IB 
Union Calendar No. 49
108TH CONGRESS 
1ST SESSION 
H. R. 2
[Report No. 108–94] 
To amend the Internal Revenue Code of 1986 to provide additional tax 
incentives to encourage economic growth. 
IN THE HOUSE OF REPRESENTATIVES 
FEBRUARY 27, 2003
Mr. THOMAS introduced the following bill; which was referred to the 
Committee on Ways and Means 
MAY 8, 2003
Additional sponsors: Mr. DELAY, Mr. BLUNT, Ms. PRYCE of Ohio, Mr. COX, 
Mr. REYNOLDS, Mr. DREIER, Mr. DOOLITTLE, Mr. KINGSTON, Mr. 
CRANE, Mr. SHAW, Mr. HERGER, Mr. MCCRERY, Mr. CAMP, Mr. 
RAMSTAD, Mr. SAM JOHNSON of Texas, Ms. DUNN, Mr. PORTMAN, Mr. 
HAYWORTH, Mr. HULSHOF, Mr. MCINNIS, Mr. LEWIS of Kentucky, Mr. 
FOLEY, Mr. BRADY of Texas, Mr. RYAN of Wisconsin, Mr. CANTOR, Mr. 
HENSARLING, Mr. PITTS, Mr. MCKEON, Mr. WILSON of South Carolina, 
Mr. DEMINT, Mr. FOSSELLA, Mr. MCCOTTER, Ms. GINNY BROWN-
WAITE of Florida, Mr. BOEHNER, Mr. FRANKS of Arizona, Mr. KELLER, 
Mr. GARY G. MILLER of California, Mr. COLLINS, Mr. ISAKSON, Mr. 
TERRY, Mr. GARRETT of New Jersey, Mr. KOLBE, Mr. BEAUPREZ, Mr. 
SESSIONS, Mr. CHOCOLA, Mr. PEARCE, Mr. BARRETT of South Carolina, 
Mr. BROWN of South Carolina, Ms. HART, Mr. RYUN of Kansas, and Mr. 
OSE 
Deleted sponsor: Mrs. MUSGRAVE (added April 1, 2003; deleted May 7, 2003) 
MAY 8, 2003
Reported with amendments, committed to the Committee of the Whole House 
on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in italic] 
[For text of introduced bill, see copy of bill as introduced on February 27, 2003] 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
additional tax incentives to encourage economic growth.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CON-
TENTS. 
(a) SHORT TITLE.—This Act may be cited as the ‘‘Jobs 
and Growth Reconciliation Tax Act of 2003’’. 
(b) AMENDMENT OF 1986 CODE.—Except as otherwise 
expressly provided, whenever in this Act an amendment or 
repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the Inter-
nal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents of this 
Act is as follows:
Sec. 1. Short title; references; table of contents. 
TITLE I—ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX 
REDUCTIONS 
Sec. 101. Acceleration of increase in child tax credit. 
Sec. 102. Acceleration of 15-percent individual income tax rate bracket expansion 
for married taxpayers filing joint returns. 
Sec. 103. Acceleration of increase in standard deduction for married taxpayers 
filing joint returns.
Sec. 104. Acceleration of 10-percent individual income tax rate bracket expan-
sion. 
Sec. 105. Acceleration of reduction in individual income tax rates. 
Sec. 106. Minimum tax relief to individuals. 
TITLE II—GROWTH INCENTIVES FOR BUSINESS 
Sec. 201. Increase and extension of bonus depreciation. 
Sec. 202. Increased expensing for small business. 
Sec. 203. 5-year carryback of certain net operating losses. 
TITLE III—REDUCTIONS IN TAXES ON DIVIDENDS AND CAPITAL 
GAINS 
Sec. 301. Reduction in capital gains rates for individuals; repeal of 5-year hold-
ing period requirement. 
Sec. 302. Dividends of individuals taxed at capital gain rates. 
Sec. 303. Sunset of title. 
TITLE IV—CORPORATE ESTIMATED TAX PAYMENTS FOR 2003
Sec. 401. Time for payment of corporate estimated taxes.
