOR

13 1994.—

14 ‘‘(I) IN GENERAL.—Notwith15 standing clause (i), the adjusted basis

16 of any depreciable property held by

17 the taxpayer as of the beginning of

18 the taxpayer’s first taxable year be19 ginning after December 31, 1993,

20 shall be determined as if the provi21 sions of the last sentence of clause (i)

22 had also applied to taxable years be23 ginning in 1990, 1991, 1992, or

24 1993.
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1 ‘‘(II) LOST BASIS RECOVERED

2 OVER 5 YEARS.—The amount deter3 mined under clause (vii) shall be al4 lowed as a deduction ratably over the

5 60-month period beginning with the

6 first month of the taxpayer’s first tax7 able year beginning after December

8 31, 1993.

9 ‘‘(vii) AMOUNT OF LOST BASIS.—For

10 purposes of clause (vi)(II), the amount de11 termined under this clause is the excess

12 of—

13 ‘‘(I) the aggregate adjusted bases

14 of depreciable property held by the

15 taxpayer as of the beginning of the

16 taxpayer’s first taxable year beginning

17 after December 31, 1993, which

18 would have been determined (as of

19 such time) under clause (i) without

20 regard to clause (vi), over

21 ‘‘(II) the aggregate adjusted

22 bases of such property (as of such

23 time) as determined under the rules of

24 clause (vi).’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to taxable years beginning after

3 December 31, 1993.

4 TITLE IV—INCREASING NA5 TIONAL SAVINGS THROUGH

6 INDIVIDUAL RETIREMENT

7 PLUS ACCOUNTS, INDEXING

8 FOR INFLATION THE INCOME

9 THRESHOLDS FOR TAXING

10 SOCIAL SECURITY BENEFITS,

11 ETC.

12 SEC. 401. ESTABLISHMENT OF INDIVIDUAL RETIREMENT

13 PLUS ACCOUNTS.

14 (a) IN GENERAL.—Subpart A of part I of subchapter

15 D of chapter 1 (relating to pension, profit-sharing, stock

16 bonus plans, etc.) is amended by inserting after section

17 408 the following new section:

18 ‘‘SEC. 408A. INDIVIDUAL RETIREMENT PLUS ACCOUNTS.

19 ‘‘(a) GENERAL RULE.—Except as provided in this

20 section, an individual retirement plus account shall be

21 treated for purposes of this title in the same manner as

22 an individual retirement plan.

23 ‘‘(b) INDIVIDUAL RETIREMENT PLUS ACCOUNT.—

24 For purposes of this title, the term ‘individual retirement

25 plus account’ means an individual retirement plan which
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1 is designated at the time of the establishment of the plan

2 as an individual retirement plus account. Such designation

3 shall be made in such manner as the Secretary may pre4 scribe.

5 ‘‘(c) CONTRIBUTION RULES.—

6 ‘‘(1) NO DEDUCTION ALLOWED.—No deduction

7 shall be allowed under section 219 for a contribution

8 to an individual retirement plus account.

9 ‘‘(2) CONTRIBUTION LIMIT.—

10 ‘‘(A) IN GENERAL.—Except in the case of

11 rollover contributions, the aggregate amount

12 which may be accepted as contributions to an

13 individual retirement plus account shall not be

14 greater than the excess (if any) of—

15 ‘‘(i) the nondeductible limit with re16 spect to the individual for the taxable year

17 under section 408(o) (after application of

18 subparagraph (B)(ii) thereof), over

19 ‘‘(ii) the designated nondeductible

20 contributions made by the individual for

21 such taxable year to 1 or more individual

22 retirement plans.

23 ‘‘(B) $1,000 INCREASE AFTER 1995.—

24 ‘‘(i) IN GENERAL.—In the case of any

25 taxable year beginning after December 31,
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1 1995, the amount determined under sub2 paragraph (A)(i) (without regard to this

3 subparagraph) shall be increased by

4 $1,000.

5 ‘‘(ii) ADJUSTMENT FOR INFLATION.—

6 In the case of any taxable year beginning

7 in a calendar year after 1997, the $1,000

8 amount in clause (i) shall be increased by

9 an amount equal to—

10 ‘‘(I) such dollar amount, multi11 plied by

12 ‘‘(II) the cost-of-living adjust13 ment under section 1(f)(3) for the cal14 endar year in which the taxable year

15 begins, determined by substituting

16 ‘calendar year 1996’ for ‘calendar

17 year 1992’ in subparagraph (B) there18 of.

