(11) Paragraph (4) of section 691(c) is amend-
ed by striking ‘‘1(h),’’ and by inserting ‘‘1203,’’ 
after ‘‘1202,’’. 
(12) The second sentence of paragraph (2) of 
section 871(a) is amended by striking ‘‘section 
1202’’ and inserting ‘‘sections 1202 and 1203’’. 
(13)(A) Paragraph (2) of section 904(b) is 
amended by striking subparagraphs (A) and (C), by 
redesignating subparagraph (B) as subparagraph 
(A), and by inserting after subparagraph (A) (as so 
redesignated) the following new subparagraph: 
‘‘(B) OTHER TAXPAYERS.—In the case of 
a taxpayer other than a corporation, taxable in-
come from sources outside the United States 
shall include gain from the sale or exchange of 
capital assets only to the extent of foreign 
source capital gain net income.’’. 
(B) Subparagraph (A) of section 904(b)(2), as 
so redesignated, is amended—
(i) by striking all that precedes clause (i) 
and inserting the following: 
‘‘(A) CORPORATIONS.—In the case of a 
corporation—’’, and 
(ii) by striking in clause (i) ‘‘in lieu of ap-
plying subparagraph (A),’’.
(C) Paragraph (3) of section 904(b) is amended 
by striking subparagraphs (D) and (E) and inserting 
the following new subparagraph: 
‘‘(D) RATE DIFFERENTIAL PORTION.—The 
rate differential portion of foreign source net 
capital gain, net capital gain, or the excess of 
net capital gain from sources within the United 
States over net capital gain, as the case may 
be, is the same proportion of such amount as 
the excess of the highest rate of tax specified in 
section 11(b) over the alternative rate of tax 
under section 1201(a) bears to the highest rate 
of tax specified in section 11(b).’’. 
(14) Paragraph (1) of section 1402(i) is amend-
ed by inserting ‘‘, and the deduction provided by sec-
tion 1203 shall not apply’’ before the period at the 
end thereof.
(15) Paragraph (1) of section 1445(e) is 
amended by striking ‘‘20 percent’’ and inserting 
‘‘24.5 percent’’. 
(16)(A) 
The 
second 
sentence 
of 
section 
7518(g)(6)(A) is amended—
(i) by striking ‘‘during a taxable year to 
which section 1(h) or 1201(a) applies’’, and
(ii) by striking ‘‘20 percent’’ and inserting 
‘‘24.5 percent’’. 
(B) 
The 
second 
sentence 
of 
section 
607(h)(6)(A) of the Merchant Marine Act, 1936, is 
amended—
(i) by striking ‘‘during a taxable year to 
which section 1(h) or 1201(a) of such Code ap-
plies’’, and 
(ii) by striking ‘‘20 percent’’ and inserting 
‘‘24.5 percent’’. 
(e) CLERICAL AMENDMENT.—The table of sections 
for part I of subchapter P of chapter 1 is amended by 
adding at the end the following new item:
‘‘Sec. 1203. Capital gains deduction.’’.
(f) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2003. 
(2) WITHHOLDING.—The amendments made by 
subsection (d)(15) shall apply only to amounts paid 
after December 31, 2003. 
(3) COORDINATION
WITH
PRIOR
TRANSITION 
RULE.—Any amount treated as long-term capital 
gain by reason of paragraph (3) of section 1122(h) 
of the Tax Reform Act of 1986 shall not be taken
into account for purposes of applying section 1203 
of the Internal Revenue Code of 1986 (as added by 
this section). 
TITLE III—REPEAL OF CERTAIN 
HIDDEN MARGINAL RATE IN-
CREASES; REPEAL OF INDI-
VIDUAL MINIMUM TAX 
Subtitle A—Repeals 
SEC. 301. REPEAL OF OVERALL LIMITATION ON ITEMIZED 
DEDUCTIONS. 
(a) IN GENERAL.—Section 68 (relating to overall 
limitation on itemized deductions) is hereby repealed. 