TITLE 
I—ACCELERATION 
OF 
CERTAIN 
PREVIOUSLY 
EN-
ACTED TAX REDUCTIONS
SEC. 101. ACCELERATION OF INCREASE IN CHILD TAX 
CREDIT. 
(a) IN GENERAL.—The items relating to calendar 
years 2001 through 2008 in the table contained in para-
graph (2) of section 24(a) (relating to per child amount) 
are amended to read as follows:
‘‘2003, 2004, 2005 ..........................................................................
$1,000
2006, 2007, or 2008 .....................................................................
700’’.
(b) ADVANCE PAYMENT OF PORTION OF INCREASED 
CREDIT IN 2003.—
(1) IN GENERAL.—Subchapter B of chapter 65 
(relating to abatements, credits, and refunds) is
amended by inserting after section 6428 the following 
new section: 
‘‘SEC. 6429. ADVANCE PAYMENT OF PORTION OF IN-
CREASED CHILD CREDIT FOR 2003. 
‘‘(a) IN GENERAL.—Each taxpayer who claimed a 
credit under section 24 on the return for the taxpayer’s first 
taxable year beginning in 2002 shall be treated as having 
made a payment against the tax imposed by chapter 1 for 
such taxable year in an amount equal to the child tax credit 
refund amount (if any) for such taxable year. 
‘‘(b) CHILD TAX CREDIT REFUND AMOUNT.—For pur-
poses of this section, the child tax credit refund amount is 
the amount by which the aggregate credits allowed under 
part IV of subchapter A of chapter 1 for such first taxable 
year would have been increased if—
‘‘(1) the per child amount under section 24(a)(2) 
for such year were $1,000, 
‘‘(2) only qualifying children (as defined in sec-
tion 24(c)) of the taxpayer for such year who had not 
attained age 17 as of December 31, 2003, were taken 
into account, and 
‘‘(3) section 24(d)(1)(B)(ii) did not apply. 
‘‘(c) TIMING OF PAYMENTS.—In the case of any over-
payment attributable to this section, the Secretary shall, 
subject to the provisions of this title, refund or credit such
overpayment as rapidly as possible and, to the extent prac-
ticable, before October 1, 2003. No refund or credit shall 
be made or allowed under this section after December 31, 
2003. 
‘‘(d) COORDINATION WITH CHILD TAX CREDIT.—
‘‘(1) IN GENERAL.—The amount of credit which 
would (but for this subsection and section 26) be al-
lowed under section 24 for the taxpayer’s first taxable
year beginning in 2003 shall be reduced (but not 
below zero) by the payments made to the taxpayer 
under this section. Any failure to so reduce the credit 
shall be treated as arising out of a mathematical or 
clerical error and assessed according to section 
6213(b)(1). 
‘‘(2) JOINT RETURNS.—In the case of a payment 
under this section with respect to a joint return, half 
of such payment shall be treated as having been made 
to each individual filing such return. 
‘‘(e) NO INTEREST.—No interest shall be allowed on 
any overpayment attributable to this section.’’. 
(2) CLERICAL AMENDMENT.—The table of sec-
tions for subchapter B of chapter 65 is amended by 
adding at the end the following new item:
‘‘Sec. 6429. Advance payment of portion of increased child credit for 2003.’’.
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendment made by 
subsection (a) shall apply to taxable years beginning 
after December 31, 2002. 
(2) SUBSECTION (b).—The amendments made by 
subsection (b) shall take effect on the date of the en-
actment of this Act. 
SEC. 102. ACCELERATION OF 15-PERCENT INDIVIDUAL IN-
COME TAX RATE BRACKET EXPANSION FOR 
MARRIED 
TAXPAYERS 
FILING 
JOINT 
RE-
TURNS. 
(a) IN GENERAL.—The item relating to 2005 in the 
table contained in subparagraph (B) of section 1(f )(8) (re-
lating to applicable percentage) is amended to read as fol-
lows:
‘‘2003, 2004, and 2005 .....................................................
200’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1(f)(8)(A) is amended by striking 
‘‘2004’’ and inserting ‘‘2002’’. 