19 ‘‘(iii) ROUNDING.—If any amount as

20 adjusted under clause (ii) is not a multiple

21 of $50, such amount shall be rounded to

22 the nearest multiple of $50 (or, if such

23 amount is a multiple of $25, such amount

24 shall be rounded to the next highest mul25 tiple of $50).
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1 ‘‘(C) SPECIAL RULE FOR MARRIED INDI2 VIDUALS.—The nondeductible limits under sub3 paragraph (A) for an individual or for such in4 dividual’s spouse shall be an amount equal to

5 the excess (if any) of—

6 ‘‘(i) the amount determined under

7 subparagraph (A)(i) (after application of

8 subparagraph (B)), over

9 ‘‘(ii) the sum of the amount allowed

10 as a deduction under section 219 for con11 tributions on behalf of such individual or

12 such spouse, plus the amount determined

13 under subparagraph (A)(ii) with respect to

14 each.

15 In no event shall the sum of such limits exceed

16 an amount equal to the sum of the compensa17 tion includible in the individual’s and spouse’s

18 gross income for the taxable year, reduced by

19 the sum of the amounts determined under

20 clause (ii).

‘‘(3) CONTRIBUTIONS AFTER AGE 701 21 ⁄2.—Con22 tributions may be made by an individual to an indi23 vidual retirement plus account after such individual

has attained the age of 701 24 ⁄2.
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1 ‘‘(4) LIMITATIONS ON ROLLOVER CONTRIBU2 TIONS.—No rollover contributions may be made to

3 an individual retirement plus account unless such

4 rollover contribution is a contribution of a distribu5 tion or payment out of—

6 ‘‘(A) another individual retirement plus ac7 count, or

8 ‘‘(B) an individual retirement plan which is

9 not allocable to any amount transferred to such

10 plan which represented any portion of the bal11 ance to the credit of an employee in a qualified

12 trust (or any income allocable to such portion).

13 ‘‘(d) DISTRIBUTION RULES.—For purposes of this

14 title—

15 ‘‘(1) IN GENERAL.—Except in the case of a

16 qualified distribution, the rules of paragraphs (1)

17 and (2) of section 408(d) shall apply to any distribu18 tion from an individual retirement plus account.

19 ‘‘(2) TREATMENT OF QUALIFIED DISTRIBU20 TION.—In the case of a qualified distribution from

21 an individual retirement plus account—

22 ‘‘(A) the amount of such distribution shall

23 not be includible in gross income, and

24 ‘‘(B) section 72(t) shall not apply.
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1 ‘‘(3) QUALIFIED DISTRIBUTION.—For purposes

2 of this subsection—

3 ‘‘(A) IN GENERAL.—The term ‘qualified

4 distribution’ means any distribution—

5 ‘‘(i) made on or after the date on

which the individual attains age 591 6 ⁄2,

7 ‘‘(ii) made to a beneficiary (or to the

8 estate of an individual) on or after the

9 death of the individual,

10 ‘‘(iii) attributable to the employee’s

11 being disabled (within the meaning of sec12 tion 72(m)(7)), or

13 ‘‘(iv) which is a qualified special pur14 pose distribution (within the meaning of

15 subsection (e)).

16 ‘‘(B) DISTRIBUTIONS WITHIN 5 YEARS.—

17 No distribution shall be treated as a qualified

18 distribution if—

19 ‘‘(i) it is made within the 5-taxable

20 year period beginning with the 1st taxable

21 year in which the individual made a con22 tribution to an individual retirement plus

23 account, or

24 ‘‘(ii) in the case of a distribution

25 properly allocable to a rollover contribution
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1 (or income allocable thereto), it is made

2 within 5 years of the date on which such

3 rollover contribution was made.

4 ‘‘(4) SPECIAL RULES RELATING TO ROLLOVERS

5 FROM REGULAR INDIVIDUAL RETIREMENT AC6 COUNTS.—

7 ‘‘(A) IN GENERAL.—Except as provided in

8 this paragraph, any amount paid or distributed

9 out of an individual retirement plan on or be10 fore the earlier of—

11 ‘‘(i) the date on which the individual

12 attains age 55, or

13 ‘‘(ii) January 1, 1995,

14 shall not be included in gross income (and sec15 tion 72(t) shall not apply to such amount) if

16 the individual receiving such amount transfers,

17 within 60 days of receipt, the entire amount re18 ceived to an individual retirement plus account.

19 ‘‘(B) TREATMENT OF TAX-FAVORED

20 AMOUNTS.—

21 ‘‘(i) IN GENERAL.—Notwithstanding

22 subparagraph (A), there shall be included

23 in gross income (but section 72(t) shall not

24 apply to) the portion of any amount trans-
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1 ferred which bears the same ratio to such

2 amount as—

3 ‘‘(I) the aggregate amount of

4 contributions to individual retirement

5 plans with respect to which a deduc6 tion was allowable under section 219,

7 bears to

8 ‘‘(II) the aggregate balance of

9 such plans.

