I

106TH CONGRESS

1ST SESSION H. R. 1420

To amend the Internal Revenue Code of 1986 to provide a revenue-neutral

simplification of the individual income tax.

IN THE HOUSE OF REPRESENTATIVES

APRIL 14, 1999

Mr. NEAL of Massachusetts 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 provide

a revenue-neutral simplification of the individual income tax.

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.

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

5 ‘‘Individual Tax Simplification Act of 1999’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment

9 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 (c) TABLE OF CONTENTS.—

Sec. 1. Short title.

TITLE I—SIMPLIFICATION RELATING TO NONREFUNDABLE

PERSONAL CREDITS

Sec. 101. Repeal of interaction with alternative minimum tax.

Sec. 102. Uniform phaseout of credits for adoption, children, and education.

TITLE II—SIMPLIFICATION OF CAPITAL GAINS TAX

Sec. 201. Simplification of capital gains tax.

TITLE III—REPEAL OF CERTAIN HIDDEN MARGINAL RATE

INCREASES; REPEAL OF INDIVIDUAL MINIMUM TAX

Subtitle A—Repeals

Sec. 301. Repeal of overall limitation on itemized deductions.

Sec. 302. Repeal of phaseout of personal exemptions.

Sec. 303. Repeal of alternative minimum tax on individuals.

Subtitle B—Revenue Offsets

Sec. 311. Additional income tax.

Sec. 312. Increase in floor on miscellaneous itemized deductions for higher income taxpayers.

4 TITLE I—SIMPLIFICATION RE5 LATING TO NONREFUNDABLE

6 PERSONAL CREDITS

7 SEC. 101. REPEAL OF INTERACTION WITH ALTERNATIVE

8 MINIMUM TAX.

9 (a) GENERAL RULE.—Subsection (a) of section 26

10 (relating to limitation based on amount of tax) is amended

11 to read as follows:

12 ‘‘(a) LIMITATION BASED ON AMOUNT OF TAX.—The

13 aggregate amount of credits allowed by this subpart for
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1 the taxable year shall not exceed the tax imposed by this

2 chapter for the taxable year.’’

3 (b) REPEAL OF INTERACTION WITH PARTIALLY RE4 FUNDABLE CHILD CREDIT.—Subsection (d) of section 24

5 is amended by striking paragraph (2) and by redesig6 nating paragraph (3) as paragraph (2).

7 (c) CONFORMING AMENDMENT.—Paragraph (2) of

8 section 26(b) is amended by inserting ‘‘subsection (a)

9 and’’ before ‘‘paragraph (1)’’.

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

11 this section shall apply to taxable years beginning after

12 December 31, 1999.

13 SEC. 102. UNIFORM PHASEOUT OF CREDITS FOR ADOP14 TION, CHILDREN, AND EDUCATION.

15 (a) IN GENERAL.—Section 26 is amended by redesig16 nating subsections (b) and (c) as subsections (c) and (d),

17 respectively, and by inserting after subsection (a) the fol18 lowing new subsection:

19 ‘‘(b) UNIFORM PHASEOUT OF ADOPTION EXPENSE

20 CREDIT, CHILD CREDIT, AND HOPE AND LIFETIME

21 LEARNING CREDITS.—

22 ‘‘(1) IN GENERAL.—The aggregate amount

23 which would (but for subsection (a) and this sub24 section) be allowed as a credit under sections 23, 24,

25 and 25A shall be reduced (but not below zero) by 10
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1 percent of the amount by which the taxpayer’s modi2 fied adjusted gross income exceeds the threshold

3 amount. For purposes of the preceding sentence, the

4 term ‘modified adjusted gross income’ means ad5 justed gross income increased by any amount ex6 cluded from gross income under section 911, 931, or

7 933.

8 ‘‘(2) THRESHOLD AMOUNT.—For purposes of

9 paragraph (1), the term ‘threshold amount’ means—

10 ‘‘(A) $85,000 in the case of a joint return,

11 ‘‘(B) $58,000 in the case of an individual

12 who is not married, and

13 ‘‘(C) $42,500 in the case of a married in14 dividual filing a separate return.

15 For purposes of this paragraph, marital status shall

16 be determined under section 7703.’’

17 (b) CONFORMING AMENDMENTS.—

18 (1) Paragraph (2) of section 23(b) is amended

19 to read as follows:

20 ‘‘(2) LIMITATION BASED ON ADJUSTED GROSS IN21 COME.—

‘‘For limitation based on adjusted gross income,

see section 26(b).’’.

