I

103D CONGRESS

1ST SESSION H. R. 2434

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 domestic spending.

IN THE HOUSE OF REPRESENTATIVES

JUNE 16, 1993

Mr. GRAMS (for himself, Mr. HUTCHINSON, Mr. ISTOOK, Mr. KNOLLENBERG,

Mr. HOEKSTRA, Mr. TALENT, Mr. CRAPO, Mr. MANZULLO, Mr. LEVY,

Mr. KIM, Mr. HOKE, Mr. POMBO, Ms. DUNN, Ms. PRYCE of Ohio, Mr.

TORKILDSEN, Mr. BACHUS of Alabama, Mr. MCKEON, Mr. BARTLETT of

Maryland, Mr. LINDER, Mr. BLUTE, Mr. BAKER of California, Mr. COLLINS of Georgia, Mr. MCINNIS, Mr. INGLIS of South Carolina, Mr. DICKEY, Mr. SMITH of Michigan, Mrs. FOWLER, Mr. GINGRICH, Mr. ARMEY,

Mr. HYDE, Mr. DELAY, Mr. SOLOMON, Mr. DOOLITTLE, Mr. BARTON of

Texas, Mr. BURTON of Indiana, Mr. RAMSTAD, Mr. BOEHNER, Mr. COX,

Mr. SMITH of Oregon, Mr. PACKARD, Mr. DORNAN, Mr. SANTORUM, Mr.

HERGER, Mr. EWING, and Mr. HEFLEY) 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 domestic spending.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

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

3 ‘‘Putting Jobs and the American Family First Act of

4 1993’’.

5 (b) AMENDMENT OF 1986 CODE.—Except as other6 wise expressly provided, whenever in this Act an amend7 ment or repeal is expressed in terms of an amendment

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

9 shall be considered to be made to a section or other provi10 sion of the Internal Revenue Code of 1986.

11 TITLE I—FAMILY TAX CREDIT

12 SEC. 101. FAMILY TAX CREDIT.

13 (a) IN GENERAL.—Subpart C of part IV of sub14 chapter A of chapter 1 is amended by redesignating sec15 tion 35 as section 36 and by inserting after section 34

16 the following new section:

17 ‘‘SEC. 35. FAMILY TAX CREDIT.

18 ‘‘(a) GENERAL RULE.—In the case of an eligible indi19 vidual, there shall be allowed as a credit against the tax

20 imposed by this subtitle for the taxable year an amount

21 equal to $500 multiplied by the number of qualifying chil22 dren of the taxpayer who have not attained the age of 18

23 as of the close of the calendar year in which the taxable

24 year of the taxpayer begins.
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1 ‘‘(b) LIMITATION BASED ON AMOUNT OF TAX.—The

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

3 not exceed the excess (if any) of—

4 ‘‘(1) the sum of—

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

6 the taxable year (reduced by the credits allow7 able against such tax other than the credits al8 lowable under this subpart), and

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

10 and 3111 on wages received by the taxpayer

11 during such taxable year, over

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

13 under section 32.

14 ‘‘(c) INFLATION ADJUSTMENTS.—

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

16 year beginning in a calendar year after 1993, the

17 $500 amount contained in subsection (a) shall be in18 creased by an amount equal to—

19 ‘‘(A) $500, 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, by sub23 stituting ‘calendar year 1992’ for ‘calendar year

24 1989’ in subparagraph (B) thereof.
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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 30A(a))’’ after ‘‘taxpayer’’.
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1 (c) CONFORMING AMENDMENT.—The table of sec2 tions for such subpart B is amended by adding at the end

3 thereof the following new item:

‘‘Sec. 30A. Family tax credit.’’

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

5 this section shall apply to taxable years beginning after

6 December 31, 1992.

7 TITLE II—REDUCING THE COST

8 OF CAPITAL BY REDUCING

9 CAPITAL GAINS TAX RATES

10 AND INDEXING THE BASIS OF

11 CERTAIN ASSETS

12 SEC. 201. REDUCTION IN INDIVIDUAL CAPITAL GAINS

13 RATE.

14 (a) GENERAL RULE.—Subsection (h) of section 1 (re15 lating to maximum capital gains rate) is amended to read

16 as follows:

17 ‘‘(h) MAXIMUM CAPITAL GAINS RATE.—

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

19 capital gain for any taxable year, then the tax im20 posed by this section shall not exceed the sum of—

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

22 the same manner as if this subsection had not

23 been enacted on the taxable income reduced by

24 the net capital gain, plus

25 ‘‘(B) a tax equal to the sum of—
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1 ‘‘(i) 7.5 percent of so much of the net

2 capital gain as does not exceed—

3 ‘‘(I) the maximum amount of

4 taxable income to which the 15-per5 cent rate applies under the table ap6 plicable to the taxpayer, reduced by

7 ‘‘(II) the taxable income to which

8 subparagraph (A) applies, plus

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

10 in excess of the net capital gain to which

11 clause (i) applies.

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

13 taxable year which includes January 1, 1993, the

14 amount of the net capital gain for purposes of para15 graph (1) shall not exceed the net capital gain deter16 mined by only taking into account gains and losses

17 properly taken into account for the portion of the

18 taxable year on or after such date.’’

19 (b) PHASE-OUT OF PERSONAL EXEMPTIONS AND

20 LIMITATION ON DEDUCTION OF ITEMIZED DEDUCTIONS

21 NOT TO RESULT FROM NET CAPITAL GAIN.—

22 (1)(A) Subparagraphs (A) and (B) of section

23 151(d)(3) (relating to phaseout of exemption

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

25 before ‘‘adjusted gross income’’.
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1 (B) Paragraph (3) of section 151(d) is amend2 ed by redesignating subparagraphs (D) and (E) as

3 subparagraphs (E) and (F), respectively, and by in4 serting after subparagraph (C) the following new

5 subparagraph:

6 ‘‘(D) MODIFIED ADJUSTED GROSS IN7 COME.—For purposes of this paragraph, the

8 term ‘modified adjusted gross income’ means

9 adjusted gross income reduced by net capital

10 gain. In the case of a taxable year which in11 cludes January 1, 1993, the amount of the net

12 capital gain for purposes of preceding sentence

13 shall not exceed the net capital gain determined

14 by only taking into account gains and losses

15 properly taken into account for the portion of

16 the taxable year on or after such date.’’