10 ‘‘(ii) TIME FOR INCLUSION.—Any

11 amount described in clause (i) shall be in12 cluded in gross income ratably over the 4-

13 taxable year period beginning with the tax14 able year in which the amount was paid or

15 distributed out of the individual retirement

16 plan.

17 ‘‘(e) QUALIFIED SPECIAL PURPOSE DISTRIBU18 TION.—For purposes of this section—

19 ‘‘(1) IN GENERAL.—The term ‘qualified special

20 purpose distribution’ means—

21 ‘‘(A) a qualified first-time homebuyer dis22 tribution, or

23 ‘‘(B) an applicable medical or educational

24 distribution.
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1 ‘‘(2) 25 PERCENT ACCOUNT LIMIT.—A distribu2 tion shall not be treated as a qualified special pur3 pose distribution to the extent it exceeds the amount

4 (if any) by which—

5 ‘‘(A) 25 percent of the sum of—

6 ‘‘(i) the aggregate balance of individ7 ual retirement plus accounts established on

8 behalf of an individual, plus

9 ‘‘(ii) the aggregate amounts previously

10 treated as qualified special purpose dis11 tributions, exceeds

12 ‘‘(B) the amount determined under sub13 paragraph (A)(ii).

14 ‘‘(3) DISTRIBUTIONS USED TO PURCHASE A

15 HOME BY FIRST-TIME HOMEBUYER.—For purposes

16 of paragraph (1)—

17 ‘‘(A) IN GENERAL.—The term ‘qualified

18 first-time homebuyer distribution’ means any

19 payment or distribution received by a first-time

20 homebuyer from an individual retirement plan

21 to the extent such payment or distribution is

22 used by the individual before the close of the

23 60th day after the day on which such payment

24 or distribution is received to pay qualified ac-
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1 quisition costs with respect to a principal resi2 dence for such individual.

3 ‘‘(B) BASIS REDUCTION.—The basis of any

4 principal residence described in subparagraph

5 (A) shall be reduced by any amount excluded

6 from the gross income of such first-time home7 buyer by reason of this section.

8 ‘‘(C) RECOGNITION OF GAIN AS ORDINARY

9 INCOME.—

10 ‘‘(i) IN GENERAL.—Notwithstanding

11 any other provision of this subtitle, except

12 as provided in clause (ii)—

13 ‘‘(I) gain (if any) on the sale or

14 exchange of a principal residence to

15 which subparagraph (A) applies shall,

16 to the extent of the amount excluded

17 from gross income under this section,

18 be treated as ordinary income by such

19 individual, and

20 ‘‘(II) section 72(t) shall apply to

21 such amount.

22 ‘‘(ii) EXCEPTION.—Clause (i) shall

23 not apply to any taxable year to the extent

24 of any amount which, before the due date

25 (without extensions) for filing the return
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1 for such year, the taxpayer contributes to

2 an individual retirement plus account.

3 Such amount shall not be taken into ac4 count for purposes of any provision of this

5 title relating to excess contributions.

6 ‘‘(iii) COORDINATION WITH OTHER

7 PROVISIONS.—In the event all or part of

8 the gain referred to in clause (i) is treated

9 as ordinary income under any other provi10 sion of this subtitle, such provision shall be

11 applied before clause (i).

12 ‘‘(D) SPECIAL RULE WHERE DELAY IN AC13 QUISITION.—If—

14 ‘‘(i) any amount is paid or distributed

15 from an individual retirement plus account

16 to an individual for purposes of being used

17 as provided in subparagraph (A), and

18 ‘‘(ii) by reason of a delay in the acqui19 sition of the residence, such amount cannot

20 be so used,

21 the amount so paid or distributed may be paid

22 into an individual retirement plus account as

23 provided in section 408(d)(3)(A)(i) without re24 gard to section 408(d)(3)(B), and, if so paid

25 into such other plan, such amount shall not be
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1 taken into account in determining whether sec2 tion 408(d)(3)(A)(i) applies to any other

3 amount.

4 ‘‘(E) DEFINITIONS.—For purposes of this

5 paragraph—

6 ‘‘(i) QUALIFIED ACQUISITION

7 COSTS.—The term ‘qualified acquisition

8 costs’ means the costs of acquiring, con9 structing, or reconstructing a residence.

10 Such term includes any usual or reason11 able settlement, financing, or other closing

12 costs.

