To amend the Internal Revenue Code of 1986 to provide that no capital gains tax shall apply to individuals.

SECTION 1. 100-PERCENT CAPITAL GAIN EXCLUSION FOR INDIVIDUALS.

    (a) General Rule.--Part I of subchapter P of chapter 1 of the 
Internal Revenue Code of 1986 (relating to treatment of capital gains), 
as amended by subsection (c)(1), is amended by adding at the end the 
following new section:

``SEC. 1202. DEDUCTION FOR CAPITAL GAINS.

    ``(a) Allowance of Deduction.--If for any taxable year a taxpayer 
other than a corporation has a net capital gain, 100 percent of the 
amount of the net capital gain shall be a deduction from gross income.
    ``(b) Estates and Trusts.--In the case of an estate or trust, the 
deduction under subsection (a) 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 beneficiaries as gain derived from the sale 
or exchange of capital assets.
    ``(c) Transitional Rule.--
            ``(1) In general.--In the case of a taxable year which 
        includes January 1, 1995--
                    ``(A) the amount taken into account as the net 
                capital gain under subsection (a) shall not exceed the 
                net capital gain determined by only taking into account 
                gains and losses properly taken into account for the 
                portion of the taxable year on or after January 1, 
                1995, and
                    ``(B) if the net capital gain for such year exceeds 
                the amount taken into account under subsection (a), the 
                rate of tax imposed by section 1 on such excess shall 
                not exceed 28 percent.
            ``(2) Special rules for pass-thru entities.--
                    ``(A) In general.--In applying paragraph (1) with 
                respect to any pass-thru entity, the determination of 
                when gains and losses are properly taken into account 
                shall be made at the entity level.
                    ``(B) Pass-thru entity defined.--For purposes of 
                subparagraph (A), the term `pass-thru entity' means--
                            ``(i) a regulated investment company,
                            ``(ii) a real estate investment trust,
                            ``(iii) an S corporation,
                            ``(iv) a partnership,
                            ``(v) an estate or trust, and
                            ``(vi) a common trust fund.''
    (b) Deduction Allowable in Computing Adjusted Gross Income.--
Subsection (a) of section 62 of such Code is amended by inserting after 
paragraph (15) the following new paragraph:
            ``(16) Capital gains of individuals.--The deduction allowed 
        by section 1202.''
    (c) Conforming Amendments.--
            (1) Section 13113 of the Revenue Reconciliation Act of 1993 
        (relating to 50-percent exclusion for gain from certain small 
        business stock), and the amendments made by such section, are 
        hereby repealed; and the Internal Revenue Code of 1986 shall be 
        applied as if such section (and amendments) had never been 
        enacted.
            (2) Subsection (h) of section 1 of such Code is hereby 
        repealed.
            (3)(A) Section 170(e)(1)(B) of such Code is amended by 
        inserting ``by a corporation'' after ``a charitable 
        contribution''.
            (4)(A) Section 172(d)(2) of such Code (relating to 
        modifications with respect to net operating loss deduction) is 
        amended to read as follows:
            ``(2) Capital gains and losses of taxpayers other than 
        corporations.--In the case of a taxpayer other than a 
        corporation--
                    ``(A) the amount deductible on account of losses 
                from sales or exchanges of capital assets shall not 
                exceed the amount includible on account of gains from 
                sales or exchanges of capital assets; and
                    ``(B) the deduction provided by section 1202 shall 
                not be allowed.''
            (B) Subparagraph (B) of section 172(d)(4) of such Code is 
        amended by inserting ``, (2)(B),'' after ``paragraph (1)''.
            (5)(A) Section 221 of such Code (relating to cross 
        reference) is amended to read as follows:

``SEC. 221. CROSS REFERENCES.

                                ``(1) For deduction for net capital 
gain, see section 1202.  
                                ``(2) For deductions in respect of a 
decedent, see section 691.''
            (B) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by striking ``reference'' in 
        the item relating to section 221 and inserting ``references''.
            (6) Paragraph (4) of section 642(c) of such Code 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 exchange of capital assets held for more than 
        1 year, proper adjustment shall be made for any deduction 
        allowable to the estate or trust under section 1202 (relating 
        to deduction for net capital gain). In the case of a trust, the 
        deduction allowed by this subsection shall be subject to 
        section 681 (relating to unrelated business income).''
            (7) Paragraph (3) of section 643(a) of such Code is amended 
        by adding at the end thereof the following new sentence: ``The 
        deduction under section 1202 (relating to deduction for net 
        capital gain) shall not be taken into account.''
            (8) Paragraph (6)(C) of section 643(a) of such Code is 
        amended--
                    (A) by inserting ``(i)'' before ``there'', and
                    (B) by inserting ``, and (ii) the deduction under 
                section 1202 (relating to deduction for excess of 
                capital gains over capital losses) shall not be taken 
                into account'' before the period at the end thereof.
            (9) Paragraph (4) of section 691(c) of such Code is amended 
        by striking ``1(h), 1201'' and inserting ``1201, 1202,''.
            (10) The second sentence of paragraph (2) of section 871(a) 
        of such Code is amended by inserting ``such gains and losses 
        shall be determined without regard to section 1202 (relating to 
        deduction for net capital gain) and'' after ``except that''.
            (11)(A) Subparagraph (B) of section 904(b)(2) of such Code 
        is amended by striking so much of such subparagraph as precedes 
        clause (i) and inserting the following:
                    ``(B) Special rules where corporate capital rate 
                gain differential.--In the case of a corporation, for 
                any taxable year for which there is a capital gain rate 
                differential--''.
            (B) Subparagraphs (D) and (E) of section 904(b)(3) are 
        amended to read as follows:
                    ``(D) Capital gain rate differential.--There is a 
                capital gain rate differential for any taxable year if 
                any rate of tax imposed by section 11, 511, or 831(a) 
                or (b) (whichever applies) exceeds the alternative rate 
                of tax under section 1201(a) (determined without regard 
                to the last sentence of section 11(b)(1)).
                    ``(E) Rate differential portion.--The rate 
                differential portion of foreign source net capital 
                gain, net capital, 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--
                            ``(i) the excess of the highest rate of tax 
                        specified in section 11(b)(1) over the 
                        alternative rate of tax under section 1201(a), 
                        bears to
                            ``(ii) the highest rate of tax specified in 
                        section 11(b)(1).''
            (12) Subsection (d) of section 1044 of such Code is amended 
        by striking the last sentence.
            (13) Section 1402(i)(1) of such Code is amended to read as 
        follows:
            ``(1) In general.--In determining the net earnings from 
        self-employment of any options dealer or commodities dealer--
                    ``(A) notwithstanding subsection (a)(3)(A), there 
                shall not be excluded any gain or loss (in the normal 
                course of the taxpayer's activity of dealing in or 
                trading section 1256 contracts) from section 1256 
                contracts or property related to such contracts, and
                    ``(B) the deduction provided by section 1202 shall 
                not apply.''
    (d) Clerical Amendment.--The table of sections for part I of 
subchapter P of chapter 1 of such Code is amended by adding at the end 
thereof the following new item:

                              ``Sec. 1202. Deduction for capital 
                                        gains.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 1994.

Summary: Amends the Internal Revenue Code to allow a taxpayer other than a corporation a 100 percent deduction of net capital gain from gross income.  Allows such deduction in computing adjusted gross income.