HR 1084 IH

To amend the Internal Revenue Code of 1986 to provide tax relief, to encourage savings and investment, and to provide incentives for public school construction, and to amend the Social Security Act to provide relief from the earnings test.

March 11, 1999

Ms. DUNN (for herself, Mr. WELLER, Mr. GILLMOR, Mr. HILL of Montana, Mr. LEWIS of California, Mr. HOSTETTLER, Mrs. FOWLER, Mr. SPENCE, Mr. CUNNINGHAM, and Mrs. BIGGERT) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to provide tax relief, to encourage savings and investment, and to provide incentives for public school construction, and to amend the Social Security Act to provide relief from the earnings test.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

(a) SHORT TITLE- This Act may be cited as the `Lifetime Tax Relief Act of 1999'.

(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.

(c) SECTION 15 NOT TO APPLY- No amendment made by section 103 shall be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986 .

(d) TABLE OF CONTENTS-

Sec. 1. Short title.

TITLE I--FAMILY RELIEF

Subtitle A--Tax Relief

Sec. 101. Basic standard deduction for married individuals to be twice the deduction for unmarried individuals.

Sec. 102. Increase in personal exemption.

Sec. 103. Reduction of individual income taxes by increasing amounts of income subject to tax at the 15 percent rate.

Sec. 104. Nonrefundable personal credits fully allowed against regular tax liability during 1999 and 2000.

Subtitle B--Relief From Social Security Earning Test

Sec. 111. Elimination of earnings test for individuals who have attained retirement age.

Sec. 112. Conforming amendments eliminating the special exempt amount for individuals who have attained retirement age.

Sec. 113. Additional conforming amendments.

Sec. 114. Effective date.

TITLE II--BUSINESS RELIEF

Sec. 201. Phaseout of estate and gift taxes.

Sec. 202. Modification and permanent extension of research credit.

Sec. 203. Work opportunity credit made permanent.

Sec. 204. Permanent subpart F exemption for active financing income.

Sec. 205. Deduction for health insurance costs of self-employed individuals increased to 100 percent.

Sec. 206. Increased exclusion and other modifications applicable to qualified small business stock.

Sec. 207. Increased exclusion for incentive stock options; exception from alternative minimum tax.

TITLE III--SAVINGS AND INVESTMENT

Sec. 301. Exclusion from gross income of certain amounts of the net capital gain of individuals.

Sec. 302. Increase in maximum amount of deduction for IRAs.

Sec. 303. Higher elective deferral limit if employee's spouse is not a participant in section 401(k) plan.

TITLE IV--EDUCATION

Sec. 401. Amendments to encourage additional school construction.

Sec. 402. Modification of arbitrage rebate rules applicable to public school construction bonds.

Sec. 403. Additional increase in arbitrage rebate exception for governmental bonds used to finance public school facilities.

Sec. 404. Exclusion from gross income of education distributions from qualified tuition programs; coverage of private programs.

TITLE I--FAMILY RELIEF

Subtitle A--Tax Relief

SEC. 101. BASIC STANDARD DEDUCTION FOR MARRIED INDIVIDUALS TO BE TWICE THE DEDUCTION FOR UNMARRIED INDIVIDUALS.

(a) IN GENERAL- Paragraph (2) of section 63(c) (relating to standard deduction) is amended--

(1) by striking `$5,000' in subparagraph (A) and inserting `twice the dollar amount in effect under subparagraph (C) for the taxable year',

(2) by adding `or' at the end of subparagraph (B),

(3) by striking `in the case of' and all that follows in subparagraph (C) and inserting `in any other case.', and

(4) by striking subparagraph (D).

(b) TECHNICAL AMENDMENT- Subparagraph (B) of section 1(f)(6) is amended by striking `(other than with' and all that follows through `shall be applied' and inserting `(other than sections 63(c)(4) and 151(d)(4)(A)) shall be applied'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1999.

SEC. 102. INCREASE IN PERSONAL EXEMPTION.

(a) IN GENERAL- Paragraph (1) of section 151(d) (relating to exemption amount) is amended by striking `$2,000' and inserting `$3,500'.

(b) CONFORMING AMENDMENT- Subparagraph (A) of section 151(d)(4) is amended to read as follows:

`(A) ADJUSTMENT TO BASIC AMOUNT OF EXEMPTION- In the case of any taxable year beginning in a calendar year after 2000, the dollar amount contained in paragraph (1) shall be increased by an amount equal to--

`(i) such dollar amount, multiplied by

`(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1999.

SEC. 103. REDUCTION OF INDIVIDUAL INCOME TAXES BY INCREASING AMOUNTS OF INCOME SUBJECT TO TAX AT THE 15 PERCENT RATE.

(a) GENERAL RULE- Section 1 (relating to tax imposed) is amended by striking subsections (a) through (e) and inserting the following:

`(a) MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES- There is hereby imposed on the taxable income of every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and every surviving spouse (as defined in section 2(a)), a tax determined in accordance with the following tables:

`(1) FOR TAXABLE YEARS BEGINNING IN 2000-

The tax is:

Not over $53,560

15% of taxable income.

Over $53,560 but not over $124,900

$8,034, plus 28% of the excess over $53,560.

Over $124,900 but not over $260,500

$28,009.20, plus 31% of the excess over $124,900.

Over $260,500 but not over $566,300

$70,045.20, plus 36% of the excess over $260,500.

Over $566,300

$180,133.20, plus 39.6% of the excess over $566,300.

`(2) FOR TAXABLE YEARS BEGINNING IN 2001-

The tax is:

Not over $55,105

15% of taxable income.

Over $55,105 but not over $124,900

$8,265.75, plus 28% of the excess over $55,105.

Over $124,900 but not over $260,500

$27,808.35, plus 31% of the excess over $124,900.

Over $260,500 but not over $566,300

$69,844.35, plus 36% of the excess over $260,500.

Over $566,300

$179,932.35, plus 39.6% of the excess over $566,300.

`(3) FOR TAXABLE YEARS BEGINNING AFTER 2001-

The tax is:

Not over $56,650

15% of taxable income.

Over $56,650 but not over $124,900

$8,497.50, plus 28% of the excess over $56,650.

Over $124,900 but not over $260,500

$27,607.50, plus 31% of the excess over $124,900.

Over $260,500 but not over $566,300

$69,643.50, plus 36% of the excess over $260,500.

Over $566,300

$179,731.50, plus 39.6% of the excess over $566,300.

`(b) HEADS OF HOUSEHOLDS- There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following tables:

`(1) FOR TAXABLE YEARS BEGINNING IN 2000-

The tax is:

Not over $35,932

15% of taxable income.

Over $35,932 but not over $89,150

$5,389.80, plus 28% of the excess over $35,932.

Over $89,150 but not over $144,400

$20,290.84, plus 31% of the excess over $89,150.

Over $144,400 but not over $283,150

$37,418.34, plus 36% of the excess over $144,400.

Over $283,150

$87,368.34, plus 39.6% of the excess over $283,150.

`(2) FOR TAXABLE YEARS BEGINNING IN 2001-

The tax is:

Not over $36,969

15% of taxable income.

Over $36,969 but not over $89,150

$5,545.35, plus 28% of the excess over $36,969.

Over $89,150 but not over $144,400

$20,156.03, plus 31% of the excess over $89,150.

Over $144,400 but not over $283,150

$37,283.53, plus 36% of the excess over $144,400.

Over $283,150

$87,233.53, plus 39.6% of the excess over $283,150.

`(3) FOR TAXABLE YEARS BEGINNING AFTER 2001-

The tax is:

Not over $38,514

15% of taxable income.

Over $38,514 but not over $89,150

$5,777.10, plus 28% of the excess over $38,514.

Over $89,150 but not over $144,400

$19,955.18, plus 31% of the excess over $89,150.

Over $144,400 but not over $283,150

$37,082.68, plus 36% of the excess over $144,400.

Over $283,150

$87,032.68, plus 39.6% of the excess over $283,150.

`(c) OTHER INDIVIDUALS- There is hereby imposed on the taxable income of every individual (other than an individual to whom subsection (a) or (b) applies) a tax determined in accordance with the following tables:

`(1) FOR TAXABLE YEARS BEGINNING IN 2000-

The tax is:

Not over $26,780

15% of taxable income.

Over $26,780 but not over $62,450

$4,017, plus 28% of the excess over $26,780.

Over $62,450 but not over $130,250

$14,004.60, plus 31% of the excess over $62,450.

Over $130,250 but not over $283,150

$35,022.60, plus 36% of the excess over $130,250.

Over $283,150

$90,066.60, plus 39.6% of the excess over $283,150.

`(2) FOR TAXABLE YEARS BEGINNING IN 2001-

The tax is:

Not over $27,553

15% of taxable income.

Over $27,553 but not over $62,450

$4,132.95, plus 28% of the excess over $27,553.

Over $62,450 but not over $130,250

$13,904.11, plus 31% of the excess over $62,450.

Over $130,250 but not over $283,150

$34,922.11, plus 36% of the excess over $130,250.

Over $283,150

$89,966.11, plus 39.6% of the excess over $283,150.

`(3) FOR TAXABLE YEARS BEGINNING AFTER 2001-

The tax is:

Not over $28,326

15% of taxable income.

Over $28,326 but not over $62,450

$4,248.90, plus 28% of the excess over $28,326.

Over $62,450 but not over $130,250

$13,803.62, plus 31% of the excess over $62,450.

Over $130,250 but not over $283,150

$34,821.62, plus 36% of the excess over $130,250.

Over $283,150

$89,865.62, plus 39.6% of the excess over $283,150.

`(d) ESTATES AND TRUSTS- There is hereby imposed on the taxable income of every estate and every trust taxable under this subsection a tax determined in accordance with the following tables:

`(1) FOR TAXABLE YEARS BEGINNING IN 2000-

The tax is:

Not over $1,820

15% of taxable income.

Over $1,820 but not over $4,050

$273, plus 28% of the excess over $1,820.

Over $4,050 but not over $6,200

$897.40, plus 31% of the excess over $4,050.

Over $6,200 but not over $8,450

$1,563.90, plus 36% of the excess over $6,200.

Over $8,450

$2,373.90, plus 39.6% of the excess over $8,450.

`(2) FOR TAXABLE YEARS BEGINNING IN 2001-

The tax is:

Not over $1,873

15% of taxable income.

Over $1,873 but not over $4,050

$280.95, plus 28% of the excess over $1,873.

Over $4,050 but not over $6,200

$890.51, plus 31% of the excess over $4,050.

Over $6,200 but not over $8,450

$1,557.01, plus 36% of the excess over $6,200.

Over $8,450

$2,367.01, plus 39.6% of the excess over $8,450.

`(3) FOR TAXABLE YEARS BEGINNING AFTER 2001-

The tax is:

Not over $1,926

15% of taxable income.

Over $1,926 but not over $4,050

$288.90, plus 28% of the excess over $1,926.

Over $4,050 but not over $6,200

$883.62, plus 31% of the excess over $4,050.

Over $6,200 but not over $8,450

$1,550.12, plus 36% of the excess over $6,200.

Over $8,450

$2,360.12, plus 39.6% of the excess over $8,450.'.

(b) INFLATION ADJUSTMENT TO APPLY IN DETERMINING RATES AFTER 1999- Subsection (f) of section 1 is amended--

(1) by striking `1993' in paragraph (1) and inserting `1999',

(2) by striking `1992' in paragraph (3)(B) and inserting `1998', and

(3) by striking paragraph (7).

(c) CONFORMING AMENDMENTS-

(1) The following provisions are each amended by striking `1992' and inserting `1998' each place it appears:

(A) Section 25A(h).

(B) Section 32(j)(1)(B).

(C) Section 41(e)(5)(C).

(D) Section 59(j)(2)(B).

(E) Section 63(c)(4)(B).

(F) Section 68(b)(2)(B).

(G) Section 135(b)(2)(B)(ii).

(H) Section 151(d)(4).

(I) Section 220(g)(2).

(J) Section 221(g)(1)(B).

(K) Section 512(d)(2)(B).

(L) Section 513(h)(2)(C)(ii).

(M) Section 685(c)(3)(B).

(N) Section 877(a)(2).

(O) Section 911(b)(2)(D)(ii)(II).

(P) Section 2032A(a)(3)(B).

(Q) Section 2503(b)(2)(B).

(R) Section 2631(c)(1)(B).

(S) Section 4001(e)(1)(B).

(T) Section 4261(e)(4)(A)(ii).

(U) Section 6039F(d).

(V) Section 6323(i)(4)(B).

(W) Section 6601(j)(3)(B).

(X) Section 7430(c)(1).

(2) Subclause (II) of section 42(h)(6)(G)(i) is amended by striking `1987' and inserting `1998'.

(3) Subparagraph (B) of section 132(f)(6) is amended by inserting before the period `, determined by substituting `calendar year 1992' for `calendar year 1998' in subparagraph (B) thereof'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1999.

SEC. 104. NONREFUNDABLE PERSONAL CREDITS FULLY ALLOWED AGAINST REGULAR TAX LIABILITY DURING 1999 AND 2000.

(a) IN GENERAL- The last sentence of section 26(a) is by striking `1998' and inserting `1998, 1999, or 2000'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 1999.

Subtitle B--Relief From Social Security Earning Test

SEC. 111. ELIMINATION OF EARNINGS TEST FOR INDIVIDUALS WHO HAVE ATTAINED RETIREMENT AGE.

Section 203 of the Social Security Act (42 U.S.C. 403) is amended--

(1) in subsection (c)(1), by striking `the age of seventy' and inserting `retirement age (as defined in section 216(l))';

(2) in paragraphs (1)(A) and (2) of subsection (d), by striking `the age of seventy' each place it appears and inserting `retirement age (as defined in section 216(l))';

(3) in subsection (f)(1)(B), by striking `was age seventy or over' and inserting `was at or above retirement age (as defined in section 216(l))';

(4) in subsection (f)(3)--

(A) by striking `33 1/3 percent' and all that follows through `any other individual,' and inserting `50 percent of such individual's earnings for such year in excess of the product of the exempt amount as determined under paragraph (8),'; and

(B) by striking `age 70' and inserting `retirement age (as defined in section 216(l))';

(5) in subsection (h)(1)(A), by striking `age 70' each place it appears and inserting `retirement age (as defined in section 216(l))'; and

(6) in subsection (j)--

(A) in the heading, by striking `Age Seventy' and inserting `Retirement Age'; and

(B) by striking `seventy years of age' and inserting `having attained retirement age (as defined in section 216(l))'.

SEC. 112. CONFORMING AMENDMENTS ELIMINATING THE SPECIAL EXEMPT AMOUNT FOR INDIVIDUALS WHO HAVE ATTAINED RETIREMENT AGE.

(a) UNIFORM EXEMPT AMOUNT- Section 203(f)(8)(A) of the Social Security Act (42 U.S.C. 403(f)(8)(A)) is amended by striking `the new exempt amounts (separately stated for individuals described in subparagraph (D) and for other individuals) which are to be applicable' and inserting `a new exempt amount which shall be applicable'.

(b) CONFORMING AMENDMENTS- Section 203(f)(8)(B) of the Social Security Act (42 U.S.C. 403(f)(8)(B)) is amended--

(1) in the matter preceding clause (i), by striking `Except' and all that follows through `whichever' and inserting `The exempt amount which is applicable for each month of a particular taxable year shall be whichever';

(2) in clauses (i) and (ii), by striking `corresponding' each place it appears; and

(3) in the last sentence, by striking `an exempt amount' and inserting `the exempt amount'.

(c) REPEAL OF BASIS FOR COMPUTATION OF SPECIAL EXEMPT AMOUNT- Section 203(f)(8)(D) of the Social Security Act (42 U.S.C. 403(f)(8)(D)) is repealed.

SEC. 113. ADDITIONAL CONFORMING AMENDMENTS.

(a) ELIMINATION OF REDUNDANT REFERENCES TO RETIREMENT AGE- Section 203 of the Social Security Act (42 U.S.C. 403) is amended--

(1) in subsection (c), in the last sentence, by striking `nor shall any deduction' and all that follows and inserting `nor shall any deduction be made under this subsection from any widow's or widower's insurance benefit if the widow, surviving divorced wife, widower, or surviving divorced husband involved became entitled to such benefit prior to attaining age 60.'; and

(2) in subsection (f)(1), by striking clause (D) and inserting the following: `(D) for which such individual is entitled to widow's or widower's insurance benefits if such individual became so entitled prior to attaining age 60,'.

(b) CONFORMING AMENDMENT TO PROVISIONS FOR DETERMINING AMOUNT OF INCREASE ON ACCOUNT OF DELAYED RETIREMENT- Section 202(w)(2)(B)(ii) of the Social Security Act (42 U.S.C. 402(w)(2)(B)(ii)) is amended--

(1) by striking `either'; and

(2) by striking `or suffered deductions under section 203(b) or 203(c) in amounts equal to the amount of such benefit'.

(c) PROVISIONS RELATING TO EARNINGS TAKEN INTO ACCOUNT IN DETERMINING SUBSTANTIAL GAINFUL ACTIVITY OF BLIND INDIVIDUALS- The second sentence of section 223(d)(4) of such Act (42 U.S.C. 423(d)(4)) is amended by striking `if section 102 of the Senior Citizens' Right to Work Act of 1996 had not been enacted' and inserting the following: `if the amendments to section 203 made by section 102 of the Senior Citizens' Right to Work Act of 1996 and by subtitle B of title I of the Lifetime Tax Relief Act of 1999 had not been enacted'.

SEC. 114. EFFECTIVE DATE.

The amendments and repeals made by this subtitle shall apply with respect to taxable years ending after December 31, 1999.

TITLE II--BUSINESS RELIEF

SEC. 201. PHASEOUT OF ESTATE AND GIFT TAXES.

(a) REPEAL OF ESTATE AND GIFT TAXES- Subtitle B (relating to estate and gift taxes) is repealed effective with respect to estates of decedents dying, and gifts made, after December 31, 2009.

(b) PHASEOUT OF TAX- Subsection (c) of section 2001 (relating to imposition and rate of tax) is amended by adding at the end the following new paragraph:

`(3) PHASEOUT OF TAX- In the case of estates of decedents dying, and gifts made, during any calendar year after 1999 and before 2010--

`(A) IN GENERAL- The tentative tax under this subsection shall be determined by using a table prescribed by the Secretary (in lieu of using the table contained in paragraph (1)) which is the same as such table; except that--

`(i) each of the rates of tax shall be reduced (but not below zero) by the number of percentage points determined under subparagraph (B), and

`(ii) the amounts setting forth the tax shall be adjusted to the extent necessary to reflect the adjustments under clause (i).

`(B) PERCENTAGE POINTS OF REDUCTION-

5

10

15

20

25

30

35

40

45

50.

`(C) COORDINATION WITH PARAGRAPH (2)- Paragraph (2) shall be applied by reducing the 55 percent percentage contained therein by the number of percentage points determined for such calendar year under subparagraph (B).

`(D) COORDINATION WITH CREDIT FOR STATE DEATH TAXES- Rules similar to the rules of subparagraph (A) shall apply to the table contained in section 2011(b) except that the number of percentage points referred to in subparagraph (A)(i) shall be determined under the following table:

1 1/2

3

4 1/2

6

7 1/2

9

10 1/2

12

13 1/2

15.'

(c) EFFECTIVE DATE- The amendments made by this section shall apply to estates of decedents dying, and gifts made, after December 31, 1999.

SEC. 202. MODIFICATION AND PERMANENT EXTENSION OF RESEARCH CREDIT.

(a) CREDIT MADE PERMANENT-

(1) IN GENERAL- Section 41 (relating to credit for increasing research activities) is amended by striking subsection (h).

(2) CONFORMING AMENDMENT- Paragraph (1) of section 45C(b) is amended by striking subparagraph (D).

(b) INCREASE IN ALTERNATIVE INCREMENTAL CREDIT RATES- Subparagraph (A) of section 41(c)(4) is amended--

(1) by striking `1.65 percent' in clause (i) and inserting `2.65 percent',

(2) by striking `2.2 percent' in clause (ii) and inserting `3.2 percent', and

(3) by striking `2.75 percent' in clause (iii) and inserting `3.75 percent'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to amounts paid or incurred after June 30, 1999.

SEC. 203. WORK OPPORTUNITY CREDIT MADE PERMANENT.

(a) IN GENERAL- Subsection (c) of section 51 is amended by striking paragraph (4).

(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to individuals who begin work for the employer after June 30, 1999.

SEC. 204. PERMANENT SUBPART F EXEMPTION FOR ACTIVE FINANCING INCOME.

(a) BANKING, FINANCING, OR SIMILAR BUSINESSES- Subsection (h) of section 954 (relating to special rule for income derived in the active conduct of banking, financing, or similar businesses) is amended by striking paragraph (9).

(b) INSURANCE BUSINESSES- Subsection (a) of section 953 (defining insurance income) is amended by striking paragraph (10) and by redesignating paragraph (11) as paragraph (10).

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years of a foreign corporation beginning after December 31, 1998, and to taxable years of United States shareholders with or within which such taxable years of such foreign corporation end.

SEC. 205. DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS INCREASED TO 100 PERCENT.

(a) IN GENERAL- Paragraph (1) of section 162(l) (relating to special rules for health insurance costs of self-employed individuals) is amended to read as follows:

`(1) ALLOWANCE OF DEDUCTION- In the case of an individual who is an employee within the meaning of section 401(c)(1), there shall be allowed as a deduction under this section an amount equal to the amount paid during the taxable year for insurance which constitutes medical care for the taxpayer, the taxpayer's spouse, and dependents.'

(b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 1999.

SEC. 206. INCREASED EXCLUSION AND OTHER MODIFICATIONS APPLICABLE TO QUALIFIED SMALL BUSINESS STOCK.

(a) INCREASED EXCLUSION-

(1) IN GENERAL- Subsection (a) of section 1202 (50-percent exclusion for gain from certain small business stock) is amended--

(A) by striking `50 percent' and inserting `100 percent', and

(B) by striking `50-PERCENT' in the heading and inserting `100-PERCENT'.

(2) CONFORMING AMENDMENTS-

(A) Subparagraph (A) of section 1(h)(5) is amended to read as follows:

`(A) collectibles gain, over'.

(B) Section 1(h) is amended by striking paragraph (8).

(C) Paragraph (9) of section 1(h) is amended by striking `, gain described in paragraph (7)(A)(i), and section 1202 gain' and inserting `and gain described in paragraph (7)(A)(i)'.

(D) The heading for section 1202 is amended by striking `50-percent' and inserting `100-percent'.

(E) The table of sections for part I of subchapter P of chapter 1 is amended by striking `50-percent' in the item relating to section 1202 and inserting `100-percent'.

(b) REDUCTION IN HOLDING PERIOD-

(1) IN GENERAL- Subsection (a) of section 1202 is amended by striking `5 years' and inserting `3 years'.

(2) CONFORMING AMENDMENT- Subsections (g)(2)(A) and (j)(1)(A) of section 1202 are each amended by striking `5 years' and inserting `3 years'.

(c) EXCLUSION AVAILABLE TO CORPORATIONS-

(1) IN GENERAL- Subsection (a) of section 1202 is amended by striking `other than a corporation'.

(2) TECHNICAL AMENDMENT- Subsection (c) of section 1202 is amended by adding at the end the following new paragraph:

`(4) STOCK HELD AMONG MEMBERS OF CONTROLLED GROUP NOT ELIGIBLE- Stock of a member of a parent-subsidiary controlled group (as defined in subsection (d)(3)) shall not be treated as qualified small business stock while held by another member of such group.'

(d) REPEAL OF MINIMUM TAX PREFERENCE-

(1) IN GENERAL- Subsection (a) of section 57 (relating to items of tax preference) is amended by striking paragraph (7).

(2) TECHNICAL AMENDMENT- Subclause (II) of section 53(d)(1)(B)(ii) is amended by striking `, (5), and (7)' and inserting `and (5)'.

(e) STOCK OF LARGER BUSINESSES ELIGIBLE FOR EXCLUSION-

(1) IN GENERAL- Paragraph (1) of section 1202(d) (defining qualified small business) is amended by striking `$50,000,000' each place it appears and inserting `$300,000,000'.

(2) INFLATION ADJUSTMENT- Section 1202(d) is amended by adding at the end the following:

`(4) INFLATION ADJUSTMENT OF ASSET LIMITATION- In the case of stock issued in any calendar year after 2000, the $300,000,000 amount contained in paragraph (1) shall be increased by an amount equal to--

`(A) such dollar amount, multiplied by

`(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 1999' for `calendar year 1992' in subparagraph (B) thereof.

If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.'

(f) REPEAL OF PER-ISSUER LIMITATION- Section 1202 is amended by striking subsection (b).

(g) OTHER MODIFICATIONS-

(1) REPEAL OF WORKING CAPITAL LIMITATION- Section 1202(e)(6) (relating to working capital) is amended--

(A) in subparagraph (B), by striking `2 years' and inserting `5 years'; and

(B) by striking the last sentence.

(2) EXCEPTION FROM REDEMPTION RULES WHERE BUSINESS PURPOSE- Section 1202(c)(3) (relating to certain purchases by corporation of its own stock) is amended by adding at the end the following:

`(D) WAIVER WHERE BUSINESS PURPOSE- A purchase of stock by the issuing corporation shall be disregarded for purposes of subparagraph (B) if the issuing corporation establishes that there was a business purpose for such purchase and one of the principal purposes of the purchase was not to avoid the limitations of this section.'

(h) QUALIFIED TRADE OR BUSINESS- Section 1202(e)(3) (defining qualified trade or business) is amended by inserting `and' at the end of subparagraph (C), by striking `, and' at the end of subparagraph (D) and inserting a period, and by striking subparagraph (E).

(i) EFFECTIVE DATES-

(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section apply to stock issued after the date of enactment of this Act.

(2) SPECIAL RULE- The amendments made by subsections (a), (c), (e), (f), and (g)(1) apply to stock issued after August 10, 1993.

SEC. 207. INCREASED EXCLUSION FOR INCENTIVE STOCK OPTIONS; EXCEPTION FROM ALTERNATIVE MINIMUM TAX.

(a) INCREASED EXCLUSION- Subsection (d) of section 422 (relating to $100,000 per year limitation) is amended by striking `$100,000' each place it appears and inserting `$200,000'.

(b) EXCEPTION FROM ALTERNATIVE MINIMUM TAX- Subsection (b) of section 56 is amended by striking paragraph (3).

(c) EFFECTIVE DATE- The amendments made by this section shall apply to options exercised in calendar years beginning after the date of the enactment of this Act.

TITLE III--SAVINGS AND INVESTMENT

SEC. 301. EXCLUSION FROM GROSS INCOME OF CERTAIN AMOUNTS OF THE NET CAPITAL GAIN OF INDIVIDUALS.

(a) IN GENERAL- Part I of subchapter P of chapter 1 (relating to treatment of capital gains) is amended by adding at the end the following new section:

`SEC. 1203. EXCLUSION OF CERTAIN AMOUNTS OF NET CAPITAL GAIN OF INDIVIDUALS.

`(a) GENERAL RULE- In the case of an individual, gross income shall not include an amount equal to the net capital gain of the taxpayer for the taxable year.

`(b) LIMITATION- The amount excluded from gross income under subsection (a) shall not exceed $1,000 ($2,000 in the case of a joint return).'

(b) CONFORMING AMENDMENTS-

(1) Section 1222 is amended by adding at the end the following new sentence:

`Determinations under this section shall be made before the application of section 1203.'

(2) The table of sections for part I of subchapter P of chapter 1 is amended by adding at the end the following new item:

`Sec. 1203. Exclusion of certain amounts of net capital gain of individuals.'

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1999.

SEC. 302. INCREASE IN MAXIMUM AMOUNT OF DEDUCTION FOR IRAS.

(a) INCREASE IN MAXIMUM AMOUNT OF DEDUCTION- Subparagraph (A) of section 219(b)(1) (relating to maximum amount of deduction) is amended by striking `$2,000' and inserting `$3,000'.

(b) CONFORMING AMENDMENTS-

(1) Subsections (a)(1) and (b) of section 408 are each amended by striking `$2,000' each place it appears and inserting `the dollar limitation in effect under section 219(b)(1)(A)'.

(2) Subsection (j) of section 408 is amended by striking `the $2,000 amounts contained' and inserting `the dollar limitations referred to'.

(3) Paragraph (8) of section 408(p) is amended by striking `$2,000' and inserting `the dollar limitation in effect under section 219(b)(1)(A)'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1999.

SEC. 303. HIGHER ELECTIVE DEFERRAL LIMIT IF EMPLOYEE'S SPOUSE IS NOT A PARTICIPANT IN ELECTIVE DEFERRALS PLAN.

(a) IN GENERAL- Paragraph (1) of section 402(g) (relating to limitation on elective deferrals) is amended to read as follows:

`(1) DOLLAR LIMITATION-

`(A) IN GENERAL- Notwithstanding subsections (e)(3) and (h)(1)(B), the elective deferrals of any individual for any taxable year shall be included in such individual's gross income to the extent the amount of such deferrals for the taxable year exceeds $7,000.

`(B) HIGHER LIMITATION IF SPOUSE OF EMPLOYEE NOT ELIGIBLE TO PARTICIPATE IN ELECTIVE DEFERRAL PLAN- In the case of a married individual whose spouse is not eligible at any time during the taxable year to participate in any plan or contract which permits elective deferrals--

`(I) the dollar amount applicable to such individual under subparagraph (A) shall be twice the dollar amount which would otherwise be applicable for the taxable year, and

`(II) elective deferrals permitted by this subparagraph shall not be taken into account under section 415, 401(a)(4), or 401(k)(4)(A)(ii).'

(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1999.

TITLE IV--EDUCATION

SEC. 401. AMENDMENTS TO ENCOURAGE ADDITIONAL SCHOOL CONSTRUCTION.

(a) IN GENERAL- Clause (i) of section 149(d)(3)(A) is amended--

(1) by striking `or' at the end of subclause (I),

(2) by adding `or' at the end of subclause (II), and

(3) by inserting after subclause (II) the following:

`(III) the 2d advance refunding of the original bond if the original bond was issued after 1985 or the 3d advance refunding of the original bond if the original bond was issued before 1986 if, in either case, the original bond was issued to finance the construction, reconstruction, or rehabilitation of public elementary and secondary schools, provided that the issuer in good faith estimates the present value savings, if any, associated with such advance refunding and applies those savings to the construction, reconstruction, or rehabilitation of public elementary and secondary schools,'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to refunding obligations issued after December 31, 1999.

SEC. 402. MODIFICATION OF ARBITRAGE REBATE RULES APPLICABLE TO PUBLIC SCHOOL CONSTRUCTION BONDS.

(a) IN GENERAL- Subparagraph (C) of section 148(f)(4) is amended by adding at the end the following new clause:

`(xviii) 4-YEAR SPENDING REQUIREMENT FOR PUBLIC SCHOOL CONSTRUCTION ISSUE-

`(I) IN GENERAL- In the case of a public school construction issue, the spending requirements of clause (ii) shall be treated as met if at least 10 percent of the available construction proceeds of the construction issue are spent for the governmental purposes of the issue within the 1-year period beginning on the date the bonds are issued, 30 percent of such proceeds are spent for such purposes within the 2-year period beginning on such date, 50 percent of such proceeds are spent for such purposes within the 3-year period beginning on such date, and 100 percent of such proceeds are spent for such purposes within the 4-year period beginning on such date.

`(II) PUBLIC SCHOOL CONSTRUCTION ISSUE- For purposes of this clause, the term `public school construction issue' means any construction issue if no bond which is part of such issue is a private activity bond and all of the available construction proceeds of such issue are to be used for the construction (as defined in clause (iv)) of public school facilities to provide education or training below the postsecondary level or for the acquisition of land that is functionally related and subordinate to such facilities.

`(III) OTHER RULES TO APPLY- Rules similar to the rules of the preceding provisions of this subparagraph which apply to clause (ii) also apply to this clause.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to obligations issued after December 31, 1999.

SEC. 403. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR GOVERNMENTAL BONDS USED TO FINANCE PUBLIC SCHOOL FACILITIES.

(a) IN GENERAL- Section 148(f)(4)(D)(vii) (relating to increase in exception for bonds financing public school capital expenditures) is amended by striking `$5,000,000' the second place it appears and inserting `$15,000,000'.

(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to obligations issued after December 31, 1999.

SEC. 404. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS; COVERAGE OF PRIVATE PROGRAMS.

(a) EXCLUSION-

(1) IN GENERAL- Subparagraph (B) of section 529(c)(3) (relating to distributions) is amended to read as follows:

`(B) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION EXPENSES- If a distributee elects the application of this subparagraph for any taxable year--

`(i) no amount shall be includible in gross income by reason of a distribution which consists of providing a benefit to the distributee which, if paid for by the distributee, would constitute payment of a qualified higher education expense, and

`(ii) the amount which (but for the election) would be includible in gross income by reason of any other distribution shall not be so includible in an amount which bears the same ratio to the amount which would be so includible as the amount of the qualified higher education expenses of the distributee bears to the amount of the distribution.'

(2) ADDITIONAL TAX ON AMOUNTS NOT USED FOR HIGHER EDUCATION EXPENSES- Section 529 is amended by adding at the end the following new subsection:

`(f) ADDITIONAL TAX FOR DISTRIBUTIONS NOT USED FOR EDUCATIONAL EXPENSES-

`(1) IN GENERAL- The tax imposed by section 530(d)(4) shall apply to payments and distributions from qualified tuition programs in the same manner as such tax applies to education individual retirement accounts.

`(2) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE OF RETURN- Paragraph (1) shall not apply to the distribution to a contributor of any contribution paid during a taxable year to a qualified tuition program to the extent that such contribution exceeds the limitation in section 4973(e) if such distribution (and the net income with respect to such excess contribution) meets requirements comparable to the requirements of clauses (i) and (ii) of section 530(d)(4)(C).'

(3) COORDINATION WITH EDUCATION CREDITS- Section 25A(e)(2) is amended by inserting `529(c)(3)(B) or' before `530(d)(2)'.

(4) EFFECTIVE DATE- The amendments made by this subsection shall apply to distributions after December 31, 1999, for education furnished in academic periods beginning after such date.

(b) ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS-

(1) IN GENERAL- Paragraph (1) of section 529(b) (defining qualified State tuition program) is amended by inserting `or by one or more eligible educational institutions' after `maintained by a State or agency or instrumentality thereof'.

(2) CONFORMING AMENDMENTS-

(A) Paragraph (2) of section 26(b) is amended by redesignating subparagraphs (E) through (Q) as subparagraphs (F) through (R), respectively, and by inserting after subparagraph (D) the following new subparagraph:

`(E) section 529(f) (relating to additional tax on certain distributions from qualified tuition programs),'.

(B) The text and headings of sections 529 and 530 are amended by striking `qualified State tuition program' each place it appears and inserting `qualified tuition program'.

(C)(i) The section heading of section 529 is amended to read as follows:

`SEC. 529. QUALIFIED TUITION PROGRAMS.'

(ii) The item relating to section 529 in the table of sections for part VIII of subchapter F of chapter 1 is amended by striking `State'.

(3) EFFECTIVE DATE- The amendments made by this subsection shall apply to taxable years beginning after December 31, 1999.

(c) CHANGE OF QUALIFIED TUITION PROGRAM OR OF DESIGNATED BENEFICIARY-

(1) IN GENERAL- Clause (i) of section 529(c)(3)(C) is amended by inserting `to another qualified tuition program for the benefit of the designated beneficiary or' after `transferred'.

(2) INCLUSION OF SIBLINGS AS MEMBER OF FAMILY- Paragraph (2) of section 529(e) is amended by striking `subparagraph (B).' and inserting `subparagraph (B),

except that such term shall include any sibling (whether by the whole or half blood) of the designated beneficiary.'.

(3) EFFECTIVE DATE- The amendments made by this subsection shall apply to taxable years beginning after December 31, 1999.

END