To amend the Internal Revenue Code of 1986 to provide a tax credit to consumers based on fuel economy.

SECTION 1. FUEL ECONOMY TAX CREDIT.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 25E the following new section:

``SEC. 25E. FUEL ECONOMY TAX CREDIT.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to the product of--
            ``(1) $100, multiplied by
            ``(2) each mile per gallon (or portion thereof) for which 
        the mile per gallon highway rating of a qualified vehicle 
        placed in service by the taxpayer during the taxable year 
        exceeds the CAFE standard applicable to such vehicle.
    ``(b) Limitations.--
            ``(1) Limitation based on fuel efficiency.--In the case of 
        any vehicle for which the mile per gallon highway rating 
        exceeds 50 miles per gallon, paragraph (2) shall be applied by 
        treating the the mile per gallon highway rating of such vehicle 
        as 50 miles per gallon.
            ``(2) Limitation based on adjusted gross income.--The 
        amount of the credit allowed by subsection (a) (determined 
        without regard to this subsection) shall be reduced (but not 
        below zero) by 5 percent for each $1,000 (or fraction thereof) 
        by which the taxpayer's adjusted gross income exceeds $150,000.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Highway rating of qualified vehicle.--The highway 
        rating of a qualified vehicle shall be the rating determined by 
        the Secretary of Transportation for such vehicle.
            ``(2) Qualified vehicle.--The term `qualified vehicle' 
        means a motor vehicle which is a passenger automobile or a 
        light truck--
                    ``(A) the original use of which commences with the 
                taxpayer,
                    ``(B) which is acquired for use or lease by the 
                taxpayer and not for resale, and
                    ``(C) which is made by a manufacturer.
            ``(3) CAFE standard.--The term `CAFE standard' means the 
        average fuel economy level established under chapter 329 of 
        title 49, United States Code.
            ``(4) Motor vehicle.--The term `motor vehicle' has the 
        meaning given such term by section 30(c)(2).
            ``(5) Other terms.--The terms `passenger automobile', 
        `light truck', and ``manufacturer'' have the meanings given 
        such terms in regulations prescribed by the Administrator of 
        the Environmental Protection Agency for purposes of the 
        administration of title II of the Clean Air Act (42 U.S.C. 7521 
        et seq.).
    ``(d) Special Rules.--
            ``(1) Reduction in basis.--For purposes of this subtitle, 
        the basis of any property for which a credit is allowable under 
        subsection (a) shall be reduced by the amount of such credit so 
        allowed (determined without regard to subsection (g)).
            ``(2) No double benefit.--The amount of any deduction or 
        other credit allowable under this chapter for the taxable year 
        with respect to any vehicle shall be reduced by the amount of 
        credit allowed under subsection (a) for such vehicle for the 
        taxable year.
            ``(3) Property used outside united states, etc., not 
        qualified.--No credit shall be allowable under subsection (a) 
        with respect to any property referred to in section 50(b)(1) or 
        with respect to the portion of the cost of any property taken 
        into account under section 179.
            ``(4) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit allowable 
        under subsection (a) with respect to any property which ceases 
        to be property eligible for such credit (including recapture in 
        the case of a lease period of less than the economic life of a 
        vehicle).
            ``(5) Election to not take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects to not have this section apply to such vehicle.''.
    (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 relating to section 25D the following new 
item:

``Sec. 25E. Fuel economy tax credit.''.
    (c) Termination of Alternative Motor Vehicle Credit.--Subsection 
(j) of section 30B of the Internal Revenue Code of 1986 is amended to 
read as follows:
    ``(j) Termination.--This section shall not apply to any property 
purchased after the date of the enactment of this subsection.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to vehicles placed in service after the date of the enactment of 
this Act in taxable years ending after such date.

Summary: Amends the Internal Revenue Code to allow an individual taxpayer who operates a passenger automobile or light truck a tax credit based upon the average fuel economy of such vehicle. Terminates the tax credit for alternative motor vehicles.