I
103D CONGRESS
1ST SESSION
H. R. 1450
To promote the competitiveness of American businesses by reducing the
national debt to lower the cost of capital, providing tax incentives to
further enhance private capital formation, modernizing antitrust law to
remove barriers to cooperative enterprise, instituting civil justice reform
to reduce litigious burdens, and reviewing new Federal regulations to
prevent unintended effects, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 24, 1993
Mr. WALKER (for himself, Mr. GINGRICH, Mr. ARMEY, Mr. MCCOLLUM, Mr.
DELAY, Mr. HYDE, Mr. HUNTER, Mr. PAXON, Mr. BURTON of Indiana,
Mr. LEWIS of Florida, Mr. SENSENBRENNER, Mr. HENRY, Mr. FAWELL,
Mr. ROHRABACHER, Mr. BARTON of Texas, Mr. ZIMMER, Mr. SAM JOHN-
SON of Texas, Mr. CALVERT, Mr. HOKE, Mr. SMITH of Michigan, Mr.
ROYCE, Mr. GRAMS, Mr. LINDER, Mr. BLUTE, Ms. DUNN, Mr. BAKER
of California, and Mr. BARTLETT of Maryland) introduced the following
bill; which was referred jointly to the Committees on Ways and Means,
the Judiciary, Energy and Commerce, Science, Space, and Technology,
Education and Labor, and Government Operations
A BILL
To promote the competitiveness of American businesses by
reducing the national debt to lower the cost of capital,
providing tax incentives to further enhance private cap-
ital formation, modernizing antitrust law to remove bar-
riers to cooperative enterprise, instituting civil justice
reform to reduce litigious burdens, and reviewing new
Federal regulations to prevent unintended effects, and
for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Fundamental Competitiveness Act of 1993’’.
(b) TABLE OF CONTENTS.—
Sec. 1. Short title.
Sec. 2. Findings.
TITLE I—PUBLIC DEBT REDUCTION
Sec. 101. Designation of amounts for reduction of public debt.
Sec. 102. Public debt reduction trust fund.
Sec. 103. Taxpayer-generated sequestration of Federal spending to reduce the
public debt.
TITLE II—CAPITAL FORMATION
Sec. 201. Findings.
Sec. 202. Research credit improvement.
Sec. 203. Variable capital gains.
Sec. 204. Capital gains exclusion for startup business stock.
Sec. 205. Indexing of certain capital assets.
Sec. 206. Corporate debt-equity equalization.
Sec. 207. Charitable deduction for corporate contributions of employee services
to educational organizations.
Sec. 208. Investment credit for new manufacturing and other production equip-
ment.
Sec. 209. Increase in limitation based on amount of tax.
Sec. 210. Special treatment for losses on investment in manufacturing facilities.
Sec. 211. Exemption of certain interest and dividend income from tax.
Sec. 212. Ordinary-loss treatment for losses on investments in startup compa-
nies.
TITLE III—COOPERATIVE ENTERPRISE
Sec. 301. Findings.
Sec. 302. Merger analysis.
Sec. 303. Joint production.
TITLE IV—BUSINESS LIABILITY REFORM
Subtitle A—Findings
Sec. 401. Findings.
Subtitle B—Professionals’ Liability Reform
Sec. 411. Short title.
Sec. 412. Purpose.
Sec. 413. Scope and preemption.
Sec. 414. Description of professional liability standards.
Sec. 415. Formation of risk management programs.
Sec. 416. Definitions.
Subtitle C—Product Liability Fairness
PART I—GENERAL PROVISIONS
Sec. 421. Short title.
Sec. 422. Definitions.
Sec. 423. Preemption.
Sec. 424. Jurisdiction of Federal courts.
Sec. 425. Effective date.
PART II—OUT OF COURT PROCEDURES
Sec. 431. Expedited product liability settlements.
Sec. 432. Alternative dispute resolution procedures.
PART III—COURT PROCEDURES
Sec. 441. Civil actions.
Sec. 442. Uniform standards of product seller liability.
Sec. 443. Uniform standards for award of punitive damages.
Sec. 444. Uniform time limitations on liability.
Sec. 445. Uniform standards for offset of workers’ compensation benefits.
Sec. 446. Several liability for noneconomic damages.
Sec. 447. Defenses involving intoxicating alcohol or drugs.
TITLE V—REGULATORY REVIEW
Sec. 501. Findings.
Sec. 502. Competitiveness risk assessment.
TITLE VI—TOTAL QUALITY MANAGEMENT
Sec. 601. Formation and use of quality circles and joint production teams.
TITLE VII—LONG-TERM INVESTMENT
Sec. 701. Short title.
