‘‘(1) IN GENERAL.—If a taxpayer has a net
capital gain for any taxable year, then the tax im-
posed by this section shall not exceed the sum of—
‘‘(A) a tax computed at the rates and in
the same manner as if this subsection had not
been enacted on the greater of—
‘‘(i) taxable income reduced by the
amount of the net capital gain, or
‘‘(ii) the amount of taxable income
taxed at a rate below 10 percent, plus
‘‘(B) a tax of 10 percent on the lesser of—
‘‘(i) the net capital gain determined
by only taking into account gain and loss
attributable to qualified area investments
(as defined in section 1399E(c)), or
‘‘(ii) the amount of taxable income in
excess of the amount on which tax is deter-
mined under subparagraph (A), plus
‘‘(C) a tax of 28 percent of taxable income
in excess of the sum of the amounts on which
tax was determined under subparagraphs (A)
and (B).
‘‘(2) COORDINATION
WITH
INVESTMENT
IN-
COME ELECTION.—For purposes of paragraph (1),
the net capital gain for any taxable year shall be re-
duced (but not below zero) by the amount which the
taxpayer elects to take into account as investment
income 
for 
the 
taxable 
year 
under 
section
163(d)(4)(B)(iii).’’
(2) CORPORATIONS.—Paragraph (2) of section
1201(a) of such Code is amended to read as follows:
‘‘(2)(A) a tax of 17 percent of the lesser of—
‘‘(i) the net capital gain determined by
only taking into account gain and loss attrib-
utable to qualified area investments (as defined
in section 1399E(c)), or
‘‘(ii) the net capital gain, plus
‘‘(B) a tax of 35 percent of the net capital gain
in excess of the amount on which tax was deter-
mined under subparagraph (A).’’
(c) TECHNICAL AMENDMENTS.—
(1) EMPLOYMENT CREDIT PART OF GENERAL
BUSINESS CREDIT.—
(A) Subsection (b) of section 38 of such
Code (relating to current year business credit)
is amended by striking ‘‘plus’’ at the end of
paragraph (11), by striking the period at the
end of paragraph (12) and inserting ‘‘, plus’’,
and by adding at the end the following new
paragraph:
‘‘(13) the economic recovery area employment
credit determined under section 1399D(a).’’
(B) Subsection (d) of section 39 of such
Code is amended by adding at the end the fol-
lowing new paragraph:
‘‘(8) ECONOMIC RECOVERY AREA EMPLOYMENT
CREDIT.—No portion of the unused business credit
which is attributable to the credit determined under
section 1399D (relating to economic recovery area
employment credit) may be carried to any taxable
year ending before January 1, 1997.’’
(2) DENIAL OF DEDUCTION FOR PORTION OF
WAGES EQUAL TO ECONOMIC RECOVERY AREA EM-
PLOYMENT CREDIT.—
(A) Subsection (a) of section 280C of such
Code (relating to rule for targeted jobs credit)
is amended by striking ‘‘and 1396(a)’’ and in-
serting ‘‘, 1396(a), and 1399D(a)’’.
(B) Subsection (c) of section 196 of such
Code (relating to deduction for certain unused
business credits) is amended by striking ‘‘and’’
at the end of paragraph (6), by striking the pe-
riod at the end of paragraph (7) and inserting
‘‘, and’’, and by adding at the end the following
new paragraph:
‘‘(8) the economic recovery area employment
credit determined under section 1399D(a).’’
(3) CARRYOVERS.—Subsection (c) of section
381 of such Code (relating to carryovers in certain
corporate acquisitions) is amended by adding at the
end the following new paragraph:
‘‘(27) ECONOMIC
RECOVERY
AREA
PROVI-
SIONS.—The acquiring corporation shall take into
account (to the extent proper to carry out the pur-
poses of this section and subchapter W, and under
such regulations as may be prescribed by the Sec-
retary) the items required to be taken into account
for purposes of subchapter W in respect of the dis-
tributor or transferor corporation.’’
(4) The table of subchapters for chapter 1 of
such Code is amended by inserting after the item re-
lating to subchapter V the following new item:
‘‘Subchapter W. Designation and treatment of economic recovery
areas.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
Æ