22 (2) Subsection (c) of section 23 is amended—

23 (A) by inserting ‘‘(as reduced under sec24 tion 26(b))’’ before ‘‘exceeds’’, and
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1 (B) by adding at the end the following new

2 sentence: ‘‘For purposes of this subsection, the

3 reduction under section 26(b) shall first be ap4 plied to the credits under sections 24 and 25A

5 and then to the credit under this section.’’

6 (3) Subsection (b) of section 24 is amended to

7 read as follows:

8 ‘‘(b) LIMITATION BASED ON ADJUSTED GROSS.—

‘‘For limitation based on adjusted gross income,

see section 26(b).’’.

9 (4) Subsection (d) of section 25A is amended to

10 read as follows:

11 ‘‘(d) LIMITATION BASED ON ADJUSTED GROSS.—

‘‘For limitation based on adjusted gross income,

see section 26(b).’’.

12 (5) Subsection (h) of section 25A is amended to

13 read as follows:

14 ‘‘(h) INFLATION ADJUSTMENTS.—

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

16 year beginning after 2001, each of the $1,000

17 amounts under subsection (b)(1) shall be increased

18 by an amount equal to—

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

20 ‘‘(B) the cost-of-living adjustment deter21 mined under section 1(f)(3) for the calendar

22 year in which the taxable year begins, deter23 mined by substituting ‘calendar year 2000’ for
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1 ‘calendar year 1992’ in subparagraph (B)

2 thereof.

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

4 under paragraph (1) is not a multiple of $100, such

5 amount shall be rounded to the next lowest multiple

6 of $100.’’

7 (6) The section heading for section 26 is

8 amended by inserting before the period ‘‘; PHASE9 OUT OF CERTAIN CREDITS BASED ON INCOME;

10 DEFINITIONS’’.

11 (7) The item relating to section 26 in the table

12 of sections for subpart A of part IV of subchapter

13 A of chapter 1 is amended by inserting before the

14 period ‘‘; phaseout of certain credits based on in15 come; definitions’’.

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

17 this section shall apply to taxable years beginning after

18 December 31, 1999.

19 TITLE II—SIMPLIFICATION OF

20 CAPITAL GAINS TAX

21 SEC. 201. SIMPLIFICATION OF CAPITAL GAINS TAX.

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

23 1 (relating to treatment of capital gains) is amended by

24 adding at the end the following new section:
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1 ‘‘SEC. 1203. CAPITAL GAINS DEDUCTION.

2 ‘‘If for any taxable year a taxpayer other than a cor3 poration has a net capital gain, 38 percent of such gain

4 shall be a deduction from gross income.’’.

5 (b) DEDUCTION ALLOWABLE WHETHER OR NOT

6 TAXPAYER ITEMIZES OTHER DEDUCTIONS.—

7 (1) Subsection (b) of section 63 is amended by

8 striking ‘‘and’’ at the end of paragraph (1), by strik9 ing the period at the end of paragraph (2) and in10 serting ‘‘, and’’, and by adding at the end the fol11 lowing new paragraph:

12 ‘‘(3) the deduction allowed by section 1203.’’.

13 (2) Subsection (d) of section 63 is amended by

14 striking ‘‘and’’ at the end of paragraph (1), by strik15 ing the period at the end of paragraph (2) and in16 serting ‘‘, and’’, and by adding at the end the fol17 lowing new paragraph:

18 ‘‘(3) the deduction allowed by section 1203.’’.

19 (c) TREATMENT OF COLLECTIBLES.—

20 (1) IN GENERAL.—Section 1222 is amended by

21 inserting after paragraph (11) the following new

22 paragraph:

23 ‘‘(12) SPECIAL RULE FOR COLLECTIBLES.—

24 ‘‘(A) IN GENERAL.—Any gain or loss from

25 the sale or exchange of a collectible shall be

26 treated as a short-term capital gain or loss (as
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1 the case may be), without regard to the period

2 such asset was held. The preceding sentence

3 shall apply only to the extent the gain or loss

4 is taken into account in computing taxable in5 come.

6 ‘‘(B) TREATMENT OF CERTAIN SALES OF

7 INTERESTS IN PARTNERSHIPS, ETC.—For pur8 poses of subparagraph (A), any gain from the

9 sale or exchange of an interest in a partnership,

10 S corporation, or trust which is attributable to

11 unrealized appreciation in the value of collect12 ibles held by such entity shall be treated as gain

13 from the sale or exchange of a collectible. Rules

14 similar to the rules of section 751(f) shall apply

15 for purposes of the preceding sentence.