Sec. 702. Findings.
Sec. 703. Elimination of quarterly reports.
TITLE VIII—AMENDMENTS TO THE STEVENSON-WYDLER
TECHNOLOGY INNOVATION ACT OF 1980
Sec. 801. Amendment to Stevenson-Wydler Technology Innovation Act of 1980.
Sec. 802. Copyright for software.
Sec. 803. Royalty payments to authors.
Sec. 804. Technical and conforming amendments.
SEC. 2. FINDINGS.
The Congress finds that—
(1) the ability of United States companies to
develop, produce, and market new products and
services is second to none when on an equal footing
with the competition;
(2) however, United States companies are not
on such a footing due in large part to competitive
disadvantages imposed by government;
(3) therefore, the Federal Government should
fuel the engine of the United States private sector
by freeing it from the tax, regulatory, and other
legal burdens imposed on it;
(4) the Federal Government should focus on
long-term competitiveness and job creation by reex-
amining those provisions of law and regulation which
are anticompetitive in nature;
(5) the Federal Government can best promote
United States competitiveness by fostering a healthy
business climate and by reducing the Federal budget
deficit which will free up capital for private use and
reduce its cost;
(6) targeting large sums of taxpayer money to
aid specific United States industries will further
erode our competitiveness by increasing our national
debt and removing the inherent efficiency of the
marketplace; and
(7) our main economic competitors spend few
government resources to aid specific sectors of their
economies, but instead remove barriers and disincen-
tives to savings, investment, production, and eco-
nomic activity.
TITLE I—PUBLIC DEBT
REDUCTION
SEC. 101. DESIGNATION OF AMOUNTS FOR REDUCTION OF
PUBLIC DEBT.
(a) IN GENERAL.—Subchapter A of chapter 61 of the
Internal Revenue Code of 1986 (relating to returns and
records) is amended by adding at the end the following
new part:
‘‘PART IX—DESIGNATION FOR REDUCTION OF
PUBLIC DEBT.
‘‘Sec. 6097. Designation.
‘‘SEC. 6097. DESIGNATION.
‘‘(a) IN GENERAL.—Every individual with adjusted
income tax liability for any taxable year may designate
that a portion of such liability (not to exceed 10 percent
thereof) shall be used to reduce the public debt.
‘‘(b) MANNER AND TIME OF DESIGNATION.—A des-
ignation under subsection (a) may be made with respect
to any taxable year only at the time of filing the return
of tax imposed by chapter 1 for the taxable year. The des-
ignation shall be made on the first page of the return or
on the page bearing the taxpayer’s signature.
‘‘(c) ADJUSTED INCOME TAX LIABILITY.—For pur-
poses of this section, the term ‘adjusted income tax liabil-
ity’ means income tax liability (as defined in section
6096(b)) reduced by any amount designated under section
6096 (relating to designation of income tax payments to
Presidential Election Campaign Fund).’’
(b) CLERICAL AMENDMENT.—The table of parts for
such subchapter A is amended by adding at the end the
following new item:
‘‘Part IX. Designation for reduction of public debt.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
SEC. 102. PUBLIC DEBT REDUCTION TRUST FUND.
(a) IN GENERAL.—Subchapter A of chapter 98 of the
Internal Revenue Code of 1986 (relating to trust fund
code) is amended by adding at the end the following
section:
‘‘SEC. 9512. PUBLIC DEBT REDUCTION TRUST FUND.
‘‘(a) CREATION OF TRUST FUND.—There is estab-
lished in the Treasury of the United States a trust fund
to be known as the ‘Public Debt Reduction Trust Fund’,
consisting of any amount appropriated or credited to the
Trust Fund as provided in this section or section 9602(b).
‘‘(b) TRANSFERS TO TRUST FUND.—There are here-
by appropriated to the Public Debt Reduction Trust Fund
amounts equivalent to the amounts designated under sec-
tion 6097 (relating to designation for public debt reduc-
tion).
‘‘(c) EXPENDITURES.—Amounts in the Public Debt
Reduction Trust Fund shall be available only for purposes
of paying at maturity, or to redeem or buy before matu-
rity, any obligation of the Federal Government included
in the public debt. Any obligation which is paid, redeemed,
or bought with amounts from such Trust Fund shall be
canceled and retired and may not be reissued.’’
(b) CLERICAL AMENDMENT.—The table of sections
for such subchapter is amended by adding at the end the
following new item:
‘‘Sec. 9512. Public Debt Reduction Trust Fund.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts received after the date
of the enactment of this Act.
SEC. 103. TAXPAYER-GENERATED SEQUESTRATION OF FED-
ERAL SPENDING TO REDUCE THE PUBLIC
DEBT.
