A bill to amend the Internal Revenue Code of 1986 to phase in a full estate tax deduction for family-owned business interests and to increase the unified credit exemption.

SECTION 1. PHASE-IN OF FULL ESTATE TAX DEDUCTION FOR FAMILY-OWNED 
              BUSINESS INTERESTS.

    (a) Phase-In.--
            (1) In general.--Paragraph (2) of section 2057(a) of the 
        Internal Revenue Code of 1986 (relating to family-owned 
        business interests) is amended to read as follows:
            ``(2) Maximum deduction.--
                    ``(A) In general.--The deduction allowed by this 
                section shall not exceed the sum of--
                            ``(i) the applicable deduction amount, plus
                            ``(ii) in the case of a decedent described 
                        in subparagraph (C), the applicable unused 
                        spousal deduction amount.
                    ``(B) Applicable deduction amount.--For purposes of 
                subparagraph (A)(i), the applicable deduction amount is 
                determined in accordance with the following table:

``In the case of estates of         The applicable deduction amount 
        decedents dying after--             is--
    December 31, 2000.............................          $2,375,000 
    December 31, 2001.............................          $4,375,000 
    December 31, 2002.............................          $6,375,000 
    December 31, 2003.............................          $8,375,000 
    December 31, 2004.............................          $9,375,000.
                    ``(C) Applicable unused spousal deduction amount.--
                With respect to a decedent whose immediately 
                predeceased spouse died after December 31, 2000, and 
                the estate of such immediately predeceased spouse met 
                the requirements of subsection (b)(1), the applicable 
                unused spousal deduction amount for such decedent is 
                equal to the excess of--
                            ``(i) the applicable deduction amount 
                        allowable under this section to the estate of 
                        such immediately predeceased spouse, over
                            ``(ii) the sum of--
                                    ``(I) the applicable deduction 
                                amount allowed under this section to 
                                the estate of such immediately 
                                predeceased spouse, plus
                                    ``(II) the amount of any increase 
                                in such estate's unified credit under 
                                paragraph (3)(B) which was allowed to 
                                such estate.''.
            (2) Conforming amendments.--Section 2057(a)(3)(B) of such 
        Code (relating to coordination with unified credit) is 
        amended--
                    (A) by striking ``$675,000'' both places it appears 
                and inserting ``the applicable deduction amount'', and
                    (B) by striking ``$675,000'' in the heading and 
                inserting ``applicable deduction amount''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to estates of decedents dying after December 31, 
        2000.
    (b) Removal of Dollar Limitation.--
            (1) In general.--Section 2057(a) of the Internal Revenue 
        Code of 1986 (relating to deduction for family-owned business 
        interests), as amended by subsection (a), is amended--
                    (A) by striking paragraphs (2), (3), and (4), and
                    (B) by striking ``General Rule.--'' and all that 
                follows through ``For purposes'' and inserting 
                ``Allowance of Deduction.--For purposes''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to estates of decedents dying after December 31, 
        2005.

SEC. 2. INCREASE IN AMOUNT OF UNIFIED CREDIT AGAINST ESTATE AND GIFT 
              TAXES.

    (a) In General.--Subsection (c) of section 2010 of the Internal 
Revenue Code of 1986 (relating to applicable credit amount) is amended 
to read as follows:
    ``(c) Applicable Credit Amount.--For purposes of this section--
            ``(1) In general.--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 
        equal to the sum of--
                    ``(A) the applicable exclusion amount, plus
                    ``(B) in the case of a decedent described in 
                paragraph (3), the applicable unused spousal exclusion 
                amount.
            ``(2) Applicable exclusion amount.--For purposes of 
        paragraph (1)(A), the applicable exclusion amount is determined 
        in accordance with the following table:

        ``In the case of estates of decedents
                                                         The applicable
          dying, and gifts made, during:
                                                   exclusion amount is:
                  2001 and 2002......................       $1,000,000 
                  2003 and 2004......................       $1,125,000 
                  2005...............................       $1,500,000 
                  2006 or thereafter.................       $2,000,000.
            ``(3) Applicable unused spousal exclusion amount.--With 
        respect to a decedent whose immediately predeceased spouse died 
        after December 31, 2000, the applicable unused spousal 
        exclusion amount for such decedent is equal to the excess of--
                    ``(A) the applicable exclusion amount allowable 
                under this section to the estate of such immediately 
                predeceased spouse, over
                    ``(B) the applicable exclusion amount allowed under 
                this section to the estate of such immediately 
                predeceased spouse.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to the estates of decedents dying, and gifts made, after December 31, 
2000.

Summary: Amends the Internal Revenue Code to phase-in an increase in the maximum deduction allowed for purposes of the family-owned business estate rule to $9.375 million beginning January 1, 2005. Phases-in an increase in the unified credit against estate and gift taxes to $2 million by 2006.