Middle-Class Savings and Investment Act

To amend the Internal Revenue Code of 1986 to modify the maximum capital gains tax rate, to modify the tax on net investment income, and for other purposes. 1. Short title This Act may be cited as the Middle-Class Savings and Investment Act 2. Modification of capital gain rates (a) Expansion of zero percent rate (1) In general Section 1(h)(1)(B)(i) which would (without regard to this paragraph) be taxed at a rate below 25 percent below the maximum zero rate amount (2) Maximum zero rate amount Section 1(h) (12) Maximum zero rate amount (A) In general The maximum zero rate amount shall be— (i) in the case of a joint return or surviving spouse, $165,000, (ii) in the case of any other individual (other than an estate or trust), an amount equal to ½ of the amount in effect for the taxable year under clause (i), and (iii) in the case of an estate or trust, $2,600. (B) Inflation adjustment In the case of any taxable year beginning after 2021, each of the dollar amounts in subparagraph (A) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under subsection (f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 calendar year 2016 If any increase under this subparagraph is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50. . (3) Conforming amendments Paragraph (5) of section 1(j) of such Code is amended— (A) in subparagraph (A), by striking shall be applied by substituting below the maximum 15-percent rate amount shall be applied by substituting below the maximum 15-percent rate amount (B) in subparagraph (B)— (i) by striking all that preceding clause (ii), (ii) by redesignating clause (ii) as subparagraph (B), (iii) by redesignating subclauses (I) through (IV) of subparagraph (B) (as so redesignated) as clauses (i) through (iv), respectively, and (iv) by moving subparagraph (B) and each of clauses (i) through (iv) (as so redesignated) 2 ems to the left, and (C) in subparagraph (C), by striking clauses (i) and (ii) of (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2021. 3. Partial exclusion of certain interest received by individuals (a) In general Part III of subchapter B of chapter 1 116. Partial exclusion of certain interest received by individuals (a) Exclusion from gross income Gross income does not include the sum of the amounts received during the taxable year by an individual as qualified interest. (b) Limitations The aggregate amount excluded under subsection (a) for any taxable year shall not exceed $300 ($600 in the case of a joint return). (c) Qualified interest For purposes of this section— (1) In general The term qualified interest (2) Special rules for dividends received from certain money market mutual funds (A) In general The term qualified interest (i) In general Except as provided in clause (ii), a qualified interest-related dividend is any dividend or part thereof (other than a capital gain dividend or exempt interest dividend)— (I) paid by a regulated investment company regulated as a money market fund under section 270.2a–7 of title 17, Code of Federal Regulations, and (II) reported by the company as a qualified interest-related dividend in written statements furnished to its shareholders. (ii) Excess reported amounts If the aggregate reported amount with respect to the company for any taxable year exceeds the applicable qualified interest of the company for such taxable year, a qualified interest-related dividend is the excess of— (I) the reported qualified interest-related dividend amount, over (II) the excess reported amount which is allocable to such reported qualified interest-related dividend amount. (iii) Allocation of excess reported amount (I) In general Except as provided in subclause (II), the excess reported amount (if any) which is allocable to the reported qualified interest-related dividend amount is that portion of the excess reported amount which bears the same ratio to the excess reported amount as the reported qualified interest-related dividend amount bears to the aggregate reported amount. (II) Special rule for noncalendar year taxpayers In the case of any taxable year which does not begin and end in the same calendar year, if the post-December reported amount equals or exceeds the excess reported amount for such taxable year, subclause (I) shall be applied by substituting post-December reported amount aggregate reported amount (iv) Definitions For purposes of this subparagraph— (I) Reported qualified interest-related dividend amount The term reported qualified interest-related dividend amount (II) Excess reported amount The term excess reported amount (III) Aggregate reported amount The term aggregate reported amount (IV) Post-December reported amount The term post-December reported amount (V) Applicable qualified interest The term applicable qualified interest (d) Nonresident aliens ineligible for exclusion Subsection (a) shall not apply to any nonresident alien individual. (e) Regulations The Secretary may prescribe such regulations as are appropriate (including regulations requiring reporting) to apply this section in the case of interest received— (1) from partnerships and S corporations, and (2) from a trade or business of the taxpayer. . (b) Conforming amendments (1) The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 115 the following new item: Sec. 116. Partial exclusion of certain interest received by individuals. . (2) Paragraph (2) of section 265(a) of such Code is amended by inserting before the period at the end the following: , or to purchase or carry obligations or shares, or to make deposits, to the extent the interest thereon is excludable from gross income under section 116 (3) Subsection (c) of section 584 of such Code is amended by adding at the end the following: The proportionate share of each participant in the amount of qualified interest (as defined in section 116) received by the common trust fund shall be considered for purposes of such section as having been received by such participant. (4) Subsection (a) of section 643 of such Code is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph: (7) Qualified interest There shall be included the amount of any qualified interest (as defined in section 116) excluded from gross income pursuant to section 116 (reduced by amounts which would be deductible in respect of disbursements allocable to such income but for the provisions of section 265). . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2021. 4. Modification of threshold amount under net investment income tax (a) In general Section 1411(b) (b) Threshold amount For purposes of this chapter— (1) In general The term threshold amount (A) in the case of a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $400,000, and (B) in any other case, ½ of the dollar amount determined under paragraph (1). (2) Inflation adjustment In the case of any taxable year beginning in a calendar year after 2022, the dollar amount in paragraph (1)(A) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2021 calendar year 2016 Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $1,000. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2021. 5. Enhancement of Saver’s Credit (a) Maximum contribution amount Section 25B(a) $2,000 $2,500 (b) Modification of credit rate (1) 50 Section 25B(a) the applicable percentage 50 percent (2) Adjusted gross income phaseouts Section 25B(b) of such Code is amended to read as follows: (b) Limitation For purposes of this section— (1) In general The amount of credit allowable under subsection (a) (determined without regard to this subsection) shall be reduced (but not below zero) by an amount which bears the same ratio to the credit otherwise so allowable as— (A) the excess (if any) of— (i) adjusted gross income of the taxpayer, over (ii) the threshold amount, bears to (B) the phaseout amount. (2) Threshold amount The term threshold amount (A) in the case of a joint return or a surviving spouse (as defined in section 2(a)), $45,000, (B) in the case of a head of household, 75 percent of the amount in effect for the taxable year under subparagraph (A), and (C) in the case of any other individual, 50 percent of the amount in effect for the taxable year under subparagraph (A). (3) Phaseout amount The term phaseout amount (A) in the case of a joint return or a surviving spouse (as defined in 2(a)), $40,000, (B) in the case of a head of household (as defined in section 2(b)), 75 percent of the amount in effect for the taxable year under subparagraph (A), and (C) in the case of any other individual, 50 percent of the amount in effect for the taxable year under subparagraph (A). (4) Inflation adjustment (A) In general In the case of any taxable year beginning in a calendar year after 2022, the $45,000 dollar amount in paragraph (2) and the $40,000 in paragraph (3) shall each be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2021 calendar year 2016 (B) Rounding Any increase determined under subparagraph (A) that is not a multiple of $500 shall be rounded to the nearest multiple of $500. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2021. 6. Extension of limitation on deduction for state and local taxes (a) In general Section 164(b)(6) (1) by striking January 1, 2026 January 1, 2029 (2) by striking 2025 2028 (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2022.

Summary: Middle-Class Savings and Investment Act This bill provides tax incentives for savings and investment for middle-income taxpayers. Specifically, it (1) increases the current tax bracket for capital gains and dividends; (2) allows an exclusion from gross income for up to $300 of interest income received by a taxpayer; (3) increases the threshold for the net investment tax for married couples filing jointly to $400,000, adjusted for inflation (thus eliminating the tax effect known as the marriage penalty); and (4) increases the maximum contribution amount and the rate of the saver's tax credit. As an offset to the cost of these incentives, the bill extends through 2028 the limitation on the deduction for state and local taxes.