(a) SEQUESTRATION
TO
REDUCE
THE
PUBLIC
DEBT.—Part C of the Balanced Budget and Emergency
Deficit Control Act of 1985 is amended by adding after
section 253 the following new section:
‘‘SEC. 253A. SEQUESTRATION TO REDUCE THE PUBLIC
DEBT.
‘‘(a) SEQUESTRATION.—Notwithstanding sections
255 and 256, within 15 days after Congress adjourns to
end a session, and on the same day as sequestration (if
any) under sections 251, 252, and 253, but after any se-
questration required by those sections, there shall be a se-
questration equivalent to the estimated aggregate amount
designated under section 6097 of the Internal Revenue
Code of 1986 for the last taxable year ending before the
beginning of that session of Congress, as estimated by the
Department of the Treasury on May 1 and as modified
by the total of (1) any amounts by which net discretionary
spending is reduced by legislation below the discretionary
spending limits (or, in the absence of such limits, any net
deficit change from the baseline amount calculated under
section 257, except that such baseline for fiscal year 1996
and thereafter shall be based upon fiscal year 1995 en-
acted appropriations less any 1995 sequesters) and (2) the
net deficit change that has resulted from direct spending
legislation.
‘‘(b) APPLICABILITY.—
‘‘(1) IN
GENERAL.—Except as provided by
paragraph (2), each account of the United States
shall be reduced by a dollar amount calculated by
multiplying the level of budgetary resources in that
account at that time by the uniform percentage nec-
essary to carry out subsection (a). All obligational
authority reduced under this section shall be done in
a manner that makes such reductions permanent.
‘‘(2) EXEMPT
ACCOUNTS.—No order issued
under this part may—
‘‘(A) reduce benefits payable the old-age,
survivors, and disability insurance program es-
tablished under title II of the Social Security
Act;
‘‘(B) reduce payments for net interest (all
of major functional category 900); or
‘‘(C) make any reduction in the following
accounts:
‘‘Federal Deposit Insurance Corpora-
tion, Bank Insurance Fund;
‘‘Federal Deposit Insurance Corpora-
tion, FSLIC Resolution Fund;
‘‘Federal Deposit Insurance Corpora-
tion, Savings Association Insurance Fund;
‘‘National Credit Union Administra-
tion, credit union share insurance fund; or
‘‘Resolution Trust Corporation.’’.
(b) REPORTS.—Section 254 of the Balanced Budget
and Emergency Deficit Control Act of 1985 is amended—
(1) in subsection (a), by inserting before the
item relating to August 10 the following:
‘‘May 1. . . Department of Treasury report to Con-
gress estimating amount of income tax designated pursu-
ant to section 6097 of the Internal Revenue Code of
1986.’’;
(2) in subsection (d)(1), by inserting ‘‘, and se-
questration to reduce the public debt,’’;
(3) in subsection (d), by redesignating para-
graph (5) as paragraph (6) and by inserting after
paragraph (4) the following new paragraph:
‘‘(5) SEQUESTRATION TO REDUCE THE PUBLIC
DEBT REPORTS.—The preview reports shall set forth
for the budget year estimates for each of the follow-
ing:
‘‘(A) The aggregate amount designated
under section 6097 of the Internal Revenue
Code of 1986 for the last taxable year ending
before the budget year.
‘‘(B) The amount of reductions required
under section 253A and the deficit remaining
after those reductions have been made.
‘‘(C) The sequestration percentage nec-
essary to achieve the required reduction in ac-
counts under section 253A(b).’’; and
(4) in subsection (g), by redesignating para-
graphs (4) and (5) as paragraphs (5) and (6), re-
spectively, and by inserting after paragraph (3) the
following new paragraph:
‘‘(4) SEQUESTRATION TO REDUCE THE PUBLIC
DEBT REPORTS.—The final reports shall contain all
of the information contained in the public debt tax-
ation designation report required on May 1.’’.
(c) EFFECTIVE
DATE.—Notwithstanding section
275(b) of the Balanced Budget and Emergency Deficit
Control Act of 1985, the expiration date set forth in that
section shall not apply to the amendments made by this
section. The amendments made by this section shall cease
to have any effect after the first fiscal year during which
there is no public debt.
TITLE II—CAPITAL FORMATION
SEC. 201. FINDINGS.
The Congress finds that—
(1) competitiveness studies consistently show
that the United States business sector needs to have
access to greater amounts of capital at low cost;
(2) capital formation is a goal that should be
fostered by the United States Government;
(3) our main economic competitors encourage
capital formation by low rates of taxation on capital
gains and savings and investment; and
(4) lowering tax rates in the United States on
capital gains and savings and investment will make
our country more competitive internationally.