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

18 overall limitation on itemized deductions) is amend19 ed by inserting ‘‘(reduced by net capital gain (deter20 mined in accordance with the last sentence of section

21 151(d)(3)(D)))’’ after ‘‘adjusted gross income’’.

22 (c) TECHNICAL AMENDMENTS.—

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

24 by striking ‘‘the amount of gain’’ in the material fol25 lowing subparagraph (B)(ii) and inserting ‘‘16/31
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1 (19/34 in the case of a corporation) of the amount

2 of gain’’.

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

4 7518(g)(6)(A) is amended by striking ‘‘28 percent

5 (34 percent in the case of a corporation)’’ and in6 serting ‘‘15 percent’’.

7 (B) The second sentence of section

8 607(h)(6)(A) of the Merchant Marine Act, 1936, is

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

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

11 SEC. 202. REDUCTION IN CORPORATE CAPITAL GAINS

12 RATE.

13 (a) GENERAL RULE.—Section 1201 (relating to al14 ternative tax for corporations) is amended by redesignat15 ing subsection (b) as subsection (c), and by striking sub16 section (a) and inserting the following:

17 ‘‘(a) GENERAL RULE.—If for any taxable year a cor18 poration has a net capital gain, then, in lieu of the tax

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

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

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

22 the sum of—

23 ‘‘(1) a tax computed on the taxable income re24 duced by the net capital gain, at the same rates and
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1 in the same manner as if this subsection had not

2 been enacted, plus

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

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

5 year which includes January 1, 1993, the amount of the

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

7 exceed the net capital gain determined by only taking into

8 account gains and losses properly taken into account for

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

10 (b) TECHNICAL AMENDMENTS.—

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

12 amended by striking ‘‘66 percent’’ and inserting ‘‘85

13 percent’’.

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

15 are each amended by striking ‘‘34 percent’’ and in16 serting ‘‘15 percent’’.

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

18 GAINS.

19 Subparagraph (A) of section 55(b)(1) (relating to

20 tentative minimum tax) is amended to read as follows:

21 ‘‘(A) the sum of—

22 ‘‘(i) 15 percent of the lesser of—

23 ‘‘(I) the net capital gain (deter24 mined with the adjustments provided

25 in this part and (to the extent appli-
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1 cable) the limitations of sections

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

3 ‘‘(II) so much of the alternative

4 minimum taxable income for the tax5 able year as exceeds the exemption

6 amount, plus

7 ‘‘(ii) 20 percent (24 percent in the

8 case of a taxpayer other than a corpora9 tion) of the amount (if any) by which the

10 excess referred to in clause (i)(II) exceeds

11 the net capital gain (as so determined), re12 duced by’’.

13 SEC. 204. INDEXING OF CERTAIN ASSETS FOR PURPOSES

14 OF DETERMINING GAIN OR LOSS.

15 (a) IN GENERAL.—Part II of subchapter O of chap16 ter 1 (relating to basis rules of general application) is

17 amended by inserting after section 1021 the following new

18 section:

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

20 OF DETERMINING GAIN OR LOSS.

21 ‘‘(a) GENERAL RULE.—

22 ‘‘(1) INDEXED BASIS SUBSTITUTED FOR AD23 JUSTED BASIS.—Except as provided in paragraph

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

25 more than 1 year is sold or otherwise disposed of,
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1 for purposes of this title the indexed basis of the

2 asset shall be substituted for its adjusted basis.

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

4 The deduction for depreciation, depletion, and amor5 tization shall be determined without regard to the

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

7 other person.

8 ‘‘(b) INDEXED ASSET.—

9 ‘‘(1) IN GENERAL.—For purposes of this sec10 tion, the term ‘indexed asset’ means—

11 ‘‘(A) stock in a corporation, and

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

13 therein), which is a capital asset of property

14 used in the trade or business (as defined in sec15 tion 1231(b)).

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

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

18 does not include—

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

20 in property which is in the nature of a credi21 tor’s interest.

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

23 to acquire an interest in property.
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1 ‘‘(C) NET LEASE PROPERTY.—In the case

2 of a lessor, net lease property (within the mean3 ing of subsection (h)(1)).

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

5 which is fixed and preferred as to dividends and

6 does not participate in corporate growth to any

7 significant extent.

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

9 Stock in—

10 ‘‘(i) an S corporation (within the

11 meaning of section 1361),

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

13 defined in section 542), and

14 ‘‘(iii) a foreign corporation.

15 ‘‘(3) EXCEPTION FOR STOCK IN FOREIGN COR16 PORATION WHICH IS REGULARLY TRADED ON NA17 TIONAL OR REGIONAL EXCHANGE.—Clause (iii) of

18 paragraph (2)(E) shall not apply to stock in a for19 eign corporation the stock of which is listed on the

20 New York Stock Exchange, the American Stock Ex21 change, or any domestic regional exchange for which

22 quotations are published on a regular basis other

23 than—
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1 ‘‘(A) stock of a foreign investment com2 pany (within the meaning of section 1246(b)),

3 and

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

5 a United States person who meets the require6 ments of section 1248(a)(2).

7 ‘‘(c) INDEXED BASIS.—For purposes of this sec8 tion—

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

10 any asset is—

11 ‘‘(A) the adjusted basis of the asset, multi12 plied by

13 ‘‘(B) the applicable inflation ratio.

