TASK DEFINITION: In this task, you are given text for US Congressional and California state bills, your task is to generate a summary for this bill.
PROBLEM: SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Taxpayer Debt Buy-Down Act''.

SEC. 2. DESIGNATION OF AMOUNTS FOR REDUCTION OF PUBLIC DEBT.

    (a) In General.--Subchapter A of chapter 61 of the Internal Revenue 
Code of 1986 (relating to returns and records) is amended by adding at 
the end the following new part:

          ``PART IX--DESIGNATION FOR REDUCTION OF PUBLIC DEBT.

                              ``Sec. 6097. Designation.

``SEC. 6097. DESIGNATION.

    ``(a) In General.--Every individual with adjusted income tax 
liability for any taxable year may designate that a portion of such 
liability (not to exceed 10 percent thereof) shall be used to reduce 
the public debt.
    ``(b) Manner and Time of Designation.--A designation under 
subsection (a) may be made with respect to any taxable year only at the 
time of filing the return of tax imposed by chapter 1 for the taxable 
year. The designation shall be made on the first page of the return or 
on the page bearing the taxpayer's signature.
    ``(c) Adjusted Income Tax Liability.--For purposes of this section, 
the term `adjusted income tax liability' means income tax liability (as 
defined in section 6096(b)) reduced by any amount designated under 
section 6096 (relating to designation of income tax payments to 
Presidential Election Campaign Fund).''
    (b) Clerical Amendment.--The table of parts for such subchapter A 
is amended by adding at the end the following new item:

                              ``Part IX. Designation for reduction of 
                                        public debt.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 3. PUBLIC DEBT REDUCTION TRUST FUND.

    (a) In General.--Subchapter A of chapter 98 of the Internal Revenue 
Code of 1986 (relating to trust fund code) is amended by adding at the 
end the following section:

``SEC. 9512. PUBLIC DEBT REDUCTION TRUST FUND.

    ``(a) Creation of Trust Fund.--There is established in the Treasury 
of the United States a trust fund to be known as the `Public Debt 
Reduction Trust Fund', consisting of any amount appropriated or 
credited to the Trust Fund as provided in this section or section 
9602(b).
    ``(b) Transfers to Trust Fund.--There are hereby appropriated to 
the Public Debt Reduction Trust Fund amounts equivalent to the amounts 
designated under section 6097 (relating to designation for public debt 
reduction).
    ``(c) Expenditures.--Amounts in the Public Debt Reduction Trust 
Fund shall be available only for purposes of paying at maturity, or to 
redeem or buy before maturity, any obligation of the Federal Government 
included in the public debt. Any obligation which is paid, redeemed, or 
bought with amounts from such Trust Fund shall be canceled and retired 
and may not be reissued.''
    (b) Clerical Amendment.--The table of sections for such subchapter 
is amended by adding at the end the following new item:

                              ``Sec. 9512. Public Debt Reduction Trust 
                                        Fund.''
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received after the date of the enactment of this Act.

SEC. 4. TAXPAYER-GENERATED SEQUESTRATION OF FEDERAL SPENDING TO REDUCE 
              THE PUBLIC DEBT.

    (a) Sequestration To Reduce the Public Debt.--Part C of the 
Balanced Budget and Emergency Deficit Control Act of 1985 is amended by 
adding after section 253 the following new section:

``SEC. 253A. SEQUESTRATION TO REDUCE THE PUBLIC DEBT.