13 ‘‘(ii) FIRST-TIME HOMEBUYER.—The

14 term ‘first-time homebuyer’ means any in15 dividual if such individual (and if married,

16 such individual’s spouse) had no present

17 ownership interest in a principal residence

18 during the 3-year period ending on the

19 date of acquisition of the principal resi20 dence to which this paragraph applies.

21 ‘‘(iii) PRINCIPAL RESIDENCE.—The

22 term ‘principal residence’ has the same

23 meaning as when used in section 1034.

24 ‘‘(iv) DATE OF ACQUISITION.—The

25 term ‘date of acquisition’ means the date—
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1 ‘‘(I) on which a binding contract

2 to acquire the principal residence to

3 which subparagraph (A) applies is en4 tered into, or

5 ‘‘(II) on which construction or re6 construction of such a principal resi7 dence is commenced.

8 ‘‘(4) APPLICABLE MEDICAL DISTRIBUTIONS.—

9 For purposes of paragraph (1), the term ‘applicable

10 medical distributions’ means any distributions made

11 to an individual (not otherwise taken into account

12 under this subsection) to the extent such distribu13 tions do not exceed the amount allowable as a de14 duction under section 213 for amounts paid during

15 the taxable year for medical care (without regard to

16 whether the individual itemized deductions for the

17 taxable year).

18 ‘‘(5) DISTRIBUTIONS FROM INDIVIDUAL RE19 TIREMENT PLUS ACCOUNTS FOR EDUCATIONAL EX20 PENSES.—

21 ‘‘(A) IN GENERAL.—For purposes of para22 graph (1), the term ‘applicable educational dis23 tributions’ means distributions to an individual

24 to the extent that the amount of such distribu25 tions (not otherwise treated as qualified special
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1 purpose distributions, determined after applica2 tion of paragraph (4)) does not exceed the

3 qualified higher education expenses of the indi4 vidual for the taxable year.

5 ‘‘(B) QUALIFIED HIGHER EDUCATION EX6 PENSES.—For purposes of subparagraph (A)—

7 ‘‘(i) IN GENERAL.—The term ‘quali8 fied higher education expenses’ means tui9 tion, fees, books, supplies, and equipment

10 required for the enrollment or attendance

11 of—

12 ‘‘(I) the taxpayer,

13 ‘‘(II) the taxpayer’s spouse, or

14 ‘‘(III) the taxpayer’s child (as de15 fined in section 151(c)(3)) or grand16 child,

17 at an eligible educational institution (as

18 defined in section 135(c)(3)).

19 ‘‘(ii) COORDINATION WITH SAVINGS

20 BOND PROVISIONS.—The amount of quali21 fied higher education expenses for any tax22 able year shall be reduced by any amount

23 excludable from gross income under section

24 135.
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1 ‘‘(f) ROLLOVER CONTRIBUTIONS.—For purposes of

2 this section, the term ‘rollover contributions’ means con3 tributions described in sections 402(a)(5), 402(a)(7),

4 403(a)(4), 403(b)(8), and 408(d)(3).

5 ‘‘(g) DETERMINATIONS.—For purposes of this sec6 tion, any determinations with respect to aggregate con7 tributions to, or the balance of, individual retirement plus

8 accounts shall be made as of the close of the calendar year

9 preceding the calendar year in which the taxable year

10 begins.’’

11 (b) CONFORMING AMENDMENT.—The table of sec12 tions for subpart A of part I of subchapter D of chapter

13 1 is amended by inserting after the item relating to section

14 408 the following new item:

‘‘Sec. 408A. Individual retirement plus accounts.’’

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

16 this section shall apply to taxable years beginning after

17 December 31, 1993.

18 SEC. 402. INFLATION ADJUSTMENT OF INCOME THRESH19 OLDS FOR TAXATION OF SOCIAL SECURITY

20 BENEFITS; INCOME FROM INDIVIDUAL RE21 TIREMENT PLANS EXCLUDED.

22 (a) ADJUSTMENT OF INCOME THRESHOLDS FOR IN23 FLATION.—Subsection (c) of section 86 (relating to social

24 security and tier 1 railroad retirement benefits) is amend25 ed by adding at the end the following new paragraph:
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1 ‘‘(3) ADJUSTMENT OF INCOME THRESHOLDS

2 FOR INFLATION.—

3 ‘‘(A) IN GENERAL.—In the case of any

4 taxable year beginning in a calendar year after

5 1996, each dollar amount contained in para6 graphs (1) and (2) shall be increased by an

7 amount equal to—

8 ‘‘(i) such dollar amount, multiplied by

9 ‘‘(ii) the cost-of-living adjustment

10 under section 1(f)(3) for the calendar year

11 in which the taxable year begins, deter12 mined by substituting ‘calendar year 1995’

13 for ‘calendar year 1992’ in subparagraph

14 (B) thereof.

