(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 2001, 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 2000’ 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, 1999.
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-
(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, 1999.
(2) WITHHOLDING.—The amendments made by
subsection (d)(15) shall apply only to amounts paid
after December 31, 1999.
(3) REPEAL OF ELECTION.—Section 311 of the
Taxpayer Relief Act of 1997 is amended by striking
subsection (e).
(4) 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, 1999.
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, 1999.
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, 1999, 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) Section 32 is amended by striking sub-
section (h).
(8) 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.’’.
(9)(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.’’.
(10)(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).