14 ‘‘(2) APPLICABLE INFLATION RATIO.—The ap15 plicable inflation ratio for any asset is the percent16 age arrived at by dividing—

17 ‘‘(A) the gross national product deflator

18 for the calendar quarter in which the disposi19 tion takes place, by

20 ‘‘(B) the gross national product deflator

21 for the calendar quarter in which the asset was

22 acquired by the taxpayer (or, if later, the cal23 endar quarter ending December 31, 1992).

24 The applicable inflation ratio shall not be taken into

25 account unless it is greater than 1. The applicable
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1 inflation ratio for any asset shall be rounded to the

2 nearest one-tenth of 1 percent.

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

4 The gross national product deflator for any calendar

5 quarter is the implicit price deflator for the gross

6 national product for such quarter (as shown in the

7 first revision thereof).

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

9 Secretary shall publish tables specifying the applica10 ble inflation ratios for each calendar quarter.

11 ‘‘(d) SPECIAL RULES.—For purposes of this sec12 tion—

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

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

15 a separate asset:

16 ‘‘(A) a substantial improvement to prop17 erty,

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

19 a substantial contribution to capital, and

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

21 extent that separate treatment of such portion

22 is appropriate to carry out the purposes of this

23 section.

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

25 THROUGHOUT HOLDING PERIOD.—
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1 ‘‘(A) IN GENERAL.—The applicable infla2 tion ratio shall be appropriately reduced for cal3 endar months at any time during which the

4 asset was not an indexed asset.

5 ‘‘(B) CERTAIN SHORT SALES.—For pur6 poses of applying subparagraph (A), an asset

7 shall be treated as not an indexed asset for any

8 short sale period during which the taxpayer or

9 the taxpayer’s spouse sells short property sub10 stantially identical to the asset. For purposes of

11 the preceding sentence, the short sale period be12 gins on the day after the substantially identical

13 property is sold and ends on the closing date

14 for the sale.

15 ‘‘(3) TREATMENT OF CERTAIN DISTRIBU16 TIONS.—A distribution with respect to stock in a

17 corporation which is not a dividend shall be treated

18 as a disposition.

19 ‘‘(4) SECTION CANNOT INCREASE ORDINARY

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

21 this section would create or increase a net ordinary

22 loss to which section 1231(a)(2) applies or an ordi23 nary loss to which any other provision of this title

24 applies, such provision shall not apply. The taxpayer

25 shall be treated as having a long-term capital loss in
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1 an amount equal to the amount of the ordinary loss

2 to which the preceding sentence applies.

3 ‘‘(5) ACQUISITION DATE WHERE THERE HAS

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

5 WITH RESPECT TO THE TAXPAYER.—If there has

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

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

8 date of acquisition of such asset by the taxpayer

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

10 most recent such prior application.

11 ‘‘(6) COLLAPSIBLE CORPORATIONS.—The appli12 cation of section 341(a) (relating to collapsible

13 corporations) shall be determined without regard to

14 this section.

15 ‘‘(e) CERTAIN CONDUIT ENTITIES.—

16 ‘‘(1) REGULATED INVESTMENT COMPANIES;

17 REAL ESTATE INVESTMENT TRUSTS; COMMON TRUST

18 FUNDS.—

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

20 investment entity shall be an indexed asset for

21 any calendar month in the same ratio as the

22 fair market value of the assets held by such en23 tity at the close of such month which are in24 dexed assets bears to the fair market value of
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1 all assets of such entity at the close of such

2 month.

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

4 the ratio for any calendar month determined

5 under subparagraph (A) would (but for this

6 subparagraph) be 90 percent or more, such

7 ratio for such month shall be 100 percent.

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

9 the ratio for any calendar month determined

10 under subparagraph (A) would (but for this

11 subparagraph) be 10 percent or less, such ratio

12 for such month shall be zero.

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

14 REAL ESTATE INVESTMENT TRUSTS.—Nothing

15 in this paragraph shall require a real estate in16 vestment trust to value its assets more fre17 quently than once each 36 months (except

18 where such trust ceases to exist). The ratio

19 under subparagraph (A) for any calendar

20 month for which there is no valuation shall be

21 the trustee’s good faith judgment as to such

22 valuation.

23 ‘‘(E) QUALIFIED INVESTMENT ENTITY.—

24 For purposes of this paragraph, the term

25 ‘qualified investment entity’ means—
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1 ‘‘(i) a regulated investment company

2 (within the meaning of section 851),

3 ‘‘(ii) a real estate investment trust

4 (within the meaning of section 856), and

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

6 meaning of section 584).

7 ‘‘(2) PARTNERSHIPS.—In the case of a partner8 ship, the adjustment made under subsection (a) at

9 the partnership level shall be passed through to the

10 partners.

11 ‘‘(3) SUBCHAPTER S CORPORATIONS.—In the

12 case of an electing small business corporation, the

13 adjustment under subsection (a) at the corporate

14 level shall be passed through to the shareholders.

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

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

17 to any sale or other disposition of property between

18 related persons except to the extent that the basis

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

20 substituted basis.

21 ‘‘(2) RELATED PERSONS DEFINED.—For pur22 poses of this section, the term ‘related persons’

23 means—

24 ‘‘(A) persons bearing a relationship set

25 forth in section 267(b), and
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1 ‘‘(B) persons treated as single employer

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

3 ‘‘(g) TRANSFERS TO INCREASE INDEXING ADJUST4 MENT OR DEPRECIATION ALLOWANCE.—If any person

5 transfers cash, debt, or any other property to another per6 son and the principal purpose of such transfer is—

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

8 subsection (a), or

9 ‘‘(2) to increase (by reason of an adjustment

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

11 depletion, or amortization,

12 the Secretary may disallow part or all of such adjustment

13 or increase.

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

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

16 term ‘net lease property’ means leased real property

17 where—

18 ‘‘(A) the term of the lease (taking into ac19 count options to renew) was 50 percent or more

20 of the useful life of the property, and

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

22 of the deductions with respect to such property

23 which are allowable to the lessor solely by rea24 son of section 162 (other than rents and reim25 bursed amounts with respect to such property)
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1 is 15 percent or less of the rental income pro2 duced by such property.