    ``(a) Sequestration.--Notwithstanding sections 255 and 256, within 
15 days after Congress adjourns to end a session, and on the same day 
as sequestration (if any) under sections 251, 252, and 253, but after 
any sequestration required by those sections, there shall be a 
sequestration equivalent to the estimated aggregate amount designated 
under section 6097 of the Internal Revenue Code of 1986 for the last 
taxable year ending before the beginning of that session of Congress, 
as estimated by the Department of the Treasury on May 1 and as modified 
by the total of (1) any amounts by which net discretionary spending is 
reduced by legislation below the discretionary spending limits (or, in 
the absence of such limits, any net deficit change from the baseline 
amount calculated under section 257, except that such baseline for 
fiscal year 1996 and thereafter shall be based upon fiscal year 1995 
enacted appropriations less any 1995 sequesters) and (2) the net 
deficit change that has resulted from direct spending legislation.
    ``(b) Applicability.--
            ``(1) In general.--Except as provided by paragraph (2), 
        each account of the United States shall be reduced by a dollar 
        amount calculated by multiplying the level of budgetary 
        resources in that account at that time by the uniform 
        percentage necessary to carry out subsection (a). All 
        obligational authority reduced under this section shall be done 
        in a manner that makes such reductions permanent.
            ``(2) Exempt accounts.--No order issued under this part 
        may--
                    ``(A) reduce benefits payable the old-age, 
                survivors, and disability insurance program established 
                under title II of the Social Security Act;
                    ``(B) reduce payments for net interest (all of 
                major functional category 900); or
                    ``(C) make any reduction in the following accounts:
                            ``Federal Deposit Insurance Corporation, 
                        Bank Insurance Fund;
                            ``Federal Deposit Insurance Corporation, 
                        FSLIC Resolution Fund;
                            ``Federal Deposit Insurance Corporation, 
                        Savings Association Insurance Fund;
                            ``National Credit Union Administration, 
                        credit union share insurance fund; or
                            ``Resolution Trust Corporation.''.
    (b) Reports.--Section 254 of the Balanced Budget and Emergency 
Deficit Control Act of 1985 is amended--
            (1) in subsection (a), by inserting before the item 
        relating to August 10 the following:
    ``May 1 . . . Department of Treasury report to Congress estimating 
amount of income tax designated pursuant to section 6097 of the 
Internal Revenue Code of 1986.'';
            (2) in subsection (d)(1), by inserting ``, and 
        sequestration to reduce the public debt,'';
            (3) in subsection (d), by redesignating paragraph (5) as 
        paragraph (6) and by inserting after paragraph (4) the 
        following new paragraph:
            ``(5) Sequestration to reduce the public debt reports.--The 
        preview reports shall set forth for the budget year estimates 
        for each of the following:
                    ``(A) The aggregate amount designated under section 
                6097 of the Internal Revenue Code of 1986 for the last 
                taxable year ending before the budget year.
                    ``(B) The amount of reductions required under 
                section 253A and the deficit remaining after those 
                reductions have been made.
                    ``(C) The sequestration percentage necessary to 
                achieve the required reduction in accounts under 
                section 253A(b).''; and
            (4) in subsection (g), by redesignating paragraphs (4) and 
        (5) as paragraphs (5) and (6), respectively, and by inserting 
        after paragraph (3) the following new paragraph:
            ``(4) Sequestration to reduce the public debt reports.--The 
        final reports shall contain all of the information contained in 
        the public debt taxation designation report required on May 
        1.''.
    (c) Effective Date.--Notwithstanding section 275(b) of the Balanced 
Budget and Emergency Deficit Control Act of 1985, the expiration date 
set forth in that section shall not apply to the amendments made by 
this section. The amendments made by this section shall cease to have 
any effect after the first fiscal year during which there is no public 
debt.

SOLUTION: Taxpayer Debt Buy-Down Act - Amends the Internal Revenue Code to allow every individual with adjusted income tax liability to designate on their tax returns that a portion of such liability (not to exceed ten percent) be used to reduce the public debt. 
Establishes a Public Debt Reduction Trust Fund for the deposit of designated amounts.  Makes amounts in such Trust Fund available only to pay at maturity, or to redeem or buy before maturity, any obligation of the Federal Government included in the public debt.  Prohibits the reissuance of any obligation which is paid, redeemed, or bought with amounts from the Trust Fund. 
Amends the Balanced Budget and Emergency Deficit Control Act of 1985 (Gramm-Rudman-Hollings Act) to provide for the sequestration of amounts designated to the Trust Fund.  Specifies accounts exempt from such sequestration.  Includes aggregated amounts designated to the Trust Fund and amounts sequestered to reduce the public debt in sequestration preview and final reports.

PROBLEM: SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Working Family 
Child Care Tax Relief Act of 1996''.
    (b) Amendment of  1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. EXPANSION OF CHILD AND DEPENDENT CARE CREDIT.