16 ‘‘(C) COLLECTIBLE.—For purposes of this

17 paragraph, the term ‘collectible’ means any cap18 ital asset which is a collectible (as defined in

19 section 408(m) without regard to paragraph (3)

20 thereof).’’.

21 (2) CHARITABLE DEDUCTION NOT AF22 FECTED.—

23 (A) Paragraph (1) of section 170(e) is

24 amended by adding at the end thereof the fol25 lowing new sentence: ‘‘For purposes of this
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1 paragraph, section 1222 shall be applied with2 out regard to paragraph (12) thereof (relating

3 to special rule for collectibles).’’.

4 (B) Clause (iv) of section 170(b)(1)(C) is

5 amended by inserting before the period at the

6 end thereof the following: ‘‘and section 1222

7 shall be applied without regard to paragraph

8 (12) thereof (relating to special rule for collect9 ibles)’’.

10 (d) TECHNICAL AND CONFORMING CHANGES.—

11 (1) Section 1 is amended by striking subsection

12 (h).

13 (2) Subparagraph (E) of section 163(d)(4) is

14 amended to read as follows:

15 ‘‘(E) COORDINATION WITH CAPITAL GAINS

16 DEDUCTION.—The net capital gain taken into

17 account under section 1203 for any taxable

18 year shall be reduced (but not below zero) by

19 the amount which the taxpayer takes into ac20 count as investment income under subpara21 graph (B)(iii) for such year.’’.

22 (3) Paragraph (1) of section 170(e) is amended

23 by striking ‘‘the amount of gain’’ in the material fol24 lowing subparagraph (B)(ii) and inserting ‘‘62 per-
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1 cent (100 percent in the case of a corporation) of

2 the amount of gain’’.

3 (4) Subparagraph (B) of section 172(d)(2) is

4 amended to read as follows:

5 ‘‘(B) the exclusion under section 1202 and

6 the deduction under section 1203 shall not be

7 allowed.’’.

8 (5) The last sentence of section 453A(c)(3) is

9 amended by striking all that follows ‘‘long-term cap10 ital gain,’’ and inserting ‘‘the maximum rate on net

11 capital gain under section 1201 or the deduction

12 under section 1203 (whichever is appropriate) shall

13 be taken into account.’’.

14 (6)(A) Section 641(c)(2)(A) is amended by

15 striking ‘‘Except as provided in section 1(h), the’’

16 and inserting ‘‘The’’.

17 (B) Section 641(c)(2)(C) is amended by insert18 ing after clause (iii) the following new clause:

19 ‘‘(iv) The deduction under section

20 1203.’’.

21 (7) Paragraph (4) of section 642(c) is amended

22 to read as follows:

23 ‘‘(4) ADJUSTMENTS.—To the extent that the

24 amount otherwise allowable as a deduction under

25 this subsection consists of gain from the sale or ex-
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1 change of capital assets held for more than 1 year,

2 proper adjustment shall be made for any exclusion

3 allowable under section 1202 and any deduction al4 lowable under section 1203 to the estate or trust. In

5 the case of a trust, the deduction allowed by this

6 subsection shall be subject to section 681 (relating

7 to unrelated business income).’’.

8 (8) Section 642 is amended by adding at the

9 end the following new subsection:

10 ‘‘(j) CAPITAL GAINS DEDUCTION.—The deduction

11 under section 1203 to an estate or trust shall be computed

12 by excluding the portion (if any) of the gains for the tax13 able year which is includible by the income beneficiaries

14 under sections 652 and 662 (relating to inclusions of

15 amounts in gross income of beneficiaries of trusts) as gain

16 derived from the sale or exchange of capital assets.’’.

17 (9) The last sentence of section 643(a)(3) is

18 amended to read as follows: ‘‘The exclusion under

19 section 1202 and the deduction under section 1203

20 shall not be taken into account.’’.

21 (10) Subparagraph (C) of section 643(a)(6) is

22 amended by inserting ‘‘(i)’’ before ‘‘there shall’’ and

23 by inserting before the period ‘‘, and (ii) the deduc24 tion under section 1203 (relating to capital gains de25 duction) shall not be taken into account’’.
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1 (11) Paragraph (4) of section 691(c) is amend2 ed by striking ‘‘1(h),’’ and by inserting ‘‘1203,’’

3 after ‘‘1202,’’.

4 (12) The second sentence of paragraph (2) of

5 section 871(a) is amended by striking ‘‘section

6 1202’’ and inserting ‘‘sections 1202 and 1203’’.