SEC. 202. RESEARCH CREDIT IMPROVEMENT.
(a) ALTERNATIVE CREDIT CALCULATION BASED ON
AGGREGATE RESEARCH EXPENSES.—
(1) IN GENERAL.—Subsection (a) of section 41
of the Internal Revenue Code of 1986 (relating to
general rule) is amended to read as follows:
‘‘(a) GENERAL RULE.—For purposes of section 38,
the research credit determined under this section for the
taxable year shall be an amount equal to 1 of the following
amounts (as elected by the taxpayer for the taxable year):
‘‘(1) 25 PERCENT
OF
INCREASED
RESEARCH
EXPENSES.—The sum of—
‘‘(A) 25 percent of the excess (if any) of—
‘‘(i) the qualified research expenses,
over
‘‘(ii) the base amount, and
‘‘(B) 25 percent of the basic research pay-
ments, determined under subsection (e)(1)(A).
‘‘(2) 5 PERCENT OF AGGREGATE RESEARCH EX-
PENSES.—The sum of—
‘‘(A) 5 percent of the qualified research ex-
penses, determined by substituting ‘100 per-
cent’ for ‘65 percent’ in subsection (b)(3)(A),
and
‘‘(B) 5 percent of the basic research pay-
ments, determined under subsection (e)(2).’’
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (1) of section 41(e) of such
Code (relating to basic research credit) is
amended—
(i) by striking ‘‘subsection (a)(2)’’ and
inserting ‘‘subsection (a)(1)(B)’’, and
(ii) by striking ‘‘subsection (a)(1)’’
and inserting ‘‘subsection (a)(1)(A)’’.
(B) Subparagraph (C) of section 41(e)(7)
of such Code (relating to definitions and special
rules) is amended—
(i) by striking ‘‘INCREMENTAL’’ in the
subparagraph 
caption 
and 
inserting
‘‘OTHER’’,
(ii) by striking ‘‘subsection (a)(1)’’
and inserting ‘‘paragraph (1)(A) or (2)(A)
of subsection (a)’’,
(iii) by striking ‘‘subsection (a)(2)’’
and inserting ‘‘paragraph (1)(B) or (2)(B)
of such subsection’’,
(iv) by striking ‘‘subsection (a)(1)(A)’’
and inserting ‘‘paragraph (1)(A)(i) or
(2)(A) of such subsection’’, and
(v) by striking ‘‘subsection (a)(1)(B)’’
and inserting ‘‘paragraph (1)(A)(ii) of
such subsection’’.
(C) 
Subparagraph 
(A) 
of 
section
280C(c)(2) of such Code (relating to disallow-
ance of deduction for expenses for which re-
search credit taken) is amended by striking
‘‘section 41(a)(1)’’ and inserting ‘‘paragraph
(1)(A) or (2)(A) of section 41(a)’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after the date of the enactment of this Act.
(b) PERMANENT EXTENSION OF CREDIT.—
(1) IN GENERAL.—Section 41 of such Code is
amended by striking subsection (h) (relating to ter-
mination).
(2) CONFORMING AMENDMENT.—Paragraph (1)
of section 28(b) of such Code (relating to qualified
clinical testing expenses) is amended by striking sub-
paragraph (D).
SEC. 203. VARIABLE CAPITAL GAINS.
(a) IN GENERAL.—Part I of subchapter P of chapter
1 of the Internal Revenue Code of 1986 (relating to treat-
ment of capital gains) is amended by adding at the end
thereof the following new section:
‘‘SEC. 1202. VARIABLE CAPITAL GAINS DEDUCTION.
‘‘(a) DEDUCTION ALLOWED.—If for any taxable year
a taxpayer other than a corporation has a net capital gain,
there shall be allowed as a deduction from gross income
an amount equal to the sum of—
‘‘(1) 100 percent of the qualified 10-year net
capital gain,
‘‘(2) 90 percent of the qualified 9-year net cap-
ital gain,
‘‘(3) 80 percent of the qualified 8-year net cap-
ital gain,
‘‘(4) 70 percent of the qualified 7-year net cap-
ital gain,
‘‘(5) 60 percent of the qualified 6-year net cap-
ital gain,
‘‘(6) 50 percent of the qualified 5-year net cap-
ital gain,
‘‘(7) 40 percent of the qualified 4-year net cap-
ital gain,
‘‘(8) 30 percent of the qualified 3-year net cap-
ital gain,
‘‘(9) 20 percent of the qualified 2-year net cap-
ital gain, plus
‘‘(10) 10 percent of the qualified 1-year net
capital gain.