3 ‘‘(2) STOCK INCLUDES INTEREST IN COMMON

4 TRUST FUND.—The term ‘stock in a corporation’ in5 cludes any interest in a common trust fund (as de6 fined in section 584(a)).

7 ‘‘(i) REGULATIONS.—The Secretary shall prescribe

8 such regulations as may be necessary or appropriate to

9 carry out the purposes of this section.’’

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

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

12 by inserting after the item relating to section 1021 the

13 following new item:

‘‘Sec. 1022. Indexing of certain assets for purposes of determining

gain or loss.’’

14 (c) ADJUSTMENT TO APPLY FOR PURPOSES OF DE15 TERMINING EARNINGS AND PROFITS.—Subsection (f) of

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

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

18 amended by adding at the end thereof the following new

19 paragraph:
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1 ‘‘(3) EFFECT ON EARNINGS AND PROFITS OF

2 INDEXED BASIS.—

For substitution of indexed basis for adjusted

basis in the case of the disposition of certain assets

after December 31, 1992, see section 1022(a)(1).’’

3 SEC. 205. INDEXING OF LIMITATION ON CAPITAL LOSSES

4 OF INDIVIDUALS.

5 Section 1211 (relating to limitation on capital losses)

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

7 subsection:

8 ‘‘(c) INDEXATION OF LIMITATION ON

9 NONCORPORATE TAXPAYERS.—

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

11 year beginning in a calendar year after 1992, the

12 $3,000 and $1,500 amounts under subsection (b)(1)

13 shall be increased by an amount equal to—

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

15 ‘‘(B) the applicable inflation adjustment

16 for the calendar year in which the taxable year

17 begins.

18 ‘‘(2) APPLICABLE INFLATION ADJUSTMENT.—

19 For purposes of paragraph (1), the applicable infla20 tion adjustment for any calendar year is the percent21 age (if any) by which—

22 ‘‘(A) the gross national product deflator

23 for the last calendar quarter of the preceding

24 calendar year, exceeds
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1 ‘‘(B) the gross national product deflator

2 for the last calendar quarter of 1991.

3 For purposes of this paragraph, the term ‘gross na4 tional product deflator’ has the meaning given such

5 term by section 1022(c)(3).’’

6 SEC. 206. EFFECTIVE DATES.

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

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

9 or exchanges occurring after December 31, 1992, in tax10 able years ending after such date.

11 (b) INDEXING OF LOSS LIMITATION.—The amend12 ments made by section 205 shall apply to taxable years

13 beginning after December 31, 1992.

14 TITLE III—NEUTRAL COST

15 RECOVERY

16 SEC. 301. DEPRECIATION ADJUSTMENT FOR CERTAIN

17 PROPERTY PLACED IN SERVICE IN TAXABLE

18 YEARS BEGINNING AFTER DECEMBER 31,

19 1993.

20 (a) IN GENERAL.—Section 168 (relating to acceler21 ated cost recovery system) is amended by adding at the

22 end thereof the following new subsection:

23 ‘‘(j) DEDUCTION ADJUSTMENT TO ALLOW EQUIVA24 LENT OF EXPENSING FOR CERTAIN PROPERTY PLACED
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1 IN SERVICE IN TAXABLE YEARS BEGINNING AFTER

2 DECEMBER 31, 1993.—

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

4 property placed in service in a taxable year begin5 ning after December 31, 1993, the deduction allow6 able under this section with respect to such property

7 for any taxable year (after the taxable year during

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

9 ‘‘(A) the amount so allowable for such tax10 able year without regard to this subsection,

11 multiplied by

12 ‘‘(B) the applicable neutral cost recovery

13 ratio for such taxable year.

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

15 and (2) of section 168(b) shall be applied by sub16 stituting ‘150 percent’ for ‘200 percent’.

17 ‘‘(2) APPLICABLE NEUTRAL COST RECOVERY

18 RATIO.—For purposes of paragraph (1), the applica19 ble neutral cost recovery ratio for any taxable year

20 is the number determined by—

21 ‘‘(A) dividing—

22 ‘‘(i) the gross national product

23 deflator for the calendar quarter ending in

24 such taxable year which corresponds to the
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1 calendar quarter during which the property

2 was placed in service by the taxpayer, by

3 ‘‘(ii) the gross national product

4 deflator for the calendar quarter during

5 which the property was placed in service by

6 the taxpayer, and

7 ‘‘(B) then multiplying the number deter8 mined under subparagraph (A) by the number

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

10 number of full years in the period beginning on

11 the 1st day of the calendar quarter during

12 which the property was placed in service by the

13 taxpayer and ending on the day before the be14 ginning of the corresponding calendar quarter

15 ending during such taxable year.

16 The applicable neutral cost recovery ratio shall not

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

18 The applicable neutral cost recovery ratio shall be

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

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

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

22 product deflator for any calendar quarter is the im23 plicit price deflator for the gross national product

24 for such quarter (as shown in the first revision

25 thereof).
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1 ‘‘(4) ELECTION NOT TO HAVE SUBSECTION

2 APPLY.—This subsection shall not apply to any

3 property if the taxpayer elects not to have this sub4 section apply to such property. Such an election,

5 once made, shall be irrevocable.’’

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

7 section 56(a) is amended by adding at the end thereof the

8 following new subparagraph:

9 ‘‘(E) USE OF NEUTRAL COST RECOVERY

10 RATIO.—In the case of tangible property placed

11 in service in a taxable year beginning after De12 cember 31, 1993, the deduction allowable under

13 this paragraph with respect to such property

14 for any taxable year (after the taxable year dur15 ing which the property is placed in service)

16 shall be—

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

18 taxable year without regard to this sub19 paragraph, multiplied by

20 ‘‘(ii) the applicable neutral cost recov21 ery ratio for such taxable year (as deter22 mined under section 168(j)).