7 (13)(A) Paragraph (2) of section 904(b) is

8 amended by striking subparagraphs (A) and (C), by

9 redesignating subparagraph (B) as subparagraph

10 (A), and by inserting after subparagraph (A) (as so

11 redesignated) the following new subparagraph:

12 ‘‘(B) OTHER TAXPAYERS.—In the case of

13 a taxpayer other than a corporation, taxable in14 come from sources outside the United States

15 shall include gain from the sale or exchange of

16 capital assets only to the extent of foreign

17 source capital gain net income.’’.

18 (B) Subparagraph (A) of section 904(b)(2), as

19 so redesignated, is amended—

20 (i) by striking all that precedes clause (i)

21 and inserting the following:

22 ‘‘(A) CORPORATIONS.—In the case of a

23 corporation—’’, and

24 (ii) by striking in clause (i) ‘‘in lieu of ap25 plying subparagraph (A),’’.
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1 (C) Paragraph (3) of section 904(b) is amended

2 by striking subparagraphs (D) and (E) and inserting

3 the following new subparagraph:

4 ‘‘(D) RATE DIFFERENTIAL PORTION.—The

5 rate differential portion of foreign source net

6 capital gain, net capital gain, or the excess of

7 net capital gain from sources within the United

8 States over net capital gain, as the case may

9 be, is the same proportion of such amount as

10 the excess of the highest rate of tax specified in

11 section 11(b) over the alternative rate of tax

12 under section 1201(a) bears to the highest rate

13 of tax specified in section 11(b).’’.

14 (14) Paragraph (1) of section 1402(i) is amend15 ed by inserting ‘‘, and the deduction provided by sec16 tion 1203 shall not apply’’ before the period at the

17 end thereof.

18 (15) Paragraph (1) of section 1445(e) is

19 amended by striking ‘‘20 percent’’ and inserting

20 ‘‘24.5 percent’’.

21 (16)(A) The second sentence of section

22 7518(g)(6)(A) is amended—

23 (i) by striking ‘‘during a taxable year to

24 which section 1(h) or 1201(a) applies’’, and
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1 (ii) by striking ‘‘20 percent’’ and inserting

2 ‘‘24.5 percent’’.

3 (B) The second sentence of section

4 607(h)(6)(A) of the Merchant Marine Act, 1936, is

5 amended—

6 (i) by striking ‘‘during a taxable year to

7 which section 1(h) or 1201(a) of such Code ap8 plies’’, and

9 (ii) by striking ‘‘20 percent’’ and inserting

10 ‘‘24.5 percent’’.

11 (e) CLERICAL AMENDMENT.—The table of sections

12 for part I of subchapter P of chapter 1 is amended by

13 adding at the end the following new item:

‘‘Sec. 1203. Capital gains deduction.’’.

14 (f) EFFECTIVE DATES.—

15 (1) IN GENERAL.—Except as otherwise pro16 vided in this subsection, the amendments made by

17 this section shall apply to taxable years beginning

18 after December 31, 1999.

19 (2) WITHHOLDING.—The amendments made by

20 subsection (d)(15) shall apply only to amounts paid

21 after December 31, 1999.

22 (3) REPEAL OF ELECTION.—Section 311 of the

23 Taxpayer Relief Act of 1997 is amended by striking

24 subsection (e).
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1 (4) COORDINATION WITH PRIOR TRANSITION

2 RULE.—Any amount treated as long-term capital

3 gain by reason of paragraph (3) of section 1122(h)

4 of the Tax Reform Act of 1986 shall not be taken

5 into account for purposes of applying section 1203

6 of the Internal Revenue Code of 1986 (as added by

7 this section).

8 TITLE III—REPEAL OF CERTAIN

9 HIDDEN MARGINAL RATE IN10 CREASES; REPEAL OF INDI11 VIDUAL MINIMUM TAX

12 Subtitle A—Repeals

13 SEC. 301. REPEAL OF OVERALL LIMITATION ON ITEMIZED

14 DEDUCTIONS.

15 (a) IN GENERAL.—Section 68 (relating to overall

16 limitation on itemized deductions) is hereby repealed.

17 (b) CONFORMING AMENDMENTS.—

18 (1) Subparagraph (A) of section 1(f)(6) is

19 amended by striking ‘‘section 68(b)(2)’’.

20 (2) Subparagraph (B) of section 773(a)(3) is

21 amended by striking clause (i) and by redesignating

22 clauses (ii), (iii), and (iv), as clauses (i), (ii), and

23 (iii), respectively.
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1 (3) The table of sections for subchapter B of

2 chapter 1 is amended by striking the item relating

3 to section 68.

