I 
108TH CONGRESS 
1ST SESSION H. R. 1939
To amend the Internal Revenue Code of 1986 to provide a revenue-neutral 
simplification of the individual income tax. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 1, 2003
Mr. NEAL of Massachusetts introduced the following bill; which was referred 
to the Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
a revenue-neutral simplification of the individual income tax.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Individual Tax Simplification Act of 2003’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—
Sec. 1. Short title. 
TITLE I—SIMPLIFICATION RELATING TO NONREFUNDABLE 
PERSONAL CREDITS 
Sec. 101. Repeal of interaction with alternative minimum tax. 
Sec. 102. Uniform phaseout of credits for adoption, children, and education. 
TITLE II—SIMPLIFICATION OF CAPITAL GAINS TAX 
Sec. 201. Simplification of capital gains tax. 
TITLE III—REPEAL OF CERTAIN HIDDEN MARGINAL RATE 
INCREASES; REPEAL OF INDIVIDUAL MINIMUM TAX 
Subtitle A—Repeals 
Sec. 301. Repeal of overall limitation on itemized deductions. 
Sec. 302. Repeal of phaseout of personal exemptions. 
Sec. 303. Repeal of alternative minimum tax on individuals. 
Subtitle B—Revenue Offsets 
Sec. 311. Additional income tax.
TITLE 
I—SIMPLIFICATION 
RE-
LATING TO NONREFUNDABLE 
PERSONAL CREDITS
SEC. 101. REPEAL OF INTERACTION WITH ALTERNATIVE 
MINIMUM TAX. 
(a) GENERAL RULE.—Subsection (a) of section 26 
(relating to limitation based on amount of tax) is amended 
to read as follows: 
‘‘(a) LIMITATION BASED ON AMOUNT OF TAX.—The 
aggregate amount of credits allowed by this subpart for 
the taxable year shall not exceed the tax imposed by this 
chapter for the taxable year.’’.
(b) CONFORMING AMENDMENT.—Paragraph (2) of 
section 26(b) is amended by inserting ‘‘subsection (a) 
and’’ before ‘‘paragraph (1)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 102. UNIFORM PHASEOUT OF CREDITS FOR ADOP-
TION, CHILDREN, AND EDUCATION. 
(a) IN GENERAL.—Section 26 is amended by redesig-
nating subsections (b) and (c) as subsections (c) and (d), 
respectively, and by inserting after subsection (a) the fol-
lowing new subsection: 
‘‘(b) UNIFORM PHASEOUT OF ADOPTION EXPENSE 
CREDIT, CHILD CREDIT, AND HOPE
AND LIFETIME 
LEARNING CREDITS.—
‘‘(1) IN
GENERAL.—The aggregate amount 
which would (but for subsection (a) and this sub-
section) be allowed as a credit under sections 23, 24, 
and 25A shall be reduced (but not below zero) by 10 
percent of the amount by which the taxpayer’s modi-
fied adjusted gross income exceeds the threshold 
amount. For purposes of the preceding sentence, the 
term ‘modified adjusted gross income’ means ad-
justed gross income increased by any amount ex-
cluded from gross income under section 911, 931, or 
933. 
‘‘(2) THRESHOLD AMOUNT.—For purposes of 
paragraph (1), the term ‘threshold amount’ means— 
‘‘(A) $110,000 in the case of a joint re-
turn, 
‘‘(B) $75,000 in the case of an individual 
who is not married, and 
‘‘(C) $55,000 in the case of a married in-
dividual filing a separate return. 
For purposes of this paragraph, marital status shall 
be determined under section 7703.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 23(b) is amended 
to read as follows:
‘‘(2) LIMITATION BASED ON ADJUSTED GROSS IN-
COME.—
‘‘For limitation based on adjusted gross income, 
see section 26(b).’’.
(2) Subsection (c) of section 23 is amended—
(A) by inserting ‘‘(as reduced under sec-
tion 26(b))’’ before ‘‘exceeds’’, and 
(B) by adding at the end the following new 
sentence: ‘‘For purposes of this subsection, the 
reduction under section 26(b) shall first be ap-
plied to the credits under sections 24 and 25A 
and then to the credit under this section.’’. 
(3) Subsection (b) of section 24 is amended to 
read as follows:
‘‘(b) LIMITATION BASED ON ADJUSTED GROSS.—
‘‘For limitation based on adjusted gross income, 
see section 26(b).’’.
(4) Subsection (d) of section 25A is amended to 
read as follows:
‘‘(d) LIMITATION BASED ON ADJUSTED GROSS.—
‘‘For limitation based on adjusted gross income, 
see section 26(b).’’.
(5) Subsection (h) of section 25A is amended to 
read as follows: 
‘‘(h) INFLATION ADJUSTMENTS.—
‘‘(1) IN GENERAL.—In the case of a taxable 
year beginning after 2004, each of the $1,000 
amounts under subsection (b)(1) shall be increased 
by an amount equal to—
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 2003’ for 
‘calendar year 1992’ in subparagraph (B) 
thereof.
‘‘(2) ROUNDING.—If any amount as adjusted 
under paragraph (1) is not a multiple of $100, such 
amount shall be rounded to the next lowest multiple 
of $100.’’. 
(6) The section heading for section 26 is 
amended by inserting before the period ‘‘; PHASE-
OUT OF CERTAIN CREDITS BASED ON INCOME; 
DEFINITIONS’’. 
(7) The item relating to section 26 in the table 
of sections for subpart A of part IV of subchapter 
A of chapter 1 is amended by inserting before the 
period ‘‘; phaseout of certain credits based on in-
come; definitions’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
TITLE II—SIMPLIFICATION OF 
CAPITAL GAINS TAX 
SEC. 201. SIMPLIFICATION OF CAPITAL GAINS TAX. 
(a) IN GENERAL.—Part I of subchapter P of chapter 
1 (relating to treatment of capital gains) is amended by 
adding at the end the following new section:
‘‘SEC. 1203. CAPITAL GAINS DEDUCTION. 
‘‘If for any taxable year a taxpayer other than a cor-
poration has a net capital gain, 38 percent of such gain 
shall be a deduction from gross income.’’. 
(b) DEDUCTION ALLOWABLE WHETHER
OR NOT 
TAXPAYER ITEMIZES OTHER DEDUCTIONS.—
(1) Subsection (b) of section 63 is amended by 
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph: 
‘‘(3) the deduction allowed by section 1203.’’. 
(2) Subsection (d) of section 63 is amended by 
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph: 
‘‘(3) the deduction allowed by section 1203.’’. 
(c) TREATMENT OF COLLECTIBLES.—
(1) IN GENERAL.—Section 1222 is amended by 
inserting after paragraph (11) the following new 
paragraph: 
‘‘(12) SPECIAL RULE FOR COLLECTIBLES.—
‘‘(A) IN GENERAL.—Any gain or loss from 
the sale or exchange of a collectible shall be 
treated as a short-term capital gain or loss (as
the case may be), without regard to the period 
such asset was held. The preceding sentence 
shall apply only to the extent the gain or loss 
is taken into account in computing taxable in-
come. 
‘‘(B) TREATMENT OF CERTAIN SALES OF 
INTERESTS IN PARTNERSHIPS, ETC.—For pur-
poses of subparagraph (A), any gain from the 
sale or exchange of an interest in a partnership, 
S corporation, or trust which is attributable to 
unrealized appreciation in the value of collect-
ibles held by such entity shall be treated as gain 
from the sale or exchange of a collectible. Rules 
similar to the rules of section 751(f) shall apply 
for purposes of the preceding sentence. 
‘‘(C) COLLECTIBLE.—For purposes of this 
paragraph, the term ‘collectible’ means any cap-
ital asset which is a collectible (as defined in 
section 408(m) without regard to paragraph (3) 
thereof).’’. 
(2) 
CHARITABLE
DEDUCTION
NOT
AF-
FECTED.—
(A) Paragraph (1) of section 170(e) is 
amended by adding at the end thereof the fol-
lowing new sentence: ‘‘For purposes of this
paragraph, section 1222 shall be applied with-
out regard to paragraph (12) thereof (relating 
to special rule for collectibles).’’. 
(B) Clause (iv) of section 170(b)(1)(C) is 
amended by inserting before the period at the 
end thereof the following: ‘‘and section 1222 
shall be applied without regard to paragraph 
(12) thereof (relating to special rule for collect-
ibles)’’. 
(d) TECHNICAL AND CONFORMING CHANGES.—
(1) Section 1 is amended by striking subsection 
(h). 
(2) Subparagraph (E) of section 163(d)(4) is 
amended to read as follows: 
‘‘(E) COORDINATION WITH CAPITAL GAINS 
DEDUCTION.—The net capital gain taken into 
account under section 1203 for any taxable 
year shall be reduced (but not below zero) by 
the amount which the taxpayer takes into ac-
count as investment income under subpara-
graph (B)(iii) for such year.’’. 
(3) Paragraph (1) of section 170(e) is amended 
by striking ‘‘the amount of gain’’ in the material fol-
lowing subparagraph (B)(ii) and inserting ‘‘62 per-
cent (100 percent in the case of a corporation) of 
the amount of gain’’. 
(4) Subparagraph (B) of section 172(d)(2) is 
amended to read as follows: 
‘‘(B) the exclusion under section 1202 and 
the deduction under section 1203 shall not be 
allowed.’’. 
(5) The last sentence of section 453A(c)(3) is 
amended by striking all that follows ‘‘long-term cap-
ital gain,’’ and inserting ‘‘the maximum rate on net 
capital gain under section 1201 or the deduction 
under section 1203 (whichever is appropriate) shall 
be taken into account.’’. 
(6)(A) Section 641(c)(2)(A) is amended by 
striking ‘‘Except as provided in section 1(h), the’’ 
and inserting ‘‘The’’. 
(B) Section 641(c)(2)(C) is amended by insert-
ing after clause (iii) the following new clause: 
‘‘(iv) The deduction under section 
1203.’’. 
(7) Paragraph (4) of section 642(c) is amended 
to read as follows: 
‘‘(4) ADJUSTMENTS.—To the extent that the 
amount otherwise allowable as a deduction under 
this subsection consists of gain from the sale or ex-
change of capital assets held for more than 1 year, 
proper adjustment shall be made for any exclusion 
allowable under section 1202 and any deduction al-
lowable under section 1203 to the estate or trust. In 
the case of a trust, the deduction allowed by this 
subsection shall be subject to section 681 (relating 
to unrelated business income).’’. 
(8) Section 642 is amended by adding at the 
end the following new subsection: 
‘‘(j) CAPITAL GAINS DEDUCTION.—The deduction 
under section 1203 to an estate or trust shall be computed 
by excluding the portion (if any) of the gains for the tax-
able year which is includible by the income beneficiaries 
under sections 652 and 662 (relating to inclusions of 
amounts in gross income of beneficiaries of trusts) as gain 
derived from the sale or exchange of capital assets.’’. 
(9) The last sentence of section 643(a)(3) is 
amended to read as follows: ‘‘The exclusion under 
section 1202 and the deduction under section 1203 
shall not be taken into account.’’. 
(10) Subparagraph (C) of section 643(a)(6) is 
amended by inserting ‘‘(i)’’ before ‘‘there shall’’ and 
by inserting before the period ‘‘, and (ii) the deduc-
tion under section 1203 (relating to capital gains de-
duction) shall not be taken into account’’.