    (a) Increase in Credit.--Paragraph (2) of section 21(a) (relating 
to credit for expenses for household and dependent care services 
necessary for gainful employment) is amended to read as follows:
            ``(2) Applicable percentage defined.--For purposes of 
        paragraph (1), the term `applicable percentage' means 30 
        percent reduced (but not below 20 percent) by 1 percentage 
        point for each $3,000 (or fraction thereof) by which the 
        taxpayer's adjusted gross income exceeds $50,000.''
    (b) Increase in Maximum Amount Creditable.--
            (1) In general.--Section 21(c) (relating to dollar limit on 
        amount creditable) is amended--
                    (A) by striking ``$2,400'' in paragraph (1) and 
                inserting ``$4,000'', and
                    (B) by striking ``$4,800'' in paragraph (2) and 
                inserting ``$8,000''.
            (2) Phaseout for taxpayers with adjusted gross income in 
        excess of $50,000.--
                    (A) In general.--Section 21(c) is amended by adding 
                at the end the following new paragraph:
            ``(2) Limitation based on adjusted gross income.--If the 
        taxpayer's adjusted gross income for the taxable year exceeds 
        $50,000, the applicable dollar amount under paragraph (1) shall 
        be reduced as follows:
                    ``(A) The $4,000 amount under paragraph (1)(A) 
                shall be reduced (but not below $2,400) by $53.33 for 
                each $1,000 (or fraction thereof) of such excess.
                    ``(B) The $8,000 amount under paragraph (1)(B) 
                shall be reduced (but not below $4,800) by $106.66 for 
                each $1,000 (or fraction thereof) of such excess.''
            (2) Conforming amendments.--Section 21(c), as amended by 
        subsection (b), is amended--
                    (A) by striking ``The amount'' and inserting:
            ``(1) In general.--The amount'',
                    (B) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B), respectively, and
                    (C) by striking ``paragraph (1) or (2)'' and 
                inserting ``subparagraph (A) or (B)''.
    (c) Credit Made Refundable.--
            (1) In general.--Section 21 (relating to credit for 
        expenses for household and dependent care services), as amended 
        by this section, is transferred to subpart C of part IV of 
        subchapter A of chapter 1, inserted after section 35, and 
        redesignated as section 36.
            (2) Conforming amendments.--
                    (A) Section 129 is amended--
                            (i) by striking ``21(e)'' in subsection 
                        (a)(2)(C) and inserting ``36(e)'',
                            (ii) by striking ``21(d)(2)'' in subsection 
                        (b)(2) and inserting ``36(d)(2)'', and
                            (iii) by striking ``21(b)(2)'' in 
                        subsection (e)(1) and inserting ``36(b)(2)''.
                    (B) Section 213(e) is amended by striking ``section 
                21'' and inserting ``section 36''.
            (3) Clerical amendments.--
                    (A) The table of sections for subpart A of part IV 
                of subchapter A of chapter 1 is amended by striking the 
                item relating to section 21.
                    (B) The table of sections for subpart C of part IV 
                of subchapter A of chapter 1 is amended by adding at 
                the end the following new item:

                              ``Sec. 36. Expenses for household and 
                                        dependent care services 
                                        necessary for gainful 
                                        employment.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 3. OFFSETS OF REVENUE LOSS.