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

5 this section shall apply to taxable years beginning after

6 December 31, 1999.

7 SEC. 302. REPEAL OF PHASEOUT OF PERSONAL EXEMP8 TIONS.

9 (a) IN GENERAL.—Subsection (d) of section 151 (re10 lating to allowance of deductions for personal exemptions)

11 is amended by striking paragraph (3) and by redesig12 nating paragraph (4) as paragraph (3).

13 (b) CONFORMING AMENDMENTS.—

14 (1) Paragraph (6) of section 1(f) is amended—

15 (A) by striking ‘‘section 151(d)(4)’’ in sub16 paragraph (A) and inserting ‘‘section

17 151(d)(3)’’, and

18 (B) by striking ‘‘section 151(d)(4)(A)’’ in

19 subparagraph (B) and inserting ‘‘section

20 151(d)(3)’’.

21 (2) Paragraph (3) of section 151(d), as redesig22 nated by subsection (a), is amended to read as fol23 lows:

24 ‘‘(3) INFLATION ADJUSTMENT.—In the case of

25 any taxable year beginning in a calendar year after
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1 1989, the dollar amount contained in paragraph (1)

2 shall be increased by an amount equal to—

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

4 ‘‘(B) the cost-of-living adjustment deter5 mined under section 1(f)(3) for the calendar

6 year in which the taxable year begins, by sub7 stituting ‘calendar year 1988’ for ‘calendar year

8 1992’ in subparagraph (B) thereof.’’.

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

10 this section shall apply to taxable years beginning after

11 December 31, 1999.

12 SEC. 303. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDI13 VIDUALS.

14 (a) IN GENERAL.—Subsection (a) of section 55 (re15 lating to alternative minimum tax imposed) is amended

16 by adding at the end the following new flush sentence:

17 ‘‘Except in the case of a corporation, no tax shall be im18 posed by this section for any taxable year beginning after

19 December 31, 1999, and the tentative minimum tax of any

20 taxpayer other than a corporation shall be zero for pur21 poses of this title.’’

22 (b) CONFORMING AMENDMENTS.—

23 (1) Subparagraph (B) of section 1(g)(7) is

24 amended by adding ‘‘and’’ at the end of clause (i),
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1 by striking ‘‘, and’’ at the end of clause (ii) and in2 serting a period, and by striking clause (iii).

3 (2) Section 2(d) is amended by striking ‘‘sec4 tions 1 and 55’’ and inserting ‘‘section 1’’.

5 (3) Section 5(a) is amended by striking para6 graph (4).

7 (4) Subsection (d) of section 26 (as redesig8 nated by section 102) is amended by inserting before

9 the period ‘‘; except that such amount shall be treat10 ed as being zero in the case of a taxpayer other than

11 a corporation.’’

12 (5) Paragraph (6) of section 29(b) is amended

13 to read as follows:

14 ‘‘(6) APPLICATION WITH OTHER CREDITS.—

15 The credit allowed by subsection (a) for any taxable

16 year shall not exceed the regular tax for the taxable

17 year reduced by the sum of the credits allowable

18 under subpart A and section 27. In the case of a

19 corporation, the limitation under the preceding sen20 tence shall be reduced (but not below zero) by the

21 tentative minimum tax for the taxable year.’’.

22 (6) Paragraph (3) of section 30(b) is amended

23 to read as follows:

24 ‘‘(3) APPLICATION WITH OTHER CREDITS.—

25 The credit allowed by subsection (a) for any taxable
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1 year shall not exceed the regular tax for the taxable

2 year reduced by the sum of the credits allowable

3 under subpart A and sections 27 and 29. In the case

4 of a corporation, the limitation under the preceding

5 sentence shall be reduced (but not below zero) by the

6 tentative minimum tax for the taxable year.’’.

7 (7) Section 32 is amended by striking sub8 section (h).

9 (8) Subsection (d) of section 53(d) is amended

10 to read as follows:

11 ‘‘(d) DEFINITIONS.—For purposes of this section—

12 ‘‘(1) NET MINIMUM TAX.—The term ‘net min13 imum tax’ means the tax imposed by section 55 in14 creased by the amount of the credit not allowed

15 under section 29 (relating to credit for producing

16 fuel from a nonconventional source) solely by reason

17 of the application of the last sentence of section

18 29(b)(6), or not allowed under section 30 solely by

19 reason of the application of the last sentence of sec20 tion 30(b)(3).