(2) Section 302(c) of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 is amended by 
striking ‘‘2004’’ and inserting ‘‘2002’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2002.
SEC. 103. ACCELERATION OF INCREASE IN STANDARD DE-
DUCTION FOR MARRIED TAXPAYERS FILING 
JOINT RETURNS. 
(a) IN GENERAL.—The item relating to 2005 in the 
table contained in paragraph (7) of section 63(c) (relating 
to applicable percentage) is amended to read as follows:
‘‘2003, 2004, and 2005 .....................................................
200’’.
(b) CONFORMING AMENDMENT.—Section 301(d) of the 
Economic Growth and Tax Relief Reconciliation Act of 
2001 is amended by striking ‘‘2004’’ and inserting ‘‘2002’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2002. 
SEC. 104. ACCELERATION OF 10-PERCENT INDIVIDUAL IN-
COME TAX RATE BRACKET EXPANSION. 
(a) IN GENERAL.—Clause (i) of section 1(i)(1)(B) (re-
lating to the initial bracket amount) is amended by striking 
‘‘($12,000 in the case of taxable years beginning before Jan-
uary 1, 2008)’’ and inserting ‘‘($12,000 in the case of tax-
able years beginning after December 31, 2005, and before 
January 1, 2008)’’. 
(b) INFLATION ADJUSTMENT.—Subparagraph (C) of 
section 1(i)(1) is amended to read as follows: 
‘‘(C) INFLATION
ADJUSTMENT.—In pre-
scribing the tables under subsection (f) which
apply with respect to taxable years beginning in 
calendar years after 2000—
‘‘(i) the Secretary shall make no ad-
justment to the $12,000 initial bracket 
amount for any taxable year, 
‘‘(ii)(I) the Secretary shall make no 
adjustment to the $14,000 initial bracket 
amount for any taxable year beginning be-
fore January 1, 2004, 
‘‘(II) the cost-of-living adjustment used 
in making adjustments to the $14,000 ini-
tial bracket amount for any taxable year be-
ginning during 2004 or 2005 shall be deter-
mined under subsection (f)(3) by sub-
stituting ‘2002’ for ‘1992’ in subparagraph 
(B) thereof, and 
‘‘(III) the cost-of-living adjustment 
used in making adjustments to the $14,000 
initial bracket amount for any taxable year 
beginning after December 31, 2008, shall be 
determined under subsection (f)(3) by sub-
stituting ‘2007’ for ‘1992’ in subparagraph 
(B) thereof, and
‘‘(iii) the adjustments under clause (ii) 
shall not apply to the amount referred to in 
subparagraph (B)(iii). 
If any amount after adjustment under the pre-
ceding sentence is not a multiple of $50, such 
amount shall be rounded to the next lowest mul-
tiple of $50.’’
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2002. 
(2) TABLES
FOR
2003.—The Secretary of the 
Treasury shall modify each table which has been pre-
scribed under section 1(f) of the Internal Revenue 
Code of 1986 for taxable years beginning in 2003 and 
which relates to the amendment made by this section 
to reflect such amendment. 
SEC. 105. ACCELERATION OF REDUCTION IN INDIVIDUAL 
INCOME TAX RATES. 
(a) IN GENERAL.—The table in paragraph (2) of sec-
tion 1(i) (relating to reductions in rates after June 30, 
2001) is amended to read as follows:
‘‘In the case of taxable years
beginning during calendar year: 
The corresponding percentages 
shall be substituted for
the following percentages: 
28%
31%
36%
39.6%
2001 ....................................................................................
27.5%
30.5%
35.5%
39.1%
2002 ....................................................................................
27.0%
30.0%
35.0%
38.6%
2003 and thereafter ...........................................................
25.0%
28.0%
33.0%
35.0%’’.
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2002. 
SEC. 106. MINIMUM TAX RELIEF TO INDIVIDUALS. 
(a) IN GENERAL.—
(1) Subparagraph (A) of section 55(d)(1) is 
amended by striking ‘‘$49,000 in the case of taxable 
years beginning in 2001, 2002, 2003, and 2004’’ and
inserting ‘‘$64,000 in the case of taxable years begin-
ning in 2003, 2004, and 2005’’. 