‘‘(b) QUALIFIED NET CAPITAL GAIN.—For purposes
of subsection (a)—
‘‘(1) QUALIFIED 10-YEAR NET CAPITAL GAIN.—
The term ‘qualified 10-year net capital gain’ means
the amount of net long-term capital gain which
would be computed for the taxable year if only cap-
ital assets held by the taxpayer for at least 10 years
at the time of the sale or exchange were taken into
account. Such term shall not exceed the amount of
the net capital gain for such taxable year.
‘‘(2) QUALIFIED 9-YEAR NET CAPITAL GAIN.—
The term ‘qualified 9-year net capital gain’ means
the amount of net long-term capital gain which
would be computed for the taxable year if only cap-
ital assets held by the taxpayer for at least 9 years
but less than 10 years at the time of the sale or ex-
change were taken into account. Such term shall not
exceed the amount of the net capital gain for such
taxable year reduced by the amount of the qualified
10-year net capital gain.
‘‘(3) OTHER DEFINITIONS.—The amount of the
qualified 8-year net capital gain, 7-year net capital
gain, 6-year net capital gain, 5-year net capital gain,
4-year net capital gain, 3-year net capital gain,
qualified 2-year net capital gain, and qualified 1-
year net capital gain shall be determined under the
principles of paragraphs (1) and (2).
‘‘(c) ESTATE AND TRUSTS.—In the case of an estate
or trust, the deduction shall be computed by excluding the
portion (if any) of the gains for the taxable year from sales
or exchanges of capital assets which, under sections 652
and 662 (relating to inclusions of amounts in gross income
of beneficiaries of trusts), is includible by the income bene-
ficiaries as gain derived from the sale or exchange of cap-
ital assets.’’
(b) TREATMENT OF COLLECTIBLES.—
(1) IN GENERAL.—Section 1222 of such Code
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
INTEREST
IN
PARTNERSHIP, 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) of
such Code is amended by adding at the end
thereof the following new sentence: ‘‘For pur-
poses of this paragraph, section 1222 shall be
applied without regard to paragraph (12) there-
of (relating to special rule for collectibles).’’
(B) Clause (iv) of section 170(b)(1)(C) of
such Code 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 collectibles)’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 1 of such Code is amended by strik-
ing subsection (h).
(2) Subsection (a) of section 62 of such Code
is amended by inserting after paragraph (13) the
following new paragraph:
‘‘(14) LONG-TERM CAPITAL GAINS.—In the case
of a taxpayer other than a corporation, the deduc-
tion allowed by section 1202.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 204. CAPITAL GAINS EXCLUSION FOR STARTUP BUSI-
NESS STOCK.
(a) TAXPAYERS OTHER THAN CORPORATIONS.—
Part I of subchapter P of chapter 1 of the Internal Reve-
nue Code of 1986 (relating to treatment of capital gains)
is amended by adding at the end the following new section:
‘‘SEC. 1203. DEDUCTION FOR CAPITAL GAINS ON CERTAIN
BUSINESS STOCK HELD FOR MORE THAN 2
YEARS.
‘‘(a) GENERAL RULE.—If for any taxable year a tax-
payer other than a corporation has a qualified business
net capital gain, there shall be allowed as a deduction from
gross income an amount equal to 50 percent of the quali-
fied business net capital gain.
‘‘(b) QUALIFIED BUSINESS NET CAPITAL GAIN.—
For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified busi-
ness net capital gain’ means the lesser of—
‘‘(A) the net capital gain for the taxable
year, or
‘‘(B) the net capital gain for the taxable
year determined by taking into account only
gain or loss from qualified business stock with
a holding period of at least 2 years at the time
of the disposition.
‘‘(2) QUALIFIED BUSINESS STOCK.—
‘‘(A) IN
GENERAL.—The term ‘qualified
business stock’ means stock which—
‘‘(i) is first acquired (whether directly
or through an underwriter) from the issuer
by the taxpayer, and
‘‘(ii) is not issued in redemption of (or
otherwise exchanged for) stock.
‘‘(B) EXCEPTION FOR PERSONAL SERVICE
CORPORATIONS.—The term ‘qualified business
stock’ does not include stock issued by a per-
sonal service corporation (within the meaning of
section 269A(b)(1)).
‘‘(c) ESTATES AND TRUSTS.—In the case of an estate
or trust, the deduction under subsection (a) shall be com-
puted by excluding the portion (if any) of the gains for
the taxable year from sales or exchanges of capital assets
which, under sections 652 and 662 (relating to inclusions
of amounts in gross income of beneficiaries of trusts), is
includible by the income beneficiaries as gain derived from
the sale or exchange of capital assets.’’