21 ‘‘(2) TENTATIVE MINIMUM TAX.—The term

22 ‘tentative minimum tax’ has the meaning given to

23 such term by section 55(b); except that such tax

24 shall be treated as being zero in the case of a tax25 payer other than a corporation.’’.
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1 (9)(A) Subsection (b) of section 55 (relating to

2 alternative minimum tax imposed) is amended to

3 read as follows:

4 ‘‘(b) TENTATIVE MINIMUM TAX.—For purposes of

5 this part—

6 ‘‘(1) AMOUNT OF TENTATIVE TAX.—The ten7 tative minimum tax for the taxable year is—

8 ‘‘(A) 20 percent of so much of the alter9 native minimum taxable income for the taxable

10 year as exceeds the exemption amount, reduced

11 by

12 ‘‘(B) the alternative minimum tax foreign

13 tax credit for the taxable year.

14 ‘‘(2) ALTERNATIVE MINIMUM TAXABLE IN15 COME.—The term ‘alternative minimum taxable in16 come’ means the taxable income of the taxpayer for

17 the taxable year—

18 ‘‘(A) determined with the adjustments pro19 vided in section 56, and

20 ‘‘(B) increased by the amount of the items

21 of tax preference described in section 57.

22 If a taxpayer is subject to the regular tax, such tax23 payer shall be subject to the tax imposed by this sec24 tion (and, if the regular tax is determined by ref25 erence to an amount other than taxable income, such
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1 amount shall be treated as the taxable income of

2 such taxpayer for purposes of the preceding sen3 tence).’’.

4 (B) Subsection (d) of section 55 is amended to

5 read as follows:

6 ‘‘(d) EXEMPTION AMOUNT.—For purposes of this

7 section—

8 ‘‘(1) IN GENERAL.—The term ‘exemption

9 amount’ means $40,000.

10 ‘‘(2) PHASE-OUT OF EXEMPTION AMOUNT.—

11 The exemption amount of any taxpayer shall be re12 duced (but not below zero) by an amount equal to

13 25 percent of the amount by which the alternative

14 minimum taxable income of the taxpayer exceeds

15 $150,000.’’.

16 (10)(A) Paragraph (6) of section 56(a) is

17 amended to read as follows:

18 ‘‘(6) ADJUSTED BASIS.—The adjusted basis of

19 any property to which paragraph (1) or (5) applies

20 (or with respect to which there are any expenditures

21 to which paragraph (2) applies) shall be determined

22 on the basis of the treatment prescribed in para23 graph (1), (2), or (5), whichever applies.’’.

24 (B) Section 56 is amended by striking sub25 section (b).
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1 (C) Subsection (c) of section 56 is amended by

2 striking so much of the subsection as precedes para3 graph (1), by redesignating paragraphs (1), (2), and

4 (3) as paragraphs (8), (9), and (10), respectively,

5 and moving them to the end of subsection (a).

6 (D) Paragraph (8) of section 56(a), as redesig7 nating by paragraph (12)(C), is amended by striking

8 ‘‘subsection (g)’’ and inserting ‘‘subsection (c)’’.

9 (E) Section 56 is amended by striking sub10 section (e) and by redesignating subsections (d) and

11 (g) as subsections (b) and (c), respectively.

12 (11)(A) Section 58 is hereby repealed.

13 (B) Clause (i) of section 56(b)(2)(A) (as redes14 ignated by paragraph (12)(E), is amended by insert15 ing ‘‘, in the case of taxable years beginning before

16 January 1, 2000,’’ before ‘‘section 58’’.

17 (C) Subsection (h) of section 59 is amended—

18 (i) by striking ‘‘, 465, and 1366(d)’’ and

19 inserting ‘‘and 465’’, and

20 (ii) by striking ‘‘56, 57, and 58’’ and in21 serting ‘‘56 and 57’’.

22 (12(A) Subparagraph (C) of section 59(a)(1) is

23 amended by striking ‘‘subparagraph (A)(i) or (B)(i)

24 of section 55(b)(1) (whichever applies)’’ and insert25 ing ‘‘section 55(b)(1)(A)’’.
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1 (B) Paragraph (3) of section 59(a) is amended

2 to read as follows:

3 ‘‘(3) PRE-CREDIT TENTATIVE MINIMUM TAX.—

4 For purposes of this subsection, the term ‘pre-credit

5 tentative minimum tax’ means the amount deter6 mined under section 55(b)(1)(A).’’.

7 (C) Section 59 is amended by striking sub8 section (c).

9 (D) Section 59 is amended by striking sub10 section (j).

11 (13) Paragraph (7) of section 382(l) is amend12 ed by striking ‘‘section 56(d)’’ and inserting ‘‘section

13 56(b)’’.

14 (14) Paragraph (2) of section 641(c) is amend15 ed by striking subparagraph (B) and by redesig16 nating subparagraphs (C) and (D) as subparagraphs

17 (B) and (C), respectively.