    (a) Modifications to Foreign Earned Income Exclusion.--
            (1) Repeal of $70,000 exclusion.--Paragraph (1) of section 
        911(a) (relating to exclusion from gross income) is amended by 
        inserting ``in the case of taxable years beginning before 
        January 1, 1998,'' before ``the foreign earned income''.
            (2) Qualified schooling expenses.--
                    (A) In general.--Section 911(a) is amended by 
                striking ``and'' at the end of paragraph (1), by 
                striking the period at the end of paragraph (2) and 
                inserting ``, and'', and by adding at the end the 
                following new paragraph:
            ``(3) the qualified schooling expenses of such 
        individual.''
                    (B) Qualified schooling expenses.--Section 911 is 
                amended by redesignating subsections (e) and (f) as 
                subsections (f) and (g) and by inserting after 
                subsection (d) the following new subsection:
    ``(e) Qualified Schooling Expenses.--For purposes of this section--
            ``(1) In general.--For purposes of this section, the term 
        `qualified schooling expenses' means the reasonable schooling 
        expenses paid or incurred by or on behalf of the individual 
        during the taxable year for the education of each dependent of 
        the individual at the elementary or secondary level. For 
        purposes of the preceding sentence, the elementary or secondary 
        level means education which is the equivalent of education from 
        the kindergarten through the 12th grade in a United States-type 
        school.
            ``(2) Expenses included.--For purposes of paragraph (1), 
        the term `schooling expenses' means the cost of tuition, fees, 
        books, and local transportation and of other expenses required 
        by the school. Except as provided in paragraph (3), such term 
        does not include expenses of room and board or expenses of 
        transportation other than local transportation.
            ``(3) Room, board, and travel allowed in certain cases.--If 
        an adequate United States-type school is not available within a 
        reasonable commuting distance of the individual's tax home, the 
        expenses of room and board of the dependent and the expenses of 
        the transportation of the dependent each school year between 
        such tax home and the location of the school shall be treated 
        as schooling expenses.
            ``(4) Determination of reasonable expenses.--If--
                    ``(A) there is an adequate United States-type 
                school available within a reasonable commuting distance 
                of the individual's tax home, and
                    ``(B) the dependent attends a school other than the 
                school referred to in subparagraph (A),
        then the amount taken into account under paragraph (2) shall 
        not exceed the aggregate amount which would be charged for the 
        period by the school referred to in subparagraph (A).
            ``(5) Period taken into account.--An amount shall be taken 
        into account as a qualified schooling expense only if it is 
        attributable to education for a period during which the 
        individual's tax home is in a foreign country.
            ``(6) Special rules where schooling expenses not provided 
        by employer.--
                    ``(A) In general.--To the extent the qualified 
                schooling expenses of any individual for any taxable 
                year is not attributable to employer provided amounts, 
                such expenses shall be treated as a deduction allowable 
                in computing adjusted gross income to the extent of the 
                limitation of subparagraph (B).
                    ``(B) Limitation.--For purposes of subparagraph 
                (A), the limitation of this subparagraph is the excess 
                of--
                            ``(i) the foreign earned income of the 
                        individual for the taxable year, over
                            ``(ii) the amount of such income excluded 
                        from gross income under subsection (a) for the 
                        taxable year.
                    ``(C) 1-year carryover of expenses not allowed by 
                reason of subparagraph (b).--
                            ``(i) In general.--The amount not allowable 
                        as a deduction for any taxable year under 
                        subparagraph (A) by reason of the limitation of 
                        subparagraph (B) shall be treated as a 
                        deduction allowable in computing adjusted gross 
                        income for the succeeding taxable year (and 
                        only for the succeeding taxable year) to the 
                        extent of the limitation of clause (ii) for 
                        such succeeding taxable year.
                            ``(ii) Limitation.--For purposes of clause 
                        (i), the limitation of this clause for any 
                        taxable year is the excess of--
                                    ``(I) the limitation of 
                                subparagraph (B) for such taxable year, 
                                over
                                    ``(II) amounts treated as a 
                                deduction under subparagraph (A) for 
                                such taxable year.
                    ``(D) Employer provided amounts.--For purposes of 
                this paragraph, the term `employer provided amounts' 
                means any amount paid or incurred on behalf of the 
                individual by the individual's employer which is 
                foreign earned income included in the individual's 
                gross income for the taxable year (without regard to 
                this section).''
                    (C) Conforming amendment.--Section 911(d)(7) is 
                amended by inserting ``or (e)(6)(A)'' after 
                ``subsection (c)(3)(A)''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 1997.
    (b) Savings From Welfare Reform.--If there is an overall decrease 
in Federal revenues for any fiscal year by reason of this Act (without 
regard to this subsection), such decrease shall be offset by the 
decrease in Federal expenditures for such fiscal year by reason of the 
amendments made by, and provisions of, the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996 (Public Law 104-193).

SOLUTION: Working Family Child Care Tax Relief Act of 1996 - Amends the Internal Revenue Code with respect to the child and dependent care credit to:  (1) increase such credit and make it refundable; and (2) provide it with an income-based phaseout and limitation. 
Eliminates the foreign earned income exclusion as of a specified date.  Allows an exclusion for overseas qualified elementary and secondary schooling expenses.

PROBLEM: SECTION 1. REDUCTION IN INDIVIDUAL CAPITAL GAINS RATE ON STOCK OF 
              DOMESTIC MANUFACTURERS.

    (a) General Rule.--Subsection (h) of section 1 of the Internal 
Revenue Code of 1986 (relating to maximum capital gains rate) is 
amended to read as follows:
    ``(h) Maximum Capital Gains Rate.--
            ``(1) In general.--If a taxpayer has a net capital gain for 
        any taxable year, then the tax imposed by this section shall 
        not exceed the sum of--
                    ``(A) a tax computed at the rates and in the same 
                manner as if this subsection had not been enacted on 
                the taxable income reduced by the net capital gain,
                    ``(B) 19 percent of the lesser of--
                            ``(i) the 6-year qualified gain for the 
                        taxable year, or
                            ``(ii) the portion of the taxpayer's 
                        taxable income for the taxable year which would 
                        be taxed at a rate in excess of 15 percent 
                        (determined without regard to this subsection),
                    ``(C) the 23.5 percent of the lesser of--
                            ``(i) the 3-year qualified gain for the 
                        taxable year, or
                            ``(ii) the excess of the amount described 
                        in subparagraph (B)(ii) for the taxable year 
                        over the 6-year qualified gain for such taxable 
                        year, and
                    ``(D) 28 percent of the excess (if any) of the net 
                capital gain for the taxable year over the sum of the 
                amounts taken into account under subparagraphs (B) and 
                (C).
            ``(2) 3-year qualified gain.--For purposes of this 
        subsection, the term `3-year qualified gain' means the lesser 
        of--
                    ``(A) the net capital gain for the taxable year, or
                    ``(B) the net capital gain for the taxable year 
                determined by taking into account only gain or loss 
                from the sale or exchange of qualified manufacturer's 
                stock with a post-1994 holding period of at least 3 
                years but less than 6 years.
            ``(3) 6-year qualified gain.--For purposes of this 
        subsection, the term `6-year qualified gain' means the lesser 
        of--
                    ``(A) the excess of the net capital gain for the 
                taxable year over 3-year qualified gain, or
                    ``(B) the net capital gain for the taxable year 
                determined by taking into account only gain or loss 
                from the sale or exchange of qualified manufacturer's 
                stock with a post-1994 holding period of at least 6 
                years.
            ``(4) Qualified manufacturer's stock.--For purposes of this 
        subsection, the term `qualified manufacturer's stock' means 
        stock of any domestic C corporation if any trade or business of 
        such corporation is described in any 2-digit Standard 
        Industrial Classification Code relating to manufacturing.
            ``(5) Post-1994 holding period.--For purposes of this 
        subsection, the term `post-1994 holding period' means the 
        portion of the holding period after December 31, 1994.
            ``(6) Treatment of pass-thru entities.--
                    ``(A) In general.--In applying this subsection with 
                respect to any pass-thru entity, the determination of 
                the period for which any gain or loss is properly taken 
                into account shall be made at the entity level.
                    ``(B) Pass-thru entity.--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) Technical Amendments.--
            (1)(A) Section 170(e)(1)(B) of such Code is amended by 
        inserting ``the applicable percentage of'' before ``the amount 
        of gain''.
            (B) Section 170(e)(1) of such Code is amended by adding at 
        the end the following new sentence: ``For purposes of 
        subparagraph (B), the term `applicable percentage' means the 
        percentage determined by dividing the rate of tax imposed by 
        section 1(h) by 28, or, in the case of a corporation, the rate 
        of tax imposed by section 1201(a) by 35.''
            (2)(A) The second sentence of section 7518(g)(6)(A) of such 
        Code is amended by striking ``28 percent (34 percent in the 
        case of a corporation)'' and inserting ``the rate of tax 
        determined under such section''.
            (B) The second sentence of section 607(h)(6)(A) of the 
        Merchant Marine Act, 1936, is amended by striking ``28 percent 
        (34 percent in the case of a corporation)'' and inserting ``the 
        rate of tax determined under such section''.

SEC. 2. REDUCTION IN CORPORATE CAPITAL GAINS RATE ON STOCK OF DOMESTIC 
              MANUFACTURERS.

    (a) General Rule.--Section 1201 of the Internal Revenue Code of 
1986 (relating to alternative tax for corporations) is amended by 
redesignating subsection (b) as subsection (c) and by striking 
subsection (a) and inserting the following:
    ``(a) General Rule.--If for any taxable year a corporation has a 
net capital gain, then, in lieu of the tax imposed by section 11, 511, 
or 831(a) (whichever applies), there is hereby imposed a tax (if such 
tax is less than the tax imposed by such section) which shall consist 
of the sum of--
            ``(1) a tax computed on the taxable income reduced by the 
        net capital gain, at the same rates and in the same manner as 
        if this subsection had not been enacted,
            ``(2) 19 percent of the lesser of--
                    ``(A) the 6-year qualified gain for the taxable 
                year, or
                    ``(B) the portion of the taxpayer's taxable income 
                for the taxable year which would be taxed at a rate in 
                excess of 15 percent (determined without regard to this 
                subsection),
            ``(3) 23.5 percent of the lesser of--
                    ``(A) the 3-year qualified gain for the taxable 
                year, or
                    ``(B) the excess of the amount described in 
                paragraph (2)(B) for the taxable year over the 6-year 
                qualified gain for such taxable year, and
            ``(4) 35 percent of the excess (if any) of the net capital 
        gain for the taxable year over the sum of the amounts taken 
        into account under paragraph (2) and (3).
    ``(b) Definitions and Special Rule.--For purposes of subsection 
(a)--
            ``(1) 3-year qualified gain and 6-year qualified gain.--The 
        terms `3-year qualified gain' and `6-year qualified gain' have 
        the respective meanings given to such terms by section 1(h).
            ``(2) Treatment of pass-thru entities.--Section 1(h)(6) 
        shall apply for purposes of this section.''
    (b) Technical Amendment.--Clause (iii) of section 852(b)(3)(D) of 
such Code is amended by striking ``65 percent'' and inserting ``the 
applicable percentage '' and by adding at the end the following new 
sentence: ``For purposes of the preceding sentence, the term 
`applicable percentage' means 100 percent minus the percentage 
applicable under section 1201(a)).''.

SEC. 3. INDEXING OF QUALIFIED MANUFACTURER'S STOCK FOR PURPOSES OF 
              DETERMINING GAIN OR LOSS.

    (a) In General.--Part II of subchapter O of chapter 1 of the 
Internal Revenue Code of 1986 (relating to basis rules of general 
application) is amended by inserting after section 1021 the following 
new section:

``SEC. 1022. INDEXING OF QUALIFIED MANUFACTURER'S STOCK FOR PURPOSES OF 
              DETERMINING GAIN OR LOSS.

    ``(a) General Rule.--Except as otherwise provided in this 
subsection, if any qualified manufacturer's stock which has been held 
for more than 3 years (taking into account only the portion of the 
holding period after December 31, 1994) is sold or otherwise disposed 
of, for purposes of this title the indexed basis of the stock shall be 
substituted for its adjusted basis.
    ``(b) Qualified Manufacturer's Stock.--For purposes of this 
section, the term `qualified manufacturer's stock' means stock of any 
domestic C corporation if--
            ``(1) any trade or business of such corporation is 
        described in any 2-digit Standard Industrial Classification 
        Code relating to manufacturing, and
            ``(2) such stock is a capital asset in the hands of the 
        taxpayer.
    ``(c) Indexed Basis.--For purposes of this section--
            ``(1) General rule.--The indexed basis for any stock is--
                    ``(A) the adjusted basis of the stock, multiplied 
                by
                    ``(B) the applicable inflation ratio.
            ``(2) Applicable inflation ratio.--The applicable inflation 
        ratio for any stock is the percentage arrived at by dividing--
                    ``(A) the gross domestic product deflator for the 
                calendar quarter in which the disposition takes place, 
                by
                    ``(B) the gross domestic product deflator for the 
                calendar quarter in which the stock was acquired by the 
                taxpayer (or, if later, the calendar quarter ending on 
                December 31, 1994).
        The applicable inflation ratio shall never be less than 1. The 
        applicable inflation ratio for any stock shall be rounded to 
        the nearest \1/1000\.
            ``(3) Gross domestic product deflator.--The gross domestic 
        product deflator for any calendar quarter is the implicit price 
        deflator for the gross domestic product for such quarter (as 
        shown in the first revision thereof).
    ``(d) Treatment of Regulated Investment Companies and Real Estate 
Investment Trusts.--
            ``(1) Adjustments at entity level.--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the adjustment under subsection (a) 
                shall be allowed to any qualified investment entity 
                (including for purposes of determining the earnings and 
                profits of such entity).
                    ``(B) Exception for qualification purposes.--This 
                section shall not apply for purposes of sections 851(b) 
                and 856(c).
            ``(2) Adjustments to interests held in entity.--
                    ``(A) In general.--Stock in a qualified investment 
                entity shall be qualified manufacturer's stock for any 
                calendar month in the same ratio as the fair market 
                value of the qualified manufacturer's stock held by 
                such entity at the close of such month bears to the 
                fair market value of all assets of such entity at the 
                close of such month.
                    ``(B) Ratio of 90 percent or more.--If the ratio 
                for any calendar month determined under subparagraph 
                (A) would (but for this subparagraph) be 90 percent or 
                more, such ratio for such month shall be 100 percent.
                    ``(C) Ratio of 10 percent or less.--If the ratio 
                for any calendar month determined under subparagraph 
                (A) would (but for this subparagraph) be 10 percent or 
                less, such ratio for such month shall be zero.
                    ``(D) Valuation of assets in case of real estate 
                investment trusts.--Nothing in this paragraph shall 
                require a real estate investment trust to value its 
                assets more frequently than once each 36 months (except 
                where such trust ceases to exist). The ratio under 
                subparagraph (A) for any calendar month for which there 
                is no valuation shall be the trustee's good faith 
                judgment as to such valuation.
            ``(3) Qualified investment entity.--For purposes of this 
        subsection, the term `qualified investment entity' means--
                    ``(A) a regulated investment company (within the 
                meaning of section 851), and
                    ``(B) a real estate investment trust (within the 
                meaning of section 856).
    ``(e) Other Pass-Thru Entities.--
            ``(1) Partnerships.--In the case of a partnership, the 
        adjustment made under subsection (a) at the partnership level 
shall be passed through to the partners.
            ``(2) S corporations.--In the case of an S corporation, the 
        adjustment made under subsection (a) at the corporate level 
        shall be passed through to the shareholders.
            ``(3) Common trust funds.--In the case of a common trust 
        fund, the adjustment made under subsection (a) at the trust 
        level shall be passed through to the participants.
    ``(f) Dispositions Between Related Persons.--
            ``(1) In general.--This section shall not apply to any sale 
        or other disposition of property between related persons except 
        to the extent that the basis of such property in the hands of 
        the transferee is a substituted basis.
            ``(2) Related persons defined.--For purposes of this 
        section, the term `related persons' means--
                    ``(A) persons bearing a relationship set forth in 
                section 267(b), and
                    ``(B) persons treated as single employer under 
                subsection (b) or (c) of section 414.
    ``(g) Transfers To Increase Indexing Adjustment.--If any person 
transfers cash, debt, or any other property to another person and the 
principal purpose of such transfer is to secure or increase an 
adjustment under subsection (a), the Secretary may disallow part or all 
of such adjustment or increase.
    ``(h) Special Rules.--For purposes of this section:
            ``(1) Treatment as separate stock.--A substantial 
        contribution to capital of a corporation shall be treated as 
        separate stock in such corporation.
            ``(2) Stock which is not qualified manufacturer's stock 
        throughout holding period.--The applicable inflation ratio 
        shall be appropriately reduced for periods during which stock 
        is not qualified manufacturer's stock.
            ``(3) Treatment of certain distributions.--A distribution 
        with respect to stock in a corporation which is not a dividend 
        shall be treated as a disposition.
            ``(4) Acquisition date where there has been prior 
        application of subsection (a)(1) with respect to the 
        taxpayer.--If there has been a prior application of subsection 
        (a) to stock while such stock was held by the taxpayer, the 
        date of acquisition of such stock by the taxpayer shall be 
        treated as not earlier than the date of the most recent such 
        prior application.
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''
    (b) Clerical Amendment.--The table of sections for part II of 
subchapter O of chapter 1 of such Code is amended by inserting after 
the item relating to section 1021 the following new item:

                              ``Sec. 1022. Indexing of qualified 
                                        manufacturer's stock for 
                                        purposes of determining gain or 
                                        loss.''
    (c) Adjustment To Apply for Purposes of Determining Earnings and 
Profits.--Subsection (f) of section 312 of such Code (relating to 
effect on earnings and profits of gain or loss and of receipt of tax-
free distributions) is amended by adding at the end thereof the 
following new paragraph:
            ``(3) Effect on earnings and profits of indexed basis.--

                                For substitution of indexed basis for 
adjusted basis in the case of the disposition of qualified 
manufacturer's stock, see section 1022(a).''

SEC. 4. EFFECTIVE DATE.

    The amendments made by this Act shall apply to taxable years 
beginning after December 31, 1994.

SOLUTION:
Amends the Internal Revenue Code to reduce the rate of the individual and corporate capital gains tax on the sale or exchange of stock of qualified domestic manufacturers.  Provides for indexing the basis of such stock which has been held for more than three years.