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (A) of section 1(f)(6) is 
amended by striking ‘‘section 68(b)(2)’’. 
(2) Subparagraph (B) of section 773(a)(3) is 
amended by striking clause (i) and by redesignating 
clauses (ii), (iii), and (iv), as clauses (i), (ii), and 
(iii), respectively. 
(3) The table of sections for subchapter B of 
chapter 1 is amended by striking the item relating 
to section 68. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
SEC. 302. REPEAL OF PHASEOUT OF PERSONAL EXEMP-
TIONS. 
(a) IN GENERAL.—Subsection (d) of section 151 (re-
lating to allowance of deductions for personal exemptions) 
is amended by striking paragraph (3) and by redesig-
nating paragraph (4) as paragraph (3). 
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (6) of section 1(f) is amended—
(A) by striking ‘‘section 151(d)(4)’’ in sub-
paragraph 
(A) 
and 
inserting 
‘‘section 
151(d)(3)’’, and 
(B) by striking ‘‘section 151(d)(4)(A)’’ in 
subparagraph 
(B) 
and 
inserting 
‘‘section 
151(d)(3)’’. 
(2) Paragraph (3) of section 151(d), as redesig-
nated by subsection (a), is amended to read as fol-
lows: 
‘‘(3) INFLATION ADJUSTMENT.—In the case of 
any taxable year beginning in a calendar year after
1989, the dollar amount contained in paragraph (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, by sub-
stituting ‘calendar year 1988’ for ‘calendar year 
1992’ in subparagraph (B) thereof.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 303. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDI-
VIDUALS. 
(a) IN GENERAL.—Subsection (a) of section 55 (re-
lating to alternative minimum tax imposed) is amended 
by adding at the end the following new flush sentence: 
‘‘Except in the case of a corporation, no tax shall be im-
posed by this section for any taxable year beginning after 
December 31, 2003, and the tentative minimum tax of any
taxpayer other than a corporation shall be zero for pur-
poses of this title.’’
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 1(g)(7) is 
amended by adding ‘‘and’’ at the end of clause (i), 
by striking ‘‘, and’’ at the end of clause (ii) and in-
serting a period, and by striking clause (iii). 
(2) Section 2(d) is amended by striking ‘‘sec-
tions 1 and 55’’ and inserting ‘‘section 1’’. 
(3) Section 5(a) is amended by striking para-
graph (4).
(4) Subsection (d) of section 26 (as redesig-
nated by section 102) is amended by inserting before 
the period ‘‘; except that such amount shall be treat-
ed as being zero in the case of a taxpayer other than 
a corporation.’’
(5) Paragraph (6) of section 29(b) is amended 
to read as follows: 
‘‘(6) APPLICATION
WITH
OTHER
CREDITS.—
The credit allowed by subsection (a) for any taxable 
year shall not exceed the regular tax for the taxable 
year reduced by the sum of the credits allowable 
under subpart A and section 27. In the case of a 
corporation, the limitation under the preceding sen-
tence shall be reduced (but not below zero) by the 
tentative minimum tax for the taxable year.’’. 
(6) Paragraph (3) of section 30(b) is amended 
to read as follows: 
‘‘(3) APPLICATION
WITH
OTHER
CREDITS.—
The credit allowed by subsection (a) for any taxable 
year shall not exceed the regular tax for the taxable 
year reduced by the sum of the credits allowable 
under subpart A and sections 27 and 29. In the case 
of a corporation, the limitation under the preceding 
sentence shall be reduced (but not below zero) by the 
tentative minimum tax for the taxable year.’’.
(7) Subsection (d) of section 53(d) is amended 
to read as follows: 
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) NET MINIMUM TAX.—The term ‘net min-
imum tax’ means the tax imposed by section 55 in-
creased by the amount of the credit not allowed 
under section 29 (relating to credit for producing 
fuel from a nonconventional source) solely by reason 
of the application of the last sentence of section 
29(b)(6), or not allowed under section 30 solely by 
reason of the application of the last sentence of sec-
tion 30(b)(3). 
‘‘(2) TENTATIVE
MINIMUM
TAX.—The term 
‘tentative minimum tax’ has the meaning given to 
such term by section 55(b); except that such tax 
shall be treated as being zero in the case of a tax-
payer other than a corporation.’’. 
(8)(A) Subsection (b) of section 55 (relating to 
alternative minimum tax imposed) is amended to 
read as follows: 
‘‘(b) TENTATIVE MINIMUM TAX.—For purposes of 
this part—
‘‘(1) AMOUNT OF TENTATIVE TAX.—The ten-
tative minimum tax for the taxable year is—
‘‘(A) 20 percent of so much of the alter-
native minimum taxable income for the taxable 
year as exceeds the exemption amount, reduced 
by 
‘‘(B) the alternative minimum tax foreign 
tax credit for the taxable year. 
‘‘(2) ALTERNATIVE
MINIMUM
TAXABLE
IN-
COME.—The term ‘alternative minimum taxable in-
come’ means the taxable income of the taxpayer for 
the taxable year—
‘‘(A) determined with the adjustments pro-
vided in section 56, and 
‘‘(B) increased by the amount of the items 
of tax preference described in section 57. 
If a taxpayer is subject to the regular tax, such tax-
payer shall be subject to the tax imposed by this sec-
tion (and, if the regular tax is determined by ref-
erence to an amount other than taxable income, such 
amount shall be treated as the taxable income of 
such taxpayer for purposes of the preceding sen-
tence).’’. 
(B) Subsection (d) of section 55 is amended to 
read as follows: 
‘‘(d) EXEMPTION AMOUNT.—For purposes of this 
section—
‘‘(1) IN
GENERAL.—The term ‘exemption 
amount’ means $40,000. 
‘‘(2) PHASE-OUT
OF
EXEMPTION
AMOUNT.—
The exemption amount of any taxpayer shall be re-
duced (but not below zero) by an amount equal to 
25 percent of the amount by which the alternative 
minimum taxable income of the taxpayer exceeds 
$150,000.’’. 
(9)(A) Paragraph (6) of section 56(a) is 
amended to read as follows: 
‘‘(6) ADJUSTED BASIS.—The adjusted basis of 
any property to which paragraph (1) or (5) applies 
(or with respect to which there are any expenditures 
to which paragraph (2) applies) shall be determined 
on the basis of the treatment prescribed in para-
graph (1), (2), or (5), whichever applies.’’. 
(B) Section 56 is amended by striking sub-
section (b).
(C) Subsection (c) of section 56 is amended by 
striking so much of the subsection as precedes para-
graph (1), by redesignating paragraphs (1), (2), and 
(3) as paragraphs (8), (9), and (10), respectively, 
and moving them to the end of subsection (a).
(D) Paragraph (8) of section 56(a), as redesig-
nating by paragraph (12)(C), is amended by striking 
‘‘subsection (g)’’ and inserting ‘‘subsection (c)’’. 
(E) Section 56 is amended by striking sub-
section (e) and by redesignating subsections (d) and 
(g) as subsections (b) and (c), respectively. 
(10)(A) Section 58 is hereby repealed. 
(B) Clause (i) of section 56(b)(2)(A) (as redes-
ignated by paragraph (12)(E), is amended by insert-
ing ‘‘, in the case of taxable years beginning before 
January 1, 2004,’’ before ‘‘section 58’’. 
(C) Subsection (h) of section 59 is amended—
(i) by striking ‘‘, 465, and 1366(d)’’ and 
inserting ‘‘and 465’’, and 
(ii) by striking ‘‘56, 57, and 58’’ and in-
serting ‘‘56 and 57’’. 
(11)(A) Subparagraph (C) of section 59(a)(1) 
is amended by striking ‘‘subparagraph (A)(i) or 
(B)(i) of section 55(b)(1) (whichever applies)’’ and 
inserting ‘‘section 55(b)(1)(A)’’. 
(B) Paragraph (3) of section 59(a) is amended 
to read as follows: 
‘‘(3) PRE-CREDIT TENTATIVE MINIMUM TAX.—
For purposes of this subsection, the term ‘pre-credit
tentative minimum tax’ means the amount deter-
mined under section 55(b)(1)(A).’’. 
(C) Section 59 is amended by striking sub-
section (c). 
(D) Section 59 is amended by striking sub-
section (j). 
(12) Paragraph (7) of section 382(l) is amend-
ed by striking ‘‘section 56(d)’’ and inserting ‘‘section 
56(b)’’. 
(13) Paragraph (2) of section 641(c) is amend-
ed by striking subparagraph (B) and by redesig-
nating subparagraphs (C) and (D) as subparagraphs 
(B) and (C), respectively. 
(14) Subsections (b) and (c) of section 666 are 
each amended by striking ‘‘(other than the tax im-
posed by section 55)’’. 
(15) Subsections (c)(5) and (d)(3)(B) of section 
772 are each amended by striking ‘‘56, 57, and 58’’ 
and inserting ‘‘56 and 57’’. 
(16) Sections 847 and 848(i) are each amended 
by striking ‘‘section 56(g)’’ and inserting ‘‘section 
56(c)’’. 
(17) Sections 871(b)(1) and 877(b) are each 
amended by striking ‘‘or 55’’.
(18) Subsection (a) of section 897 is amended 
to read as follows: 
‘‘(a) GENERAL RULE.—For purposes of this title, 
gain or loss of a nonresident alien individual or a foreign 
corporation from the disposition of a United States real 
property interest shall be taken into account—
‘‘(1) in the case of a nonresident alien indi-
vidual, under section 871(b)(1), or 
‘‘(2) in the case of a foreign corporation, under 
section 882(a)(1), 
as if the taxpayer were engaged in a trade or business 
within the United States during the taxable year and as 
if such gain or loss were effectively connected with such 
trade or business.’’. 
(19) Paragraph (1) of section 962(a) is amend-
ed by striking ‘‘sections 1 and 55’’ and inserting 
‘‘section 1’’. 
(20) Paragraph (1) of section 1397E(c) is 
amended to read as follows: 
‘‘(1) the regular tax liability (as defined in sec-
tion 26(b), over’’ 
(21) The last sentence of section 1563(a) is 
amended by striking ‘‘section 55(d)(3)’’ and insert-
ing ‘‘section 55(d)(2)’’.
(22) Subparagraph (B) of section 6015(d)(2) is 
amended by striking ‘‘or 55’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
(d) TRANSITIONAL RULE RELATING TO MINIMUM 
TAX CREDIT.—
(1) IN GENERAL.—The pre-effective date min-
imum tax credit of a taxpayer other than a corpora-
tion shall not be allowed under section 53 of the In-
ternal Revenue Code of 1986 but shall be allowed 
under this subsection. 
(2) 
PRE-EFFECTIVE
DATE
MINIMUM
TAX
CREDIT.—For purposes of this subsection, the term 
‘‘pre-effective date minimum tax credit’’ means the 
amount determined under section 53(b) of such 
Code for the first taxable year beginning after De-
cember 31, 2003. 
(3) AMOUNT OF CREDIT.—
(A) IN GENERAL.—The pre-effective date 
minimum tax credit of a taxpayer other than a 
corporation shall be allowed ratably over the pe-
riod of 10 taxable years beginning with the first 
taxable year beginning after December 31, 
2003.
(B) LIMITATION.—The credit allowable by 
this subsection for any taxable year shall not 
exceed the regular tax liability of the taxpayer 
for such taxable year reduced by the sum of the 
credits allowable under subparts A, B, D, E, 
and F of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986. 
(C) CARRYFORWARD.—If the credit allow-
able by this subsection exceeds the limitation 
imposed by subparagraph (B), such excess shall 
be carried to the succeeding taxable year and 
added to the credit allowable under this sub-
section for such succeeding taxable year. 
(4) ACCELERATION
OF
CREDIT
WHERE
PRE-
VIOUSLY TAXED INCOME.—
(A) IN
GENERAL.—The credit allowed 
under this subsection for any taxable year shall 
not be less than so much of the limitation de-
scribed in paragraph (3)(B) for the taxable year
as is attributable to previously taxed incentive 
stock option gain. Proper adjustments shall be 
made in the amount allowed under this sub-
section for subsequent taxable years to take 
into account any increased credit allowed by 
reason of this paragraph.
(B) INCENTIVE STOCK OPTION GAIN.—For 
purposes of subparagraph (A), the term ‘‘pre-
viously taxed incentive stock option gain’’ 
means the amount of gain recognized during 
the taxable year on account of the disposition of 
stock acquired by exercising an incentive stock 
option (as defined in section 422 of such Code) 
to the extent such gain does not exceed the 
amount of gain previously taken into account 
by reason of section 56(b)(3) of such Code (as 
in effect on the day before the date of the en-
actment of this Act) with respect to such op-
tion. 
(5) DEFINITIONS.—Terms used in this sub-
section which are also used in section 53 of such 
Code shall have the respective meanings given to 
such terms by such section 53. 
Subtitle B—Revenue Offsets 
SEC. 311. ADDITIONAL INCOME TAX. 
(a) IN GENERAL.—Section 1 is amended by adding 
at the end the following new subsection: 
‘‘(h) ADDITIONAL INCOME TAX.—
‘‘(1) IN GENERAL.—If the adjusted gross in-
come of an individual exceeds the initial threshold 
amount, the tax imposed by this section (determined
without regard to this subsection) shall be increased 
by an amount equal to the sum of—
‘‘(A) the applicable rate of so much of the 
adjusted gross income as exceeds the initial 
threshold amount but does not exceed the sec-
ond threshold amount, and 
‘‘(B) twice the applicable rate of so much 
of the adjusted gross income as exceeds the sec-
ond threshold amount. 
‘‘(2) APPLICABLE RATE.—For purposes of this 
section, the applicable rate is the rate estimated by 
the Secretary which will result in the Individual Tax 
Simplification Act of 2003 being revenue neutral 
over the first 10 years after its enactment. 
‘‘(3) THRESHOLD AMOUNTS.—For purposes of 
this subsection—
‘‘(A) INITIAL THRESHOLD AMOUNT.—The 
initial threshold amount is—
‘‘(i) $120,000 in the case of a joint 
return, 
‘‘(ii) $90,000 in the case of an indi-
vidual who is not married, and 
‘‘(iii) 1⁄2 the dollar amount applicable 
under clause (i) in the case of a married 
individual filing a separate return.
‘‘(B) SECOND THRESHOLD AMOUNT.—The 
second threshold amount is—
‘‘(i) $150,000 in the case of a joint 
return, 
‘‘(ii) $112,000 in the case of an indi-
vidual who is not married, and 
‘‘(iii) 1⁄2 the dollar amount applicable 
under clause (i) in the case of a married 
individual filing a separate return. 
‘‘(C) MARITAL STATUS.—For purposes of 
this paragraph, marital status shall be deter-
mined under section 7703. 
‘‘(4) INFLATION ADJUSTMENT.—In the case of 
any taxable year beginning in a calendar year after 
2004, each dollar amount contained in paragraph 
(2) shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under subsection (f)(3) for the calendar 
year in which the taxable year begins, by sub-
stituting ‘calendar year 2003’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
If any increase under the preceding sentence is not 
a multiple of $50, such increase shall be rounded to 
the nearest multiple of $50.
‘‘(5) TAX
NOT
TO
APPLY
TO
ESTATES
AND 
TRUSTS.—This subsection shall not apply to an es-
tate or trust.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
(c) SECTION 15 NOT TO APPLY.—The amendment 
made by this section shall not be treated as a change in 
a rate of tax for purposes of section 15 of such Code.
Æ