18 (15) Subsections (b) and (c) of section 666 are

19 each amended by striking ‘‘(other than the tax im20 posed by section 55)’’.

21 (16) Subsections (c)(5) and (d)(3)(B) of section

22 772 are each amended by striking ‘‘56, 57, and 58’’

23 and inserting ‘‘56 and 57’’.
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1 (17) Sections 847 and 848(i) are each amended

2 by striking ‘‘section 56(g)’’ and inserting ‘‘section

3 56(c)’’.

4 (18) Sections 871(b)(1) and 877(b) are each

5 amended by striking ‘‘or 55’’.

6 (19) Subsection (a) of section 897 is amended

7 to read as follows:

8 ‘‘(a) GENERAL RULE.—For purposes of this title,

9 gain or loss of a nonresident alien individual or a foreign

10 corporation from the disposition of a United States real

11 property interest shall be taken into account—

12 ‘‘(1) in the case of a nonresident alien indi13 vidual, under section 871(b)(1), or

14 ‘‘(2) in the case of a foreign corporation, under

15 section 882(a)(1),

16 as if the taxpayer were engaged in a trade or business

17 within the United States during the taxable year and as

18 if such gain or loss were effectively connected with such

19 trade or business.’’.

20 (20) Paragraph (1) of section 962(a) is amend21 ed by striking ‘‘sections 1 and 55’’ and inserting

22 ‘‘section 1’’.

23 (21) Paragraph (1) of section 1397E(c) is

24 amended to read as follows:
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1 ‘‘(1) the regular tax liability (as defined in sec2 tion 26(b), over’’

3 (22) The last sentence of section 1563(a) is

4 amended by striking ‘‘section 55(d)(3)’’ and insert5 ing ‘‘section 55(d)(2)’’.

6 (23) Subparagraph (B) of section 6015(d)(2) is

7 amended by striking ‘‘or 55’’.

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

9 this section shall apply to taxable years beginning after

10 December 31, 1999.

11 (d) TRANSITIONAL RULE RELATING TO MINIMUM

12 TAX CREDIT.—

13 (1) IN GENERAL.—The pre-effective date min14 imum tax credit of a taxpayer other than a corpora15 tion shall not be allowed under section 53 of the In16 ternal Revenue Code of 1986 but shall be allowed

17 under this subsection.

18 (2) PRE-EFFECTIVE DATE MINIMUM TAX CRED19 IT.—For purposes of this subsection, the term ‘‘pre20 effective date minimum tax credit’’ means the

21 amount determined under section 53(b) of such

22 Code for the first taxable year beginning after De23 cember 31, 1999.

24 (3) AMOUNT OF CREDIT.—
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1 (A) IN GENERAL.—The pre-effective date

2 minimum tax credit of a taxpayer other than a

3 corporation shall be allowed ratably over the pe4 riod of 10 taxable years beginning with the first

5 taxable year beginning after December 31,

6 1999.

7 (B) LIMITATION.—The credit allowable by

8 this subsection for any taxable year shall not

9 exceed the regular tax liability of the taxpayer

10 for such taxable year reduced by the sum of the

11 credits allowable under subparts A, B, D, E,

12 and F of part IV of subchapter A of chapter 1

13 of the Internal Revenue Code of 1986.

14 (C) CARRYFORWARD.—If the credit allow15 able by this subsection exceeds the limitation

16 imposed by subparagraph (B), such excess shall

17 be carried to the succeeding taxable year and

18 added to the credit allowable under this sub19 section for such succeeding taxable year.

20 (4) ACCELERATION OF CREDIT WHERE PRE21 VIOUSLY TAXED INCOME.—

22 (A) IN GENERAL.—The credit allowed

23 under this subsection for any taxable year shall

24 not be less than so much of the limitation de25 scribed in paragraph (3)(B) for the taxable year
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1 as is attributable to previously taxed incentive

2 stock option gain. Proper adjustments shall be

3 made in the amount allowed under this sub4 section for subsequent taxable years to take

5 into account any increased credit allowed by

6 reason of this paragraph.

7 (B) INCENTIVE STOCK OPTION GAIN.—For

8 purposes of subparagraph (A), the term ‘‘pre9 viously taxed incentive stock option gain’’

10 means the amount of gain recognized during

11 the taxable year on account of the disposition of

12 stock acquired by exercising an incentive stock

13 option (as defined in section 422 of such Code)

14 to the extent such gain does not exceed the

15 amount of gain previously taken into account

16 by reason of section 56(b)(3) of such Code (as

17 in effect on the day before the date of the en18 actment of this Act) with respect to such op19 tion.