15 ‘‘(B) ROUNDING.—If any amount as ad16 justed under subparagraph (A) is not a multiple

17 of $50, such amount shall be rounded to the

18 nearest multiple of $50 (or, if such amount is

19 a multiple of $25, such amount shall be round20 ed to the next highest multiple of $50).’’

21 (b) INCOME FROM INDIVIDUAL RETIREMENT PLANS

22 EXCLUDED.—Paragraph (2) of section 86(b) is amended

23 by striking ‘‘and’’ at the end of subparagraph (A), by

24 striking the period at the end of subparagraph (B) and
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1 inserting ‘‘, and’’, and by adding at the end thereof the

2 following new subparagraph:

3 ‘‘(C) decreased by the portion of such in4 come which is attributable to a distribution or

5 payment from an individual retirement plan.’’

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

7 this section shall apply to taxable years beginning after

8 December 31, 1996.

9 SEC. 403. INFLATION ADJUSTMENT OF MAXIMUM AMOUNT

10 OF IRA DEDUCTION.

11 (a) IN GENERAL.—Section 219 (relating to retire12 ment savings) is amended by redesignating subsection (h)

13 as subsection (i) and by inserting after subsection (g) the

14 following new subsection:

15 ‘‘(h) ADJUSTMENT OF MAXIMUM DEDUCTION FOR

16 INFLATION.—

17 ‘‘(1) IN GENERAL.—In the case of any taxable

18 year beginning in a calendar year after 1996, each

19 applicable dollar amount shall be increased by an

20 amount equal to—

21 ‘‘(A) such dollar amount, multiplied by

22 ‘‘(B) the cost-of-living adjustment under

23 section 1(f)(3) for the calendar year in which

24 the taxable year begins, determined by sub-
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1 stituting ‘calendar year 1995’ for ‘calendar year

2 1992’ in subparagraph (B) thereof.

3 ‘‘(2) APPLICABLE DOLLAR AMOUNT.—For pur4 poses of paragraph (1), the term ‘applicable dollar

5 amount’ means—

6 ‘‘(A) the $2,000 amount in subsections

7 (b)(1)(A) and (c)(2) of this section, in sub8 sections (a)(1), (b), and (j) of section 408, and

9 in section 408A(c)(2)(C), and

10 ‘‘(B) the $2,250 amount in subsection

11 (c)(2) of this section and in section 408(d)(5).

12 ‘‘(3) ROUNDING.—If any amount as adjusted

13 under paragraph (1) is not a multiple of $50, such

14 amount shall be rounded to the nearest multiple of

15 $50 (or, if such amount is a multiple of $25, such

16 amount shall be rounded to the next highest multiple

17 of $50).’’

18 (b) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to taxable years beginning after

20 December 31, 1996.
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1 TITLE V—CAP ON FEDERAL

2 SPENDING AND ESTABLISH3 MENT OF COMMISSION TO RE4 DUCE FEDERAL SPENDING

5 SEC. 501. ESTABLISHMENT.

6 There is established a commission to be known as the

7 ‘‘Commission on Reduction of Federal Spending’’ (herein8 after referred to as the ‘‘Commission’’).

9 SEC. 502. DUTIES OF COMMISSION.

10 The Commission is authorized and directed to—

11 (1) review all Federal spending, including enti12 tlement programs, in order to identify and rec13 ommend specific reductions in any Federal project,

14 program, or activity to assure that aggregate Fed15 eral spending does not grow at a rate in excess of

16 2 percent per annum through fiscal year 1998; and

17 (2)(A) not later than 6 months after the adop18 tion of this resolution, report to the House of Rep19 resentatives and to the Senate, by bill, any changes

20 in law necessary to carry out paragraph (1); and

21 (B) if either House of Congress rejects the bill

22 referred to in paragraph (2), report to the House of

23 Representatives and the Senate within 10 legislative

24 days of that rejection another bill containing any

25 changes in law necessary to carry out paragraph (1).
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1 SEC. 503. MEMBERSHIP.

2 (a) NUMBER AND APPOINTMENT.—The Commission

3 shall be composed of 20 Members of the House of Rep4 resentatives appointed by the Speaker, of whom 10 shall

5 be members of the minority party appointed after con6 sultation with the minority leader of the House and 20

7 Senators appointed by the President pro tempore of the

8 Senate, of whom 10 shall be members of the minority

9 party, appointed after consultation with the minority lead10 er of the Senate. The appointments shall be made within

11 30 days after the adoption of this resolution and shall be

12 for the duration of the One Hundred Third Congress.

