To amend the Internal Revenue Code of 1986 to provide a 10 percent maximum capital gains tax for individuals.

January 8, 2003

Mr. PENCE (for himself, Mr. TOOMEY, Mrs. MYRICK, Mrs. JO ANN DAVIS of Virginia, Mr. GOODE, Mr. PITTS, Mr. KING of Iowa, Mr. CHOCOLA, Mr. RYUN of Kansas, Mr. TANCREDO, Mr. AKIN, Mr. WILSON of South Carolina, Mr. PEARCE, Mr. HOSTETTLER, Mr. HOEKSTRA, Mr. FEENEY, Mr. SOUDER, Mr. FLAKE, Mr. BURTON of Indiana, Mr. TERRY, Mr. TIAHRT, Mr. SHADEGG, Mr. SESSIONS, Mr. OTTER, Mr. ADERHOLT, Mr. WELDON of Florida, Mr. RYAN of Wisconsin, Mr. BARRETT of South Carolina, Mr. DEMINT, Mr. CULBERSON, Mr. DOOLITTLE, Mr. GARRETT of New Jersey, and Mr. SULLIVAN) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to provide a 10 percent maximum capital gains tax for individuals.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `American Dream Tax Relief Act of 2003'.

SEC. 2. 10 PERCENT MAXIMUM CAPITAL GAINS RATE FOR INDIVIDUALS.

(a) IN GENERAL- 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, the tax imposed by this section for such taxable year 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 taxable income reduced by the net capital gain, and

`(B) 10 percent of the net capital gain.

`(2) NET CAPITAL GAIN TAKEN INTO ACCOUNT AS INVESTMENT INCOME- For purposes of this subsection, the net capital gain for any taxable year shall be reduced (but not below zero) by the amount which the taxpayer elects to take into account as investment income under section 163(d)(4)(B)(iii).'

(b) MINIMUM TAX-

(1) IN GENERAL- Paragraph (3) of section 55(b) of such Code is amended to read as follows:

`(3) MAXIMUM RATE OF TAX ON NET CAPITAL GAIN OF NONCORPORATE TAXPAYERS- The amount determined under the first sentence of paragraph (1)(A)(i) shall not exceed the sum of--

`(A) the amount determined under such first sentence computed at the rates and in the same manner as if this paragraph had not been enacted on the taxable excess reduced by the net capital gain, plus

`(B) 10 percent of the lesser of the net capital gain or the taxable excess.'

(2) EXCLUSION OF SECTION 1202 GAIN NOT TREATED AS AN ITEM OF TAX PREFERENCE- Subsection (a) of section 57 of such Code is amended by striking paragraph (7).

(c) CONFORMING AMENDMENTS-

(1) Subclause (II) of section 53(d)(1)(B)(ii) of such Code is amended by striking `, (5), and (7)' and inserting `and (5)'.

(2) Paragraph (1) of section 1445(e) of such Code is amended by striking `20 percent' and inserting `10 percent'.

(3) The second sentence of section 7518(g)(6)(A) of such Code is amended by striking `20 percent' and inserting `10 percent'.

(4) The second sentence of section 607(h)(6)(A) of the Merchant Marine Act, 1936 is amended by striking `20 percent' and inserting `10 percent'.

(d) TRANSITIONAL RULES-

(1) IN GENERAL- For purposes of applying subsection (h) of section 1 of such Code in the case of a taxable year which includes the date of the enactment of this Act, the amount of tax determined under such subsection shall be the sum of--

(A) the amount determined under such subsection (as in effect on the day before the date of the enactment of this Act) taking into account only gain or loss properly taken into account for the portion of the taxable year before the date of the enactment of this Act, and

(B) the amount determined under such subsection (as amended by this Act) taking into account only gain or loss properly taken into account for the portion of the taxable year on or after such date.

(2) ALTERNATIVE MINIMUM TAX- For purposes of applying section 55(b)(3) of such Code in the case of such a taxable year, rules similar to the rules of paragraph (1) shall apply.

(3) PASS-THRU ENTITIES- In applying this subsection with respect to any pass-thru entity, the determination of when gains and losses are properly taken into account shall be made at the entity level.

(e) EFFECTIVE DATES-

(1) IN GENERAL- Except as provided in this subsection, the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

(2) SMALL BUSINESS STOCK- The amendment made by subsection (b)(2) shall apply to dispositions on or after the date of the enactment of this Act.

(3) WITHHOLDING- The amendment made by subsection (c)(2) shall apply to amounts paid after the date of the enactment of this Act.

END