20 (5) DEFINITIONS.—Terms used in this sub21 section which are also used in section 53 of such

22 Code shall have the respective meanings given to

23 such terms by such section 53.
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1 Subtitle B—Revenue Offsets

2 SEC. 311. ADDITIONAL INCOME TAX.

3 (a) IN GENERAL.—Section 1 is amended by adding

4 at the end the following new subsection:

5 ‘‘(h) ADDITIONAL INCOME TAX.—

6 ‘‘(1) IN GENERAL.—If the adjusted gross in7 come of an individual exceeds the initial threshold

8 amount, the tax imposed by this section (determined

9 without regard to this subsection) shall be increased

10 by an amount equal to the sum of—

11 ‘‘(A) 1 percent of so much of the adjusted

12 gross income as exceeds the initial threshold

13 amount but does not exceed the second thresh14 old amount, and

15 ‘‘(B) 2.08 percent of so much of the ad16 justed gross income as exceeds the second

17 threshold amount.

18 ‘‘(2) THRESHOLD AMOUNTS.—For purposes of

19 this subsection—

20 ‘‘(A) INITIAL THRESHOLD AMOUNT.—The

21 initial threshold amount is—

22 ‘‘(i) $120,000 in the case of a joint

23 return,

24 ‘‘(ii) $90,000 in the case of an indi25 vidual who is not married, and
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‘‘(iii) 1 1 ⁄2 the dollar amount applicable

2 under clause (i) in the case of a married

3 individual filing a separate return.

4 ‘‘(B) SECOND THRESHOLD AMOUNT.—The

5 second threshold amount is—

6 ‘‘(i) $150,000 in the case of a joint

7 return,

8 ‘‘(ii) $112,000 in the case of an indi9 vidual who is not married, and

‘‘(iii) 1 10 ⁄2 the dollar amount applicable

11 under clause (i) in the case of a married

12 individual filing a separate return.

13 ‘‘(C) MARITAL STATUS.—For purposes of

14 this paragraph, marital status shall be deter15 mined under section 7703.

16 ‘‘(3) INFLATION ADJUSTMENT.—In the case of

17 any taxable year beginning in a calendar year after

18 2000, each dollar amount contained in paragraph

19 (2) shall be increased by an amount equal to—

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

21 ‘‘(B) the cost-of-living adjustment deter22 mined under subsection (f)(3) for the calendar

23 year in which the taxable year begins, by sub24 stituting ‘calendar year 1999’ for ‘calendar year

25 1992’ in subparagraph (B) thereof.
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1 If any increase under the preceding sentence is not

2 a multiple of $50, such increase shall be rounded to

3 the nearest multiple of $50.

4 ‘‘(4) TAX NOT TO APPLY TO ESTATES AND

5 TRUSTS.—This subsection shall not apply to an es6 tate or trust.’’.

7 (b) EFFECTIVE DATE.—The amendment made by

8 this section shall apply to taxable years beginning after

9 December 31, 1999.

10 (c) SECTION 15 NOT TO APPLY.—The amendment

11 made by this section shall not be treated as a change in

12 a rate of tax for purposes of section 15 of such Code.

13 SEC. 312. INCREASE IN FLOOR ON MISCELLANEOUS

14 ITEMIZED DEDUCTIONS FOR HIGHER IN15 COME TAXPAYERS.

16 (a) IN GENERAL.—Subsection (a) of section 67 (re17 lating to 2-percent floor on miscellaneous itemized deduc18 tions) is amended by striking ‘‘2 percent of adjusted gross

19 income’’ and inserting ‘‘the sum of—

20 ‘‘(1) 2 percent of so much of adjusted gross in21 come as does not exceed $100,000, and

22 ‘‘(2) 4 percent of so much of adjusted gross in23 come as exceeds $100,000’’.

24 (b) INFLATION ADJUSTMENT.—Section 67 is amend25 ed by adding at the end the following new subsection:
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1 ‘‘(g) INFLATION ADJUSTMENT.—In the case of any

2 taxable year beginning in a calendar year after 2000, the

3 $100,000 amount contained in subsection (a) shall be in4 creased by an amount equal to—

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

6 ‘‘(2) the cost-of-living adjustment determined

7 under subsection (f)(3) for the calendar year in

8 which the taxable year begins, by substituting ‘cal9 endar year 1999’ for ‘calendar year 1992’ in sub10 paragraph (B) thereof.

11 If any increase under the preceding sentence is not a mul12 tiple of $50, such increase shall be rounded to the nearest

13 multiple of $50.’’

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

15 this section shall apply to taxable years beginning after

16 December 31, 1999.

Æ