13 (b) QUORUM.—Twenty-one members of the Commis14 sion shall constitute a quorum but a lesser number may

15 hold hearings.

16 (c) CHAIRPERSON; VICE CHAIRPERSON.—The Chair17 person and Vice Chairperson of the Commission shall be

18 elected by the members.

19 (d) MEETINGS.—The Commission shall meet at the

20 call of the Chairperson or a majority of its members.

21 SEC. 504. DIRECTOR AND STAFF OF COMMISSION.

22 (a) DIRECTOR.—The Commission shall have a Direc23 tor who shall be appointed by the Chairperson. The Direc24 tor shall be paid at the rate of basic pay payable for level

25 V of the Executive Schedule.
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1 (b) STAFF.—The Commission may appoint and fix

2 the pay of additional personnel as it considers appropriate.

3 SEC. 505. POWERS OF COMMISSION.

4 The Commission may, for the purpose of carrying out

5 this resolution, hold hearings, sit and act at times and

6 places, take testimony, and receive evidence as the Com7 mission considers appropriate.

8 SEC. 506. TERMINATION.

9 The Commission shall terminate at the close of the

10 One Hundred Fourth Congress.

11 SEC. 507. PAYMENT OF EXPENSES.

12 One-half of the expenses of the Commission shall be

13 paid from the contingent fund of the House of Representa14 tives and one-half from the contingent fund of the Senate.

15 SEC. 508. CONSIDERATION OF COMMISSION’S PROPOSAL.

16 (a) Upon the reporting of a bill by the Commission

17 in either House of Congress, the bill shall be placed on

18 the appropriate calendar of that House.

19 (b) A vote on final passage of the bill shall be taken

20 in that House on or before the close of the 7th legislative

21 day of that House after the date the bill is reported to

22 that House. If the bill is agreed to, the Clerk of the House

23 of Representatives (in the case of a bill agreed to in the

24 House of Representatives) or the Secretary of the Senate

25 (in the case of a bill agreed to in the Senate) shall cause
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1 the bill to be engrossed, certified, and transmitted to the

2 other House of Congress within one calendar day after the

3 bill is agreed to.

4 (c)(1) A bill transmitted to the House of Representa5 tives or the Senate pursuant to subsection (b) shall be

6 placed upon the appropriate calendar.

7 (2) A vote on final passage of a bill transmitted to

8 that House shall be taken on or before the close of the

9 7th legislative day in that House after the date on which

10 the bill is transmitted. If the bill is agreed to in that

11 House, the Clerk of the House of Representatives (in the

12 case of a bill agreed to in the House of Representatives)

13 or the Secretary of the Senate (in the case of a bill agreed

14 to in the Senate) shall cause the engrossed bill to be re15 turned to the House.

16 (d)(1) A motion in the House of Representatives to

17 proceed to the consideration of a bill under this section

18 shall be highly privileged and not debatable. An amend19 ment to the motion shall not be in order, nor shall it be

20 in order to move to reconsider the vote by which the mo21 tion is agreed to or disagreed to.

22 (2) Debate in the House of Representatives on a bill

23 under this section shall not exceed 4 hours, which shall

24 be divided equally between those favoring and those oppos25 ing the bill. A motion further to limit debate shall not be
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1 debatable. It shall not be in order to move to recommit

2 a bill under this section or to move to reconsider the vote

3 by which the bill is agreed to or disagreed to.

4 (3) Appeals from decisions of the Chair relating to

5 the application of the Rules of the House of Representa6 tives to the procedure relating to a bill under this section

7 shall be decided without debate.

8 (4) Except to the extent specifically provided in the

9 preceding provisions of this section, consideration of a bill

10 under this section shall be governed by the Rules of the

11 House of Representatives.

12 (e)(1) A motion in the Senate to proceed to the con13 sideration of a bill under this section shall be privileged

14 and not debatable. An amendment to the motion shall not

15 be in order, nor shall it be in order to move to reconsider

16 the vote by which the motion is agreed to or disagreed

17 to.

18 (2) Debate in the Senate on a bill under this section,

19 and all debatable motions and appeals in connection there20 with, shall not exceed 10 hours. The time shall be equally

21 divided between, and controlled by, the majority leader

22 and the minority leader or their designees.

23 (3) Debate in the Senate on any debatable motion

24 or appeal in connection with a bill under this section shall

25 be limited to not more than 1 hour, to be equally divided
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1 between, and controlled by, the mover and the manager

2 of the bill, except that in the event the manager of the

3 bill is in favor of any such motion or appeal, the time in

4 opposition thereto, shall be controlled by the minority

5 leader or his designee. Such leaders, or either of them,

6 may, from time under their control on the passage of a

7 bill, allot additional time to any Senator during the consid8 eration of any debatable motion or appeal.