(b) CORPORATIONS.—Section 1201 of such Code (re-
lating to alternative tax for corporations) is amended by
redesignating subsection (b) as subsection (c) and by in-
serting after subsection (a) the following new subsection:
‘‘(b) DEDUCTION FOR GAIN ON QUALIFIED BUSI-
NESS STOCK.—
‘‘(1) IN GENERAL.—If for any taxable year a
corporation has a qualified business net capital gain,
there shall be allowed as a deduction from gross in-
come an amount equal to 50 percent of the qualified
business net capital gain.
‘‘(2) 
QUALIFIED
BUSINESS
NET
CAPITAL
GAIN.—For purposes of this subsection, the term
‘qualified business net capital gain’ has the meaning
given such term in section 1203(b).’’
(c) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 1201 of such Code
is amended by inserting after ‘‘net capital gain’’
each place it appears the following: ‘‘(other than
qualified business net capital gain (within the mean-
ing of section 1203(b))’’.
(2) Subsection (a) of section 62 of such Code
is amended by adding at the end the following new
paragraph:
‘‘(15) QUALIFIED
BUSINESS
STOCK
CAPITAL
GAINS.—The deduction allowed by section 1203.’’
(3)(A) The heading for section 1201 of such
Code is amended to read as follows:
‘‘SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS; DE-
DUCTION FOR GAIN ON QUALIFIED BUSINESS
STOCK.’’
(B) The item relating to section 1201 in the
table of sections for part I of subchapter P of chap-
ter 1 of such Code is amended to read as follows:
‘‘Sec. 1201. Alternative tax for corporations; deduction for gain
on qualified business stock.’’
(4) The table of sections for part I of sub-
chapter P of chapter 1 of such Code is amended by
adding at the end the following new item:
‘‘Sec. 1203. Deduction for capital gains on certain business stock
held for more than 2 years.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to stock issued after the date of
the enactment of this Act.
SEC. 205. INDEXING OF CERTAIN CAPITAL ASSETS.
(a) IN GENERAL.—Part II of subchapter O of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
basis rules of general application) is amended by inserting
after section 1021 the following new section:
‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES
OF DETERMINING GAIN OR LOSS.
‘‘(a) GENERAL RULE.—
‘‘(1) INDEXED
BASIS
SUBSTITUTED
FOR
AD-
JUSTED BASIS.—Except as provided in paragraph
(2), if an indexed asset which has been held for
more than 1 year is sold or otherwise disposed of,
for purposes of this title the indexed basis of the
asset shall be substituted for its adjusted basis.
‘‘(2) EXCEPTION
FOR
DEPRECIATION, ETC.—
The deduction for depreciation, depletion, and amor-
tization shall be determined without regard to the
application of paragraph (1) to the taxpayer or any
other person.
‘‘(b) INDEXED ASSET.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘indexed asset’ means—
‘‘(A) stock in a corporation, and
‘‘(B) tangible property (or any interest
therein), which is a capital asset or property
used in the trade or business (as defined in sec-
tion 1231(b)).
‘‘(2) CERTAIN
PROPERTY
EXCLUDED.—For
purposes of this section, the term ‘indexed asset’
does not include stock in a foreign corporation.
‘‘(c) INDEXED BASIS.—For purposes of this sec-
tion—
‘‘(1) INDEXED BASIS.—The indexed basis for
any asset is—
‘‘(A) the adjusted basis of the asset, multi-
plied by
‘‘(B) the applicable inflation ratio.
‘‘(2) APPLICABLE INFLATION RATIO.—The ap-
plicable inflation ratio for any asset is the percent-
age arrived at by dividing—
‘‘(A) the gross national product deflator
the calendar quarter in which the disposition
takes place, by
‘‘(B) the gross national product deflator
for the calendar quarter in which the asset was
acquired by the taxpayer (or, if later, the cal-
endar quarter ending December 31, 1991).
The applicable inflation ratio shall not be taken into
account unless it is greater than 1. The applicable
inflation ratio for any asset shall be rounded to the
nearest one-tenth of 1 percent.
‘‘(3) GROSS NATIONAL PRODUCT DEFLATOR.—
The gross national product deflator for any calendar
quarter is the implicit price deflator for the gross
national product for such quarter (as shown in the
first revision thereof).
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) TREATMENT AS SEPARATE ASSET.—In the
case of any asset, the following shall be treated as
a separate asset:
‘‘(A) a substantial improvement to prop-
erty,
‘‘(B) in the case of stock of a corporation,
a substantial contribution to capital, and
‘‘(C) any other portion of an asset to the
extent that separate treatment of such portion
is appropriate to carry out the purposes of this
section.
‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS
THROUGHOUT HOLDING PERIOD.—
‘‘(A) IN GENERAL.—The applicable infla-
tion ratio shall be appropriately reduced for cal-
endar months at any time during which the
asset was not an indexed asset.
‘‘(B) CERTAIN
SHORT
SALES.—For pur-
poses of applying subparagraph (A), an asset
shall be treated as not an indexed asset for any
short sale period during which the taxpayer or
the taxpayer’s spouse sells short property sub-
stantially identical to the asset. For purposes of
the preceding sentence, the short sale period be-
gins on the day after the substantially identical
property is sold and ends on the closing date
for the sale.
‘‘(3) ACQUISITION
DATE
WHERE
THERE
HAS
BEEN
PRIOR
APPLICATION
OF
SUBSECTION
(a)(1)
WITH RESPECT TO THE TAXPAYER.—If there has
been a prior application of subsection (a)(1) to an
asset while such asset was held by the taxpayer, the
date of acquisition of such asset by the taxpayer
shall be treated as not earlier than the date of the
most recent such prior application.
‘‘(e) CERTAIN CONDUIT ENTITIES.—
‘‘(1) REGULATED
INVESTMENT
COMPANIES;
REAL ESTATE INVESTMENT TRUSTS; COMMON TRUST
FUNDS.—
‘‘(A) IN GENERAL.—Stock in a qualified
investment entity shall be an indexed asset for
any calendar month in the same ratio as the
fair market value of the assets held by such en-
tity at the close of such month which are in-
dexed assets bears to the fair market value of
all assets of such entity at the close of such
month.
‘‘(B) RATIO OF 90 PERCENT OR MORE.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 90 percent or more, such
ratio for such month shall be 100 percent.
‘‘(C) RATIO OF 10 PERCENT OR LESS.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 10 percent or less, such ratio
for such month shall be zero.
‘‘(D) VALUATION OF ASSETS IN CASE OF
REAL ESTATE INVESTMENT TRUSTS.—Nothing
in this paragraph shall require a real estate in-
vestment trust to value its assets more fre-
quently than once each 36 months (except
where such trust ceases to exist). The ratio
under subparagraph (A) for any calendar
month for which there is no valuation shall be
the trustee’s good faith judgment as to such
valuation.
‘‘(E) QUALIFIED INVESTMENT ENTITY.—
For purposes of this paragraph, the term
‘qualified investment entity’ means—
‘‘(i) a regulated investment company
(within the meaning of section 851),
‘‘(ii) a real estate investment trust
(within the meaning of section 856), and
‘‘(iii) a common trust fund (within the
meaning of section 584).
‘‘(2) PARTNERSHIPS.—In the case of a partner-
ship, the adjustment made under subsection (a) at
the partnership level shall be passed through to the
partners.
‘‘(f) DISPOSITIONS BETWEEN RELATED PERSONS.—
‘‘(1) IN GENERAL.—This section shall not apply
to any sale or other disposition of property between
related persons except to the extent that the basis
of such property in the hands of the transferee is a
substituted basis.
‘‘(2) RELATED PERSONS DEFINED.—For pur-
poses of this section, the term ‘related persons’
means—
‘‘(A) persons bearing a relationship set
forth in section 267(b), and
‘‘(B) persons treated as single employer
under subsection (b) or (c) of section 414.
‘‘(g) TRANSFERS TO INCREASE INDEXING ADJUST-
MENT.—If any person transfers cash, debt, or any other
property to another person and the principal purpose of
such transfer is to secure or increase an adjustment under
subsection (a), the Secretary may disallow part or all of
such adjustment or increase.
‘‘(h) DEFINITION OF STOCK.—For purposes of this
section, the term ‘stock in a corporation’ includes any in-
terest in a common trust fund (as defined in section
584(a)).
‘‘(i) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’
(b) CONFORMING AMENDMENTS.—
(1) Subsection (f) of section 312 of such Code
is amended by adding at the end the following new
paragraph:
‘‘(3) EFFECT ON EARNINGS AND PROFITS OF
INDEXED BASIS.—
For substitution of indexed basis for adjusted
basis in the case of the disposition of certain assets,
see section 1022(a)(1).’’
(2) The table of sections for part II of sub-
chapter O of chapter 1 of such Code is amended by
inserting after the item relating to section 1021 the
following new item:
‘‘Sec. 1022. Indexing of certain assets for purposes of determining
gain or loss.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to dispositions after the date of
the enactment of this Act.
SEC. 206. CORPORATE DEBT-EQUITY EQUALIZATION.