(2) Subparagraph (B) of section 55(d)(1) is 
amended by striking ‘‘$35,750 in the case of taxable 
years beginning in 2001, 2002, 2003, and 2004’’ and 
inserting ‘‘$43,250 in the case of taxable years begin-
ning in 2003, 2004, and 2005’’. 
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2002. 
TITLE II—GROWTH INCENTIVES 
FOR BUSINESS
SEC. 201. INCREASE AND EXTENSION OF BONUS DEPRECIA-
TION. 
(a) IN GENERAL.—Section 168(k) (relating to special 
allowance for certain property acquired after September 10,
2001, and before September 11, 2004) is amended by adding 
at the end the following new paragraph: 
‘‘(4) 50-PERCENT
BONUS
DEPRECIATION
FOR 
CERTAIN PROPERTY.—
‘‘(A) IN GENERAL.—In the case of 50-per-
cent bonus depreciation property—
‘‘(i) paragraph (1)(A) shall be applied 
by substituting ‘50 percent’ for ‘30 percent’, 
and 
‘‘(ii) except as provided in paragraph 
(2)(C), such property shall be treated as 
qualified property for purposes of this sub-
section. 
‘‘(B) 50-PERCENT
BONUS
DEPRECIATION 
PROPERTY.—For purposes of this subsection, the 
term ‘50-percent bonus depreciation property’ 
means 
property 
described 
in 
paragraph 
(2)(A)(i)—
‘‘(i) the original use of which com-
mences with the taxpayer after May 5, 
2003, 
‘‘(ii) which is acquired by the taxpayer 
after May 5, 2003, and before January 1, 
2006, but only if no written binding con-
tract for the acquisition was in effect before 
May 6, 2003, and 
‘‘(iii) which is placed in service by the 
taxpayer before January 1, 2006, or, in the 
case of property described in paragraph 
(2)(B) (as modified by subparagraph (C) of 
this paragraph), before January 1, 2007. 
‘‘(C) SPECIAL RULES.—Rules similar to the 
rules of subparagraphs (B) and (D) of para-
graph (2) shall apply for purposes of this para-
graph; except that references to September 10, 
2001, shall be treated as references to May 5, 
2003. 
‘‘(D) 
AUTOMOBILES.—Paragraph 
(2)(E) 
shall be applied by substituting ‘$9,200’ for 
‘$4,600’ in the case of 50-percent bonus deprecia-
tion property. 
‘‘(E) ELECTION OF 30 PERCENT BONUS.—If 
a taxpayer makes an election under this sub-
paragraph with respect to any class of property 
for any taxable year, subparagraph (A)(i) shall 
not apply to all property in such class placed in 
service during such taxable year.’’
(b) EXTENSION OF PLACED IN SERVICE DATES, ETC. 
FOR 30-PERCENT BONUS DEPRECIATION PROPERTY.—
(1) 
IN
GENERAL.—Clause 
(iv) 
of 
section 
168(k)(2)(A) is amended—
(A) by striking ‘‘January 1, 2005’’ and in-
serting ‘‘January 1, 2006’’, and 
(B) by striking ‘‘January 1, 2006’’ (as in 
effect before the amendment made by subpara-
graph (A)) and inserting ‘‘January 1, 2007’’. 
(2) PORTION OF BASIS TAKEN INTO ACCOUNT.—
(A) Subparagraphs (B)(ii) and (D)(i) of 
section 168(k)(2) are each amended by striking 
‘‘September 11, 2004’’ each place it appears in 
the text and inserting ‘‘January 1, 2006’’. 
(B) Clause (ii) of section 168(k)(2)(B) is 
amended by striking ‘‘PRE-SEPTEMBER 11, 2004’’ 
in the heading and inserting ‘‘PRE-JANUARY 1, 
2006’’. 
(3) ACQUISITION DATE.—Clause (iii) of section 
168(k)(2)(A) is amended by striking ‘‘September 11, 
2004’’ each place it appears and inserting ‘‘January 
1, 2006’’. 