9 (4) A motion in the Senate to further limit debate

10 on a bill under this section is not debatable. A motion to

11 recommit a bill under this section is not in order.

12 (f) No amendment to a bill considered under this sec13 tion shall be in order in either the House of Representa14 tives or the Senate. No motion to suspend the application

15 of this subsection shall be in order in either House, nor

16 shall it be in order in either House to suspend the applica17 tion of this subsection by unanimous consent.

18 (g) For purposes of this resolution, the term ‘‘legisla19 tive day’’ means, with respect to either House of Congress,

20 any calendar day during which that House is in session.

21 SEC. 509. ADVISORY COUNCIL.

22 (a) There is established an advisory council to assist

23 the Commission in carrying out its duties.

24 (b) The advisory council shall be composed of 150

25 private citizens appointed as follows:
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1 (1) Twenty individuals shall be selected ran2 domly by the Director of the Internal Revenue Serv3 ice from among individual taxpayers who are willing

4 to serve.

5 (2) Thirty-four individuals shall be appointed

6 by the Speaker of the House of Representatives.

7 (3) Thirty-two individuals shall be appointed by

8 the minority party leader of the House of Represent9 atives.

10 (4) Thirty-two individuals shall be appointed by

11 the majority party leader of the Senate.

12 (5) Thirty-two individuals shall be appointed by

13 the minority party leader of the Senate.

14 (c) Members of the advisory council shall receive trav15 el expenses, including per diem in lieu of subsistence, in

16 accordance with sections 5702 and 5703 of title 5, United

17 States Code.

18 (d) The advisory council shall terminate at the close

19 of the One Hundred Fourth Congress.

20 SEC. 510. AMENDMENTS TO THE BALANCED BUDGET AND

21 EMERGENCY DEFICIT CONTROL ACT OF 1985

22 TO LIMIT FEDERAL SPENDING.

23 The Balanced Budget and Emergency Deficit Control

24 Act of 1985 is amended by adding after section 252 the

25 following new section:
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1 ‘‘SEC. 252A. LIMITATIONS ON DIRECT SPENDING.

2 ‘‘(a) ENFORCEMENT.—The purpose of this section is

3 to assure that any increase in the annual amount of total

4 Federal spending exceeding the amount resulting from an

5 annual rate of inflation of 2 percent will trigger an offset6 ting sequestration.

7 ‘‘(b) SEQUESTRATION.—Within 15 calendar days

8 after Congress adjourns to end a session and on the same

9 day as a sequestration (if any) under sections 251 and

10 252, and prior to any sequestration under section 253,

11 there shall be a sequestration to offset the amount of any

12 excess Federal spending in that fiscal year. The amount

13 of excess Federal spending for a fiscal year shall be the

14 amount by which OMB projects total Federal spending for

15 that year to exceed the direct spending limit for that year

16 set forth in the following table:

Fiscal Year Outlay limits (in billions of

dollars)

1995 ................................................................. 1512.66

1996 ................................................................. 1542.91

1997 ................................................................. 1573.77

1998 ................................................................. 1605.25

1999 ................................................................. 1637.35

17 ‘‘(c) ELIMINATING EXCESS FEDERAL SPENDING.—

18 The amount required to be sequestered in a fiscal year

19 under subsection (b) shall be obtained from all non-exempt

20 accounts. Each non-exempt account shall be reduced by
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1 the uniform percentage necessary to make the required re2 duction in Federal spending. The uniform reduction re3 quired shall be made without application of the exemp4 tions, except for the following: interest on the debt, (with

5 respect to social security benefits), and prior legal obliga6 tions of the Government.

7 ‘‘(d) REPORTS.—The requirements of section 254 for

8 reports and orders that are applicable to section 252 shall

9 also apply to this section except that such reports and or10 ders for this section shall refer to and apply the require11 ments, calculations and sequestrations of this section.

12 ‘‘(e) RECONCILIATION PROCESS TO AVOID SEQUES13 TRATION.—Whenever an update report for this section in14 dicates that a sequester would be necessary to eliminate

15 excess Federal spending, the special reconciliation process

16 set forth in section 258C shall apply for consideration of

17 alternatives to the order envisioned by such report.

18 ‘‘(f) TRIGGER.—This section shall only be effective

19 if the recommendations of the Commission on Reduction

20 of Federal Spending are not enacted into law.’’
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1 TITLE VI—ELIMINATION OF SO2 CIAL SECURITY EARNINGS

3 TEST

4 SEC. 601. ELIMINATION OF SOCIAL SECURITY EARNINGS

5 TEST.

6 (a) IN GENERAL.—Section 203 of the Social Security

7 Act is amended—

8 (1) in paragraph (1) of subsection (c) and para9 graphs (1)(A) and (2) of subsection (d), by striking

10 ‘‘the age of seventy’’ and inserting ‘‘retirement age

11 (as defined in section 216(l))’’;

12 (2) in subsection (f)(1)(B), by striking ‘‘was

13 age seventy or over’’ and inserting ‘‘was at or above

14 retirement age (as defined in section 216(l))’’;

(3) in subsection (f)(3), by striking ‘‘331 15 ⁄3 per16 cent’’ and all that follows through ‘‘any other indi17 vidual,’’ and inserting ‘‘50 percent of such individ18 ual’s earnings for such year in excess of the product

19 of the exempt amount as determined under para20 graph (8),’’ and by striking ‘‘age 70’’ and inserting

21 ‘‘retirement age (as defined in section 216(l))’’;

22 (4) in subsection (h)(1)(A), by striking ‘‘age

23 70’’ each place it appears and inserting ‘‘retirement

24 age (as defined in section 216(l))’’; and
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1 (5) in subsection (j), by striking ‘‘Age Seventy’’

2 in the heading and inserting ‘‘Retirement Age’’, and

3 by striking ‘‘seventy years of age’’ and inserting

4 ‘‘having attained retirement age (as defined in sec5 tion 216(l))’’.

6 (b) CONFORMING AMENDMENTS ELIMINATING THE

7 SPECIAL EXEMPT AMOUNT FOR INDIVIDUALS WHO HAVE

8 ATTAINED RETIREMENT AGE.—

9 (1) UNIFORM EXEMPT AMOUNT.—Section

10 203(f)(8)(A) of such Act is amended by striking

11 ‘‘the new exempt amounts (separately stated for in12 dividuals described in subparagraph (D) and for

13 other individuals) which are to be applicable’’ and

14 inserting ‘‘a new exempt amount which shall be ap15 plicable’’.

16 (2) CONFORMING AMENDMENTS.—Section

17 203(f)(8)(B) of such Act is amended—

18 (A) in the matter preceding clause (i), by

19 striking ‘‘Except’’ and all that follows through

20 ‘‘whichever’’ and inserting ‘‘The exempt amount

21 which is applicable for each month of a particu22 lar taxable year shall be whichever’’;

23 (B) in clause (i), by striking ‘‘correspond24 ing’’; and
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1 (C) in the last sentence, by striking ‘‘an

2 exempt amount’’ and inserting ‘‘the exempt

3 amount’’.

4 (3) REPEAL OF BASIS FOR COMPUTATION OF

5 SPECIAL EXEMPT AMOUNT.—Section 203(f)(8)(D) of

6 such Act is repealed.

7 (c) ELIMINATION OF REDUNDANT REFERENCES TO

8 RETIREMENT AGE.—Section 203 of such Act is amend9 ed—

10 (1) in the last sentence of subsection (c), by

11 striking ‘‘nor shall any deduction’’ and all that fol12 lows and inserting ‘‘nor shall any deduction be made

13 under this subsection from any widow’s or widower’s

14 insurance benefit if the widow, surviving divorced

15 wife, widower, or surviving divorced husband in16 volved became entitled to such benefit prior to at17 taining age 60.’’; and

18 (2) in subsection (f)(1), by striking clause (D)

19 and inserting the following: ‘‘(D) for which such in20 dividual is entitled to widow’s or widower’s insurance

21 benefits if such individual became so entitled prior

22 to attaining age 60, or’’.

23 (d) CONFORMING AMENDMENT TO PROVISIONS FOR

24 DETERMINING AMOUNT OF INCREASE ON ACCOUNT OF
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1 DELAYED RETIREMENT.—Section 202(w)(2)(B)(ii) of

2 such Act is amended—

3 (1) by striking ‘‘either’’; and

4 (2) by striking ‘‘or suffered deductions under

5 section 203(b) or 203(c) in amounts equal to the

6 amount of such benefit’’.

7 (e) CONTINUED APPLICATION OF RULE GOVERNING

8 ENTITLEMENT OF BLIND BENEFICIARIES.—The second

9 sentence of section 223(d)(4) of such Act is amended by

10 inserting after ‘‘subparagraph (D) thereof’’ where it first

11 appears the following: ‘‘(or would be applicable to such

12 individuals but for the amendments made by the Revenue

13 Reconciliation Act of 1993)’’.

14 (f) EFFECTIVE DATE.—The amendments made by

15 this section shall apply with respect to taxable years begin16 ning after December 31, 1993.

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