‘‘(B) the sum of the unmarried tax
amounts for each spouse.
‘‘(2) UNMARRIED TAX AMOUNT.—For purposes
of paragraph (1), the unmarried tax amount, with
respect to an individual, is the amount of tax which
would be imposed by section 1(c) if such individual’s
taxable income were equal to the excess (if any) of—
‘‘(A) such individual’s qualified earned in-
come for the taxable year, over
‘‘(B) the sum of—
‘‘(i) an amount equal to the basic
standard 
deduction 
under 
section
63(c)(2)(C) for the taxable year, plus
‘‘(ii) the exemption amount (as de-
fined in section 151(d)) for such taxable
year.
‘‘(3) JOINT
TAX
AMOUNT.—For purposes of
paragraph (1), the joint tax amount is the amount
of tax which would be imposed by section 1(a) if the
taxpayer’s taxable income were equal to the excess
(if any) of—
‘‘(A) the taxpayer’s qualified earned in-
come for the taxable year, over
‘‘(B) the sum of—
‘‘(i) an amount equal to the basic
standard 
deduction 
under 
section
63(c)(2)(A) for the taxable year, plus
‘‘(ii) an amount equal to twice the ex-
emption amount (as so defined) for such
taxable year.
‘‘(d) QUALIFIED EARNED INCOME.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘qualified earned
income’ means an amount equal to the excess (if
any) of—
‘‘(A) the earned income for the taxable
year, over
‘‘(B) an amount equal to the sum of the
deductions described in paragraphs (1), (2),
(6), (7), and (12) of section 62(a) to the extent
that such deductions are properly allocable to
or chargeable against earned income for such
taxable year.
The amount of qualified earned income shall be de-
termined without regard to any community property
laws.
‘‘(2) EARNED INCOME.—For purposes of para-
graph (1)—
‘‘(A) IN GENERAL.—The term ‘earned in-
come’ means income which is earned income
within the meaning of section 401(c)(2)(C) or
911(d)(2) (determined without regard to the
phrase ‘not in excess of 30 percent of his share
of the net profits of such trade or business’ in
subparagraph (B) thereof).
‘‘(B) EXCEPTION.—Such term shall not in-
clude any amount—
‘‘(i) not includible in gross income,
‘‘(ii) received as a pension or annuity,
‘‘(iii) paid or distributed out of an in-
dividual retirement plan (within the mean-
ing of section 7701(a)(37)),
‘‘(iv) received as deferred compensa-
tion, or
‘‘(v) received for services performed
by an individual in the employ of his
spouse (within the meaning of section
3121(b)(3)(B)).
‘‘(e) AMOUNT
OF CREDIT TO BE DETERMINED
UNDER TABLES.—
‘‘(1) IN GENERAL.—The amount of the credit
allowed by this section shall be determined under ta-
bles prescribed by the Secretary.
‘‘(2) REQUIREMENTS FOR TABLES.—The tables
prescribed under paragraph (1) shall reflect the pro-
visions of subsection (c) and shall round to the near-
est $25 any amount of credit which is less than the
maximum credit under subsection (b)(1).’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart A of part IV of subchapter A of chapter 1
of such Code is amended by inserting after the item relat-
ing to section 24 the following new item:
‘‘Sec. 24A. Credit to reduce marriage penalty.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
TITLE III—PHASE-OUT OF
ESTATE AND GIFT TAXES
SEC. 
301. 
PHASE-OUT 
OF 
ESTATE 
AND 
GIFT 
TAXES
THROUGH INCREASE IN UNIFIED ESTATE
AND GIFT TAX CREDIT.
(a) ESTATE TAX CREDIT.—
(1) IN GENERAL.—Section 2010(a) of the In-
ternal Revenue Code of 1986 (relating to unified
credit against estate tax) is amended by striking
‘‘$192,800’’ and inserting ‘‘the applicable credit
amount’’.
(2) APPLICABLE
CREDIT
AMOUNT.— Section
2010 of such Code is amended by redesignating sub-
section (c) as subsection (d) and by inserting after
subsection (b) the following:
‘‘(c) APPLICABLE CREDIT AMOUNT.—For purposes
of this section, the applicable credit amount is the amount
of the tentative tax which would be determined under the
rate schedule set forth in section 2001(c) if the amount
with respect to which such tentative tax is to be computed
were the applicable exclusion amount determined in ac-
cordance with the following table:
‘‘In the case of estates of decedents
The applicable
dying, and gifts made, during:
exclusion amount is:
1998 .......................................................................
$1,000,000
1999 .......................................................................
$1,500,000
2000 .......................................................................
$2,000,000
2001 .......................................................................
$2,500,000
2002 .......................................................................
$5,000,000.’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 6018(a)(1) of such Code is
amended by striking ‘‘$600,000’’ and inserting
‘‘the applicable exclusion amount in effect
under section 2010(c) for the calendar year
which includes the date of death’’.
(B) Section 2001(c)(2) of such Code is
amended by striking ‘‘$21,040,000’’ and insert-
ing ‘‘the amount at which the average tax rate
under this section is 55 percent’’.
(C) Section 2102(c)(3)(A) of such Code is
amended by striking ‘‘$192,800’’ and inserting
‘‘the applicable credit amount in effect under
section 2010(c) for the calendar year which in-
cludes the date of death’’.
(b) 
UNIFIED
GIFT
TAX
CREDIT.—Section
2505(a)(1) of the Internal Revenue Code of 1986 (relating
to unified credit against gift tax) is amended by striking
‘‘$192,800’’ and inserting ‘‘the applicable credit amount
in effect under section 2010(c) for such calendar year’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to the estates of decedents dying,
and gifts made, after December 31, 1997.
SEC. 302. REPEAL OF FEDERAL TRANSFER TAXES.
(a) IN GENERAL.—Subtitle B of the Internal Reve-
nue Code of 1986 is repealed.
(b) EFFECTIVE DATE.—The repeal made by sub-
section (a) shall apply to the estates of decedents dying,
and gifts and generation-skipping transfers made, after
December 31, 2002.
(c) TECHNICAL AND CONFORMING CHANGES.—The
Secretary of the Treasury or the Secretary’s delegate shall
not later than 90 days after the effective date of this sec-
tion, submit to the Committee on Ways and Means of the
House of Representatives and the Committee on Finance
of the Senate a draft of any technical and conforming
changes in the Internal Revenue Code of 1986 which are
necessary to reflect throughout such Code the changes in
the substantive provisions of law made by this Act.
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