(4) 
ELECTION.—Clause 
(iii) 
of 
section 
168(k)(2)(C) is amended by adding at the end the fol-
lowing: ‘‘The preceding sentence shall be applied sepa-
rately with respect to property treated as qualified
property by paragraph (4) and other qualified prop-
erty.’’
(c) CONFORMING AMENDMENTS.—
(1) The subsection heading for section 168(k) is 
amended by striking ‘‘SEPTEMBER 11, 2004’’ and in-
serting ‘‘JANUARY 1, 2006’’. 
(2) The heading for clause (i) of section 
1400L(b)(2)(C) is amended by striking ‘‘30-PERCENT 
ADDITIONAL
ALLOWABLE
PROPERTY’’ and inserting 
‘‘BONUS
DEPRECIATION
PROPERTY
UNDER
SECTION 
168(k)’’. 
(d) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years ending after the date 
of the enactment of this Act. 
SEC. 202. INCREASED EXPENSING FOR SMALL BUSINESS. 
(a) IN GENERAL.—Paragraph (1) of section 179(b) 
(relating to dollar limitation) is amended to read as follows: 
‘‘(1) DOLLAR LIMITATION.—The aggregate cost 
which may be taken into account under subsection (a) 
for any taxable year shall not exceed $25,000 
($100,000 in the case of taxable years beginning after 
2002 and before 2008).’’. 
(b) INCREASE IN QUALIFYING INVESTMENT AT WHICH 
PHASEOUT BEGINS.—Paragraph (2) of section 179(b) (re-
lating to reduction in limitation) is amended by inserting
‘‘($400,000 in the case of taxable years beginning after 2002 
and before 2008)’’ after ‘‘$200,000’’. 
(c) OFF-THE-SHELF COMPUTER SOFTWARE.—Para-
graph (1) of section 179(d) (defining section 179 property) 
is amended to read as follows: 
‘‘(1) SECTION 179 PROPERTY.—For purposes of 
this section, the term ‘section 179 property’ means 
property—
‘‘(A) which is—
‘‘(i) tangible property (to which section 
168 applies), or
‘‘(ii) computer software (as defined in 
section 197(e)(3)(B)) which is described in 
section 197(e)(3)(A)(i), to which section 167 
applies, and which is placed in service in a 
taxable year beginning after 2002 and be-
fore 2008, 
‘‘(B) which is section 1245 property (as de-
fined in section 1245(a)(3)), and 
‘‘(C) which is acquired by purchase for use 
in the active conduct of a trade or business. 
Such term shall not include any property described in 
section 50(b) and shall not include air conditioning 
or heating units.’’.
(d) ADJUSTMENT OF DOLLAR LIMIT AND PHASEOUT 
THRESHOLD FOR INFLATION.—Subsection (b) of section 
179 (relating to limitations) is amended by adding at the 
end the following new paragraph: 
‘‘(5) INFLATION ADJUSTMENTS.—
‘‘(A) IN GENERAL.—In the case of any tax-
able year beginning in a calendar year after 
2003 and before 2008, the $100,000 and 
$400,000 amounts in paragraphs (1) and (2) 
shall each be increased by an amount equal to—
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, by substituting ‘calendar year 2002’ 
for ‘calendar year 1992’ in subparagraph 
(B) thereof. 
‘‘(B) ROUNDING.—
‘‘(i) 
DOLLAR
LIMITATION.—If 
the 
amount in paragraph (1) as increased 
under subparagraph (A) is not a multiple 
of $1,000, such amount shall be rounded to 
the nearest multiple of $1,000. 
‘‘(ii) 
PHASEOUT
AMOUNT.—If 
the 
amount in paragraph (2) as increased
under subparagraph (A) is not a multiple 
of $10,000, such amount shall be rounded to 
the nearest multiple of $10,000.’’. 