23 This subparagraph shall not apply to any prop24 erty with respect to which there is an election

25 in effect not to have section 168(j) apply.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1993.

4 SEC. 302. REPEAL OF SPECIAL DEPRECIATION RULES AP5 PLICABLE UNDER THE ADJUSTED CURRENT

6 EARNINGS PROVISIONS OF THE MINIMUM

7 TAX.

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

9 56(g)(4) (relating to adjustments) is amended to read as

10 follows:

11 ‘‘(A) DEPRECIATION.—

12 ‘‘(i) IN GENERAL.—The depreciation

13 deduction with respect to any property for

14 any taxable year beginning after December

15 31, 1993, shall be the same as the depre16 ciation deduction allowable in computing

17 alternative minimum taxable income for

18 such taxable year.

19 ‘‘(ii) BASIS RULES.—Notwithstanding

20 subparagraph (I), the adjusted basis of

21 any depreciable property held by the tax22 payer as of the beginning of the taxpayer’s

23 first taxable year beginning after Decem24 ber 31, 1993, shall be determined as if the

25 provisions of clause (i) had also applied to
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1 taxable years beginning in 1990, 1991,

2 1992, or 1993.

3 ‘‘(iii) LOST BASIS RECOVERED OVER 5

4 YEARS.—The amount determined under

5 clause (iv) shall be allowed as a deduction

6 ratably over the 60-month period begin7 ning with the first month of the taxpayer’s

8 first taxable year beginning after Decem9 ber 31, 1993.

10 ‘‘(iv) AMOUNT OF LOST BASIS.—The

11 amount determined under this clause is the

12 excess 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 subparagraph (I)

20 without regard to clause (ii), over

21 ‘‘(II) the aggregate adjusted

22 bases of such property (as of such

23 time) as determined under the rules of

24 clause (ii).’’.
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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 1994.—

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

25 taxable year beginning after December 31,
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1 1994, 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 1996, 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 1995’ for ‘calendar

17 year 1989’ 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 and for such

4 individual’s spouse shall be an amount equal to

5 the excess (if any) of—

6 ‘‘(i) $2,000, over

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

8 as a deduction under section 219 for con9 tributions on behalf of such individual or

10 such spouse, plus the amount determined

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

12 each.

13 In no event shall the sum of such limits exceed

14 an amount equal to the sum of the compensa15 tion includible in the individual’s and spouse’s

16 gross income for the taxable year, reduced by

17 the sum of the amounts determined under

18 clause (ii).

‘‘(3) CONTRIBUTIONS AFTER AGE 701 19 ⁄2.—Con20 tributions may be made by an individual to an indi21 vidual retirement plus account after such individual

has attained the age of 701 22 ⁄2.

23 ‘‘(4) LIMITATIONS ON ROLLOVER CONTRIBU24 TIONS.—No rollover contributions may be made to

25 an individual retirement plus account unless such
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1 rollover contribution is a contribution of a distribu2 tion or payment out of—

3 ‘‘(A) another individual retirement plus ac4 count, or

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

6 not allocable to any amount transferred to such

7 plan which represented any portion of the bal8 ance to the credit of an employee in a qualified

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

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

11 title—

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

13 qualified distribution, the rules of paragraphs (1)

14 and (2) of section 408(d) shall apply to any distribu15 tion from an individual retirement plus account.

16 ‘‘(2) TREATMENT OF QUALIFIED DISTRIBU17 TION.—In the case of a qualified distribution from

18 an individual retirement plus account—

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

20 not be includible in gross income; and

21 ‘‘(B) section 72(t) shall not apply.

22 ‘‘(3) QUALIFIED DISTRIBUTION.—For purposes

23 of this subsection—

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

25 distribution’ means any distribution—
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1 ‘‘(i) made on or after the date on

which the individual attains age 591 2 ⁄2,

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

4 estate of an individual) on or after the

5 death of the individual,

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

7 being disabled (within the meaning of sec8 tion 72(m)(7)), or

9 ‘‘(iv) which is a qualified special pur10 pose distribution (within the meaning of

11 subsection (e)).

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

13 No distribution shall be treated as a qualified

14 distribution if—

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

16 year period beginning with the 1st taxable

17 year in which the individual made a con18 tribution to an individual retirement plus

19 account, or

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

21 properly allocable to a rollover contribution

22 (or income allocable thereto), it is made

23 within 5 years of the date on which such

24 rollover contribution was made.
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1 ‘‘(4) SPECIAL RULES RELATING TO ROLLOVERS

2 FROM REGULAR INDIVIDUAL RETIREMENT AC3 COUNTS.—

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

5 this paragraph, any amount paid or distributed

6 out of an individual retirement plan on or be7 fore the earlier of—

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

9 attains age 55, or

10 ‘‘(ii) January 1, 1994,

11 shall not be included in gross income (and sec12 tion 72(t) shall not apply to such amount) if

13 the individual receiving such amount transfers,

14 within 60 days of receipt, the entire amount re15 ceived to an individual retirement plus account.

16 ‘‘(B) TREATMENT OF TAX-FAVORED

17 AMOUNTS.—

18 ‘‘(i) IN GENERAL.—Notwithstanding

19 subparagraph (A), there shall be included

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

21 apply to) the portion of any amount trans22 ferred which bears the same ratio to such

23 amount as—

24 ‘‘(I) the aggregate amount of

25 contributions to individual retirement
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1 plans with respect to which a deduc2 tion was allowable under section 219,

3 bears to

4 ‘‘(II) the aggregate balance of

5 such plans.

6 ‘‘(ii) TIME FOR INCLUSION.—Any

7 amount described in clause (i) shall be in8 cluded in gross income ratably over the 4-

9 taxable year period beginning with the tax10 able year in which the amount was paid or

11 distributed out of the individual retirement

12 plan.

13 ‘‘(e) QUALIFIED SPECIAL PURPOSE DISTRIBU14 TION.—For purposes of this section—

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

16 purpose distribution’ means—

17 ‘‘(A) a qualified first-time homebuyer dis18 tribution, or

19 ‘‘(B) an applicable medical or educational

20 distribution.

