A bill to amend the Internal Revenue Code of 1986 to provide a nonrefundable credit for holders of qualified highway bonds.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Maximum Economic Growth for America 
Through Innovative Finance Act or MEGA Innovate''.

SEC. 2. CREDIT TO HOLDERS OF QUALIFIED HIGHWAY BONDS.

    (a) In General.--Part IV of subchapter A of chapter 1 of the 
Internal Revenue Code of 1986 (relating to credits against tax) is 
amended by adding at the end the following new subpart:

  ``Subpart H--Nonrefundable Credit for Holders of Qualified Highway 
                                 Bonds

                              ``Sec. 54. Credit to holders of qualified 
                                        highway bonds.

``SEC. 54. CREDIT TO HOLDERS OF QUALIFIED HIGHWAY BONDS.

    ``(a) Allowance of Credit.--In the case of a taxpayer who holds a 
qualified highway bond on a credit allowance date of such bond which 
occurs during the taxable year, there shall be allowed as a credit 
against the tax imposed by this chapter for such taxable year an amount 
equal to the sum of the credits determined under subsection (b) with 
respect to credit allowance dates during such year on which the 
taxpayer holds such bond.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit allowance date 
        for a qualified highway bond is 25 percent of the annual credit 
        determined with respect to such bond.
            ``(2) Annual credit.--The annual credit determined with 
        respect to any qualified highway bond is the product of--
                    ``(A) the applicable credit rate, multiplied by
                    ``(B) the outstanding face amount of the bond.
            ``(3) Applicable credit rate.--For purposes of paragraph 
        (2), the applicable credit rate with respect to an issue is the 
        rate equal to an average market yield (as of the day before the 
        date of sale of the issue) on outstanding long-term corporate 
        debt obligations (determined in such manner as the Secretary 
        prescribes).
            ``(4) Credit allowance date.--For purposes of this section, 
        the term `credit allowance date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
            ``(5) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month period ending 
        on a credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under subsection (a) 
        for any taxable year shall not exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                part (other than this subpart and subpart C).
            ``(2) Carryover of unused credit.--If the credit allowable 
        under subsection (a) exceeds the limitation imposed by 
        paragraph (1) for such taxable year, such excess shall be 
        carried to the succeeding taxable year and added to the credit 
        allowable under subsection (a) for such taxable year.
    ``(d) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section 
(determined without regard to subsection (c)) and the amount so 
included shall be treated as interest income.
    ``(e) Qualified Highway Bond.--For purposes of this part, the term 
`qualified highway bond' means any bond issued as part of an issue if--
            ``(1) 95 percent or more of the proceeds from the sale of 
        such issue are transferred to the Highway Trust Fund for 
        expenditure under the requirements of such Trust Fund,
            ``(2) the bond is issued by the Secretary, is in registered 
        form, and meets the bond limitation requirements under 
        subsection (f),
            ``(3) the issuer designates such bond for purposes of this 
        section,
            ``(4) the term of each bond which is part of such issue 
        does not exceed 20 years, and
            ``(5) the payment of principal with respect to such bond is 
        the obligation of the United States Government.
    ``(f) Limitation on Amount of Bonds Designated.--The Secretary 
shall issue qualified highway bonds equal to the qualified highway bond 
limitation for each calendar year. Such limitation is $3,000,000,000 
for 2004, 2005, 2006, 2007, and 2008, and $1,000,000,000 for 2009.
    ``(g) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Bond.--The term `bond' includes any obligation.
            ``(2) Partnership; s corporation; and other pass-thru 
        entities.--In the case of a partnership, trust, S corporation, 
        or other pass-thru entity, rules similar to the rules of 
        section 41(g) shall apply with respect to the credit allowable 
        under subsection (a).
            ``(3) Bonds held by regulated investment companies.--If any 
        qualified highway bond is held by a regulated investment 
        company, the credit determined under subsection (a) shall be 
        allowed to shareholders of such company under procedures 
        prescribed by the Secretary.''.
    (b) Amendments to Other Code Sections.--
            (1) Reporting.--Subsection (d) of section 6049 of the 
        Internal Revenue Code of 1986 (relating to returns regarding 
        payments of interest) is amended by adding at the end the 
        following new paragraph:
            ``(8) Reporting of credit on qualified highway bonds.--
                    ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 54(d) and such amounts shall 
                be treated as paid on the credit allowance date (as 
                defined in section 54(b)(4)).
                    ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A), subsection 
                (b)(4) shall be applied without regard to subparagraphs 
                (A), (H), (I), (J), (K), and (L)(i) of such subsection.
                    ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''.
            (2) Treatment for estimated tax purposes.--
                    (A) Individual.--Section 6654 of such Code 
                (relating to failure by individual to pay estimated 
                income tax) is amended by redesignating subsection (m) 
                as subsection (n) and by inserting after subsection (l) 
                the following new subsection:
    ``(m) Special Rule for Holders of Qualified Highway Bonds.--For 
purposes of this section, the credit allowed by section 54 to a 
taxpayer by reason of holding a qualified highway bond on a credit 
allowance date shall be treated as if it were a payment of estimated 
tax made by the taxpayer on such date.''.
                    (B) Corporate.--Section 6655 of such Code (relating 
                to failure by corporation to pay estimated income tax) 
                is amended by adding at the end of subsection (g) the 
                following new paragraph:
            ``(5) Special rule for holders of qualified highway 
        bonds.--For purposes of this section, the credit allowed by 
        section 54 to a taxpayer by reason of holding a qualified 
        highway bond on a credit allowance date shall be treated as if 
        it were a payment of estimated tax made by the taxpayer on such 
        date.''.
            (3) Transfer of bond proceeds to highway trust fund.--
                    (A) In general.--Section 9503(b) of such Code 
                (relating to transfer to Highway Trust Fund of amounts 
                equivalent to certain taxes) is amended by adding at 
                the end the following new paragraph:
            ``(6) Qualified highway bond proceeds.--There are hereby 
        appropriated to the Highway Trust Fund amounts equivalent to 
        the proceeds from the issuance of qualified highway bonds under 
        section 54. Such proceeds shall, for all purposes, be treated 
        as taxes received in the Treasury.''.
                    (B) Conforming amendment.--The heading for 
                subsection (b) of section 9503 of such Code is amended 
                to read as follows:
    ``(b) Transfers to Highway Trust Fund.--''.
    (c) Clerical Amendment.--The table of subparts for part IV of 
subchapter A of chapter 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new item:

                              ``Subpart H. Nonrefundable Credit for 
                                        Holders of Qualified Highway 
                                        Bonds.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 2003.

Summary: Maximum Economic Growth for America Through Innovative Finance Act or MEGA - Amends the Internal Revenue Code to allow a limited credit to a taxpayer holding a qualified highway bond. Limits the amount of such bonds which may be issued.