(e) REVOCATION OF ELECTION.—Paragraph (2) of sec-
tion 179(c) (relating to election irrevocable) is amended to 
read as follows: 
‘‘(2) REVOCATION
OF
ELECTION.—An election 
under paragraph (1) with respect to any taxable year 
beginning after 2002 and before 2008, and any speci-
fication contained in any such election, may be re-
voked by the taxpayer with respect to any property. 
Such revocation, once made, shall be irrevocable.’’. 
(f) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2002. 
SEC. 203. 5-YEAR CARRYBACK OF CERTAIN NET OPERATING 
LOSSES. 
(a) IN
GENERAL.—Subparagraph (H) of section 
172(b)(1) is amended—
(1) by inserting ‘‘5-YEAR CARRYBACK OF CER-
TAIN LOSSES.—’’ after ‘‘(H)’’, and 
(2) by striking ‘‘or 2002’’ and inserting ‘‘, 2002, 
2003, 2004 or 2005’’.
apply to net operating losses for taxable years ending 
after December 31, 2002. 
(2) TECHNICAL
CORRECTIONS.—The amend-
ments made by subsection (c) shall take effect as if in-
cluded in the amendments made by section 102 of the 
Job Creation and Worker Assistance Act of 2002. 
(3) ELECTION.—In the case of a net operating 
loss for a taxable year ending during 2003—
(A) any election made under section 
172(b)(3) of such Code may (notwithstanding 
such section) be revoked before November 1, 2003, 
and 
(B) any election made under section 172(j) 
of such Code shall (notwithstanding such section) 
be treated as timely made if made before Novem-
ber 1, 2003. 
TITLE III—REDUCTION IN TAXES 
ON DIVIDENDS AND CAPITAL 
GAINS 
SEC. 301. REDUCTION IN CAPITAL GAINS RATES FOR INDI-
VIDUALS; REPEAL OF 5-YEAR HOLDING PE-
RIOD REQUIREMENT. 
(a) IN GENERAL.—
(1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each 
amended by striking ‘‘10 percent’’ and inserting ‘‘5 
percent’’. 
(2) The following sections are each amended by 
striking ‘‘20 percent’’ and inserting ‘‘15 percent’’: 
(A) Section 1(h)(1)(C). 
(B) Section 55(b)(3)(C). 
(C) Section 1445(e)(1). 
(D) 
The 
second 
sentence 
of 
section 
7518(g)(6)(A).
(E) 
The 
second 
sentence 
of 
section 
607(h)(6)(A) of the Merchant Marine Act, 1936. 
(b) CONFORMING AMENDMENTS.—
(1) Section 1(h) is amended—
(A) by striking paragraphs (2) and (9), 
(B) 
by 
redesignating 
paragraphs 
(3) 
through (8) as paragraphs (2) through (7), re-
spectively, and 
(C) by redesignating paragraphs (10), (11), 
and (12) as paragraphs (8), (9), and (10), re-
spectively. 
(2) Paragraph (3) of section 55(b) is amended by 
striking ‘‘In the case of taxable years beginning after 
December 31, 2000, rules similar to the rules of sec-
tion 1(h)(2) shall apply for purposes of subpara-
graphs (B) and (C).’’. 
(3) Paragraph (7) of section 57(a) is amended—
(A) by striking ‘‘42 percent’’ the first place 
it appears and inserting ‘‘7 percent’’, and 
(B) by striking the last sentence. 
(c) TRANSITIONAL
RULES
FOR
TAXABLE
YEARS 
WHICH INCLUDE MAY 6, 2003.—For purposes of applying 
section 1(h) of the Internal Revenue Code of 1986 in the 
case of a taxable year which includes May 6, 2003—
(1) The amount of tax determined under sub-
paragraph (B) of section 1(h)(1) of such Code shall be 
the sum of—
(A) 5 percent of the lesser of—
(i) the net capital gain determined by 
taking into account only gain or loss prop-
erly taken into account for the portion of 
the taxable year on or after May 6, 2003 
(determined without regard to collectibles 
gain or loss, gain described in section 
1(h)(6)(A)(i) of such Code, and section 1202 
gain), or 
(ii) the amount on which a tax is de-
termined under such subparagraph (without 
regard to this subsection),
(B) 8 percent of the lesser of—
(i) the qualified 5-year gain (as de-
fined in section 1(h)(9) of the Internal Rev-
enue Code of 1986, as in effect on the day 
before the date of the enactment of this Act) 
properly taken into account for the portion 
of the taxable year before May 6, 2003, over 
(ii) the excess (if any) of—
(I) the amount on which a tax is 
determined under such subparagraph 
(without regard to this subsection), 
over 
(II) the amount on which a tax is 
determined under subparagraph (A), 
plus 
(C) 10 percent of the excess (if any) of—
(i) the amount on which a tax is deter-
mined under such subparagraph (without 
regard to this subsection), over 
(ii) the sum of the amounts on which 
a tax is determined under subparagraphs 
(A) and (B). 