(a) IN GENERAL.—Section 243 of the Internal Reve-
nue Code of 1986 (relating to dividends received by cor-
porations) is amended to read as follows:
‘‘SEC. 243. DIVIDENDS PAID BY DOMESTIC CORPORATIONS.
‘‘(a) GENERAL RULE.—In the case of a domestic cor-
poration which is subject to taxation under this chapter,
there shall be allowed as a deduction for the taxable year
an amount equal to the dividends paid by such corporation
during the taxable year.
‘‘(b) DIVIDENDS.—For purposes of this section, the
term ‘dividend’ means any dividend (as defined in section
316) to which section 301 applies.
‘‘(c) CERTAIN CORPORATIONS NOT ELIGIBLE.—No
deduction shall be allowed under this section with respect
to dividends paid by any corporation which is—
‘‘(1) an S corporation (as defined in section
1361(a)(1)),
‘‘(2) a regulated investment company (as de-
fined in section 851(a)),
‘‘(3) a real estate investment trust (as defined
in section 856(a)), or
‘‘(4) a personal holding company (as defined in
section 542).
‘‘(d) SPECIAL RULES FOR CERTAIN DISTRIBUTIONS
OF MUTUAL SAVINGS BANKS, ETC.—For purposes of this
section, any amount allowed as a deduction under section
591 (relating to deduction for dividends paid by mutual
savings banks, etc.) shall not be treated as a dividend.’’
(b) REPEAL OF CERTAIN DEDUCTIONS FOR DIVI-
DENDS RECEIVED.—Sections 244 (relating to dividends
received on certain preferred stock) and 247 (relating to
dividends paid on certain preferred stock of public utili-
ties) of such Code are hereby repealed.
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (5) of section 172(d) of such
Code is amended to read as follows:
‘‘(5) COMPUTATION OF DEDUCTION FOR DIVI-
DENDS
RECEIVED
FROM
CERTAIN
FOREIGN
COR-
PORATIONS.—The deduction allowed by section 245
(relating to dividends received from certain foreign
corporations) shall be computed without regard to
section 246(b) (relating to limitation on aggregate
amount of deductions).’’
(2) The table of sections for part VIII of sub-
chapter B of chapter 1 of such Code is amended by
striking the items relating to sections 243, 244, and
247 and inserting after the item relating to section
241 the following:
‘‘Sec. 243. Dividends paid by domestic corporations.’’
(3) Paragraph (1) of section 245(a) of such
Code (relating generally to dividends received from
10-percent owned foreign corporations) is amended
by striking ‘‘the percent (specified in section 243 for
the taxable year)’’ and inserting ‘‘85 percent (100
percent in the case of a small business investment
company operating under the Small Business Invest-
ment Act of 1958 (15 U.S.C. 661 et seq.))’’.
(4)(A) Subsection (a) of section 246 of such
Code (relating to disallowance of deduction for divi-
dends from certain corporations) is amended—
(i) in paragraph (1), by striking ‘‘sections
243, 244, and 245’’ and inserting ‘‘section
245’’, and
(ii) by striking paragraph (2).
(B) Subsection (b) of section 246 of such Code
(relating to limitation on aggregate amount of de-
ductions) is amended to read as follows:
‘‘(b) LIMITATION ON AGGREGATE AMOUNT OF DE-
DUCTION.—
‘‘(1) IN
GENERAL.—Except as provided by
paragraph (2), the aggregate amount of the deduc-
tions allowed by subsections (a) and (b) of section
245 shall not exceed 80 percent of the taxable in-
come computed without regard to—
‘‘(A) the deductions allowed by section
172,
‘‘(B) any adjustment under section 1059,
and
‘‘(C) any capital loss carryback to the tax-
able year under section 1212(a)(1).
‘‘(2) EFFECT OF NET OPERATING LOSS.—Para-
graph (1) shall not apply for any taxable year for
which there is a net operating loss (as determined
under section 172).’’
(C) Paragraph (1) of section 246(c) of such
Code (relating to exclusion of certain dividends) is
amended by striking ‘‘243, 244, or’’.
(D) Section 246 of such Code (relating to rules
applying to deductions for dividends received) is
amended by striking subsections (d) and (e).
(5)(A) Subsection (a) of section 246A of such
Code (relating to general rule) is amended—
(i) in the matter preceding paragraph
(1), by striking ‘‘243, 244, or’’, and
(ii) in paragraph (1), by striking ‘‘(80
percent in the case of any dividend from a
20-percent owned corporation as defined in
section 243(c)(2)’’.
(B) Subsection (b) of section 246A of such
Code (relating to inapplicability to dividends for
which 100 percent dividends received deduction al-
lowable) is amended to read as follows: