I 
108TH CONGRESS 
1ST SESSION H. R. 1780
To amend the Internal Revenue Code of 1986 to eliminate the tax on 
the net capital gain of taxpayers other than corporations, to exclude 
interest and dividends from gross income, and to repeal the 1993 income 
tax increase on Social Security benefits. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 11, 2003
Mr. BEAUPREZ (for himself, Mr. BLUNT, Ms. GRANGER, Mrs. MUSGRAVE, and 
Mr. TOOMEY) 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 eliminate 
the tax on the net capital gain of taxpayers other than 
corporations, to exclude interest and dividends from 
gross income, and to repeal the 1993 income tax increase 
on Social Security benefits.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. EXCLUSION OF NET CAPITAL GAIN OF TAX-
PAYERS OTHER THAN CORPORATIONS. 
(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 
the following new section: 
‘‘SEC. 1203. EXCLUSION OF NET CAPITAL GAIN OF TAX-
PAYERS OTHER THAN CORPORATIONS. 
‘‘In the case of a taxpayer other than a corporation, 
gross income shall not include an amount equal to the net 
capital gain of the taxpayer for the taxable year.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 1 of such Code is amended by strik-
ing subsection (h). 
(2) Subsection (b) of section 55 of such Code 
is amended by striking paragraph (3). 
(3) Section 1222 of such Code is amended by 
adding at the end the following new sentence: 
‘‘Determinations under this section shall be made before 
the application of section 1203.’’
(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. Exclusion of net capital gain of taxpayers other than 
corporations.’’
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2002.
SEC. 2. EXCLUSION INTEREST AND DIVIDEND INCOME 
FROM TAX. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
amounts specifically excluded from gross income) is 
amended by inserting after section 115 the following new 
section: 
‘‘SEC. 116. EXCLUSION OF DIVIDENDS AND INTEREST RE-
CEIVED BY INDIVIDUALS. 
‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in-
come does not include dividends and interest otherwise in-
cludible in gross income which are received during the tax-
able year by an individual. 
‘‘(b) CERTAIN DIVIDENDS EXCLUDED.—Subsection 
(a) shall not apply to any dividend from a corporation 
which for the taxable year of the corporation in which the 
distribution is made is a corporation exempt from tax 
under section 521 (relating to farmers’ cooperative asso-
ciations). 
‘‘(c) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) EXCLUSION NOT TO APPLY TO CAPITAL 
GAIN
DIVIDENDS
FROM
REGULATED
INVESTMENT
COMPANIES
AND
REAL
ESTATE
INVESTMENT 
TRUSTS.—
‘‘For treatment of capital gain dividends, see sec-
tions 854(a) and 857(c).
‘‘(2) CERTAIN
NONRESIDENT
ALIENS
INELI-
GIBLE
FOR
EXCLUSION.—In the case of a non-
resident alien individual, subsection (a) shall apply 
only in determining the taxes imposed for the tax-
able year pursuant to sections 871(b)(1) and 877(b). 
‘‘(3) DIVIDENDS FROM EMPLOYEE STOCK OWN-
ERSHIP PLANS.—Subsection (a) shall not apply to 
any dividend described in section 404(k).’’. 
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (C) of section 32(c)(5) of 
such Code is amended by striking ‘‘or’’ at the end 
of clause (i), by striking the period at the end of 
clause (ii) and inserting ‘‘; or’’, and by inserting 
after clause (ii) the following new clause: 
‘‘(iii) interest and dividends received 
during the taxable year which are excluded 
from gross income under section 116.’’. 
(2) Subparagraph (A) of section 32(i)(2) of 
such Code is amended by inserting ‘‘(determined 
without regard to section 116)’’ before the comma. 
(3) Subparagraph (B) of section 86(b)(2) of 
such Code is amended to read as follows:
‘‘(B) increased by the sum of—
‘‘(i) the amount of interest received or 
accrued by the taxpayer during the taxable 
year which is exempt from tax, and 
‘‘(ii) the amount of interest and divi-
dends received during the taxable year 
which are excluded from gross income 
under section 116.’’. 
(4) Subsection (d) of section 135 of such Code 
is amended by redesignating paragraph (4) as para-
graph (5) and by inserting after paragraph (3) the 
following new paragraph: 
‘‘(4) COORDINATION WITH SECTION 116.—This 
section shall be applied before section 116.’’. 
(5) Paragraph (2) of section 265(a) of such 
Code is amended by inserting before the period ‘‘, or 
to purchase or carry obligations or shares, or to 
make deposits, to the extent the interest thereon is 
excludable from gross income under section 116’’. 
(6) Subsection (c) of section 584 of such Code 
is amended by adding at the end the following new 
flush sentence:
‘‘The proportionate share of each participant in the 
amount of dividends or interest received by the common 
trust fund and to which section 116 applies shall be con-
sidered for purposes of such section as having been re-
ceived by such participant.’’. 
(7) Subsection (a) of section 643 of such Code 
is amended by redesignating paragraph (7) as para-
graph (8) and by inserting after paragraph (6) the 
following new paragraph: 
‘‘(7) DIVIDENDS OR INTEREST.—There shall be 
included the amount of any dividends or interest ex-
cluded from gross income pursuant to section 116.’’. 
(8) Section 854(a) of such Code is amended by 
inserting ‘‘section 116 (relating to exclusion of divi-
dends and interest received by individuals) and’’ 
after ‘‘For purposes of’’. 
(9) Section 857(c) of such Code is amended to 
read as follows: 
‘‘(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RE-
CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—
‘‘(1) TREATMENT FOR SECTION 116.—For pur-
poses of section 116 (relating to exclusion of divi-
dends and interest received by individuals), a capital 
gain dividend (as defined in subsection (b)(3)(C)) re-
ceived from a real estate investment trust which 
meets the requirements of this part shall not be con-
sidered as a dividend.
‘‘(2) TREATMENT FOR SECTION 243.—For pur-
poses of section 243 (relating to deductions for divi-
dends received by corporations), a dividend received 
from a real estate investment trust which meets the 
requirements of this part shall not be considered as 
a dividend.’’. 
(10) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by 
inserting after the item relating to section 115 the 
following new item:
‘‘Sec. 116. Exclusion of dividends and interest received by individ-
uals.’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2002. 
SEC. 3. REPEAL OF 1993 INCOME TAX INCREASE ON SOCIAL 
SECURITY BENEFITS. 
(a) RESTORATION OF PRIOR LAW FORMULA.—Sub-
section (a) of section 86 of the Internal Revenue Code of 
1986 is amended to read as follows: 
‘‘(a) IN GENERAL.—Gross income for the taxable 
year of any taxpayer described in subsection (b) (notwith-
standing section 207 of the Social Security Act) includes 
Social Security benefits in an amount equal to the lesser 
of—
‘‘(1) one-half of the Social Security benefits re-
ceived during the taxable year, or 
‘‘(2) one-half of the excess described in sub-
section (b)(1).’’
(b) REPEAL OF ADJUSTED BASE AMOUNT.—Sub-
section (c) of section 86 of such Code is amended to read 
as follows: 
‘‘(c) BASE AMOUNT.—For purposes of this section, 
the term ‘base amount’ means—
‘‘(1) except as otherwise provided in this sub-
section, $25,000, 
‘‘(2) $32,000 in the case of a joint return, and 
‘‘(3) zero in the case of a taxpayer who—
‘‘(A) is married as of the close of the tax-
able year (within the meaning of section 7703) 
but does not file a joint return for such year, 
and 
‘‘(B) does not live apart from his spouse at 
all times during the taxable year.’’
(c) CONFORMING AMENDMENTS.—
(1) Subparagraph (A) of section 871(a)(3) of 
such Code is amended by striking ‘‘85 percent’’ and 
inserting ‘‘50 percent’’.