(2) The amount of tax determined under sub-
paragraph (C) of section (1)(h)(1) of such Code shall 
be the sum of—
(A) 15 percent of the lesser of—
(i) the excess (if any) of the amount of 
net capital gain determined under subpara-
graph (A)(i) of paragraph (1) of this sub-
section over the amount on which a tax is 
determined under subparagraph (A) of 
paragraph (1) of this subsection, or 
(ii) the amount on which a tax is de-
termined under such subparagraph (C) 
(without regard to this subsection), plus 
(B) 20 percent of the excess (if any) of—
(i) the amount on which a tax is deter-
mined under such subparagraph (C) (with-
out regard to this subsection), over 
(ii) the amount on which a tax is de-
termined under subparagraph (A) of this 
paragraph. 
(3) For purposes of applying section 55(b)(3) of 
such Code, rules similar to the rules of paragraphs (1) 
and (2) of this subsection shall apply. 
(4) In applying this subsection with respect to 
any pass-thru entity, the determination of when gains 
and loss are properly taken into account shall be 
made at the entity level.
(5) For purposes of applying section 1(h)(11) of 
such Code, as added by section 302 of this Act, to this 
subsection, dividends which are qualified dividend in-
come shall be treated as gain properly taken into ac-
count for the portion of the taxable year on or after 
May 6, 2003. 
(6) Terms used in this subsection which are also 
used in section 1(h) of such Code shall have the re-
spective meanings that such terms have in such sec-
tion. 
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as otherwise provided 
by this subsection, the amendments made by this sec-
tion shall apply to taxable years ending on or after 
May 6, 2003. 
(2) WITHHOLDING.—The amendment made by 
subsection (a)(2)(C) shall apply to amounts paid 
after the date of the enactment of this Act. 
(3) SMALL BUSINESS STOCK.—The amendments 
made by subsection (b)(3) shall apply to dispositions 
on or after May 6, 2003.
SEC. 302. DIVIDENDS OF INDIVIDUALS TAXED AT CAPITAL 
GAIN RATES. 
(a) IN GENERAL.—Section 1(h) (relating to maximum 
capital gains rate), as amended by section 301, is amended 
by adding at the end the following new paragraph: 
‘‘(11) DIVIDENDS
TAXED
AS
NET
CAPITAL 
GAIN.—
‘‘(A) IN
GENERAL.—For purposes of this 
subsection, the term ‘net capital gain’ means net 
capital gain (determined without regard to this 
paragraph), increased by qualified dividend in-
come. 
‘‘(B) QUALIFIED
DIVIDEND
INCOME.—For 
purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘qualified 
dividend income’ means dividends received 
during the taxable year from domestic cor-
porations. 
‘‘(ii) 
CERTAIN
DIVIDENDS
EX-
CLUDED.—Such term shall not include—
‘‘(I) any dividend from a corpora-
tion which for the taxable year of the 
corporation in which the distribution 
is made, or the preceding taxable year, 
is a corporation exempt from tax 
under section 501 or 521,
‘‘(II) any amount allowed as a 
deduction under section 591 (relating 
to deduction for dividends paid by mu-
tual savings banks, etc.), and 
‘‘(III) any dividend described in 
section 404(k). 
‘‘(iii) EXCLUSION
OF
CERTAIN
DIVI-
DENDS.—Such term shall not include any 
dividend on any share of stock—
‘‘(I) with respect to which the 
holding period requirements of section 
246(c) are not met, or 
‘‘(II) to the extent that the tax-
payer is under an obligation (whether 
pursuant to a short sale or otherwise) 
to make related payments with respect 
to positions in substantially similar or 
related property. 
‘‘(C) SPECIAL RULES.—
‘‘(i) AMOUNTS TAKEN INTO ACCOUNT 
AS
INVESTMENT
INCOME.—Qualified divi-
dend income shall not include any amount 
which the taxpayer takes into account as 
investment 
income 
under 
section 
163(d)(4)(B).
‘‘(ii) EXTRAORDINARY DIVIDENDS.—If 
an individual receives, with respect to any 
share of stock, qualified dividend income 
from 1 or more dividends which are ex-
traordinary dividends (within the meaning 
of section 1059(c)), any loss on the sale or 
exchange of such share shall, to the extent of 
such dividends, be treated as long-term cap-
ital loss. 
‘‘(iii) TREATMENT OF DIVIDENDS FROM 
REGULATED
INVESTMENT
COMPANIES
AND 
REAL ESTATE INVESTMENT TRUSTS.—A div-
idend received from a regulated investment 
company or a real estate investment trust 
shall be subject to the limitations prescribed 
in sections 854 and 857.’’
(b) EXCLUSION OF DIVIDENDS FROM INVESTMENT IN-
COME.—Subparagraph (B) of section 163(d)(4) (defining 
net investment income) is amended by adding at the end 
the following flush sentence: 
‘‘Such term shall include qualified dividend in-
come (as defined in section 1(h)(11)(B)) only to 
the extent the taxpayer elects to treat such in-
come as investment income for purposes of this 
subsection.’’
(c) TREATMENT OF DIVIDENDS FROM REGULATED IN-
VESTMENT COMPANIES.—
(1) Subsection (a) of section 854 (relating to 
dividends received from regulated investment compa-
nies) is amended by inserting ‘‘section 1(h)(11) (relat-
ing to maximum rate of tax on dividends and inter-
est) and’’ after ‘‘For purposes of’’. 
(2) Paragraph (1) of section 854(b) (relating to 
other dividends) is amended by redesignating sub-
paragraph (B) as subparagraph (C) and by inserting 
after subparagraph (A) the following new subpara-
graph: 
‘‘(B) MAXIMUM
RATE
UNDER
SECTION 
1(h).—
‘‘(i) IN
GENERAL.—If the aggregate 
dividends received by a regulated invest-
ment company during any taxable year are 
less than 95 percent of its gross income, 
then, in computing the maximum rate 
under section 1(h)(11), rules similar to the 
rules of subparagraph (A) shall apply. 
‘‘(ii) GROSS INCOME.—For purposes of 
clause (i), in the case of 1 or more sales or 
other dispositions of stock or securities, the
term ‘gross income’ includes only the excess 
of—
‘‘(I) the net short-term capital 
gain from such sales or dispositions, 
over 
‘‘(II) the net long-term capital 
loss from such sales or dispositions.’’
(3) Subparagraph (C) of section 854(b)(1), as re-
designated by paragraph (2), is amended by striking 
‘‘subparagraph (A)’’ and inserting ‘‘subparagraph (A) 
or (B)’’. 
(4) Paragraph (2) of section 854(b) is amended 
by inserting ‘‘the maximum rate under section 
1(h)(11) and’’ after ‘‘for purposes of’’. 
(5) Subsection (b) of section 854 is amended by 
adding at the end the following new paragraph: 
‘‘(5) COORDINATION WITH SECTION 1(h)(11).—
For purposes of paragraph (1)(B), an amount shall 
be treated as a dividend only if the amount is quali-
fied dividend income (within the meaning of section 
1(h)(11)(B)).’’
(d) TREATMENT OF DIVIDENDS RECEIVED FROM REAL 
ESTATE INVESTMENT TRUSTS.—Section 857(c) (relating to 
restrictions applicable to dividends received from real estate 
investment trusts) is amended to read as follows: