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(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FOR COMPUTATION OF SPECIAL EXEMPT AMOUNT- Section 203(f)(8)(D) of the Social Security Act (42 U.S.C. 403(f)(8)(D)) is repealed.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(a) REPEAL OF ESTATE AND GIFT TAXES- Subtitle B (relating to estate and gift taxes) is repealed effective with respect to estates of decedents dying, and gifts made, after December 31, 2009.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.

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