21 ‘‘(2) 25 PERCENT ACCOUNT LIMIT.—A distribu22 tion shall not be treated as a qualified special pur23 pose distribution to the extent it exceeds the amount

24 (if any) by which—

25 ‘‘(A) 25 percent of the sum of—
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1 ‘‘(i) the aggregate balance of individ2 ual retirement plus accounts established on

3 behalf of an individual, plus

4 ‘‘(ii) the aggregate amounts previously

5 treated as qualified special purpose dis6 tributions, exceeds

7 ‘‘(B) the amount determined under sub8 paragraph (A)(ii).

9 ‘‘(3) DISTRIBUTIONS USED TO PURCHASE A

10 HOME BY FIRST-TIME HOMEBUYER.—For purposes

11 of paragraph (1)—

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

13 first-time homebuyer distribution’ means any

14 payment or distribution received by a first-time

15 homebuyer from an individual retirement plan

16 to the extent such payment or distribution is

17 used by the individual before the close of the

18 60th day after the day on which such payment

19 or distribution is received to pay qualified ac20 quisition costs with respect to a principal resi21 dence for such individual.

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

23 principal residence described in subparagraph

24 (A) shall be reduced by any amount excluded
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1 from the gross income of such first-time home2 buyer by reason of this section.

3 ‘‘(C) RECOGNITION OF GAIN AS ORDINARY

4 INCOME.—

5 ‘‘(i) IN GENERAL.—Notwithstanding

6 any other provision of this subtitle, except

7 as provided in clause (ii)—

8 ‘‘(I) gain (if any) on the sale or

9 exchange of a principal residence to

10 which subparagraph (A) applies shall,

11 to the extent of the amount excluded

12 from gross income under this section,

13 be treated as ordinary income by such

14 individual, and

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

16 such amount.

17 ‘‘(ii) EXCEPTION.—Clause (i) shall

18 not apply to any taxable year to the extent

19 of any amount which, before the due date

20 (without extensions) for filing the return

21 for such year, the taxpayer contributes to

22 an individual retirement plus account.

23 Such amount shall not be taken into ac24 count for purposes of any provision of this

25 title relating to excess contributions.
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1 ‘‘(iii) COORDINATION WITH OTHER

2 PROVISIONS.—In the event all or part of

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

4 as ordinary income under any other provi5 sion of this subtitle, such provision shall be

6 applied before clause (i).

7 ‘‘(D) SPECIAL RULE WHERE DELAY IN AC8 QUISITION.—If—

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

10 from an individual retirement plus account

11 to an individual for purposes of being used

12 as provided in subparagraph (A), and

13 ‘‘(ii) by reason of a delay in the acqui14 sition of the residence, such amount cannot

15 be so used,

16 the amount so paid or distributed may be paid

17 into an individual retirement plus account as

18 provided in section 408(d)(3)(A)(i) without re19 gard to section 408(d)(3)(B), and, if so paid

20 into such other plan, such amount shall not be

21 taken into account in determining whether sec22 tion 408(d)(3)(A)(i) applies to any other

23 amount.

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

25 paragraph—
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1 ‘‘(i) QUALIFIED ACQUISITION

2 COSTS.—The term ‘qualified acquisition

3 costs’ means the costs of acquiring, con4 structing, or reconstructing a residence.

5 Such term includes any usual or reason6 able settlement, financing, or other closing

7 costs.

8 ‘‘(ii) FIRST-TIME HOMEBUYER.—The

9 term ‘first-time homebuyer’ means any in10 dividual if such individual (and if married,

11 such individual’s spouse) had no present

12 ownership interest in a principal residence

13 during the 3-year period ending on the

14 date of acquisition of the principal resi15 dence to which this paragraph applies.

16 ‘‘(iii) PRINCIPAL RESIDENCE.—The

17 term ‘principal residence’ has the same

18 meaning as when used in section 1034.

19 ‘‘(iv) DATE OF ACQUISITION.—The

20 term ‘date of acquisition’ means the date—

21 ‘‘(I) on which a binding contract

22 to acquire the principal residence to

23 which subparagraph (A) applies is en24 tered into, or
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1 ‘‘(II) on which construction or re2 construction of such a principal resi3 dence is commenced.

4 ‘‘(4) APPLICABLE MEDICAL DISTRIBUTIONS.—

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

6 medical distributions’ means any distributions made

7 to an individual (not otherwise taken into account

8 under this subsection) to the extent such distribu9 tions do not exceed the amount allowable as a de10 duction under section 213 for amounts paid during

11 the taxable year for medical care (without regard to

12 whether the individual itemized deductions for the

13 taxable year).

14 ‘‘(5) DISTRIBUTIONS FROM INDIVIDUAL RE15 TIREMENT PLUS ACCOUNTS FOR EDUCATIONAL EX16 PENSES.—

17 ‘‘(A) IN GENERAL.—For purposes of para18 graph (1), the term ‘applicable educational dis19 tributions’ means distributions to an individual

20 to the extent that the amount of such distribu21 tions (not otherwise treated as qualified special

22 purpose distributions, determined after applica23 tion of paragraph (4)) does not exceed the

24 qualified higher education expenses of the indi25 vidual for the taxable year.
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1 ‘‘(B) QUALIFIED HIGHER EDUCATION EX2 PENSES.—For purposes of subparagraph (A)—

3 ‘‘(i) IN GENERAL.—The term ‘quali4 fied higher education expenses’ means tui5 tion, fees, books, supplies, and equipment

6 required for the enrollment or attendance

7 of—

8 ‘‘(I) the taxpayer,

9 ‘‘(II) the taxpayer’s spouse, or

10 ‘‘(III) the taxpayer’s child (as de11 fined in section 151(c)(3)) or grand12 child,

13 at an eligible educational institution (as

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

15 ‘‘(ii) COORDINATION WITH SAVINGS

16 BOND PROVISIONS.—The amount of quali17 fied higher education expenses for any tax18 able year shall be reduced by any amount

19 excludable from gross income under section

20 135.

21 ‘‘(f) ROLLOVER CONTRIBUTIONS.—For purposes of

22 this section, the term ‘rollover contributions’ means con23 tributions described in sections 402(a)(5), 402(a)(7),

24 403(a)(4), 403(b)(8), and 408(d)(3).
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1 ‘‘(g) DETERMINATIONS.—For purposes of this sec2 tion, any determinations with respect to aggregate con3 tributions to, or the balance of, individual retirement plus

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

5 preceding the calendar year in which the taxable year

6 begins.’’

7 (b) CONFORMING AMENDMENT.—The table of sec8 tions for subpart A of part I of subchapter D of chapter

9 1 is amended by inserting after the item relating to section

10 408 the following new item:

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

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

12 this section shall apply to taxable years beginning after

13 December 31, 1992.

14 SEC. 402. INFLATION ADJUSTMENT OF INCOME THRESH15 OLDS FOR TAXATION OF SOCIAL SECURITY

16 BENEFITS; INCOME FROM INDIVIDUAL RE17 TIREMENT PLANS EXCLUDED.

18 (a) ADJUSTMENT OF INCOME THRESHOLDS FOR IN19 FLATION.—Section 86 (relating to social security and tier

20 1 railroad retirement benefits) is amended by adding at

21 the end thereof the following new subsection:

22 ‘‘(g) ADJUSTMENT OF INCOME THRESHOLDS FOR IN23 FLATION.—

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

25 year beginning in a calendar year after 1996, the
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1 $25,000 and $32,000 amounts contained in sub2 section (c) shall be increased by an amount equal

3 to—

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

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

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

7 the taxable year begins, determined by sub8 stituting ‘calendar year 1995’ for ‘calendar year

9 1989’ in subparagraph (B) thereof.

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

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

12 amount shall be rounded to the nearest multiple of

13 $50 (or, if such amount is a multiple of $25, such

14 amount shall be rounded to the next highest multiple

15 of $50).’’

16 (b) INCOME FROM INDIVIDUAL RETIREMENT PLANS

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

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

19 striking the period at the end of subparagraph (B) and

20 inserting ‘‘, and’’, and by adding at the end thereof the

21 following new subparagraph:

22 ‘‘(C) decreased by the portion of such in23 come which is attributable to a distribution or

24 payment from an individual retirement plan.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1996.

4 SEC. 403. INFLATION ADJUSTMENT OF MAXIMUM AMOUNT

5 OF IRA DEDUCTION.

6 (a) IN GENERAL.—Section 219 (relating to retire7 ment savings) is amended by redesignating subsection (h)

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

9 following new subsection:

10 ‘‘(h) ADJUSTMENT OF MAXIMUM DEDUCTION FOR

11 INFLATION.—

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

13 year beginning in a calendar year after 1996, each

14 applicable dollar amount shall be increased by an

15 amount equal to—

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

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

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

19 the taxable year begins, determined by sub20 stituting ‘calendar year 1995’ for ‘calendar year

21 1989’ in subparagraph (B) thereof.

22 ‘‘(2) APPLICABLE DOLLAR AMOUNT.—For pur23 poses of paragraph (1), the term ‘applicable dollar

24 amount’ means—
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1 ‘‘(A) the $2,000 amount in subsections

2 (b)(1)(A) and (c)(2) of this section, in sub3 sections (a)(1), (b), and (j) of section 408, and

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

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

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

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

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

9 amount shall be rounded to the nearest multiple of

10 $50 (or, if such amount is a multiple of $25, such

11 amount shall be rounded to the next highest multiple

12 of $50).’’

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

14 this section shall apply to taxable years beginning after

15 December 31, 1996.

16 TITLE V—CAP ON FEDERAL

17 SPENDING AND ESTABLISH18 MENT OF COMMISSION TO RE19 DUCE FEDERAL SPENDING

20 SEC. 501. ESTABLISHMENT.

21 There is established a commission to be known as the

22 ‘‘Commission on Reduction of Federal Spending’’ (herein23 after referred to as the ‘‘Commission’’).

24 SEC. 502. DUTIES OF COMMISSION.

25 The Commission is authorized and directed to—
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1 (1) review all Federal spending, including enti2 tlement programs, in order to identify and rec3 ommend specific reductions in any Federal project,

4 program, or activity to assure that aggregate Fed5 eral spending does not grow at a rate in excess of

6 2 percent per annum through fiscal year 1998; and

7 (2)(A) not later than 6 months after the adop8 tion of this resolution, report to the House of Rep9 resentatives and to the Senate, by bill, any changes

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

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

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

13 Representatives and the Senate within 10 legislative

14 days of that rejection another bill containing any

15 changes in law necessary to carry out paragraph (1).

16 SEC. 503. MEMBERSHIP.

17 (a) NUMBER AND APPOINTMENT.—The Commission

18 shall be composed of 20 Members of the House of Rep19 resentatives appointed by the Speaker, of whom 10 shall

20 be members of the minority party appointed after con21 sultation with the minority leader of the House and 20

22 Senators appointed by the President pro tempore of the

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

24 party, appointed after consultation with the minority lead25 er of the Senate. The appointments shall be made within
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1 30 days after the adoption of this resolution and shall be

2 for the duration of the One Hundred Third Congress.

3 (b) QUORUM.—Twenty-one members of the Commis4 sion shall constitute a quorum but a lesser number may

5 hold hearings.

6 (c) CHAIRPERSON; VICE CHAIRPERSON.—The Chair7 person and Vice Chairperson of the Commission shall be

8 elected by the members.

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

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

11 SEC. 504. DIRECTOR AND STAFF OF COMMISSION.

12 (a) DIRECTOR.—The Commission shall have a Direc13 tor who shall be appointed by the Chairperson. The Direc14 tor shall be paid at the rate of basic pay payable for level

15 V of the Executive Schedule.

16 (b) STAFF.—The Commission may appoint and fix

17 the pay of additional personnel as it considers appropriate.

18 SEC. 505. POWERS OF COMMISSION.

19 The Commission may, for the purpose of carrying out

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

21 places, take testimony, and receive evidence as the Com22 mission considers appropriate.

23 SEC. 506. TERMINATION.

24 The Commission shall terminate at the close of the

25 One Hundred Fourth Congress.
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1 SEC. 507. PAYMENT OF EXPENSES.

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

3 paid from the contingent fund of the House of Representa4 tives and one-half from the contingent fund of the Senate.

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

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

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

8 the appropriate calendar of that House.

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

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

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

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

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

14 House of Representatives) or the Secretary of the Senate

15 (in the case of a bill agreed to in the Senate) shall cause

16 the bill to be engrossed, certified, and transmitted to the

17 other House of Congress within one calendar day after the

18 bill is agreed to.

19 (c)(1) A bill transmitted to the House of Representa20 tives or the Senate pursuant to subsection (b) shall be

21 placed upon the appropriate calendar.

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

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

24 7th legislative day in that House after the date on which

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

26 House, the Clerk of the House of Representatives (in the
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1 case of a bill agreed to in the House of Representatives)

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

3 to in the Senate) shall cause the engrossed bill to be re4 turned to the House.

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

6 proceed to the consideration of a bill under this section

7 shall be highly privileged and not debatable. An amend8 ment to the motion shall not be in order, nor shall it be

9 in order to move to reconsider the vote by which the mo10 tion is agreed to or disagreed to.

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

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

13 be divided equally between those favoring and those oppos14 ing the bill. A motion further to limit debate shall not be

15 debatable. It shall not be in order to move to recommit

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

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

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

19 the application of the Rules of the House of Representa20 tives to the procedure relating to a bill under this section

21 shall be decided without debate.

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

23 preceding provisions of this section, consideration of a bill

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

25 House of Representatives.
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1 (e)(1) A motion in the Senate to proceed to the con2 sideration of a bill under this section shall be privileged

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

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

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

6 to.

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

8 and all debatable motions and appeals in connection there9 with, shall not exceed 10 hours. The time shall be equally

10 divided between, and controlled by, the majority leader

11 and the minority leader or their designees.

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

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

14 be limited to not more than 1 hour, to be equally divided

15 between, and controlled by, the mover and the manager

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

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

18 opposition thereto, shall be controlled by the minority

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

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

21 bill, allot additional time to any Senator during the consid22 eration of any debatable motion or appeal.

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

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

25 recommit a bill under this section is not in order.
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1 (f) No amendment to a bill considered under this sec2 tion shall be in order in either the House of Representa3 tives or the Senate. No motion to suspend the application

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

5 shall it be in order in either House to suspend the applica6 tion of this subsection by unanimous consent.

7 (g) For purposes of this resolution, the term ‘‘legisla8 tive day’’ means, with respect to either House of Congress,

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

10 SEC. 509. ADVISORY COUNCIL.

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

12 the Commission in carrying out its duties.

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

14 private citizens appointed as follows:

15 (1) Twenty individuals shall be selected ran16 domly by the Director of the Internal Revenue Serv17 ice from among individual taxpayers who are willing

18 to serve.

19 (2) Thirty-four individuals shall be appointed

20 by the Speaker of the House of Representatives.

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

22 the minority party leader of the House of Represent23 atives.

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

25 the majority party leader of the Senate.
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1 (5) Thirty-two individuals shall be appointed by

2 the minority party leader of the Senate.

3 (c) Members of the advisory council shall receive trav4 el expenses, including per diem in lieu of subsistence, in

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

6 States Code.

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

8 of the One Hundred Fourth Congress.

9 SEC. 510. AMENDMENTS TO THE BALANCED BUDGET AND

10 EMERGENCY DEFICIT CONTROL ACT OF 1985

11 TO LIMIT FEDERAL SPENDING.

12 The Balanced Budget and Emergency Deficit Control

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

14 following new section:

15 ‘‘SEC. 252A. LIMITATIONS ON DIRECT SPENDING.

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

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

18 Federal spending exceeding the amount resulting from an

19 annual rate of inflation of 2 percent will trigger an offset20 ting sequestration.

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

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

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

24 252, and prior to any sequestration under section 253,

25 there shall be a sequestration to offset the amount of any
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1 excess Federal spending in that fiscal year. The amount

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

3 amount by which OMB projects total Federal spending for

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

5 set forth in the following table:

Fiscal Year Outlay limits (in billions of

dollars)

1994 ...................................................................... 1472.3

1995 ...................................................................... 1501.8

1996 ...................................................................... 1531.8

1997 ...................................................................... 1562.4

1998 ...................................................................... 1593.7

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

7 The amount required to be sequestered in a fiscal year

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

9 accounts. Each non-exempt account shall be reduced by

10 the uniform percentage necessary to make the required re11 duction in Federal spending. The uniform reduction re12 quired shall be made without application of the exemp13 tions, limitations, and special rules set forth in sections

14 255 and 256, except for the following: section 255(a) (with

15 respect to social security benefits), 255(c) and prior legal

16 obligations of the Government in sections 255(g)(1) and

17 255(g)(2), 256(g), 256(h), and 256(l).

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

19 reports and orders that are applicable to section 252 shall

20 also apply to this section except that such reports and or-
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1 ders for this section shall refer to and apply the require2 ments, calculations and sequestrations of this section.

3 ‘‘(e) RECONCILIATION PROCESS TO AVOID SEQUES4 TRATION.—Whenever an update report for this section in5 dicates that a sequester would be necessary to eliminate

6 excess Federal spending, the special reconciliation process

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

8 alternatives to the order envisioned by such report.

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

10 if the recommendations of the Commission on Reduction

11 of Federal Spending are not enacted into law.’’

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